Monthly Archives: July 2011

A glimmer of hope

Note: I’m not suggesting anyone do the following. It ‘kinda’ worked out but a test group of ‘1 trade’ is not statistically significant in any way 😉 so I need to find some more opportunities to do this.

This last week, following my sojourn in a field in the Welsh hills, I’ve been trying to appreciate the small things in life more than usual and to just bloody well relax.

We all run around like freaking lunatics half the time worrying about all sorts of things that are frankly a complete waste of energy. I’m not going to make any attempt to link anything metaphysical to trading 😉 but it’s been great to take some of the mental pressure off myself and just re-examine what I’ve been doing. Looking at a couple of things with fresh eyes and a more chilled perspective…

Now, I’ve not had any significant ‘lightbulb’ moments but I have come to a new respect for RSI divergence. No, it’s not happening all day/every day for everything however when it happens (and you spot it) then it’s worth paying attention to…

On this basis I was looking at a bunch of stocks (yes, you read that correctly) because IG Index Advanced Charts has a module in it called ‘Pro Real Trend Detection’ that will filter instruments against mechanically generated support, resistance and other pattern criteria. This is still supposed to be a business and manually wading through hundreds of charts isn’t a good use of anyone’s time.

I’d seen a number of interesting results from RSI divergence. In truth I’ve probably read at least three books that highlight this as useful or at least something of significance and I’ve probably ignored them all 😉

However, with my slightly more relaxed mind I’ve been spotting these more and more often… So girding my loins, grabbing my 1 hour chart and a suitable candidate I plucked up the courage to go long on Wolseley (WOS) somewhere mid-Tuesday afternoon. There’s a 4pt spread off 1800 points so not bad at all plus the down-trend seemed to have halted forming a pretty solid ‘base’ under which to plant my stop.

If anyone’s under the impression I know what I’m doing go to my results page then keep reading. Just thought I better point this out before I continue… clear? Good.

Now in the trade but relaxed about the whole thing. Committed. Number of other factors in my favour…

  1. Price has got down to 6+month low from previous resistance in Nov 2010 – should provide some support now
  2. Price fall has not dropped below 1812 all day on the hourly chart
So on this basis I’m in long at 1834 and the following morning WOS gaps up >10 points and end the day with me +46 which is sweet. Now I, more than most, appreciate examples after the fact are completely sod all use to anyone so the rest of this post will not bang on about RSI divergence and how it’s the answer to my trading woes so far 😉

There are probably a stack of other technical and possibly non-technical reasons why this entry worked that I’ve not looked at yet. Maybe the 200 EMA got hit, maybe there was some news release or some other reason I don’t know about.

What I will say though is I’ll be looking for more opportunities like this to check which criteria (levels/price action/others) result in creating similar successes. Watson! The games afoot!

The bit I got wrong (again) was my stop management.

Having seen a +40point gain at the end of the day I moved my stop to something like +18 above my entry. Retrospectively this was due to lack of emotional management and wanting to bank something. I didn’t consider the context of what I was doing.

All prices retrace and I’m going long at the bottom of a six month low. So I’d assume that there are people desperate to get out of their positions but looking to claw back at least something before getting out. Had I personally not been greedy or anxious I could have put my stop just a point above my entry, been in ‘profit’ (psychologically), survived the retracement drop and been >60 points up the following day rather than getting stopped out about +18 as well as still being in the trade with a good ‘buffer’.

Hindsight is awesome. However the main point being is that even with my new found appreciation for green hills, rolling countryside and inner calm I still managed to get too ‘graspy’

Slight detour back to the RSI divergence point on Gold in the last few days…

Ok, so you could also make the point that 1580 is the new support but this is also backed up by RSI divergence too… Hence, a glimmer of hope 😉

Thinking of trading? Read this first…

Here’s something that’s been on my mind for a while.

Partly this relates to me but also relates to a lot of people I know who’ve either traded, are trading or have stopped for whatever reason… Maybe I’ll fall into one of these categories in the future. Who knows? We shall see… anyway, now I’m just procrastinating on getting this out there… here goes…

I don’t think most people get into trading because they like trading.

My belief is that the majority of people open a trading account because they are focussed on the end goal (which is sold as a Midas-like ability to pluck unlimited cash from thin air) rather than any stage in between.

For whatever reason they have an issue (usually around lack of money, what a surprise) that they think trading can fix. Trading is seen and sold as a short-cut to an amazing lifestyle of ‘working’ 30 minutes per day, sitting on a beach and not having to answer to a boss. Here’s some bullet points cut from some spam I received this morning: –

  • Set your hours to suit you. To succeed as a trader requires as little as an hour a day.
  • It’s easy to start. All you need is a computer, trading account, charting software – and the right training, of course!
  • You can trade from anywhere. As long as you can plug into the Internet, you can trade.
  • No tax on earnings. Spreadbetting in the UK is not taxed, so you keep everything you make.

Yep, you’ll notice it promises you’ll be able to trade. Great. No promises about being able to make money though – haha 😉

Statistical probability shows that if you have enough people doing the same thing then x% of them will be completely awesome at it. They may be naturally talented. However, at this initial stage it will actually be a small number of people winning if you’re getting them all to perform a complex task.

Now, if you enter this arena when focussed on the end goal but don’t immediately (or quickly) begin moving towards this goal then you will get frustrated, upset and angry. Then you will quit. That was the end of your trading journey. How much you lost in the process depends on your emotional make-up… This is what most people do I guess.

Of the 40+ people I met who all started their trading journey in about Oct 2010 I know of 2 who are still trading… Everyone else has stopped or isn’t replying to email… probably also indicating that they stopped 😉

The reason I’m writing this post is to remind myself to forget about the end goal when trading and to focus on enjoy the process of trading and getting this bit right.

I’ll readily admit that I too was sold the ‘shiny thing, make it all better’ idea of trading which was enough to get me hooked on the whole idea.

However, I’ve noticed that when I’m enjoying the process of analysis I am able to approach trading decisions calmly without lizard brain dreaming up shite about fast cars and a life of luxury. Focussing on the process also means you don’t succumb to fear/dread/indecision around placing a particular trade which means you’re less likely to miss seeing/noticing something important.

What just gets in the way of making good trades is too much thinking/dreaming about the results you’re trying to achieve. The job is to trade well. If you can trade well then the money will sort itself out.

Ask yourself whether you can be flexible, disciplined and open enough to learn to trade. You’re learning a multi-disciplined skill so that’s the thing to focus on. If you are worried about your ability to achieve the end goal of endless luxury, fast cars (as sold) then that’s very self defeating and de-motivating.

Your lizard brain will be doing it’s level best to ensure you screw it up to ‘keep you out of danger‘ Lizard brain absolutely hates taking risks.

Your reward for going to the gym = fitness. Your reward for turning up at work = salary and career progression. Your reward for making a good trade = money (potentially – you can make a good trade and still lose)

The main point though is you have to love the activity to benefit from it. Dreaming about the results is ok now and again but forget about them when you’re doing the work to get yourself there. At this point dreams become a distraction and source of frustration.

Do the work.

The bigger perspective to learning a new thing

Lovely new theme eh? I’m very impressed by WordPress.com 😉

Anyway – apart from that I’ve spent this weekend in a field in the Welsh borders meeting a bunch of new people and not thinking about trading at all.

Welsh borders - lovely

Well, that’s not strictly true. I’ve been thinking about why I started this enterprise, why I started blogging about it and where I’ve got to so far. Here are some thoughts, keeping in mind my lack of financial success to date…

I began looking at trading primarily to generate another income stream on top of my job as a project manager. Over the years as an employee I’ve become somewhat disillusioned with the quality of management/people I report to.

While there have been some notable exceptions there seems to be a lack of decision making skill/competence which frankly makes me nervous. Hence a quest for a level of independence outside of the arbitrary and flawed decision making of others.

On this basis I was swept along on a wave of boundless optimism/enthusiasm as I believe a lot of new traders are. Some spend ridiculous amounts of cash on courses that promise to make you a ‘SuperTrader’ in a very short space of time. Harry makes this exact point on his excellent site Spread Betting Beginner which is very much worth a read as to the real deal and what to expect. Lots of excellent resources there that I need to go back and have a look at.

It’s amazing, even if you have no actual experience of learning a new subject, that you still have to spend time ‘unlearning’ wrong or faulty ideas. I believe I’ve at least reached this stage having un-learnt the following: –

  • Trading on 5 minute charts, doesn’t work for me
  • Looking for the ‘ultimate’ indicator (Holy Grail)
  • Feeling ‘compelled’ to trade just cause ‘things are happening’ and not wanting to miss out. This has cost me a lot over the last few months
  • Thinking you have to trade all the time (see above)
  • Thinking ‘at market’ orders are the only ones to use
  • Making 10+ trades per day (translation = too excited)
  • Not being patient or thinking about having an edge
  • Trading assumptions rather than what’s actually happening
  • Confusing luck with skill
  • Ignoring the need for a repeatable strategy
  • Trading emotionally
  • Thinking trading is only getting in and out of the market fast
It sucks to admit I’m mostly on the ‘losing’ end of trading. I’m one of the people giving my money to the winners on the other end of the scale. Yes, I’m that nice 😉 so on this basis I ‘parked’ my trading last week and did nothing.

I began this blog purely as a means of recording what I was doing and to garner some feedback as to my progress (or lack of) and because I have been a member of a forum which has essentially died due to lack of actual trading. Of about 60+ members who paid about £2K each to go on a trading course (yes, that’s £120K) I reckon <10% are still trading.

So as you can see I needed fresh ideas, feedback and support from somewhere – thanks for everyone’s comments, feedback and ideas. I’ve also found I enjoy the whole writing process too! Bonus!

Blogging will continue.

My sitting in the Welsh hills also meant I had an opportunity to get some distance from the whole thing. This helped me to come to some important conclusions: –

  1. I have not been treating this endeavour with the seriousness it deserves.
  2. I am still committed to becoming a profitable trader
  3. If I have an ‘off’ day I need to keep looking at the charts the next day rather than avoiding the situation and missing compelling opportunities
  4. Rome was not built in a day. The only failure is giving up…
  5. Learning to appreciate what’s going on takes time, effort and practice so it’s clear I’ve not yet practised enough yet 😉

I also realised I was still trying to ‘force’ the situation with my trading. I’ll try to to explain what I mean. If you make a decision to get fit then you do not immediately go off and run a marathon or try to bench 100Kg. This is foolish but I think what a lot of beginners expect to be able to do.

When I decided to get fit about five years ago I couldn’t run for 5 minutes. Not only was I carrying too much weight but I’d not done any cardio since I was 18… Not surprisingly I had to learn everything and put the time in running and at the gym. Now I’m probably at 80% of where I want to be. Most of the real progress has come in the last 2 years.

It’s a good thing to have a goal with fitness or trading. However, believing you can go from zero trading experience to gladiator status in a few months is highly dangerous.

Screw up in the gym you might pull a muscle. You also have your body which will have physical limits on how much you can lift, run, whatever.

Your only limit in learning to trade is how much money you put into your trading account. You can lose the entire stack in a week, and I know of people who have done this.

So, as with any sort of training… You will get better, as long as you don’t quit.

I’ll still be trading next week, and the week after that, and the week after that but without trying to force the outcome.

Every trip to the gym builds on the efforts of the previous week, every trade builds on the learning from the last.

Do the work, enjoy the process and course-correct as you learn.

Wishing everyone success for next week

Rob

EPIC Failure… the post-mortem

Now, I can be somewhat self recriminatory in my remarks so for this post I thought I’d cut that bit out and just stare the EPIC failure of the last week right in the face rather. Let’s just get on with it and see what can be learnt…

The background here is that I thought (mistakenly) that I’d managed to hit on a great strategy which would mean I could start actually turning this journey into something profitable rather than… well, something profitable will do 😉

I guess a certain amount of greed and self confidence took over which led to a large number of significant errors on my part. Again, it’s been a great learning process. So the responsibility for the daft behaviour is all mine and I fully acknowledge this. Now I’m just procrastinating…

28th JUN GBPUSD short, duration: 90 minutes

During this day I pretty much forgot all about the over-riding importance of significant levels and their effect on price behaviour. So with this trade (short from 15950 at about 7am) I completely got ahead of myself with my new (and in my mind) amazing strategy at pretty much the main/previous support level of a 3 month low… Oh dear… I’m trying to short into an area of significant support…

Also just noticed the RSI was in ‘oversold’ territory as well as some divergence on the hourly chart!

Retrospectively what was I doing? Well, I was deep in the grip of indicator madness where I’d gotten myself convinced that my great strategy would work without reference to any contextual information… I’d thrown out the fundamentals of my map analogy that previous events are often repeated…

So after 90 minutes it’s clear the whole trade was going completely in the wrong direction and without understanding why I got myself out of the trade for a 40+ point loss. I’ll come back to the ‘lack of understanding’ bit later… Here’s a close up of the car-wreck 🙂

Due to a complete lack of contextual awareness on my part this trade was destined to fail from day one… Now, if I had got lucky I wouldn’t have learned anything so can’t beat myself up too much.

28th June GBPJPY short, duration 90 minutes

Placed about the same time, again without reference to any ‘external’ understanding about what the previous levels had been… Now this isn’t as blatant as the previous trade but again… if I’d have actually looked Iwould have seen that only two days ago the price reached a 3 month low, was oversold on the RSI and bounced up off 12,818.

Like a mentalist I went short at 12877 in the middle of a trading range… i.e. nowhere near any sort of level… You can see this (retrospectively) on the hourly below.

Again, at 12,890 (cross of red lines) I go short without reference to context of there being a new low at 12818 and the bounce off this has been stronger (steeper up angle) than the previous decline… I’m taking short trades in the middle of a 140 point trading range and expecting to be able to guess which direction the price is headed… Smart or what?! I must be some sort of genius…

This turns into another 40+ point loss when I close it out…

Trades 3+4 when emotion takes over and rationality leaves the building… duration about 10 minutes (on a 1HOUR chart)

So at this point I’ve managed to tank my account by, let’s say 3% and essentially I’m no longer having a good day – I reverse BOTH positions going long on GBPUSD and GBPJPY… now, because I’m no longer thinking with anything other than my terribly confused and fearful ‘lizard brain’ this means as soon as normal market noise puts me at -4pts and -27pts respectively I close them both and proceed to have a really bad day. Don’t worry, nothing you can say can make me feel worse than I already do about this. At this point I still don’t understand what I’ve done wrong and have entered the pit of trading despair…

Still 28th June – ANOTHER GBPJPY short… oh dear… duration 2hrs

I’ve looked at this a number of times now and have no idea why I tried to get back into this from about 10:00 am… All I can think is I saw the price spike up then get clobbered before I entered short. Two hours later I got out for another 40+ point loss… All I can really think when looking at this is that I was now just on edge and in the wilderness emotionally – trying to get my losses back and relying on ‘luck’/chance/a friendly deity… shocking…

STILL 28th June – Lizard brain in full effect USDCAD short… duration 8 minutes!

Ok, this is starting to get embarrassing… now I’m just throwing shit at the wall and hoping it sticks… I’m not even going to comment on this one. If you want to have a real hoot take a look at this one yourself and see the subsequent 250pt decline. Resistance at 9912, support at 9850 and I’m taking trades right in the middle of it as to which way the price is going to go… what a moron…

Now, in all this I took 1 good trade. Long Gold from 1500.05 at £3 per point. It got to 1515 (ish) slowly and I moved my stop up to 1501 for it to drop back to 1487 or something where it is now.

Thursday saw me make a number of other errors, again without proper reference to the bigger picture… Shorting AUSUSD in the middle of a bullflag range following a huge gain. Shorting USDCHF at the bottom of a retracement following a huge spike.

Now, I don’t mind losing… as long as I learn something… so what did I learn?

That I need to be extremely aware of the context of what’s happening to the price. On this basis alone the last week has been very valuable indeed. What does this mean from a practical perspective…

GBPUSD Example – yes, all my ‘strategy’ indicators are gone.

So on the daily, support at 15912 – 15937 held although the overall trend since May has been down…

On the hourly we have support as well about 15994/16005 but the latest high is around 16120 with a couple of moves in this range to 16,100 and now 16,070

So the price will either drop through 16,100 ish and maybe bounce up again off 15,900 or it could carry on going lower…

Alternatively it might fall back then power off 16,100 (ish) at a higher rate to make a new high above 16.119 heading to 16,250+

Now, if I’d have avoided indicator madness I should have been patient and taken the second bounce long off 15,912 on the 28th… Price drop ends, hits previous resistance, up-trend resumes… In summary…

  • Falls and then bounces off 16,000/up trend again and then up – long
  • Carries on up through 16,119 – long
  • Drops through 16,000 and might stop at 15,912 or drop through – short
  • Gets to 16,119 again and drops – short
Now the trend up isn’t extremely strong so I’d probably hesitate to trade this to be honest. If someone put a gun to my head I’d want to see what happens at 16,100 or back down at 15,900 before going near this.

If I really had to decide then I’d want the price to drop, bounce off the green trend line again, then I’d go long.

The main point here though is that without being aware of the context of a trade and trying to rely just on indicators… well, for me it’s pretty painful.

With all the above in mind I actually feel more positive about what I’m doing than I have in a while.

This may seem like utter madness given the shocking results over the last week 😉 but really this stems from the fact that I’m learning for myself and not shirking the unpleasant task of seeing what I did wrong (almost everything – lol).

I really did learn a heck of a lot from this episode and hope you can also use these examples to avoid doing the same. Keeping a tight rein on your emotional state is a biggie.

You are not your trade. I got too focussed on the money rather than taking good, risk managed trades. This essentially led to my downfall and I made some dumb errors. Even with this in mind none of these trades were left open by me long enough to develop. Thinking this idea through in advance also helps.

If it was easy, everyone would be doing it… 🙂

K.B.O.