Tag Archives: lessons

Blog update for November

Well that’s just super… WordPress ate my blog so this is a re-type… hence it’s going to seem curt, short and to the point. I can’t remember the jokes from the first version either but take it from me they were hilarious 😉

It’s been two months since my last post and I’ve pretty much taken my brain out of the whole ‘trading’ subject. Ok, that’s a lie. What I’ve been doing is attempting to re-frame how I think about the sharp end of this topic which is placing and managing trades. This has resulted in me realising a few things about the contents of my own brain which I’ll go into.

Developing non-attachment

Really what this comes down to is that I’m too attached to the outcome associated with an action.

This is supremely ironic because in my day job (project manager) I’m very much at home with making decisions and proposing a course of action. Where I think this falls over in trading is that I’m way too attached to the outcome…

‘Attachment is the origin, the root of suffering; hence it is the cause of suffering.’

In my meditation practice being attached to the outcome of a situation means that you fail to see it clearly. That filter of attachment introduces fear, doubt and uncertainty which makes for sh**y trading decisions. Getting in too early and then getting out too early are big ones for me.

So I’ve spent a lot of time re-framing how I perceive myself when trading. In fact what I’m attempting to do is develop what’s called ‘witnessing consciousness’ which is the dispassionate observation of the ‘chatter’ in your own mind. This isn’t trading without emotion, this is avoiding being triggered by emotions that do arise – think of this as being able to look at yourself doing something from the outside.

This leaves room for intuition/fear/emotion etc. but it means that you’re looking to create a ‘gap’ between feeling and action which is based on trading experience and reason. It’s an attempt to short circuit your screaming monkey brain which is trying to throw pooh at the monitor 😉

Being here now…

I have consistently attempted to push my life forwards and then gotten incredibly frustrated when it’s failed to move at the speed I’d like. I’ve recently realised what a waste of energy this is and my disappearance two months ago was really the result of me throwing my toys out of the pram to go and sulk…

There is no good time to start anything new. Waiting for the perfect moment or opportunity to start doing something is preventing you from starting. The trick is simply to start because inevitably you’ll get there a lot sooner because whatever it is that you want to do will probably take you longer than you think anyway… so just start.

If I’d have waited till I knew everything about exercise and nutrition before starting to go to the gym I’d be in even worse shape now if I’d never have started. As it is – seven years later – I’m in the best shape I’ve ever been and I still don’t really know as much as I’d like about what works or doesn’t work for me. A couple of things I’ve tried recently have paid off but again, this is seven years after I began by puking up trying to run round the local park.

Probably because it’s more cerebral and not physical I’ve delayed really starting to get my head around trading till fairly recently – I have been waiting for perfection when it’s clear that may only be reachable in a few more years. The learning isn’t in the learning, it’s in the doing.

So there needs to be a lot more doing.

Forget about the future

I have literally no idea what my life will look like with respect to trading two years from now. What I do know is that thinking/planning/worrying or being concerned about it now is a complete and utter waste of time and effort.

The thing to focus on is the trade I will place tomorrow, then the one after that, then the next one.

In a number of years (as with going to the gym) I will be able to think back to this point and think ‘Aha! look how far I’ve come’. Being overly concerned with the end goal now is a total waste of time and inhibits my freedom of action/movement.

These three things are the same thing

Fear. Fear of making a mistake whether it is with regards to trading or any other topic. Having some idea that I’m able to get to a point of understanding or ‘completion’ in trading/life is essentially an illusion. As with all things you have to engage in experiences and then learn along the way as part of an iterative process. Had I had less fear/concern about the future I’d have got laid a whole lot more by now too…

In my work life I’ve pretty much had enough of these that I know what works. In going to the gym all this time I’m finally getting there where I know what works for me nutritionally. In trading this comes down to knowing way more theory than learning from real experiences.

So the way forwards is to practice non-attachment, to be unconcerned with the distant future and place one foot in front of the other. Then one day I’ll look up and find I’m at the top of the mountain.

Thanks for all the comments / encouragement over the last few weeks. There will be a number of blogs coming out in the next week with stuff I’ve stumbled over as well as some decent trades too so stay tuned and thanks for your patience.

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Trading practice – learn it to earn it

That’s possibly too grand a title but I’ll try to explain where that’s come from based on what I’ve been doing recently to improve my trading skills.

What I’ve been doing is ‘trading’ through a lot of historical EUR/USD price data using Trade-Interceptor‘s great charting package.

You can wind back the clock and do simulated trading for free and their ‘Trading Intelligence’ module records all the results and gives you a summary.

Now for a number of reasons I didn’t do any significant amount of paper trading before I opened a trading account. I was fed the line that ‘demo doesn’t count’ and I wanted to get onto the ‘making money’ bit.

This basically proves what an idiot I am. Yes, from a psychological perspective it’s not the same BUT you can still learn an awful lot about how you see the market and the technical aspects of trading before you even begin to throw money about (or away).

If you’re looking at trading you absolutely need to spend time getting familiar as to how the instrument you’re trying to trade actually moves. You’ll also learn what sort of path your equity curve might follow. Here’s mine after 32 ‘sim’ trades.

Just looking at this graph shows a number of different things.

1) I lost 4 trades in a row there. What was I doing wrong?
2) It goes up!! 😀

Trade Interceptors package also give you a bunch of useful summary data…

Key take home points from this are as follows: –

12 Wins (1159 pts) and 20 losses (418 pts) resulting in +741 pts
11 shorts and 21 longs

Delving a little deeper and using excel I found some interesting underlying challenges.

Holding period for winners was 25% more than for losers. In other words I’m holding winners for about 10 hours and losers about 8 on average.

Maybe cut losers earlier? Anyway, the results data I’ve used for this post is also really old but hopefully you get the point.

Once you’ve traded through this sort of thing look for information you can use. In this ‘run’ 16 of the 20 losing trades I had in EURUSD were longs. That’s a really large amount and goes to show I have a long bias – probably attempting to pick the bottom of a falling market 😉

Anyway – this type of analysis is mandatory in my humble opinion and also (for me) long overdue. I hope this helps illustrate a tiny, tiny, tiny amount of what’s actually required to get better at this skill. Practice!

I wrote this post about 8 weeks ago now and realise the following – having done this a dozen more times…

  1. I wasn’t structured enough in what I was looking for/trading/trying to understand about the market when I did this exercise
  2. Be very clear before you start what time-frames/other inputs you’re going to accept
  3. Your ‘success’ rate should theoretically be higher in live trading because you don’t have access to whatever the sentiment of the market was 29 days ago and so on.

Any new or would be traders out there reading this you need to do  a LOT of this type of work and if you decide not to ’cause it’s boring for you and you just want to get to the making money bit then you are a fool… and you know what they say about fools and their money.

Major Changes – Part 2 of 2

Okaaay… I’m feeling quite intimidated writing this post because somehow ‘Part 1’ generated 380+ page views and I’ve just gained my 200th follower on twitter. So no pressure there then!

Honestly I’m somewhat mystified by this (especially related to twitter) but never the less I really appreciate the interest, comments and support. Thanks 😀

You are all awesome.

—– At this point I paused to make tea and then got completely distracted by passiveaggressivenotes.com —–

and we’re back in the room…

Part 1 of this post closed with me making the point that to be truly successful you need to trade your own personality in the market.

You need to go through the process of breaking down what charts are telling you and then re-building a trading approach that you can connect with technically and emotionally.

I finally realised this in/around the same time as stumbling blindly across a Canadian trader called Chris Lori. Now I’m going to point out from the get-go that I’m not affiliated to Chris (or anyone) and what follows is my own entirely independent opinion.

I’m also going to stick my neck out a little and say that my intention is to get ridiculously good at this skill. If this wasn’t clear before from reading my blog it’s now in black and white. There’s a sector of my personality which doesn’t do half measures and it’s worth being aware of this in respect to the next part(s) below.

What I’ve not found anywhere is an explanation or framework for improving as a trader.

I know this may seem a little hard to believe but really, think about it for a moment… Who’s out there teaching the process of how to improve as a trader? How do you go about the process of learning without burning tons of cash? More importantly – How do you make sure that instead of learning at random what you’re gaining is targeted experience?

I feel compelled to make another ‘gym’ analogy here to help explain this last point…

In the last month it’s finally dawned on me that I need to slim down and change my body composition. I’ve lifted weights for years now but I’ve still got a bit of a spare tyre. Finally I’ve finally found out what to eat, the type, frequency and the amount of exercise I need to do. BUT I only discovered this after what’s essentially been years of random experimentation.

Just think about if I’d gone about trying different diets and workout routines in a structured manner? I’d have been there (where I want to be) years ago already. Guess what? It requires me to do exercises I dislike and to have way more self discipline – LOL

Now you need to follow me on this. The reason I flew all the way to Ft Lauderdale for a workshop was that Chris had put a slide up in a webinar that broke down the process of learning to trade in a extremely structured way. An outline that directly relates experience to feedback and building a discretionary trading model linked to ones own individual personality.

This is a scientific approach I can use!

I can teach myself to fish without having to radically re-shape my personality or to try to become something/someone I’m not. In addition this wasn’t based on indicators or even specific setups but more on an entirely price driven view of the market.

At this point readers who know about price action trading will assume I am talking about pin bars or specific candle patterns etc… or will think ‘yeah, I trade price action too…’

Nope, sorry. The point I’m going to really labor here is that most of the 4 day session was spent with Chris explaining the conceptual framework he’s built up about how price moves which is essentially irrelevant of the fact that you’ve got candle ‘x’ or shape ‘y’. This was all about what’s happening to price behind the fact that it’s represented by a candle which is linked to a time period. If you want to get more from this post then a good place to start is at Chris’s site where you can sign up to a whole bunch of very decent information/videos for free.

Other than that it’s worth pointing out that almost half of the 36(?) attendees had also previously been at one of his workshops. Some had paid to come back three/four times already. That’s really a great recommendation in itself

Now if you’ve a cynical disposition you’d assume that it was because they didn’t ‘get it’ in the first place. However it was clear to me they were back because, like any expert, it was worth learning even more from the depth of Chris’s forensic view of how price moves. Personally I believe Chris’s take on the market is exceptional – he is a very, very good trader.

It was also great fun talking to a bunch of relatively new (and some very experienced) traders and I can honestly say there weren’t any idiots there. Not one.

I picked up so much in Ft Lauderdale but crucially I learned to see the market in a way which actually makes sense to me. There’s so much depth and information there – when you know what to look for!

I now know how to use what I’m seeing so that I can come up with trades of my own that match my outlook. All of these things rely on a conceptual framework and not a bunch of setups from someone else which I myself may or may not be successful at trading.

So what am I currently doing with all this new-found knowledge?

  • Creating a structured learning plan based on taking apart one aspect of trading at a time and thoroughly understanding it
  • Building my own trading model just for GBPUSD

Now if you think about the detail behind just these two points you can see that we’re now very, very far from looking for short-cuts. It’s not quick, it’s not sexy and it requires hard work.

It may though be the only way to succeed and then to remain consistently profitable long term. No-one else can really tell you when to get in 😉

I hope you’ve enjoyed this post and got something out of it. If you’re feeling disappointed that I didn’t give away more specific information about Chris and his approach then I really recommend you check out his site which is really the tip of the iceberg.

Beyond that I can’t recommend enough that you actually come to a workshop. Barring the advent of the zombie apocalypse I’ll be going to the next one whenever/wherever it happens to be.

Thanks for reading.

Major changes – part 1 of 2

So approximately 18 months into what was supposed to be a two year project I’ve reached a very interesting point in my journey that I’d like to share…

If you’re looking to become profitable and consistent in this endeavour I seriously suggest you pay attention.

In part 1 I’m going to argue that as much as we’d all like to deny it the following is true. Learning other people’s specific setups and copying their trading methods does not work.

In part 2 I’m going to try to explain what this means as far as learning to trade goes and some of the things I’m doing about it. Part 2 will take me a couple of days to put together so lets kick off part 1 first.

So 18 months in and having extended my timeframe for becoming profitable on a consistent basis I have been very much on the point of giving up. Well, not quite, but the most ‘giving up-est’ I’ve been so far.

This prompted me to look around for what the profitable traders I’ve ran into have said about their own path to success and whether there were any common points. Here are some very lose observations: –

  1. The average timespan seems to be 3-6yrs to get really good
  2. If you dig a little deeper it’s mostly nearer 6yrs
  3. Those that seem to be consistent threw out the rulebook and developed their own trading methodology from scratch based on personal observations
  4. The majority of these individuals use ‘price action’ rather than charts with loads of indicators and wavy lines
  5. Some only trade one or a very few number of markets with very simple setups/rules
  6. Most of these rules are entirely dependent on experience which reinforces their discretionary approach
  7. Anyone who is very heavily promoting or selling themselves/their approach probably isn’t actually trading at all

So what does this tell me – other than I’m possibly screwed?

It’s been written over and over and over (which I’ve also completely ignored) that you can’t really trade someone else’s system/approach.

Acknowledging this truth would mean that I’m going to have to do a lot of hard work so I’ve ignored this up till now and not understood the point being made.

This statement removes the possibility of all short-cuts and frankly that’s a bit of a bugger.

However I now know this to be true from the following experience.

In October last year I signed up with Jimmy Young and went through his excellent and extensive training. There’s absolutely nothing wrong with Jimmy’s approach and he is a completely genuine, honest and straight-forward guy with 20+ years of trading experience. The amount of effort he puts into educating his students is frankly un-paralleled. He’s got some extremely talented students and I can’t find any fault at all in how he conducts himself.

He genuinely wants everyone he’s teaching to succeed

When snow storms took out his local power/internet in the US Jimmy decamped himself to a motel for 3 days so his students could still get the information he provides every day. No really – Jimmy’s sending out a 10-15 minute webinar every day going though the previous day’s trades and what would have been the best approach as well as providing a huge amount of insight to the next day.

I know his approach completely works but I just am not able to enter the market and trade like he does. My personality with regards to trading just doesn’t work like his. Sad but true.

In order to not get emotionally steamrollered every time I look at what’s happening in the market I need to do what so many (now) successful traders have done and break everything down to something I can understand. Only then will this connect my personality, my unique view of the world and my psychology with how I trade.

Not only can I not trade like Jimmy, I can’t trade like @Trader_Dante, @FTSEDay, @50pips, @FT71 or any of the other great/supportive people I’ve run into on this mad arsed pursuit. To quote Monty Python…

Yes, we are all individuals!

So exactly where does this leave me, you or anyone else out there looking to become a consistently profitable trader?

You need to pull the market apart for yourself and see how it works with your own psychology/approach/creativity in mind. Then you can put it back together for yourself and objectively test what works. I’ve now come to the conclusion that this is the long, boring, slow and un-exciting process of becoming a trader. Just like working out and eating right is the long, painful, slow process of getting into really good shape.

There are so many people selling shortcuts, there’s the considerable challenge of self delusion and on top of that the impossibility of trying to change your personality to match someone else’s trading style… On this basis I’m un-surprised that few actually get there.

At this point you might think that I really should give up.

So why am I really excited now about moving forwards?

Well, think about it for a moment. What if the thing that’s holding you back isn’t that you’re not a good trader? What if it’s got a lot to do with the fact that you don’t take good trades like person ‘x’ because (surprisingly) you don’t see what they see ’cause you’re not them? Logically this makes complete sense to me. What a relief it is to put that burden down!

Perceptually the world I see isn’t what you or anyone else sees. You can get 100 different interpretations from the same chart. What follows from this is that you need to trade your own personality in the market.

How do you get to a point where this can happen? Well, you’ll have to wait for part 2 in order to find out and you’ll discover why I went all the way to Florida to really move things forward…

There’s always an answer

I firmly believe there’s always an answer available to any problem that you might face. However the challenge lies in actually asking the right question or being able to see the problem correctly. You can spend an awful lot of time pursuing what you think is the answer to a problem only to find out the question which first arose was the wrong one. That’s slightly opaque so I’ll try to use a (short) real world example to illustrate what this post is about.

I’ve recently found huge problems going to the gym during the week.

Frankly the last thing I want to do at 7-8pm is drag my ass to the gym. I’m just too knackered and the whole experience wakes me right up so my body doesn’t calm down till midnight by which time I’m a corpse 8 hours later when I should have already been up at 7 a.m. to go to work… Ugh…

I’ve spent two months beating myself up for only going to the gym once or twice on the weekends and given what I’m trying to achieve physically that’s not enough. What happens is you go in on the weekends and destroy yourself (too much weight) and are a wreck the rest of the week… it’s no fun.

I thought this failure was related to self-discipline/laziness and so on but taking a bit of a step back from the problem recently I figured out that if I joined a gym close to work I could spend 40 minutes in there each lunchtime, save money (on Costa lunches) and be more productive in the afternoons also. Bonus!

The problem wasn’t ‘not going to the gym in the evenings’ but actually I should have been asking ‘How can I train every day?’ If you ask the right question then the answer seems easy.

With respect to trading (yes we got on topic eventually) I’ve been looking at the problem which is that since I’m working full time it’s very challenging to gain trading experience that is useful and which I can learn from.

What I mean by this is to learn a new skill you need to be able to repeat it over and over under the same/similar conditions before you can internalize it, before it becomes truly ‘yours’. However if your exposure to the market is haphazard/piecemeal and under pressure that’s nothing like how you should be trading. Also given the fact I miss opportunities to learn/set-ups intra-day the actual number of potential learning experiences I’m exposed to is actually very small…

Now I began approaching this problem by looking at radically changing my work life (not currently possible) then at the hours/markets I could trade (yes, to a certain extent) or simply mothballing the whole topic till I’ve gotten myself into a position where I can trade full time. This last sentence is hugely ironic and contradicts all my reasons for learning to trade.

It hit me that, since there are no shortcuts, what I’m looking for is chart time. The right question to ask is actually ‘How do I get more experience in front of the market?’

Happily I stumbled across this program which allows you to ‘trade’ from historical (live recorded) data at an accelerated pace. Since I’m not back testing a robot but learning to trade ‘price action’ in a discretionary way (that suits my psychology) I can now do this evenings and weekends to improve my competence in a structured way. The alternative being attempting to ‘read’ the market and place a trade having glanced at a chart in between doing actual work…

You can hopefully see how what I was doing before simply led to frustration, losses and a very haphazard learning experience!

Back way off topic again but to wrap up properly… If there’s an issue you see in your life then you need to check yourself.

  1. Are you trying to solve the right problem?
  2. Are you asking the right question about what you’re trying to fix?
  3. Are you simply scared of making the change you know you need to?

So my friends, onwards and upwards!

Emotional roller-coaster survival

This blog post isn’t really related to the trades I was in this week (although I’m going to put the chart up) but more to do with dealing with the emotional impact of making a less than stellar trading decision. This began as a sort of investigative experiment but ended up telling me an awful lot about my mental and emotional approach…

First, a bit of background… In my reading I’ve seen a number of people talk about having an ‘edge’ in a trade, along with time stops and of course the all important entry point. What messes up a lot of traders early on is that they place stops way too close to their entry points in choppy markets. There’s no room or the trade to move/breathe/react to market noise. However, trading with the trend does at least give you something like a 10% advantage that the whole scenario will work in your favour.

I’ve also done my own loose monitoring/experiment to validate this belief [here] and it came out with a 25% percent advantage to following the trend over my own decision making… Possibly a shocking indictment of what goes on in my head but hey ho 😉

From what I’ve seen/experienced trading stocks it’s that money (investment capital) moves in and out of stocks roughly in time with market sentiment. So, even if you’re long on a great stock that just keeps going up, when sentiment is negative people will take profits and recover their capital to move it elsewhere. On this basis it’s challenging to make money going long when the market is dropping. This applies even if the sector you’re in is also outperforming the market. It’s just human nature that people feel at risk when things look bad.

Just as an aside here these are all my opinions/perceptions so if anyone does really disagree with me that’s fine. I’m not telling you what to think or putting myself up there as an example at all.

So what I decide to do is find an FX pair with a significantly strong up or down trend and just place a trend following trade with very wide stops at an opportune moment. This was an experiment to see what would happen and whether I could deal with the unfolding situation emotionally. Testing my faith in the idea of trends so to speak.

I’ve broken the experience into three phases.

  1. Preparing to place a trade – creating a scenario
  2. Being in the trade – managing fear, doubt and despair
  3. Exiting the trade – resisting the pressure to cut and run

Following some deliberation I saw that AUDUSD had recently reached new highs and was trending up strongly.

So rather rashly and with a disregard for what was actually happening in the moment I entered the trade long.

I also noticed that USDCHF was in a long term downtrend but had recently risen so I entered that short.

I’ll talk about the AUDUSD trade because that is the best illustration with the widest movement of the two. So no-ones hanging out for the ending to the blog and because it’s not actually the point I ended the AUDUSD trade up about 35points and closed the USDCHF trade at evens. So lets take a look at what happened.

Preparing to place a trade – scenario creation

I’m guessing that experienced traders can probably go through this process in lighting fast time. It may also be that at shorter timescales (15 mintues and below) I’ve consistently lost money because I’ve just not had enough thinking time to step through all the options.

So coherent trades I’ve entered have all worked because I’ve created a scenario around them about what is happening now and what I expect to happen in the future. Here are some quick bullets about the AUDUSD trade

  • The aussie dollar has been on an up-trend for ages
  • There’s decent amount of support to halt any retracement
  • The price has bounced off a level (x) a number of times and headed back up
  • I’m going to place really wide stops because I believe eventually the aussie will keep rising
  • I’m prepared to let this trade play out over several days if I have to
  • I’m going to have a >100 point stop so that I don’t get stopped out by market noise
  • I will not fold the trade early because I’m uncomfortable
  • I will only move my stop up when it’s really safe to do so i.e. when the trade is up at least 20 points
  • I will not spend my time watching the trade or looking at my P&L

So happily the AUDUSD fell like a brick on Wednesday and I decided to go long.

Now, at this point this was actually a bad entry decision (isn’t hindsight amazing!) because I’d not really had any kind of confirmation that a reversal was even close or the downward momentum had ended… Not a good start.

For those interested purely technical point my entry was at point A at about 21:30 on Wednesday. I was looking at the bounce off a new low without taking into account there was still plenty of scope for the price to keep dropping…

Being in the trade – managing fear and despair

Now, the one thing I had in my favour as this trade went south for 36 hours was that I’d already mentally rehearsed my reactions based on my beliefs about this trade. I checked this trade at one point yesterday and it was 81 points down (see point B). At that time I quickly logged out of IG Index and got on with what I was supposed to be doing!

I’ve found that dwelling on a situation is counter-productive and you have to eventually have faith in your own ideas and decision making. The fact that, although I wasn’t ‘happy’ about how this trade was going I also wasn’t beating myself up about it or letting it get to me too much. Now, I’ll of course admit that I wasn’t jumping for joy either 😉

The thing that helped, apart from having already thought through how I was going to react if indeed the trade did go against me, was realising that emotionally ‘I am not my trade‘. The trade that is currently in play is a completely separate thing from me. There’s no reason for me to really credit the emotional reaction to a situation in this trade with any ‘weight’. It’s a separate thing over which (now it’s in the market) really don’t have any control. So if I can’t control it why worry about it?!

Of course this is the conclusion I came to as the roller-coaster went up and down as my emotions went the same way. What I’m pleased about in all this is that I had the patience to hang on and trade the scenario I had laid out mentally in advance. It wasn’t a particularly pleasant experience but by un-linking my ‘self’ from the trade I managed to stay the course…

Exiting the trade – resisting the temptation to cut and run

The most difficult part for me, or the part with the most intense ‘feeling’ component is actually all around exiting the trade. Again, especially for beginners, this is difficult to deal with because we’ve not experienced a lot of winning trades to practice this bit on! 😉

After two days of doooowwwwnnn then slow climb to even (no loss) I felt under huge emotional pressure to walk away and just get out of the trade! How dumb is that? Now, also notice that there are entry and ‘in the trade’ rules in my scenario but I’ve not written any ‘exiting’ scenarios. I found I had to make these up on the spur of the moment!

As I got to +1, +5 and +10 points I was incredibly tempted to just close the trade. A couple of things stopped me… The scenario points I made up on the spot were: –

  • I’ve not done all this ‘work’ and been through the 36 hr rollercoaster for nothing (emotional)
  • EMA’s were all moving up
  • Trying to limit loses but need to let profits run – the great maxim
  • I can move my stop up to a sensible point (i.e. open) after 20-30 points and not lose money
  • It could always carry on going up further, as it dropped further than I thought it would initially – lol

This temptation to quit out happened twice – at point C and at the second break through my entry where I was 5 or 6 points up and the price was going plus 1 plus 2 then back to entry…

So I managed to hang on till I was about 35-39 points up (point D) when the whole work scenario got in the way and I felt happy to close the trade and not have this going on in the background while I was having to deal with a significant project problem.

Summary

The points I had in my favour…

  • Having thought my way through the trade (and holding my nerve) in advance
  • Understanding that how the trade was going didn’t reflect on ‘me’ and wasn’t linked to me emotionally
  • Having wide stops
  • Being patient – letting the trade ‘do the work’

Things I didn’t do particularly well

  • Should have waited for a better entry point – 10 period EMA not still nosediving would have been a start!
  • Hadn’t thought the exit scenario through in enough detail – would have made resisting temptation easier!

This trade also broke the 1% risk rule by a significant margin so although it was a very useful experience I’m not planning to do any more of these soon… Will be adopting a more sensible approach  next week.

This week… losing cash, gaining knowledge…

I guess if I was a pessimistic person I’d have given up learning to trade by now… However, this week had several high points, even though I traded out a >6% loss on my account. Here they are in no particular order: –

  1. I learnt a whole bunch of stuff (see below for details)
  2. I know what I didn’t do right
  3. My blog (here) got >300 views in a day (Sweet! Thanks everyone!)
  4. I didn’t repeat previous mistakes (mostly)… and invented some completely new ones! LOL

So overall I’m still feeling positive about the whole experience. I really love trading and completely appreciate the support and interest of everyone reading my stuff so a big and humble thank you for all those showing interest. It’s extremely motivational and that helps greatly!

Let’s look at Thursday when, essentially, I got way too active and just took a truck load of dumb trades. Then I’ll go through the stuff I did today and subsequent improvements… PRE-READ warning… This is a long post… Get a cuppa and some biscuits… and lets begin!

Trading mistake number 1.

Placing orders to open on the FTSE before opening…

Yes, I realise I’ve done this before – but this time it’s different! No, honest guv! Except it’s not, and is still a rather random move. Who know’s really what direction the market will move in and why? Essentially my crystal ball is the same as everyone else’s.

So, entered long at 5896 at about 6:50 am without due care and attention to the fact that the price was slap in the middle of exactly nowhere and it thrashed wildly between profit and loss till 4pm when I got stopped out (stop too near previous support) then proceeded to rally 50 points when the US session kicked into high gear.

So retrospectively pretty ridiculous however I’ve now traced the root ’cause of the problem so read on for some thrilling conclusions…

Trading mistake number 2.

Making dumbass bets against the trend without due care and attention… 

Here it’s truly possible to say that a picture paints a thousand words… Went short somewhere in the early morning of the 26th… A thousand dumb, dumb words painted right here… 😉

Trading mistake number 3. and 4.

Completely wrong entry based on (a) trying too hard (b) no real entry confirmation

This is quite an interesting one because I was kind of ‘half’ right on the first count… in fact the best entry point was actually passed when I went long on this trade. Looking back there was a bounce off 14,150 about 10.30 a.m. confirmed by a nice big up bar from support. I guess by this time I was feeling a little bit desperate about the whole situation and as I’ve mentioned before ‘lizard brain’ gets all frantic when it feels under pressure… Essentially I’m just winging it at this point…

In the second part I was slightly more sensible but failed to really consider what was going on. Where as  the previous drop (10:30 a.m.) was followed by a pretty immediate and sharp reversal the price bounced across a 50 point range for around 45 minutes before I decided (bizarrely) to go short in a market that was overall trending up! Wow! Yes, I too am amazed. Anyway, I just wasn’t patient enough to wait for a proper entry signal…

Trading mistake number 5.

Didn’t stay in the trade…

This one’s especially galling because I went short on USDCHF and it was going in my direction… However, by this time I closed the trade for a tiny profit essentially because I was pissed off with the whole proceeding. Now, if I’d have let that one run I’d have made all my losses back at least while I was asleep which is almost ironic. Take myself out of the equation and I’m a great trader. LOL…

So, some people might say that’s pretty darn shocking. Purely on a ‘results’ basis they’d be right. Right! However, failure is only really failure if you give up or don’t learn anything from the experience. Here are some of the things I learnt and the actions I’ve taken.

Learning number 1

SIMPLIFY…

If you’ve looked at previous charts on my blog you might have seen a bunch of indicators and other stuff. This is now all gone. Frankly it’s confusing and doesn’t really assist me in making decisions. In fact all this extra information means my poor brain gets confused and I actually don’t trade. Informational paralysis sets in and I think too much about thinking rather than simply looking with my eyes.

I also removed the day bar settings i.e. instead of alternating grey/white stripes for each day on shorter time-frames so the whole screen is grey, whatever time frame I’m on. Why? Well, because I found my self trying to ‘analyse’ the price movement in relation to day sized chunks. Does the market know it’s 12:31 on a Tuesday or 19:42 on a Friday evening? No. Is thinking about this getting in my way? Yes! So it’s magically gone.

Learning number 2

RELAX…

This could also be entitled ‘Hold onto your money and wait’ 🙂 Hopefully you can see from the examples above that in most cases I was too eager to trade. What do I mean by that? Well… what I’ve observed and also seen in various books is that when prices reach zone’s of previous potential support/resistance they will react in a specific way. Ultimately they will go long or short and there may be some false breakouts on the way but when a level is broken up or down it’s usually followed by a fair bit of movement and a confirmation signal (candle)

So, since these moves occur around specific levels the strategy has to be to simply relax and wait for the price to confirm a move.

The worst thing you can do is think “Well, I missed that confirmation by 90 minutes but I’m still going to enter the trade long/short.” STEP AWAY FROM THE KEYBOARD! You are now inviting the market to take money from you. A whole 90 minutes ago the consensus was ‘X’ and now it could be ‘Y’ going in the opposite direction! Who knows? Berlusconi could have been found in the ‘Blue Oyster Bar’ (see Police Academy for the reference) and is threatening to leave the EURO unless the whole thing is suppressed… A lot can happen in the intervening time but what should have happened if you had noticed the trade is you could have moved your stop up to reduce risk/potential losses 😉

The market doesn’t care about you. You must care about you and your money enough to not risk it unduly and take punts. Take properly managed risks instead. There will be another trade along soon. What I actually did today was program IG Index’s advanced charts to pop-up an alert when the price got to a previous area of support or hit a previous area of resistance. THEN you can decide, from what actually happens to the price whether there’s the opportunity to go long or short.

Wait and let the market do the heavy lifting. Here’s trade I placed today that illustrates the right way to do things…

With this new found wisdom I was able to pay attention and notice the following…

  1. The price is on an uptrend (that’s a victory right there)
  2. It’s gotten to 14,250 a couple times and dropped back
  3. It’s dropped sharply back and then reversed to carry on in the original direction

Actually what I did was put a price alert in first thing in the morning and wait. Secure in the knowledge I’ll get a pop-up when something interesting might happen and I can get on with other stuff in the meantime… I have no idea whether it’s going to carry on up or drop but what I do know is that it did drop previously but when it falls then reverses this is a great LONG opportunity. Or alternatively it’ll stay above 14,250 and keep piling onto new highs for the day.

I’m aware of this being tradable and I’m looking for a good entry point which is confirmed by the price doing something. Now, one thing I didn’t quite get right here is that I brought my stop up to entry too quickly and was stopped out on a temporary retracement shortly afterwards. However I did two things right. I followed my newly aquired strategy (SIMPLIFY) and waited for the trade to come to me (1) which is way more RELAXING and I didn’t lose money (2)

I do also have a theory I’m working on based on the following two graphs which will illustrate the point. It may as well go here so I can go for the longest blog post record attempt 😉

Graph A

Graph B

Both graphs represent 10 trades but graph B shows the effect on overall profitability of the stops being moved up to break even aggressively. In this (admittedly) textbook example the results overall of graph A is a +120 point gain. Graph B illustrates a +240 point gain. I know which one I’d rather have. Now, of course there might be occasions where a potential 60/80 or 120 point winner could have been never happened because it had been stopped out in the first few periods… this does need looking at further and tracking over a lot more trades.

Think about it this way though. If you’re trading it’s about managing risk. Placing a trade with a stop (always) and then waiting for the price to rise to a point where it might at least be sensible to consider moving that stop to break even is where all the risk is in the trade. This is the bit you’re going to lose in a trade if you’re going to lose anything.

Now, this is only in here because it’s on my mind at the moment. It’s absolutely not something I recommend people go and implement in their trading at all! I guess for this to work you’d have to combine selecting (and taking) a good entry with the trade going pretty much in your favour immediately. It might prevent lots of little losses on more marginal trades or it might well mess up the overall profitability of your approach altogether.

Overall I had a great week trading. No, I didn’t make money but I made some positive changes to my technical approach and the mental/emotional management of what I was doing improved hugely. I can look at a chart and decide how to react when the price reaches levels of previous importance. I’ve cleared up what I’m looking at so that trends/direction should be much more obvious in future and I can react accordingly.

Technical approach

Only trade from levels and with the trend (unless it’s obvious the world has ended) I will post about this some other time…

Mental/emotional approach

Relax and let the trades come to you. If you missed it then you missed it. Don’t try to force the market. You are not a Jedi

So now it’s simply a matter of practice, and buying more biscuits… Ach no! My tea has gone cold!