Only The Momo.

Art + Science= Genius.

2012-01-23T04:29:00.000-08:00

There is a wealth of information hidden in this short snippet of an interview with the legendary, and highly intelligent, Bruce Lee.

The part which talks about systems and crystallization is, potentially, of particular use to a trader.

I've also noticed he has the three key attributes to success through management of self as taught in the book "EGOnomics" (see the education list on this blog).

Veracity- he mentions "honesty" several times in the interview.

Humility.

Curiosity.

The Week That Was.

2011-12-16T14:57:00.000-08:00

I have been very quietly plugging away at my trading over the last couple of years. After taking an infinite number of notes on trading (even more on myself..), recording data from various approaches to trading the markets and keeping them in separate spreadsheets, one thing has become crystal clear...

....it isn't the method. It's me holding,umm, me back. I sorely underestimated the influence that mindset has on the outcome when using anything even remotely discretionary to navigate the markets. I am fixing that now.

I have three decent datasets whereby I did/tried to adhere to one way of doing things for a large number of trades. All three have very similar equity curves that ultimately finishes with losing in the "end" (we'd have to go to infinity to find the real end, but that's another post!). Adding more weight to the above assumption.

So here I am at dataset four. I got off to a stellar start and have got to the point where, historically,I usually stop working (because we KNOW that several differing systems producing the same results in any given traders' hands is almost certainly connected to the trader's behaviour and not the systems themselves).

I'm currently in what could be 1) a draw-down in a rising equity curve or 2) The beginning of the end!

But, in the past, I've often found myself literally discontinuing data-keeping after a period of bad trading as the extent of the losses made the idea of going on with the idea seem...well...pointless.

But herein lies the difference. I've just had a terrible week, nothing worked the way it was supposed to. The week was negative but the percentage of gains lost was tiny in relation to how bad the week felt. This type of week would have usually resulted in a new spreadsheet!

So I didn't need to make this week, along with it's trades, just disappear...it's just the week that was.

...Maybe this is what "1)" feels like...

The Flintstones

2011-12-01T08:13:00.000-08:00

They were fortunate enough to have a car that was a) easily accessible for the whole family and b) able to run without an engine!(although they got really fit doing so!!)

...we have a three-door which just cost us a small fortune in repairs as, unlike the Flintstones' car, ours needs to have all the parts in full working order.

And so too does a trading strategy.

If we have numerous "nuts and bolts" to tighten (criteria of a trading strategy) we also have many potential points of weakness. Taking that idea one step further, the more parts in the car (strategies in the trading approach) the more things we have to learn to do effectively in order to harvest a profit.

It only takes a quarter-turn of each nut in the car to end up with a trading approach that's as uneffective as this....!

http://www.youtube.com/watch?v=LmeNy768qCo

So why not simplify, reduce- take away all those extra parts to the car - and just make sure the nuts and bolts are as tight as possible??

Cut & Paste.

2011-06-29T12:33:00.000-07:00

"I skip trades. But, somehow, I skip more winners than losers".

A statement made regularly by struggling traders.

But how is that possible? If you were randomly skipping trades then you'd end up with the same Win Rate and, therefore, the same result over time right??

After reading a recent post by MBAGearhead, I started thinking about the effect that losing streaks can have on a traders psyche.

This "Streak Calculator" says that you'll almost certainly (99.2% probability) experience 4 losers in-a-row during your trading week if you take an average of 20 trades per day with a 45% WR. As the length of the streak increases, the chances of said streak happening goes down.

So what if you habitually skip trades after x losers in-a-row? Logic would suggest that the chance of you bumping into a winner increases drastically after a string of losers as the likelihood of said streak continuing decreases.

Maybe that's why otherwise uptrending equity curves end up looking like a cut 'n' paste job- all ranges and sell-offs with a few rallies left in for good measure...?

Pane In The Glass- Pace, Patience & Panic.

2010-12-16T08:06:00.000-08:00

Was thinking about how important it is to acknowledge that s/r is flexible. It brought me back to this analogy that I referenced some time ago. There is no bigger pain in the ass than taking a trade in the right zone, but failing to account for the pace of price into said s/r zone...(that'd be the Bull/Bear running into the stuck-in-the-mud fence!)

The following quote written to myself in this post also came to mind:

" Plan to wait for the crazy activity that usually indicates the flush at the end of a trend move."

Having the patience to wait for the moment that feels most uncomfortable (the panic flush/stops...), then getting in anyway, is usually the best move.

"Space-Time"

2010-12-01T09:30:00.000-08:00

This concept talks about the way time can be thought of as being a "fourth dimension"- time & space are distorted for an object, relative to an observer, as the speed of that object approaches the speed of light.

After thinking about that for a while, it occurred to me that a similar situation is often played out in trading, except that Space & Time are doing the distorting.

Distorting our emotions that is.

Time- If a losing trade occurred "a long time ago" (<- all relative!) then you're less likely to hesitate on that next trade than if it happened "recently". On the flip side, if you've made good gains "recently" you're more likely to "call it a (insert arbitrary time period)" than if it was "a long time ago"....

....AKA Recency Bias.

Space- If you have been stopped going long/short at a given price level/taken profits at said level, it's quite possible you'll modify your actions around that level as it has become an emotional place for you. You may treat it as s/r based on your experience(s) there when, in fact, it could mean nothing (unless it is a point of collective decision making, in which case it's actually s/r! Where we should be looking to trade...)

Even worse is when we have positive/negative experiences within the same place on the X as well as the Y axis.

It can be hard to accept the fact that equity increase/decrease is not correlated to Space OR Time. 6R can be made over a period of time and then lost in a fraction of that time, or vice versa. 20 pips of movement can make you money whilst an 100 pip trend can lose you money (especially if you're me!). It's all random.

Only the edge is constant.

"A Bird In The Hand Is ISN'T Worth Two In The Bush"

2010-11-03T05:06:00.000-07:00

....that is, if you have a positive trading expectancy.

Way Of The Turtle is a MUST read for anyone who is struggling (who isn't?!) with the emotional/psychological aspects of trading.

Chapter 2, "Taming The Turtle Mind", has been useful to me...particularly this piece, found on page 16:-

"People who are affected by loss aversion have an absolute preference for avoiding losses rather than acquiring gains. For most people, losing $100 is not the same as not winning $100. However, from a rational point of view the two things are the same: They both represent a net negative change of $100. Research has suggested that losses can have as much as twice the psychological power of gains"

So THAT'S were mum got the title's saying from!

We are so tied up in avoiding losses from money we already have that we are prepared to lose (and it is losing!) money that we essentially do have in a future's present if we follow through with our edge-inclusive plan.

Feeling the losses twice as intensely as the gains (or future gains which have been "lost") creates a negative edge- you'll go out of your way twice as much to avoid losing what you've got and, in doing so, avoid future gains by the same factor.

I suppose the above could be viewed as a negative mental edge with a value of -2.

Which would obviously be detrimental for any positive trading edge.

The Power Of Recognizing Market States.

2010-10-17T14:39:00.000-07:00

...this template attempts to capture my thoughts regarding the implications of the four market states on a micro and a macro timeframe.

Knowing which state you're trading in at any given time can help you to adjust your way of managing risk to better fit the present conditions and maximize your edge.

If I'm trading a nice "trending" and "quiet" market on the macro/anchor/larger timeframe, but the micro/trigger/smaller timeframe is "volatile" (but also "trending"...) I know I need to hold through some pullbacks in order to offset any losses. I know my wins need to be sufficiently larger than my losses as opportunity for entry will be limited compared to, say, a "stable" and "volatile" anchor chart. I know if I look to move my stop to break even too soon, I risk being left behind on an otherwise profitable idea.

During the aforementioned "stable" and "volatile" period, you'll find repeated opportunities for profit but less profit potential per trade as the market will be doubling back on itself a number of times during any give period- N goes up R:R goes down.

If the trigger chart is quiet, I can eliminate risk sooner (by moving stops to b/e)without adversely affecting results, If volatile, I can choose to accept a number of b/e trades to get to my goals or, hold through the pullbacks...accepting that some will be deep enough to take out stops.

And so the list goes on and on....the important thing for me is being able to identify the environment as quickly as possible so that I can formulate a sensible plan of attack!

News & Fractals.

2010-10-09T02:56:00.000-07:00

For years I've heard various educators talking about "1-2-3" or "A-B-C" moves, especially around FOMC announcements. Now that I'm on my way to consistent results as a result of simplifying and relying on the law of big numbers, I've finally begun to be able to use this concept in my own trading.

It's usually the third wave out of news that brings home the bacon. That three-wave process then gets repeated on larger timeframes (shown in the charts). Assuming news brings volatility, which it almost always does (FOMC always does...)you can use this basic idea in conjunction with whatever you currently do to position yourself after the initial stops are taken out on either side of the potential trade.

Using strict risk management (ie simultaneous stop & order placement!)around these events can allow for a larger R:R ratio.

One Plus Two Equals....

2010-08-27T11:44:00.000-07:00

Consistent use of this....

...with this...

....equals this!

Time to decide and follow through.

Banana Hunt!

2010-08-14T04:58:00.000-07:00

My 12-year-old Niece introduced me to this game a little over a year ago...

"Drag the monkey to the location of the bananas and press 'Search'.

If you're in the right location you will find 10 bananas.

1 degree of error - 8 bananas
2 degrees of error - 6 bananas
3 degrees of error - 4 bananas
4 degrees of error - 2 bananas
5 degrees of error - 1 banana

How many bananas can you find in 10 searches?"

Seems easy enough. Random guessing won't do because, even if you're content to find just one banana, you only have a 3.06% (0.0305555) chance of doing so [(5+5+1)/360].

But we have tools that create an edge over random!

Avoiding the obvious protractor route, we have the knowledge that north=90, east=180, south=270 and west=360/0 (those numbers never appear...)we can use these landmarks to get us in the vicinity of the location we're looking for. While it's impossible to guarantee finding 10 bananas, or even ensuring that we find ANY bananas on any given search, we DO significantly increase our odds of leaving with some bananas in hand.

Settling on one method for finding the bananas will make it easier to have an idea as to the amount you may find in any 10-search-session. Maybe you prefer to visualize 45% as 1.5x 30% away from "west", instead of half way between "west" and "north". The important thing is to stick to your method through thick and thin.

Throw in a couple of targets that involve "winning" and "losing" (any arbitrary target that challenges you) and the game takes on a whole new meaning.

After a poor start to a search session, you may find yourself trying to improve/optimize your method for finding the bananas in the midst of the search. This always results in finding less bananas as you're not proficient in that approach. Conversely, you may take your foot off the accelerator when things are going well and quickly ruin any advantage you previously had. Sound familiar?? :)

I suppose we can draw many parallels between various games and trading. This one is personally helping me with the notion that we must act consistently in the face of uncertainty, remaining actively neutral from an emotional standpoint.

Borrowing & Lending VS Ownership.

2010-08-02T07:32:00.000-07:00

Even ownership is just borrowing over a long enough timeframe, dependent on any given person's point of view. When we start thinking of things as "ours" rather than temporarily "in our possession" we inevitably behave differently.

Applied to my trading (and, I'm guessing, trading in general) this means that if I think of profits as "mine", I'm more likely to operate from an emotional standpoint, creating a glass ceiling of profit potential (ie whatever goes from being a cushion to make more, to "profits earned")

The humility to just do your best with whatever edge you think you have, because you can only be sure of an edge over a given period of time, accepting what comes your way, will probably increase the likelihood that the trend of borrowing more than you lend will continue...

....the only thing I'm interested in owning is the confidence to follow through.

A cryptic end to 4-months of blog silence, but needed to get that off my chest!

You Can Be The House IF....

2010-04-02T04:07:00.001-07:00

....you can subscribe to one major assumption- That the market has identifiable traits, that it does something with consistency (even if only consistently probable) , therefore making it a constant.

The House Edge in a game of American Roulette is 5.26%- for every million that is invested in payouts to the lucky players, the Casino can expect to make back that million plus 52,000.

The odds are fixed, the process just has to be repeated (ie getting as many people as possible to play the game. This is the reason for the attractive lights in all Casino hotels, not to mention some spreadbetting platforms!)

Same thing with the frequently used coin-flip analogy. If offered $1.01 when you win, let's say when it lands on heads, and you lose $1.00 when it lands on tails, you have edge (E=0.01) as long as the laws of physics remain constant.

Unfortunately, as traders, we have to rely on testing over time as our "constant" which is why I say "major assumption".

After that, it's down to working the edge in a disciplined fashion....accepting the often haphazard journey to profits, taking those SIX losers in a row on the same day that you also took three in a row, stopped to the tick, missing targets by a tick etc. Using the 2:1 (or larger) Reward to Risk structure on every trade but still only making a fraction of your risk per trade on average, assuming E is less than 1 (If yours is higher, please let me know! we'll talk...lol)

Between the aforementioned assumption and the confidence and mental fortitude required to trade the edge with conviction I have only three words:

TRADING IS HARD!

Two Variables, One Constant & A Chart.

2010-02-02T16:56:00.000-08:00

The title has nothing to do with the chart...it's just what I've been thinking when it comes to my view on what trading is about.

The aim is to:

1) watch the ever-changing market (variable 1) with some kind of understanding as to the behaviour of price- and, therefore, the behaviour of crowds- with some 'if-this-then-that' scenarios.

2) Couple this with you (variable 2). This variable is also ever-changing. But we can control this one if we choose to. Knowing enough about 1) allows us to use 2) to act consistently (not to be confused with identically...2) is always changing) in order to come up with...

3) An Edge- (constant)

The chart:

Original idea was short, which was exited for 0.64R into the close. After 17:15ET, I noticed an inverse Head & Shoulders, with the pace within the pattern supporting the likelihood of an upside move. Breaking out of 30min resistance. Entry xx445.5,

First target D-1's gap between the 17:00-17:15ET break, mid morning (ET) resistance and H&S target-xx462.5. Final target at xx487...a measured move.

I got out at xx459.5 and xx479 respectively. Both areas confirmed themselves as 'levels'.

Trying to build trust again. 3.4R.

Mind The Gap!

2010-01-06T12:39:00.000-08:00

Yes...a visit to London is long overdue, hence the use of the above title and the nod to the "Tube" in the last post...

However, the gaps that I'm referring to have nothing to do with the sometimes huge gaps found between train and platform.

One is the gap between knowledge and acting on that "knowledge" (because what do we really "know" for sure?). This stretches much further than the realms of trading, so I'll leave it up to interested parties to google "Tony Robbins"! lol!

The other is the gap between Stop and Limit- a world of confusion and opportunity for edge-blunting/edge-hiding emotional reactions exists between those too places. It's quite ironic that the desire for freedom that brought most of us into this venture is the very thing that hinders many of us from ever attaining it, as we exit before our targets or stop ourselves out prematurely.

We're free to do anything but we must do something consistently in order to survive, let alone profit in any marketplace.

Better to just follow the advice and, "MIND THE GAP!"

"The Rush Hour Dance" & Trade Frequency

2009-12-06T14:37:00.000-08:00

Anybody who has lived/commuted in a major city will be familiar with this phenomenon..lol.

You're rushing to get the train, tube etc (or just rushing for the sake of it as people tend to do in these environments!) Someone is walking in the opposite direction you're going in and your paths meet. You choose a direction, to avoid a collision. They choose the same. You both freeze for an instant, wondering who is going to navigate around who. Somehow, you both decide to move at the same time and in the same direction. Once again, an awkward moment where you both end up almost bumping into each other (the very act you were trying to avoid...you can see where I'm going with this)

This little jig can be seen in every chaotic, rush hour environment. It can go on for several seconds until one of the two decides to take a stand, even at the temporary resistance of the other person

This story captures the essence of one of my difficulties in trading. Backing off because I've had a good run/ had several winners in a row/lost several trades in a row- whatever the reason, only to find that I've missed my winning opportunities. So, naturally, I come back with more conviction at the very moment when the strategy is destined for a losing period.

This, too, can go on for quite some time- Repeatedly pushing when you should be pulling and vice versa until you choose a direction (strategy) and stick to it- even through the temporary resistance of the other person (market-induced drawdown)

The other issue is the frequency with which I trade. I've convinced myself that taking a given number of trades (all with the same expectancy) in a short period of time is somehow more risky than distributing that said number over a longer period of time.

Flip a coin 10 times today or 10 times over a month...the chances of getting a given result do not change as the coin doesn't "know" how long you've waited to get/avoid a given result....

Will be looking to up the frequency this week.

What A Difference A Pip Makes.

2009-11-20T02:25:00.000-08:00

During the last 5 weeks of trading, I've taken 96 trades and made 24R in pure market movement. I stress that last part because, after commissions, I'm left with just 12 of those Rs.

So, I asked myself the obvious question. Why not avoid the extra cost with a broker who claims to offer "tight" spreads with zero commissions?? The answer is, of course, transparency.

The screenshot I've included with this post shows my TWS platform. The quotes for GBP/USD from a popular Spread Betting platform. A quick look shows that you lose 3 pips on every roundtrip trade using this particular SB platform and under these market conditions (I don't think I've ever seen anything above a 2-pip spread on cable during the European and US sessions on IB's platform). This quickly adds up to far more commissions than I'm paying with IB...

12R in commissions over those 96 trades means an average of 0.125R of every trade has gone towards commissions...with my average stop being approximately 10 pips, that means 1.25 pips (on average...lol) per trade. So now I'm thinking: What if I could consistently add a pip to my initial targets? How many (if any) of the winners would have become losers due to that extra pip? Would those losses be offset by the new target?

Of course this is all theoretical and difficult to put into pratice if you enter/exit the market using zones rather than fixed prices...but food for thought nonetheless.

This idea reminds me of a brilliant quote from one of the greatest films of all time.

Pressure and Time indeed.

Chop & Not- A Different Take On Support/Resistance.

2009-11-02T11:03:00.000-08:00

During my time spent studying Technical Analysis, I've been taught/learned about many forms of S/R- Pivot, Congestion, Whole number, Moving Average, Gaps (or windows in Candlestick jargon)....but there's one type that I haven't seen much of, if at all, in any of the learning material I've gone through.

It's what I've called "chop & not"- when price changes structure at a given point. It may be from trend to chop or vice versa.

I've just randomly picked out a chart that demonstrates this type of S/R. You can see how price went from longer bars with little overlap to the reverse. It also decreased drastically in pace- it took 9 bars to travel 78 pips compared to the 150 pips travelled by the previous 4 bars. You can see further confirmation of the pivot point by the activity in the third blue circle, which is seperated from another period of chop created by the three small waves of downside out of that high.

There are many ways in which this technique can be incorporated into a trading approach.

The other chart, shows how one of today's trades played out. You can see how my exit was the beginning of a trending market after the chop. Confirmation of the support I had used as a target.

Self-Talk And Edge.

2009-10-20T07:10:00.000-07:00

Excerpt from "Trading For A Living" (Dr Alexander Elder):

"Dr. Shapiro describes a test that shows how people conduct business involving a chance. First, a group of people are given a choice: a 75 percent chance to win $1000 with a 25 percent chance of getting nothing-or a sure $700. Four out of five subjects take the second choice, even after it is explained to them that the first choice leads to a $750 gain over time", (!?!...lol), "The majority makes the emotional decision and settles for a smaller gain."

My knee-jerk reaction was to go with option 2...I made the same choice as the 80% majority! Of course, after I actually used my brain, it was obvious to me that option 1 would be most profitable over time (not made clear in the text, but I'm assuming that's what was meant).

So how do we avoid these edge-blunting, emotional decisions?? My answer is Positive Affirmations, specifically related to the ideas of edge, probabilities and trading in general.

Some of the leading questions I've been asking myself in the 2nd person (...all a bit weird!):

"Is the fear of allowing this profit to become a loss greater than the fear of skewing the risk to reward ratio by not staying in the trade until target?" (When considering emotion-based exits).

"Can you risk losing money when correct about the market direction if that puts the probabilities more firmly on your side over the long haul?" (When thinking it's safer to keep a wider stop, despite actually losing money by doing so)

"Do you have a statistically proven edge? If so, why would you get angry/upset about any influence luck has had on any series of trades??" (When getting stressed out over missed trades, being stopped to the tick etc)

One of my favourite general affirmations is:

"Fear of pulling the trigger is warranted when you don't have an edge...fear of NOT pulling the trigger is necessary when you have one"

These are examples of the crazy things I've been telling myself any time I consider deviating from the plan. They are tailor-made for my particular difficulties.

It's had an enormous affect on my results :D

Follow-Through.

2009-10-07T04:09:00.000-07:00

Autumn (for everybody apart from UF, that's "Fall" *attempt at american accent* to you!) is here. With it comes the alleged volatility that makes successful traders more profitable and, I guess, the less successful even less so...

While going through my the past couple of weeks of data (not including this week), I'm noticing that my winners (always scaling out...all-in to begin with) are becoming smaller relative to the all-in, all-out distance that those winners run for. The average win divided by the average distance gives me 51%, meaning on a, say 6R market move I can expect to typically get 3R from it, using my method of scaling out at various s/r.

This week that's now become 39% (after 19 trades...same relative frequency of trades as prior weeks). I'm also seeing more small wins/losses with a Maximum Favourable Excursion,MAE's cousin, of 200%+...this tells me that the market, at least on the level I'm interacting with it, is choppy.

I'm struggling compared to last week but have made the necessary scaling out adjustments (taking off in thirds/more at the 1st target etc)to right the ship. Currently, I'm up for the week...

Most importantly, I am enjoying the opportunity to practice adapting myself and my strategy to the ever-changing ebbs and flows of the market.

"DayTrade"

2009-09-17T14:59:00.000-07:00

8 days, 47 trades & +11.17R after my MAE- assisted light bulb moment, I thought I'd quickly share a few statistics and the possible implications these may have;

* 27 winners (35.91R), 20 losers (24.75R)
* The above means Avg winner= 1.33R, Avg loser= 1.2375R
* 57% (0.574468) win rate
* 0.2374466 expectancy.

First impressions are good. The only number that really matters to me is the expectancy...considering Roulette gives the house a 5.26% edge (0.0526 expectancy), I'll definitely settle for the above!

However, the other values can cause problems of adherence to/tolerance of the edge. One potential problem that was obvious to me was the effect of any decent drawdown. If the system is making a little more on it's winners than it's losing on the losers, then, (assuming a random distribution of wins and losses) would it be more likely to chop it's way up the Y axis, opening up the possibility for a pretty severe drawdown relative to the slow but consistent collection of R's??

As it goes, that question got answered on Tuesday 13th September :)- 6 wins, 10 losses (!), 6.23R down. 62.7% of the prior 5 trading days gain...(9.93R)

If that day's excluded, we have the following stats;

* 21 wins (29.92R), 10 losers (12.53R)
* Avg Win= 1.4248R, Avg loss= 1.253R
* 68% (0.6774193)win rate
* 0.5609936 Expectancy.

There's two main choices that I see: choose to ride out those ugly days or try to limit them. I've noticed that the other days huddle quite nicely around that 0.56R expectancy while that Tuesday is sitting all on it's own at the edge of the bell curve (-0.389R)

So I'm thinking, what if I apply the same concept of MAE to the WHOLE trading day, effectively treating it as a "trade"? Maybe below -XR my odds of making money are reduced enough to warrant cutting the "DayTrade" loose?

I'll continue to trade/collect data and see what picture it paints me...

MAE & Me- Using Data To Hone An Edge.

2009-09-08T11:41:00.000-07:00

S0 after much struggle, it seems there could be light at the end of this particularly dark tunnel.

I've been trying to do something that I ~~believe~~ Know I can do. I just need to figure out the, umm, technicalities (ie how to do it...lol).

The chart shown demonstrates what I've always thought I could do but never had the conviction (or is that the data...?) to do. Even with a Sim account. This experiment came about by my study of the last 100 or so trades.

It quickly became obvious that my entries were so accurate, my Maximum Adverse Exposure, MAE, so small- 90+ % of winning trades never going into the red before showing a profit- that I had an untapped resource which could hone, if not stand alone as, my edge. What I was looking for was hidden in randomness- stops that were too wide to harness the strength I have at pin pointing short market sprints from fairly accurate entries...

Another obstacle is the tendency to watch dollar amounts rather than return on risk. If further along the trading path, you might watch return on risk but artificially cap it rather take profits at logical points. I suffered from this in particular and am still working on it. Eg I'd take half off at a predetermined R/dollar amount because I "couldn't risk giving back so much"- whatever that means!

The above problems of "giving room" with stops for such trades, watching where you are in a trade rather than where the market is in a move, result in no edge (gambling!). Fixing the risk will also leave less to chance (but will aggrevate any tendencies to watch dollar amount rather than the chart)

Crutches, Crotches And Common Sense.

2009-08-28T17:54:00.000-07:00

Do all traders need another source of income? I've been asking myself this question recently due to the slightly disturbing fact that I've always made money consistently in the markets whenever I've had a "normal" job (IE one where it's impossible to work all day and lose money!)This security has allowed me to be more bold in seeing my ideas through to resolution. Perhaps it also helped me to stay objective too...

On the flip side, I've found it difficult to sustain the same momentum whenever I've abandoned my job after several months of success which I felt proved my ability to provide for myself through trading. Some might argue, "why don't you just continue to build a nice account whilst working?", but that was never my intention.

"He's able to perform the most complex tasks but sometimes struggles with the simpler tasks which he tends to overlook" was the gist of one school report. That sentiment has resurfaced from time-to-time throughout various endeavours in my life. I know that I'm pushing a door that needs to be pulled...or devising a complicated way to clutch a stone in the palm of my hand, face down, instead of simply letting it sit there, palm up! *wink@UF*

Einstein's definition of madness: "Doing the same thing over and over and expecting a different outcome" (don't quote me word for word on that...but the meaning is the same)

A few fragmented thoughts at 02:30am.

"Beginner's Luck" & Technical Analysis.

2009-07-27T07:07:00.000-07:00

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 trader...how 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 magic...it's just a way to identify an edge and use it. The irony is, the edge usually isn't anything special...it 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....

My Most Painful Winning Trade.

2009-07-17T06:25:00.000-07:00

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!

2009-07-16T16:29:00.000-07:00

Ok...lol... 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".

Cognitive Biases- It's all in your head!

2009-06-17T03:41:00.000-07:00

The markets made up of many individuals, each with a tendency to fall into the trap of trading under the haze of these biases. They can appear one at a time or in a bunch, each working in sync with the others to make it even more difficult to see things objectively.

Some of my favourites are:

1) Sunk Cost Effect- Factoring in how much time, money etc you've committed to an idea when deciding whether to exit for a loss (or whether to hold on for larger gains) of course, effort isn't correlated with quality of an idea in the slightest.

2) Framing- Where the same thing is given different treatment dependent on how it's presented.

3) Anchoring- giving excessive weight to an irrelevant, but obvious, piece of information (Entries and Exits spring to mind)

There are many more, all very much linked to our perception of self (ego).

Those that are successful long term recognize these biases within themselves (something I'm very much able to do) AND are disciplined enough to work around them consistently (the part that I'm struggling with)

Back From Break.

2009-06-02T09:56:00.000-07:00

A break was well overdue. My first self-imposed break from trading in close to 3 YEARS!. I've been on holiday a few times during that period but always had a peak at a chart here and there or was reading a book etc. This time I literally didn't open my platform for a week- no blogs, websites, e-mails or books. Nothing. If I went to a bank to change my dollars into euros, I'd have been as clueless as your average joe as to what the exchange rate was :) Strangely liberating....

Several things became apparent to me while away:

1) There's more to life than trading (even if I love doing it)
2) I trade because I choose to trade, not 'cause I have to- whenever I start feeling the latter, I need to take a break.
3) The only correct way to trade is the way that makes you money, and it has hardly anything to do with patterns, signals etc. No getting attached to one method!
4) There is a good chance that blogging, at least in detail, could be harmful to my trading.

That last one is important. I started blogging with the primary goal of tracking my progress (or lack thereof) by keeping an open diary- essentially talking to myself but with the real possibility of having others follow along too....keeping myself honest in the process.

But things may have changed. I find myself thinking about what others may think about what I'm doing/not doing instead of remaining true to the initial goal- record keeping. The record keeping in itself is questionable as it confines me within the bounds of my own thoughts and beliefs.

So I'm throwing out the rule book and keeping an open mind. The only rule I'm keeping is to have a plan....and TRADE IT!.

GBP USD- 12:01ET....Time To Think

2009-05-21T09:10:00.000-07:00

What I'm doing isn't working for me anymore. A large part of that is emotional- how much is hard to tell as the system has a degree of discretion which can easily be affected by rampant emotions. Perhaps the market isn't favourable for this edge right now??

Whatever the mix, I need to have a think as to the next step as I'm not comfortable bleeding away anymore money. Managed to string together some 11 losses in a row, small size so the damage isn't bad but, all the same, serious food for thought.

One tiny consolation is many of the losses were stopped to the tick before reaching targets, others had the right idea but were just mis-timed....missed trades would have ended that losing streak too.

The difference between wild success and absolute failure is small....

AUD JPY- 9:04ET

2009-05-21T06:27:00.000-07:00

EUR USD- 07:42ET

2009-05-20T04:58:00.000-07:00

Playing off the same resistance shown in the larger timeframe of yesterday's last trade.

Not liking the way my orders are being filled at the moment! Slippage in a market that's turning your way is usually rare (at least with the futures market) not sure spot forex will be able to work long term with what I'm attempting to do.

EUR USD 14:25ET

2009-05-19T12:01:00.000-07:00

CAD CHF- 10:26ET

2009-05-19T07:29:00.000-07:00

GBP CHF- 06:29ET

2009-05-19T04:12:00.001-07:00

Stubborn sums up this one...I was unwilling to re-position myself which cost me the full stop.

AUD USD- 16:08ET

2009-05-18T13:48:00.000-07:00

USD CHF- 12:42ET

2009-05-18T11:41:00.001-07:00

AUD USD- 05:45ET

2009-05-18T04:23:00.000-07:00

EUR USD- 13:33ET & GBP AUD 13:39ET

2009-05-16T03:37:00.002-07:00

NQ 10:37ET

2009-05-15T08:21:00.000-07:00

Decent trade but kept the stop slightly too tight. 4 tick loss....

My priority right now is avoiding trigger lock so I can get used to seeing my equity moving, regardless of direction. Making money can come second until I'm completely free to follow through on trades.

AUD USD- 07:35ET

2009-05-15T05:16:00.000-07:00

6 pip gain with a 10 pip stop. Multiple entries on this one too but I took just the one.

Need to set the stop where it belongs with the appropriate size or will eventually get myself into trouble.

EUR USD- 05:39ET-Bad Trade

2009-05-15T03:43:00.000-07:00

4.7 pip gain on a 10 pip stop.

Missed the first entry in the sequence. That influenced my decisions in the second entry...good entry slightly too wide with the stop, taking the size of a 10 pip stop but immediately trailing it up to 8. The error came in trying to take gains according to ratios between 1) My entry and stop and 2) unrealized profits rather than my entry and suitable stop for the setup-which hit the target as it regularly does- vs unrealized profits.

So really should have been taking gains as the momentum slowed rather than waiting for the market to excuse my poor size management and give me more than my risk.

One positive is that I didn't wait in the hope that it'd continue (which it did, but the outcome is irrelevant..)

AUD JPY- 12:13ET. Objectives.

2009-05-14T10:46:00.000-07:00

8.5 pip gain with a 15 pip stop.

Still not quite maximizing my potential for nailing those entries compared to my usual margin of error. I know when this happens I need to take profits as if I had entered at highs/lows, which I did on this trade.

One thing which I've noticed myself doing is position sizing according to a certain stop and then using a tighter stop- not a bad thing if the reason is genuinely based on the chart. In this particular trade, I'm not sure that was the case...it could just be my subconscious telling me that I'm trading with too much risk.

May need to drop back to last week's level of risk for next week's trading.

GBP AUD-06:28ET.

2009-05-14T04:05:00.000-07:00

Not a bad trade. One area for improvement is agility- being able to scratch/take less than the target with a view to getting back in for the "real" move. This needs absolute objectivity...the two polar forces of fear and greed need to be kept in check.

I've learnt that a good trade (for me) is never succumbing to feelings of hope, regret or the aforementioned emotions. I call that being at the mercy of the market which is basically being at the mercy of yourself. I allowed this during part of the trade where the market made it's first attempt at the stronger move that was likely to follow. It ran out of momentum and I refused to exit and reposition myself at my original entry knowing full well that it could take out my stop and had to hope for those few seconds. After that, I took control of the situation again and exited at my target zone.

A combination of spread and less than optimal entry meant I gained less than I should have on this move.

21 pips gain with a 20 pip stop

GBP CAD- 11:04ET

2009-05-13T08:46:00.000-07:00

Either I'm not working (probable) or the edge isn't working (possible) either way, have to reduce the damage and call it a day...

Slippage is a concern too. 3.4 pips on this one for a 23.4 pip loss

GBP USD- 08:33ET & AUD CHF- 09:26ET

2009-05-13T07:39:00.000-07:00

1 1/2 pips of slippage on the first one for an 11 pip loss....AUD CHF had a 9.2 pip gain with a 15.8 pip max stop.

Feel an element of discipline returning once again. Pleased with the way I followed the chart not my P n L.

We'll see.

GBP AUD- 03:41ET Emotional Trading Once Again

2009-05-13T01:34:00.001-07:00

You can be so right yet painfully wrong. Stopped to the tick again! Target was then hit with the solid move up that I was looking for. Had my opportunity to exit with a smaller loss/scratch but didn't take it.

When completely objective, I'd have opted to cut my loss shorter than my maximum stop (as I've done at least once last week). When there's emotions clouding my judgement, I let the stop protect me. However, lately, my stops have been taken out literally at highs/lows before price often shoots off in my direction. I can almost feel that I'm one of the stuck shorts/longs and it's clear my position is being covered at the extreme of panic/fear.

Extremely frustrated. I've become part of the crowd!

The reason is clear too- the increase in risk. Still going to finish the week at this level though.

AUD CAD- 10:02ET

2009-05-12T11:14:00.000-07:00

Good setup but got wicked out with slippage, leaving me behind at the highs of the day....

Can feel that the increased size has influenced my ability to stay with the charts. But I'm going to see the week out and then analyse.

stopped for 21.1 pips

Also made an order entry error and had too much size...great stuff!

GBP USD- 05:11ET-Beginnings, Middles & Endings

2009-05-12T03:15:00.000-07:00

22.3 pip gain with a 20 pip stop....little late on the entry which meant the stop was slightly too tight. Price moved approx. 75% into my stop before turning around.

Having a difficult time taking those entries that spin off from the initial entry. I view any potential loss as a waste of money rather than a business cost (which is how I view the initial entry)...I've seen the setup hundreds of times (drawn in yellow on the hourly) but I'm going to have to forward test it with reduced risk/ paper trade it to instill confidence in myself.

But there's one more issue.

I have this crazy bias against losing money in an instrument that I've just made money in. I think the problem stems from the abitrary use of the word "Just" and my feelings towards my account equity fluctuating between "positive" and "negative"- all subjective ways to measure progress. I've read my previous post on the subject to try to remind myself that there's no up or down until we choose to focus on something and use that as our reference point

GBP CHF- 09:22ET

2009-05-11T07:20:00.000-07:00

Routine trade. 21.7 pip loss 2 of those due to slippage...

EUR USD- 08:22ET. Bad Start.

2009-05-11T05:57:00.001-07:00

Not happy with this trade. I have increased my size slightly to see if I can continue to maintain the same discipline and, already, It would seem I've been influenced by the change. Got out with a 3.7 pip gain using a 10 pip stop....my target was 10-11 pips....

I made two errors of this kind last week (along with two technical analysis based errors)...won't read too much into this mistake until I've taken a few more trades.

Got to keep focus on the process not on the money.

EUR USD- 14:50ET

2009-05-08T15:27:00.000-07:00

11.7 pip gain with a 8.3 pip stop.

Been going over the numbers for this week's trading and it looks...well, exactly as it did before going pear-shaped back in early March.

Won't be increasing size just yet as I'm still making too many mistakes, albeit far less than was standard throughout March and most of April.

Keeping the focus on the charts.

EUR CAD- 12:23ET. Slip In Discipline.

2009-05-08T10:31:00.001-07:00

Was exhausted by the time I took this 23 tick loss (3 due to slippage). Have to remind myself that having the discipline to stop trading due to tiredness/lack of focus is as important as the discipline needed to follow a strategy without deviation.

First error was placing the stop a little too loose and then not getting out of the position on the first move down into support (shown by the yellow arrow on the 1min chart) after that, I left myself open and was just floating around in the market hoping that the strength of the larger timeframes would save me. Basically fell prey to my main weakness...the same one that I managed to avoid in the First Trade Of The Day

NQ 07:20ET, AUD USD- 09:05ET

2009-05-08T06:54:00.000-07:00

1.75 point loss (0.25 point slippage) on the NQ. No mistakes there.

10 pip gain with a 10 pip stop. Couldn't take the first entry in the sequence of 3 entries that were available to me due to the economic announcement. I've noticed that they usually follow through well as it did today but, when they fail, they do so brutally and I don't fancy losing several times my risk fighting to get out.

The retracement (2nd entry) I watched closely as it hung above the upper trendline resistance. I reasoned with myself that that was perfectly normal as the announcement caused a burst of emotional activity which allowed it to push the boundaries of the pattern. Put my order on the books but didn't get filled, hesitated a second to0 long....

3rd entry was the one I took as it formed the pattern around the blip of the EA.

AUD CHF- 05:31ET Entries, Exits & Ego.

2009-05-08T03:06:00.000-07:00

Credit to myself for taking such a "risky" pattern.

I know that the only way to realize the true potential of this methodology is to not filter out anything and let the method speak for itself- In my experience the merits of the setup, that is, the probability you give it of working or not based on your analysis, holds less importance than what you do when you're in the trade.

Working on creating the habit of trading based on pattern entry and pattern stop regardless of whether I managed to attain that entry or not.

The edge which created itself during my time learning this method, dictates that I exit after momentum stalls into minor S/R. If I've timed my entry well and placed the stop where it visually belongs on the pattern, I almost always return more than my risk. Unless, of course, it flat out fails from the start (ie momentum slowed then took off again in the same direction).

The three elements- stop, entry and exit (if not stopped out) need to work together. Deliberately skewing the R vs R by placing a stop above wicks instead of above the pattern (for a short) then exiting based on the pattern (as I did in this trade) won't do any good in the long run as far as profit is concerned.

What it does do is strengthen discipline and removes ego from the above equation.

GBP JPY- 10:24ET- trade sequence.

2009-05-07T08:10:00.000-07:00

Another two-trade sequence. First trade was an 18 pip loser (15 pip stop with slippage) on 15k. didn't take the first trade in the sequence as I was waiting for too much confirmation and missed the entry (was a winning idea). Second trade was a 12.3 pip winner (7 pip stop) on 30k....no mistakes here.

There were more entries which would have made this sequence more profitable but I'm in a phase of building confidence in my ability to act consistently in the face of uncertainty.

So far so good.

GBP AUD- 04:20ET- my typical error.

2009-05-07T03:23:00.000-07:00

Same story...well, almost.

Got a nice entry (2.0006- 1.9986 stop) but pace didn't pick up out of it. Ideally needed to scratch and re-enter but I'm not expecting that of myself for now. Price trended down, held my stop almost to the tick (this is where the element of luck comes into play) I then got the move I was looking for...I repeated the same error of lack of wiggle room with my limit target order. Exited with a market order when I realized that was the case for a 6 tick gain.

I remember saying to myself, "exit according to pattern entry not my entry"...In retrospect, although I get points for effort, I didn't quite achieve that objective.

Had I have entered at pattern entry, I know I would have simply adjusted that limit order down by a tick or two. What stopped me was trying to maximize reward vs risk...basically asking the market to respect my entry and profit goals! of course that's important (reward vs risk) but, when you're entry doesn't match the markets entry, you MUST act accordingly.

YM-14:40ET

2009-05-06T16:44:00.000-07:00

Two trades here stemming from the same idea. Overall, good execution. My inaccurate calculation of the lows of the first move cost had me give back some 13 ticks before getting stopped for a 9 tick gain with a 10 tick stop....needed to pull the plug with a market order when I missed the target but opted to use a trailing stop. That was the only mistake made in an otherwise good sequence. Second part of the sequence had the same entry (8473)..same stop (8483). This time adjusted my target limit with the all-important wiggle factor. Got out at 8458.

Can see other entries in there to ride the move down lower but had to leave after that second trade- not sure I would have pushed it anyway, but that's what I'm working towards doing.

EUR AUD- 08:19ET

2009-05-06T06:06:00.000-07:00

Waited for the news to be digested before jumping into this one pretty much at lows...no rules broken here. Good trade.

I'd like to push the edge and get back in at the entries that usually follow, but, for right now, I'm comfortable taking the initial entry for whatever momentum move that may follow.

20.6 pip gain on 20k....20 pip max stop.

*UPDATE* Took another entry at those lows- got stopped with the same size for 18 pips

GBP AUD- loss of control.

2009-05-06T04:07:00.000-07:00

Not a bad trade. Like yesterday, a move pushed higher than my entry and then made the move I was looking for. I allowed yesterday's result (ie the trade following through) to stoke the emotions of greed and try to hold on for larger targets. As mentioned several times before, need to be exiting based on the pattern not on my entry.

I did take back control of the trade and exited at 1.77948 (entry 1.7786) for a loss of 44% of my full risk. This is after entry resistance became support along with the upward-sloping trend line.

Feel an element of self-discipline coming back into my trading.

GBP AUD- 12:41ET

2009-05-05T10:26:00.000-07:00

Good Trade. Bad entry but, crucially, managed the trade based on the pattern NOT my entry.

7.6 pip gain with a 20 pip stop

GBP USD- 07:11ET

2009-05-05T05:13:00.000-07:00

Good trade. In and out according to plan with a 14.5 pip gain using a 10 pip stop....

USD CAD...just before the close.

2009-05-04T13:16:00.000-07:00

EUR CAD- Friday 1st May, afternoon.

2009-05-03T14:28:00.000-07:00

Another trade influenced by my current issues with liquidating/initiating positions. 1 pip gain....15 pip stop on 30k.

Looking to moderately increase size soon.

GBP AUD- 10:03ET & AUD CHF 10:49ET

2009-04-30T08:24:00.000-07:00

GBP AUD- 27 pip loss on 20K...AUD CHF 17 pip gain on 17K Good execution of the plan from my side on both, but some serious liquidity issues. First trade had 7 pip slippage, second 3 pips on the exit. The commission is killing the edge too....

But this isn't any exercise of profitability right now. It's about limiting the damage while trying to regain trust (if warranted of course...we'll see) in my methodology and, most importantly, in myself.

With that in mind, I'll happily pay for relative safety with the negative effects of commissions and slippage by continuing to trade this way until I can really trust myself again.

EUR CHF- 07:45ET

2009-04-30T05:39:00.000-07:00

Good trade....followed all the rules. Took the 3rd entry that the setup offered, which was riskier as the 3rd try is the one with the highest probability of breaking the S/R.

7 pip gain with a 7 pip max stop (ie the one on the books to catch me in the worse case scenario of denial, hope etc taking control! Should be out sooner than that though...)

....And The Award For "Worst Trade Of The Year" Goes To....

2009-04-29T12:44:00.000-07:00

CHF.JPY-14:27ET....16 pip loss- But that's not the problem...

The problem was the emotional trip I allowed myself to go on. All the classic emotions: Revenge with a dose of greed (wanted to squeeze every last drop out of a move that had already met my objectives due to wanting to "catch up"...get back what was mine), desire to be proven right (about the exact low of the sell off...), stubborness in insisting that it should get down there (kept my greed-limit on the books) when price had clearly established the end of the move, greed/fear on the way back up. After all, I just couldn't give back too much of the move, could I?? (LOL!) and, finally, surrendering to the market after arriving to the breakeven area and hoping that the market would sell off again and give me another shot at booking profits.

It didn't. Instead, it blasted through my stop (which wasn't on the books as I was focusing on an exit. Should have been there to cover my back anyway). I panic-covered at what must have been the highest ask in that flush before price continued down to, and past, my target zone.

Yep. Definately the worst trade of the year!

First time I can remember reaching my target and then taking a larger stop than intended....

EUR GBP- 11:47ET

2009-04-29T09:07:00.000-07:00

Pretty happy with this one...took a 9.5pip loss but entered with fair accuracy and exited within my maximum stop.

Could have covered sooner but good trade.

EUR USD- 05:01ET

2009-04-29T02:41:00.000-07:00

Routine trade. Details on the 1min chart...

This very interesting post, along with the links within it, got me questioning how much I really know about probabilities and, most importantly, to what degree I believe in probabilities. Two crucial ingredients needed to take advantage of any edge in the markets.

Required reading for anyone who has passed the grail hunt phase of the learning curve and wants to move from choosing trades to trading an edge.

Seen This Before...

2009-04-28T09:29:00.000-07:00

Can't quantify it yet, so can't trade it.

But I'll be watching out for setups like this to see if I build a strategy around it. Kinda reminds me of this trade here...

GBP JKY 09:38ET- botched trade.

2009-04-28T07:09:00.000-07:00

The right thing to do long term often means taking some pain short term. I compounded my mistakes in this trade and almost wanted to lose after giving up control to the market.

Got in early (one of the reasons for that is my effort to keep risk constant- explained below) and price just continued to move against me, taking out the stop I had ready but not on the books (first mistake) couldn't accept the trade being over before it barely begun. Was aware that my stop area was where I should have actually entered and so held into profit. The move stalled at some support but, rather than exit as I would have with the correct entry I based my exit on my entry rather than the pattern's entry...one of my demons (second mistake) I had a stop above the prior pivot high (14 pips from my entry...4 pips more than intended stop)which, as luck would have it, got taken out with slippage for a 17.3 pip loss on 29K.

Entry 141.290 Exit 141.463

Although useful to eliminate the effect luck has on trading, trying to keep risk exactly the same isn't going to work with my way of trading. It puts too much pressure on achieving a certain price and adhering to a given stop. Catching momentum reversals is waaay too dynamic for that to work consistently. Entry and exit zones are the way to go....this is probably why I only found profitability with contracts. I didn't have to do as many on-the-fly calculations.

Will keep risk within a ballpark figure but got to do away with the idea of a fixed amount.

EUR AUD, 09:55ET- Liquidity And Currency Confusion.

2009-04-27T07:36:00.000-07:00

Still haven't quite figured out the ins and outs of currency calculation when it comes to the spot forex market...especially when the trade involves two currencies other than the base currency of the account (USD).

This causes some risk management issues as ~~I'd like to know~~ I need to know my exposure in the base currency. This allows me to proactively manage my risk in every trade (for me, this means always keeping it the same...others might choose to augment risk with higher probability setups) So IB will soon have me pestering them for a full explanation!

Aside from that, there is also different minimum sizes for the various currency pairs that I need to know BEFORE I pull the trigger. Otherwise I end up missing my often fleeting ideal entry. Couple that with a large spread relative to my "playing field" (distance between my stop and target) and liquidity problems, making it difficult to enter and exit the market (probably due to small size...will play with that to confirm) and I feel lucky to have got out of this trade with an 14 tick gain on 18K.

GBP USD- Sunday 26th, 10:17ET

2009-04-27T03:51:00.000-07:00

Continuing to trade the spot forex market as it enables me to control my risk (of course, you can control your risk with contracts in the futures market too but the minimum, 1 contract, size is already large for my appetite for risk) whilst still participating in trade.

The downside is, whilst trading smaller size, my risk vs reward ratio is being drastically skewed. Commissions are fixed, irrespective of trade size. Using this trade as an example....

11 tick gain with a 9 tick stop= 1.22R (gross)
11 tick gain(-comm) with a 9 tick stop(+comm)=0.56R (net)!

The system needs to either run winners longer relative to losers (which effectively destroys the statistical viability of the system) or be used with larger size to reduce the effect of the fixed commission on risk to reward

The latter is the direction I'll be going in once I'm satisfied I'm trading objectively again.

AUD/USD, Just After 10:00ET

2009-04-24T20:11:00.000-07:00

Routine trade (or at least how the routine was and must go back to being). Defined the entry, stop and target...something I feel I've become complacent with. Congestion resistance and equal move highlighted on the 30min chart...14 tick gain with a 6 tick stop.

Smaller size for now until I can get myself back on my feet.

GBP/JKY-23rd April, before the close.

2009-04-24T11:01:00.000-07:00

Nice setup here on larger timeframes with the equal move finishing off the breakout and pullback to the trendline that served as support for the daily uptrend.

Got stopped for 20 ticks...the bias played out nicely however.

EUR/USD- 05:10ET

2009-04-23T04:43:00.000-07:00

12 Tick loss...nothing wrong with trade management on this particular trade but the fact that my equity curve is dropping away (somewhere in the region of 56% off the years high) is a cause for concern.

The problem is absolutely emotional...the strategy/method has waxed and waned in terms of profitability over time, but my results don't reflect the overall potential of the edge....at least I'm still profitable- for now.

Will continue to limit my exposure to the more volatile, higher risk, contracts such as EUR/USD to limit damage. Once I'm able to divide risk with the new account, I'll trade them all.

More Of The Same- GBP/USD 13:45ET

2009-04-22T16:02:00.000-07:00

Same story. Late entry which I scratched. Later 2nd entry was rushed and I allowed my entry to dictate my stop...easily avoidable mistake, but not for me right now....

7 tick loss

I'm looking forward to focusing on correcting these errors tomorrow, regardless of whether I end up with profits or losses.

GBP- 12:47ET Emotions & Discipline.

2009-04-21T09:00:00.000-07:00

Absolutely messed up a brilliant scalp opportunity in the GBP/USD pair. Of the 33 tick move I should have taken 25-29....emotional (hence late) entry at 1.46820 (after watching it pop higher than my targeted entry by 6 ticks...1.46900 was the high) with my head screwed on I would take that better entry, given that it was within the boundaries of the pattern. Instead I hesitated and stumbled in late.

Then the exit. Had 1.46670 in mind as the first minor support (game plan was to go for scalp targets given previous action and profits that I'm giving back too frequently) but I waited to see if it'd go further- it popped back up and took out my trailing stop at 1.46790 with some slippage for a 3 tick gain

In the past, if the correct exit didn't cover prior losses, I may have hesitated as I did today. But today, I can't even use that as an excuse...lol.

emotional trading=slip in discipline=loose entry + loose exit=blunted edge!

YG-12:07ET

2009-04-21T08:25:00.000-07:00

Nasty drop on this one just as I went long. Took several extra ticks of loss than I had intended as I stood briefly like a deer in the headlights then pulled the plug for an acceptable loss.

Otherwise routine trade. Keeping size small until I feel I'm in sync with the market and my method.

Charts used are of the normal-sized gold contract, GC for clarity.

Dow Jones Euro Stoxx 50 contract- 10:00ET

2009-04-20T07:44:00.000-07:00

Well I've been here before! Setups that don't follow through solidly but offer 1 to 2 times risk before turning around and stopping me out...usually for a tiny profit. Difficult to tell when to aim for those larger targets or scalp, especially when there's seemingly no correlation between support and resistance strength and the degree of follow through....There's two ways that I'm looking to deal with this: 1) Taking off some of the position or 2) Just scalp!

Anyhow, 2 ticks on this one

GBP- 04:24ET

2009-04-20T02:15:00.000-07:00

Tried a long here...some hourly and daily support but we are still coming out of a very strong reversal in the GBP/USD pair from a few days back (Wednesday 15th, 20:00ET) so caution was warranted- when the breakout from the wedge failed to produce an increase in volume, I raised the stop.

Covered commissions for a scratch...the pattern went on to fail.

YM- Afternoon Reversal

2009-04-18T10:10:00.000-07:00

Didn't allow enough room with my stop on this one, probably because I don't trade many 30min patterns. Paid for it with a 20 tick loss. stopped by 3 ticks before the reversal I was looking for...

Several strong resistances: pivot resistance on the daily with slowing of pace into the test of the trendline (DIA chart), equal move setup on the hourly, with 3 waves of buying on the second move.

Needed to be taking some risk off at 8100 but couldn't. That'll hopefully be sorted soon when I move away from trading Forex/Minis with contracts.

FTSE (ZM9)- 08:14ET- Emotional Trading.

2009-04-17T08:33:00.000-07:00

Same problems that've plagued me before...keep reminding myself not to trade my woulda-shoulda-coulda account (or even the real account) and just stick to objectively trading what's in front of me, regardless of where I am for the day/week/month etc....they're nothing but arbitrary periods of time conceived by us to try to maintain some sense of control anyway...

First time trading this intrument didn't affect my performance. What did was yesterday's trade. Late entry by four ticks (fear of taking another loss so soon after the others...) swung the trade around and had me trailing my stop to try to protect myself. The result was a flat or another commissions loss (after 3 ticks of slippage) I got stopped by 2 ticks before price turned around and dropped off some 16 points (32 ticks) before consolidating and continuing to drop off later.

Account preservation is good but I need to loosen my grip (i.e trade a plan rather than my emotions) to move forwards and begin profiting again.

NQ 14:10ET (ish)

2009-04-17T00:23:00.000-07:00

Not much to say about this one...routine trade. Nice entry, nice exit on the break of the pattern's structure. 1.75 point loss

I have an edge, with a somewhat consistent approach to using it, but I don't have a "system" (and don't believe a strict systemized approach will work for me)....the grey area- the discretionary decision about exactly how far into S/R it needs to go before entering a trade (and, likewise, how far out of S/R it needs to go before cutting a loss...) is giving me some trouble. Failure to manage that area can turn a winning edge into a game of luck.

I have noticed that when the pace into my entry area is high, I'm able to more confidently pick off my entry and define my exit. Those setups are fewer and further between than a few months back.

CAD/USD 13:17ET

2009-04-16T10:57:00.000-07:00

Good entry...hesitant exit. 11 tick loss. Can feel emotions sneaking into previously objective trading.

30min support was good but there was the equal move (shown in prior CAD/USD post) going against the setup.

Feels like I'm driving with the breaks on....

NQ 14:43ET and wicks.

2009-04-15T16:38:00.000-07:00

2 pip gain in the NQ....waited for the strong push into support before picking off a really nice entry (green line on 5min chart)...wicked down one more time (creating a "Tweezers Bottom" candlestick reversal pattern)- consistently following one way of doing things hence the reason I didn't get back in.

I'm noticing alot of patterns pushing through their upper/lower trendlines on the third leg up/down by more than usual. Patience is keeping me out of trouble though, while still giving me a chance to take the opportunities presented to me (so far at least)

CAD/USD- Scratch.

2009-04-15T09:41:00.001-07:00

Few solid setups of late...happy with the way I managed myself on this one. Followed all normal procedure but momentum didn't follow through.

Fantastic higher timeframe resistance with various upper channel trendlines being hit along with an equal move on the daily...intraday pattern on the steep side hence the rounding at highs prior to any significant sell off.

Incidentally, did pull the trigger on monday with a GBP/USD momoreversal but, alas, IB had some problems with accessing GLOBEX at the precise moment I needed to short. Cost- 30pips.

Nevertheless, happier with the stats so far this month...just would like to see more opportunity!

Getting Back In The Water

2009-04-09T12:26:00.000-07:00

Took a trade in CAD/USD today...pretty much got wicked out, stopping out two ticks from the low (ouch!), for a 5 tick loss...

I was a tick or two early, but the structure of the pattern was broken so I exited and took my loss . It's all about the probabilities...having the discipline to cut those losses when the edge has been lost is what'll keep the equity curve trending up (or at least allow any pullbacks to be shallower than they might otherwise be).

As annoying as it is to be stopped out at lows, it's important to remember to rate the quality of the decision/action (i.e taking the loss) not on the outcome but on the correlation between actions taken and probabilities observed...what happens next is irrelevant.

Sometimes the animal breaks the fence down and still returns to it's side of the field.

GBP/USD- 08:35ET

2009-04-03T07:18:00.000-07:00

There wasn't a particularly strong higher timeframe on this one but adequate enough to take the trade. If entry at highs (or lows when going long) can be executed with a certain degree of accuracy then your potential return on risk increases drastically, even more so when the pattern is visble on a larger timeframe. This was the case today hence a healthy 45 tick gain...

Patience and the willingness to let setups go unless the support/resistance is "stretched" is what I was missing last month and what was very much present in the months beforehand....

Can't remember where I heard it, but I once read a trader's metaphor for support and resistance that has stuck with me ever since. He/she described S/R as "a fence in a field" with bulls on one side and bears on the other. He/she mentions that, although the fence is stuck in the ground, there's a certain amount of "give" in the fence which allows the bulls to invade the space of the bears without breaking the fence and vice versa. If a bull/bear were to run into the fence there would be more give than if it were to walk into the fence....sometimes, the fence is broken down and one animal runs riot in the other's side of the field.

Waiting until the fence is stretched to breaking point, rather than just touched, will always give a better risk/reward ratio- you'll know that your edge isn't working much sooner (and at a lower cost) and, in the case of the market moving in your favour, there's a higher probability that you'll be able to lock in profits/exit the trade in a way that'll make you profitable over time. In short: better entry=more choice.

ES 10:50ET & Consistency

2009-04-02T08:52:00.001-07:00

Like yesterday's trade, the intraday pattern left alot to be desired but passed my criteria for taking the momo reversals. Higher timeframe resistance was great...

I'm happy with my execution on both parts of the trade, winning and losing. Where I'd normally let my stops take me out and call it "end of trade", this time I thought I'd "press the edge" as I like to call it. Both approaches are as good as eachother in that they both have pros and cons and will move the equity curve in different ways, but the worst thing to do is jump between the two approaches.

So I'm sticking to what worked before and will take the result of the first trade, especially as past trading results suggest being stopped out for a small gain relative to the risk increases the odds that the pattern will fail.

It's becoming more and more apparent that a consistently rising equity curve is dependent on a consistent thought process and approach to the markets.

GBP/USD 15:35ET

2009-04-01T13:55:00.000-07:00

First trade after holding back for awhile. There's been a few in the last 6 trading days...JPY on the 24th March, 3 on the 25th (documented a couple posts back)....this week: ES on Mon 30th and yesterday,Tue 31st, a couple in the CAD and AUD.

This one had a strong higher timeframe. The lower was weaker but took the opportunity to practice execution. Good entry and good exit based on what I was seeing at the time.... 14 Tick Gain....

Discipline and Patience!

JPY/USD

2009-03-26T04:48:00.000-07:00

Was aware of the rounding of pace and extended 3rd leg down in the pattern but took it anyway. 9 tick loss.

Can't say I'm enjoying this drawdown! But the fact that it's well within the limits of appropriate risk for my account size is comforting. I also know that it's a mental drawdown as opposed to a system drawdown...

Will continue for awhile but, if I find myself doing any of the craziness of this month over the next few trades, I'll need to take a break to re-ignite the discipline and objectivity in my analysis that got me this far in the first place.

Return Of The Novice!

2009-03-25T10:45:00.000-07:00

I knew it had to happen...I'm suffering from every common error made by novice traders under the book. Some of my personal best this month:-

* Hesitating due to fear induced from previous losses.

* self destructive/revenge trading...jumping into less-than-solid setups to "show the market I'm not afraid"

* Entry based exits- rather than relying on the chart to tell me when the edge isn't working. I've sometimes exited because the loss wasn't tolerable (due to impatient entries), often times stopping myself out to the tick.

* Hesitating due to fear induced from previous "losses"- differs to the first bullet point in that these are opportunities that have been passed on for any number of emotional reasons which would have been profitable.

In short, these are based on trading either the actual bottom line or the virtual bottom line If I had/hadn't done xyz I would/wouldn't be up/down by X amount.

Case in point. Took an absolutely horrendous trade in the GBP/USD which failed for 12 ticks- this one falls under the revenge catagory. Then, when a perfectly good Mini Gold setup formed into 13:30ET, I hesitated due to the waste of capital earlier. Of course that one is now following through nicely. Forget the account equity!!

*UPDATE*- EUR/USD at 14:15ET, followed by YM at 15:00ET finishes off "momo season"...as a consequence from the above, I hesitated on EUR/USD and, by the time the massive YM reversal rolled around, I had already resigned from watching the charts for the day.

I usually make less money than my strategy allows due to the aforementioned lack of emotional control from time to time. So far this month, I've allowed this to dominate my trading hence turning diminished profit potential into all out losses.

NQ 15:00ET And Two Schools Of Thought.

2009-03-23T23:49:00.000-07:00

Very strong setup, as far as my usual analysis goes, in the NQ- but it failed for a 7 point loss. I had increased size as my intention was to try to run some of the position as it had high odds of follow through...

So I'm decidedly down on the month and I'm still torn between two different approaches towards the market: Do I continue to execute my strategy as I did when it was producing gains with the confidence that it'll come through this drawdown and be profitable once more? Or do I try to move with the market and tweak what I was doing to try to keep it consistently profitable??

The thoughts motivated by GREED & FEAR suggest I go with the latter....the consensus with the professionals I've come into contact with points to the former.

YM- 09:08ET

2009-03-20T09:44:00.000-07:00

Choppy trade after the trigger on this one meant an 8 tick gain for me...the volatility of the open, along with Quadruple Witching option expiration day meant initial stop would have been at risk of being hit If going for the larger targets.

Fortunately, I look to take advantage of the initial move out of the setup so that usually protects me from events like this. Unless, of course, the pattern fails from the get go and never shows a paper gain...

The ES faired alot better and gave less trouble getting to larger targets. A chart is posted to show the comparison.

YM- 15:43ET

2009-03-17T14:24:00.000-07:00

Nice execution enabled this trade to be a technical, albeit small, money-maker even though the pattern failed.

Although going into the zone of the three-wave trend exhaustion, along with the congestion circled in blue on the 60min chart, the price was always going to want to test the highs more solidly. This would likely create a slightly higher high which would bring it solidly into the downsloping trendchannel line beginning 5th of Jan. So it didn't get far before turning higher to test that area....

Nevertheless, managed to get 6 points out of it.

Lessons Relearned- NQ.....15:20ET

2009-03-13T13:34:00.000-07:00

Recently, been entering trades too early through impatience. Today's trade proved the importance of nailing the entry within the parameters of the pattern because I almost certainly would have got stopped out had I have entered even a fraction earlier.

It's not that getting those optimal entries prevents you from going into the red but they allow you to stay in a trade until the pattern is broken...and then some more to make sure (wiggle) WITHOUT exceeding a "normal" loss.

Up until this month's trade, I've always waited for the best entry possible. With my current entries, I'm stopping myself out at/near the high/low as I'm watching the dollar amount not the chart. I avoided that today by exercising that old patience again.

Decided to get back in on a retracement, which is fine, but rushed once again...number 1 shows entry and stop...2's green line is where I got stopped on the first trade and where I re-entered for the second, getting stopped at the red line.

Ended up with 1.25 points overall.

Good Day->Euphoria->Impatience

2009-03-12T10:29:00.000-07:00

Nothing much to say apart from it was a forced trade with a rough entry- Good resistance on the larger timeframe but the intraday wasn't good at all...dropped 2.5 NQ Points.

So I'm going to shutdown, go to the gym and try to centre myself for my next trading session.

UPDATE- Didn't follow through. Came back too soon and anxiously entered a trade in the YM too early- 25 tick loss...the frustration!

GBP/USD- couldn't resist!

2009-03-11T19:13:00.000-07:00

Said to myself that I was done with trading for the next 8 hours (so I can sleep!) jumped out of bed "just to check" what was going on with GBP, having noticed it forming the second pullback of a potential momo reversal into hourly resistance. The scenario played itself out and had triggered moments before I had the chart up on the screen.

Stuck to my rules regarding trading whilst tired and paper traded the setup- just to mark the setup in my mind and for a little decision making practice. Besides, had I have been ready to trade live, I'd have passed as the optimal entry point had gone. Entry 1.38980 Exit 1.38810, Entry 1.38850 Exit 1.38670.

Now I'm definately going to bed!

Mini Gold- 13:00ET

2009-03-11T10:43:00.000-07:00

First time trading this instrument. Been watching GC, the standard sized Gold Futures Contract, for awhile and decided that I've grown to understand the way it behaves and that it was time to trade it. Albeit using it's smaller counterpart, YG....

First trade in awhile where I feel I've maximized the opportunity available to me according to my abilities and limitations. Entry 913.20, Exit 909.40 for more than 3x my risk.

That puts me back on track after last week's loss-riddled trading...

GBP/USD- lesson not learned...yet ;)

2009-03-11T07:35:00.000-07:00

Very similar scenario to the First Trade Of The Month....good entry, good trailing stop...but there's always, what I call, an intermediate first support/resistance where stops should be tightened/an exit should be made.

There was such an area into 1.37200. I noticed it but insisted of trailing the stop in the same manner.

Burns to give back 62% (Incidentally, I've noticed that I've given back that amount at least once before. There's something to be said about giving back a fibonnaci percentage...will look into that)