Tag Archives: preparation

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.

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Trading plan = phew! Now, lets get on with it ¬_¬

Right off the bat – and before anyone gets excited – this plan does not contain the setups or notes related to how I’m going to be actually trading in 2012. Well it does but I’ve got the only un-redacted copy. Sorry. The main reason is that since this is based on material I’ve paid for then sharing it for free will get my arse sued right off. Please don’t be disappointed and remember I’m still at the sideways stage 😉 so you need to go sort out your own plan.

Secondly – this is not a study in how to write a trading plan. I’ve nothing to teach here and nothing to sell you. However I thought it worth sharing as a way of encouraging anyone who hasn’t got one to go write one. You’ll see this is my sixth attempt at doing this since Jan 2011 which means either I’m lazy, incompetent, foolish or all of the above.

I finally got to a place where I recognized that I need this framework to operate in and I’ve pulled together enough actionable ideas to make this a reality for me. Re-reading stuff I’d written before (as well as previous posts on this blog) is frankly embarrassing. I’m sure there will be stuff on here from now that I’ll cringe at in six months time.

I do reference people that have really shed a significant light-bulb on trading for me so it’s worth looking at from that perspective though. A lot of personal information has also been removed obviously!

It’s partially thanks to the following (free!) software that I got this document to the state it’s in. Focal Filter allows you to create a blocklist of sites that you can’t get to for a certain time. Massively useful with all the distractions of email, twitter, facebook and twitter. Did I mention twitter? 🙂

If you’re easily distracted by crap online then I can really recommend it. I know what of I speak etc. There’s a dedicated Mac application for this kind of thing so go googling for it.

However back to the point at hand. It’s taken me far, far too long to get to where I can actually write this. Why? Well lets look at some of the main reasons.

1.) The majority of information I went through from Jan ’11 till Oct ’11 was simply wrong

2.) Trying to trade on a 5 minute chart while working full time. This is simply impossible.

3.) Not understanding the inter-relationships of multiple time-frames. *see below

4.) Not enough time in front of charts, taking trades and seeing how prices move

5.) Not having a clue – at all. Not understanding how important a plan is.

So the major light-bulb has come on about how price moves and how different time-frames can shed light on this. From this point you can get a hint of where a good entry point might be and then plan accordingly. There are no magic indicators as far as I’m concerned.

The other main thing to point out at this stage is relying solely on a chart without knowing what’s going on in the market (i.e. news) is like going into battle with your eyes shut. You can bet that major market participants are paying close attention to what’s affecting their market/their positions.

A final point to make is that record keeping is important. I suspect that this will become a significant understatement in 3-6 months… Record keeping may actually be the only way to improve over time. Read that again and really think about it. If you’re not recording your trades and why you took them then, erm… you’ve probably been getting the same results I have – crap results 😉

I’ll explain how I’m making this work for me and provide a proper trading update in a couple of weeks. Also looking at different brokers/platforms but that’s an entirely unrelated topic.

TradingBusinessPlan-Redacted

So there you go.

Plan? Check!

Practice?

Process?

Well, that’s what 2012 is for right? 😉