Monday, July 27, 2009

"Beginner's Luck" & Technical Analysis.

Personally, I think the term "Beginner's Luck" is inaccurate. It suggests that the positive results that some traders achieve as soon as they begin their trading journey is some how a fluke, that, by chance, the market has just happened to give them an easy time. After all, newer traders know alot less about technical anaylsis than the more experienced else can they achieve such success?

More appropriate terms for this common occurrence might be "Beginner's Belief", "Beginner's Spirit" or maybe "Beginner's Ignorance".

Fresh out of the seminar/course or any other serious introduction to trading, the eager student follows the rules and reaps the benefits of successful trading. This is, of course, assuming they have the discipline to learn and follow the rules they've been taught.(let's also assume the rules/methodology stack the odds in your favour) What they've been taught isn't's just a way to identify an edge and use it. The irony is, the edge usually isn't anything seems so effective because the trader hasn't experienced anything to instill doubt or knock confidence...yet!

When they do eventually bump into that excruciating, but completely normal, losing streak, their future as a trader will be determined by how they deal with it. If a trader starts looking for ways to improve their understanding of TA to try to prevent further losing streaks (exactly what I did some 20 months ago) their in for a long, painful journey. If one can recognise that the application of the skill of TA in a consistent and objective manner, regardless of what's happened recently or what one feels is going to happen, is far more important than the potency of the edge, they just might make it...

Jules highlights the value of spirit in a recent post....I know from personal experience that a faulty trading mindset will trash the highest probability edges and quickly turn what would be a nice modest earner into a way to slowly drain money from your account. Spirit is our most valuable resource for sure....

Friday, July 17, 2009

My Most Painful Winning Trade.

We all know how easy it can be to experience the deer-in-the-headlight syndrome. You know the one... where you don't have a stop on the books (for any number of reasons) and price moves violently against you?? Our instincts tell us to freeze, much like the infamous deer or the little bug that plays dead when you move it around, only to get up and run when you've turned your back (lol...if anyone else has actually tried that!)

That built in mechanism for survival served/serves us well in many situations in life, but can be incredibly harmful to our accounts (both the financial AND the all-important confidence account) in trading.

But what happens when we experience the same reaction whilst a trade is moving aggressively in our favour??, This is what I had to deal with today. I wasn't prepared.

Usually, I'll watch the bid and ask for a sign of a slow down in the momentum (as I don't use tick charts) and exit that way. This has worked very well for me as I often find myself exiting very near the end of the move. Today, I haven't been trading with a relaxed state-of-mind and this cost me 60% of potential profits (I did open up a sell limit at .945- pretty much the high of the 08:00ET 1min candle- but failed to pull the trigger)

I left myself open to the very real possibility of breaking even on the trade as it dropped back to my entry before I eventually covered at .675.

As always, if I don't properly execute the first trade within a sequence of trades, I walk away as I know I won't objectively manage the subsequent trades.

Two consecutive mistakes tells me to call it a week.

(Note to self: Brush up on those trailing stop/limit orders! It'll help avoid situations like this.)

Only The Momo WHATEVER THE HELL WORKS! It was a romantic idea. Successfully trade the market with the one pattern. I know it can be done (cause I've done it consistently for the best part of 4 months), but that's not the point...

I mentioned several weeks ago that I was "throwing out the rule book", which I've well and truely done! All of my trades still stem from the same idea, however, some are more tenuously linked to the old pattern compared to others. It took me quite some effort to let go of what I had embraced for the best part of 15 months.

What did I discover? That, for me, it has almost nothing to do with my chosen method of analysis and EVERYTHING to do with management of myself which directly influences my management of a trade Case in point: I've been trading with no hard-and-fast rules and have managed to improve on the results I had been achieving in the months prior to the change.

Big thanks to UF from Longandwrong. Although uncomfortable at the time, our conversation that day got me thinking outside of my own set of beliefs and lead me to what is looking more like....well, I'm not gonna jinx myself!

All I'll say is, "Watch this space".