Monday, October 10, 2016

The 7 Deadly Sins & Breaking Resistance

Most people are at least vaguely familiar with the story of Adam and Eve. Legend has it that Adam was placed in the Garden of Eden by God and told he could eat the fruit from all but one tree. Eve, who came into existence from one of Adam's ribs, succumbed to the temptations of the snake. After eating the apple, she offered Adam some and the rest of mankind's problems was history!

Some 18 months ago, I felt compelled to write out each of the Seven Deadly Sins on my whiteboard in the office. I find that poor trading (and living) can always be traced back to one of them so, as long as I'm mindful, I can avoid unnecessary draw-down both in life and in trading.

One that keeps coming up for me is what I call, "reaching for the peach".

We have various fruit trees in our garden and, some time ago, I began to notice something which I'd eventually trace back to a trading problem that plagued me. I would be on the ladder, picking the fruit within a comfortable distance. When the fruit was finished, I'd move the ladder to a spot where I could repeat the process. After a while, I would move the ladder less frequently until I found myself picking (or trying to pick) fruit that was clearly out of my reach.

I knew I needed to move the ladder (think re-positioning yourself in the market..) but I continued to overextend myself, sometimes to the point of falling off of the ladder (lol) or dropping the fruit I had collected. This could be labelled "sloth" and/or perhaps "greed" as I wanted to "finish" the fruit nearby or "get ahead".

This, IMO, is the reason for whole number resistance...the distinct behaviour on lower time-frames when higher time-frames are rolling from one candle to the next. This is why people are sometimes too aggressive on Mondays and too reserved on Fridays. It's the idea that we have "nearly" finished/obtained something or "just" started something. The curse of beginnings, middles and endings. Our behaviour changes as we feel a push or a pull towards something rather than just remaining constant in our execution.

Friday, October 7, 2016

Push When Winning- Part II

Strategically adding to a winner to bag 6.7R, without increasing the original risk!

Don Miller- million dollar trader and educator- often spoke about one of the most misunderstood, and sorely neglected, ways of managing your risk. Push when you're winning and stop when you're not.

There are a few ways to do this:

1) Frequency of Stops.
2) Size.
3) Scaling In (not out!).
4) Daily Target/Daily Loss Ratio.
5) Reward/Risk Ratio.

Check out the short-lived, but very insightful, Trading After Dark series that Don created over 5 years ago for more on the above.

The only problem with all of the above methods is....they all won't work out in your favour some of the time. You need a thick skin, and a rock-solid, probabilistic mindset to allow a 3R win to come back and stop you out...or to stop trading for the day only to see that you could have made it all back if only you'd have continued ( etc. etc.).

Monday, October 3, 2016

4 Months In, MES Capital & Pushing When Winning.

Per contract of initial risk...some trades were scaled into.
It's been a long time since I've been on the back of such a consistent stretch of trading. What's more, the leverage involved has been smaller on average which makes the result even more significant. It's nice to see that the distribution is what was expected as far as the summer months are concerned. The graphs also tell the story of the resistance of the Combine target in August and the fearful trading of the FTP during the latter part of August into most of September. It'll be interesting to see what October will look like as volatility has arrived in full force and I'm free to put the pedal to the metal!

I've been doing a trial with MES Capital over the last week of trading. I'm doing well there so far but may have to sacrifice that for a bigger and better opportunity (which I'm keeping under my hat for now!). My initial experience with trying to learn more about the company was met with a less-than-warm welcome to say the least. This isn't encouraging as how you deal with people personally will often translate into how you deal with them in business, but I'm leaving my options open for now.

I've also thought about a comment that was made in my last post regarding pushing when winning. This is something that a lot of people struggle with in life in general, trading in particular. Our aversion to loss has us fighting the tape when we/the market isn't conducive to profitable trading and running away once we have some gains when the market suggests that there is much more to be had. I think a lot of this comes from our upbringing ("a bird in the hand is worth two in the bush"- Mum) and the way we were taught to think at school and in society in general. Winning is good, losing is bad....being right is honorable, being wrong is shameful...etc.