Rejection Therapy + Christmas Eve Review.

Rejection Therapy and Video Review (24/12/12)

Celebratory Video Review(s)!

We're not dead (yay!).....

Friday 21st December 2012

.....so I'm taking a leap of faith and posting one (or two) of the "diaryvids" that I record as part of my personal record keeping.

As mentioned in the above video's description, they aren't made for public consumption. The audience is usually limited to me and my girlfriend (poor thing!) and, as such, they are rough around the edges...but I'm sharing anyway...

EDIT: Second part of the week's review:-

Week Review (Wc 16th December 2012)Pt2

What I've Learned- Month And Dataset Review.

 First thing to note is that there is an edge, as the pip-count, after spread (half of the costs incurred when trading at this size), is very much positive. Unfortunately those pips haven't quite covered commissions hence the negative result. This has pretty much been the case with my trading for the last three years.

In September's "Trading Without A Compass" post I referenced an idea that has plagued my trading for a long time- The "Profit Ceiling". I am lucky/skilled/aware enough to know when it has been reached but, despite that knowledge, this is how the four weeks panned out:

I know exactly why I traded past the ceiling on every occasion. First off, I refuse to accept that it exists (more on that in the 3rd and final reason). Secondly, I want/expect to be able to trade my method continuously. After all, if it worked to the ceiling, it should work past it right?

Wrong.

Integral to the method is my discretion. So, when I feel as if the ceiling has been hit- it has. Even if it is a self-fulfilling prophecy, it can't be ignored.

The other reason is not easy to write here, but I'm going to say it anyway.

I'm addicted to trading.

Somewhere along the journey, it stopped being about profit and became more about the challenge. Going up against the market is ALWAYS a bad idea. If I had simply stopped trading when I felt like I had bumped into this "Profit Ceiling", I'd have found myself up some $550 on the month, even with the >4R loss that occurred due to a gap against me.

This idea of going up against the market is ludicrous. Most people learn how to create an edge for themselves within a couple weeks/months of careful study of a chart. After that, it's an exercise in self control and a desire for long term results over short term thrill.

A bit disappointed in the lack of participation in this blog (not one vote on the last poll!!!) so may cut back drastically/stop as it's a waste of my time otherwise. I already keep detailed data in the form of spreadsheets (as seen here) and video diaries so only really here to ignite discussion on the real challenge that is trading...

....it's NEVER the market's fault. Long-term results are all our own doing. :)

Day's Anatomy- 16th November 2012...Readers' Poll 2!

Notice the direction of ALL the trades.

I suddenly started thinking about this post that I made years ago. 2) & 4) in particular.

It (No 4 from the above link) was the same when I started this blog. That is likely why I deliberately started avoiding tracking day-to-day progress in the first place.

Do you see the obvious clues?

In the above equity chart:

Light Green
   = Paper Trading.
Dark Green
   = Live Trading.
Blue
    = Daily Blogging.
So I'm giving myself at least a month of trades without a single blog post (I'll continue updating my records though..spreadsheet, videos etc). Then I'll probably be back to report on any changes.

So I've either succumbed to the pressure of real-money trading or, coincidentally, what I'm doing stopped working when I made the switch. Or maybe it's just a draw down in an otherwise profitable approach.

What do you think?? (see poll on the right of the blog)

Back in a month!

Day's Anatomy- 15th November 2012

Knew this type of day was round the corner...

I've seen this pattern in my trading many times. Too many almost-successes (several trades that were good for target, close-to-execution trades that easily returned target-making pip amounts etc etc). Then you just let go....like sellers giving up at the beginning of a break out.

Luckily, I use stops, both trade and daily.

Was one step behind PA today. Would have been a losing day anyway.

Day's Anatomy- 14th November 2012

Pretty good day it terms of behaviour. No knee-jerk reactions.

Still struggling with the discretion involved...had I have taken every potential trade candidate, I would have had lots of opportunity for winning trades of varying degree, along with 2-3 extra losers. Statistically that is the thing to do..goes without saying.

Psychologically it isn't. At least not for where I am with my trading. Taking trades, win, lose or draw, uses up emotional capital, of which I have little! Managing trades is my stronger suit. So I'm aiming to do more with less...

Day's Anatomy- 13th November 2012- Changing Your "Reality".

Today, 5 of the 6 trades taken were good, well thought out trade. 3 losers of varying size and a couple decent winners. The bad one was the third loser/4th trade.

Missed the xxx24 @ the high of day by a hair. That would've got me to my target for the day. Took the next trade long, a loser. No problem. Then, rather than go with the other side of the trade- despite the 1 min wicks against my prior long ZoA i.e S becomes R- I tried to almost bully the market to go my way by moving the trendline (ZoA) slightly lower down to allow me to take the long again..."just in case I was off the first time".

I'd say the market beat me but the truth is (and always will be) that I beat myself.


That was my momentary loss of control/calm today. I attribute it to the near miss and the fear of losing in the direction that was supposed to have brought me to target. Irrational, illogical....and completely human.

Came back with a fresh logical approach and reversed the damage for basically a scratch day.

It's not that there is any one way to read the market, but you certainly can't modify reality of your strategy to try to escape losses, maintain control or whatever it is that motivates you to mess with what works. You have to know that you will take losses (the "good" ones) but, moreover, you have to want to take losses as part of a profitable trading routine.

Avoiding those losses means you are no longer trading your system, which means random trading. Random trading means losses equal to trading costs over the long term.

Day's Anatomy- 12th November 2012

I tried, but can't find an unforced error in my trading today. Yippee!

The eagle-eyed may notice a bunch of other trade markers on the chart other than the ones I've marked up. Those aren't my trades ;) More about that in a future post!

As Scalpy says,  

"There are four types of trades. Good winners, bad winners, good losers and bad losers."

Today, I only have the good variety of winners and losers on my chart so, as such, can't really add much in terms of commentary here.

What I can say is that the three days since switching back to SIM have, magically, been net positive overall. I guess I should be happy...*sigh*

As I've said before, the passing grade is now higher than before. I hope this will be enough to bolster my confidence to the extent that there is little/no difference between my SIM discretion and Live account discretion.

It's funny, as a youngster, I always used to wonder why sports people sometimes had such difficulty bridging the gap between practice performance and match performance. Confidence and Faith...

Thoughts

Here are a few of the thoughts I wrote down after deciding to return to SIM earlier this week.

Instant Gratification & Sugar-

If you eat too many foods with a high Glycemic Index, you end up increasing your blood sugar levels too quickly which causes the release of an emergency release of Insulin. Your body then stores that excess sugar in your body as fat- where it is relatively dormant/harmless- rather than allow it to remain in the circulatory system where it can do more harm.

What does this have to do with trading? Well, simply put, if you look for instant gratification there, you are going to be disappointed. You are likely to cut your winners short in order to "win". You are more likely to trade just to get the high of trading. This ties in to the "avoiding discomfort" piece below...

Control- We do all kinds of things to try to maintain control. Stay in the market for shorter periods of time, tighten stops, loosen stops, change systems etc etc. I believe that we have to give up a degree of control in order to profit. If you can't embrace uncertainty you will forever be slave to control (i.e trying to eliminate "gaps", which I have referenced many times in the blog)

Confidence- I asked myself that question because I often suffer from lack of confidence within a trading day let alone over a large number of trades. The lower the expectancy, the more consistent you have to be to reap the potential rewards from it. So, if I second guess the method after only a few trades, I don't have a hope in hell of stitching together enough trades (10's of them), without error, to harness the edge.

Exits: TA or Stats??- My own studies suggest that, like stops, there is no advantage in using TA over MFE based targets. It's hard to let go of old ideas but seeing, say, 80% of your trades go 0.7R in favour before stopping you out because you were waiting for a certain TA marker (prior high, moving average etc) can get tiring (hypothetical example...not my case).

Minding "The Gap"- This is where my focus is now. Giving up the control we all want to exert on our lives (otherwise we wouldn't be trying to make money from trading in the first place) for the long-term good...avoiding the sugar!

It might be giving up control between stop and target. Or, perhaps, between entry and X minutes. Maybe allowing yourself to feel a certain level of discomfort before intervening with order-altering action...

Here's a link to an article that mentions the fact that we are mostly empty space. 

"Matter is mostly empty space. If you took away the empty space between atoms, pushed them together until they were touching, the human body would be compressed to about the size of a pencil eraser. Or to put it another way, the human body is 99.996% empty space. But since atoms are also mostly empty space, you could push them together until the nuclei were touching. If you did, the human body would be too small to see." 

We need those gaps! 

 

Day's Anatomy- 9th November 2012

Yesterday saw me up 28 pips within the first three trades which I then drew back to 10.2 pips by the end of the session (as always, the numbers are before costs). I traded past my daily tgt just to prove to myself whether it was still necessary. It is. The quality of my decisions after moving too far away from zero- in either direction- decreases dramatically. Hence the need for daily stops/targets.

Today was the kind of day I enjoy...as much as anyone can enjoy a flat day at least. Even though the end tally doesn't match the hypothetical one, it offered all kinds of lessons to anyone who was listening. Seeing exactly where you went wrong is half of the battle.

Day's Anatomy- 7th November 2012

Done with live trading, and possibly with this regular blogging effort, for the foreseeable future. As much as I was looking forward to getting back to trading the live account, I'd much rather have something to work with when I'm back than piss it all away fighting with myself.

Need more confidence and that's only going to come by trading the method profitably in consistent fashion.

It's going to hurt when I return to and pass equity highs knowing that the largest draw down within the equity curve is the only part traded with real cash, but that will only serve to confirm what the problem is... should that scenario happen.

Day's Anatomy- 6th November 2012

Day's Anatomy- 5th November 2012

Drawing down (?!) the account, while not pleasant, doesn't bother me as much as the fact that I'm doing things differently compared to what I was doing while SIM trading. I look at my spreadsheet and see way too many trades with decent MFE (the opposite of MAE..) that were exited before reaching those pip values. There were various reasons for this but, to be honest, none of them were valid.

So I'm officially scared. Not of losing money, but of the uncertainty of my decisions (one of the cons of a discretionary approach).

Seriously thinking about returning to SIM with a higher "Pass Rate" necessary to graduate to live trading than I previously imposed on myself.

Expectations About Expectancy.

Anybody who is serious about becoming a profitable trader will probably know what Expectancy is, if they've been around long enough. But, just in case, here's a quick overview.

Expectancy can be calculated using the following formula:

Expectancy= (Average Win * Win Rate)-(Average Loss * Loss Rate)

This needs to be calculated using a "statistically significant data set"- for a swing trader that might mean testing over years or even decades of data. Intra-day traders will probably need a month or two of data. The time over which your data is collected matters because you are inevitably going to test over various market conditions but the number (N) of trades is crucial. The larger the number, the more reliable the expectancy.

So, let's say you forward/back test a trade idea, taking 100 trades. Your WR is 40% (0.4) and your Avg Win is twice your Avg Loss then...

E= (2 * 0.4)-(1*0.6)=0.2... This means, on average, you make 20% (0.2) of whatever your risk (R) is per trade for every trade you make. Positive Expectancy! Yay!

But that's only half the story.

Here are the six charts from the "Readers' Poll" post. The last results I saw (before they magically disappeared from the poll! EDIT: They are back..for now. 5/11/12) had the winner as 3,4 & 6, which is the right answer.

What do they have in common? They each contain 10 random equity curve outcomes by trading a system/method with a Avg Win 3X larger than the Avg Loss with a WR of 30%. This equates to E=0.199.

The other three charts show 10 random equity curve outcomes with the same Expectancy except the combination of R:R (Reward to Risk ratio) and WR is different- Avg Win 1X Avg Loss with WR 60%.

The few people who voted were able to agree with a majority vote that the charts which belonged to a given group looked different to the charts that didn't. The difference is Variance.

A trading system with a lower WR and higher R:R (such as charts 3,4 & 6) will have a higher variance from the mean, an imaginary straight line that transects the wobbly move upwards (assuming positive expectancy). Likewise, a trading system with a higher WR and lower R:R will have a smoother, straighter equity curve that is closer to being like the mean of the data set.

The comparatively very different outcomes possible between the curves, as well as within the curves themselves, within a high variance approach makes sticking it out with a method as difficult as holding on to a trade that whips it's way to a target.

It's not just where the strategy ends up (Expectancy) but how it gets there (a function of WR and RR) that counts.

Day's Anatomy- 2nd November 2012

Definite improvement with trend days. I am no longer, at least not habitually, the one to repeatedly buy a falling market or repeatedly sell a rising one. A real problem for those fixated on trading reversals. It's a very common occurrence for people to want to exert their own desires on- and try to forecast- a market direction. But if the wall is blue...

34 trades this week (too many). -0.9 pips. I bet my broker is happy :/

Day's Anatomy 1st November 2012

Sometimes your method for entry will allow for large RR with lower WR. Other times the opposite. There is much to be said as to whether we should look to find an indicator within our market analysis to switch from one mode to the other (hardest option).

Or, perhaps we should just stick to one of them and ride out the inevitable draw downs in a hopefully up-trending equity curve?

I haven't found the answer. I'm guessing it's  the second one though...

Day's Anatomy- 31st October 2012

Too tired to comment with more than what's on the chart. Spinning my wheels...

UPDATE!

Day's Anatomy- 30th October 2012- Decide.

1.2956....I hate you!

Followed along nicely today although I just missed the xxx69 short just. 18:20 ish on the chart (CET). I like the fact that I took all viable signals...something which should obviously always be done.

Ran the first of the two wins. Indecisive on the 2nd/last win. I had three choices:

1) Take the single (6 pips) and take no further action.
2) Take the single then get back in for the expected bigger move.
3) Hold through the pullback AND hold for the bigger move.

...I chose a hybrid of 1) & 3). I wanted the bigger move but then allowed the fact that it came back to break even (and into the red) to shake my resolve, exiting close to the 1 min pivot that it created the first time around.

TWoT  (well, four...but you get the idea!)

Reminds me of the time I stepped (yes, stepped!) off a moving bus. Not the smartest thing I've ever done, I'll admit :/

I was trying to follow my mischievous friend who enjoyed doing things like smashing bus stops, doing graffiti or using the emergency exit feature of a bus to jump off whilst it's still moving... leaving behind a blaring alarm and a pissed driver!

This time, I was onboard with him. His act caught me by surprise and so I had to decide whether to stay onboard and face the wrath of the driver or jump off of the relatively slow (it was doing about 15-20mph...)moving bus...

...I couldn't commit to a decision. So I stepped off...lol! I realised I had done the wrong thing by making my non-decision when I woke up on the floor after stepping in front of a street light pole!!! I still remember asking myself what the swishing sound was as I picked myself up off of the floor. I'm sure you can imagine what it was :)

Personally, I think it's better to make ANY decision, even the wrong one, rather than be indecisive. You're almost always going to get a worst result if you don't.

Day's Anatomy- 29th October 2012

Not a good day behaviour-wise.

The chart explains it all. Those consecutive errors just after midday cost me between 11 and 17 net pips. The long from xx892 could have been held for 4 more pips too. The last trade had to be taken off due to the close. Currently waiting to be filled @ xx901 but already had two chances to get in there.

Not a good day at all.

(Incidentally, Hurricane Sandy seems to have had an effect on Eur/Usd).

UPDATE!

Readers' Poll!

Have a look at the following six charts:

Three of them are derived from one set of data. The other three from another set of data. But how are the six divided?

Answers in the poll situated on the right-hand side of the blog! The result will be used in a blog post in the near future. :)

Day's Anatomy- 26th October 2012

Only the one scenario played today. Could have played it better by doing what I did in the first trade on the second, doubling the pip-count.

I always knew why volume drops off going into the weekend, but now I get to feel it firsthand. Nobody wants to mess things up going into the weekend! It appears even seasoned traders suffer from the Framing Effect.

UPDATE!

Two fingers to the Framing Effect! Statistically, doesn't mean a thing whether you make then lose just before the weekend/end-of-day etc etc or vice versa. It's all in your head!

Day's Anatomy-25th October 2012

I used to always lose on trend days.

They still aren't my strong point but I'm closing the gap in performance between trend days and range bound days.

As far as today is concerned, the first trade ended with a loss of 5 pips (in opportunity) and, from that point on, I followed the script. Like yesterday, loads of opportunity within the scope of the methodology.

I'm thoroughly enjoying building the consistency muscle!! The money is almost an afterthought...

Day's Anatomy- 24th October 2012

Was incredibly difficult to get in on the 1st trade after yesterday's cock up. Top marks for me for doing what was necessary!

Today saw lots of opportunity within the boundaries of this method, but I was absent for a good chunk of it. Took what I saw, managed it according to the guidelines. Good trading.

Day's Anatomy- 23rd October 2012

The market tested my patience....and won.

A couple of decent paper profits, then the break even result before the subsequent drop pissed me off quite badly. Trade 3 and 4 ruined the day when I treated 3 how I'd have liked to have treated trade 1. Again, TWoT...I should be using that kind of stop on both of these setups but I tried to run it  (3) based on the outcome of 1. 

Less said about trade 4 the better :)

What should have been a tgt/almost tgt day became a loser.

Day's Anatomy- 22nd October 2012

Could have waited a little longer before committing to the first trade but missed the fact that the resistance had just been pierced with seconds left for the change of bar. Had the opportunity to reverse/get out at a pip loss but not in my plan (I've found that giving myself the liberty of doing that causes more harm than good). Got trapped there.

Otherwise, followed along and did what PA suggested was the right thing to do at the time.

UPDATE!:One more trade taken...

Day's Anatomy- 19th October 2012

This is where the rubber meets the road. Can you do exactly as you did in forward tested SIM with a live account? So far, the answer for me is "no".

The more discretionary the approach, the harder it's going to be as you gained your results through choices that were more easily affected by your emotions. The solution is simple but not easy- relax and trade as you did before.

Monday did the most damage and was also the day where I deviated from the plan in an obvious way. Tuesday to Friday where good days in terms of following the story and taking action in terms of entries but didn't Mind The Gap, evident from a too frequent occurrence of b/e trades and Wednesday and Friday's suffocated wins which would have ended both days at target rather than 50% tgt and -50% tgt (i.e flat between the two days). Huge difference to the bottom line and the edge in general.

Got some work to do...

Day's Anatomy- 18th October 2012

Another day of just following along with two near misses, one shown near the end of the day, one not shown just after the first trade. Monday is the only big deviation from the plan and it shows in the difference between actual outcome and what could have been if all days were treated equally.

Just the one lone trade was responsible for triggering my stop order on the last trade. Fun stuff :)

Day's Anatomy- 17th October 2012

Can You Spot TWOT?

Most of the action occurred in the European morning before the US open. Then a bit of a choppy, 20-pip range.

Day's Anatomy- 16th October 2012- The Worst Of Three.

I'm happy with the way I traded today. No rule-bending or trade-skipping (within context..).

The idea of "The Worst Of Three" came about when I repeatedly noticed that when I tried to reason my way around two variables- let's call them A and B- I always ended up in 3rd place in terms of pips, with A and B taking turns for 1st and 2nd place.

TWOT relates to today's action because, sometimes I exit before the 23:00 CET forex break, other times I don't.

It just so happens that the two times (off the top of my head) that I've elected to leave trades through the break, I've suffered some adverse fills that have cost me a half R here and there...

This time I take it off and, after a 12 pip gap in my favour, it speeds off to target.

Whether I had always held or always exited I would have been better off fiscally. The worst of three...

(Not prepared for multiple R losses so no holding from now on!) 

Day's Anatomy- 15th October 2012

Last trade (with huge slippage considering my lot size) was a dead giveaway that we were going up. Had I have traded the two missed trades I'd have had the opportunity to take the last two longs and finish up to some degree or another.

Epic fail.

A bit more of this and I'll be forced to resolve these issues in SIM for a few weeks/months.

Day's Anatomy- 12th October 2012

Followed along much like yesterday except today ended up with some much needed profits. Note to self: The fear of losing money and/or being wrong must be outweighed by the fear of not following your proven plan.

Incidentally, for those who do not yet have a proven plan; It's far more valuable to lose money trading a plan that doesn't work rather than trading with no plan at all. Losing consistently beats losing randomly every time because you have a constant which can be tweaked to profitability. Trade randomly and you are trading with raw luck (or lack there of).