I lost about six percent of my account this week. So what! This is the only negative thing I can say about January.
The Positives of January 2008
I increased my account balance by 6.8% this month even though I suffered a minor losing streak this week. I obtained more satisfaction from other non-monetary accomplishments though.
- At no point did I feel like I took on too much risk. I set my maximum loss per trade to 2%. This was greatly assisted by using my new position size calculator. I sized my position before every trade.
- I had the potential for 2R on every trade. I realized this potential on all winning trades except for one which I exited based on discretion. It turned out to be the right move.
- I did not jump on a trade due to boredom, a recommendation, or because I was bored.
- I did not enter too many trades at once. In fact, I only had one position open at any given time.
- I only moved my stop loss once. This happened today when I moved the stop to breakeven. This was based on discretion also. It turned out to be the right move.
- At no time did I let emotion get the best of me. This is always a work in progress and I understand that not every month is going to be this easy. There will be months where my emotions are tested more than others.
- I followed my trading systems with no modifications. My entry rules and exit rules were followed.
January was a good month and it feels great to kick off the new year on positive ground. Nevertheless, I don’t feel overwhelmed with confidence or convinced that this is nothing more than short-term success. Therefore, I’ll continue to work diligently as I always have.
I hope everyone did well this month also. Feel free to comment on your successes or failures. We’re all going to have our ups and downs.
While I’m not avid reader of Brett Steenbarger’s blog, I found his post titled, What Makes an Expert? Three Surprising Research Conclusions very interesting. There were several conclusions made by the researcher regarding expertise (referenced from http://www.psy.fsu.edu/faculty/ericsson/ericsson.exp.perf.html)
- Measures of general basic capacities do not predict success in a domain. No general superiority was found in speed, memory, or intelligence of the expert.
- The superior performance of experts is often very domain specific and transfer outside their narrow area of expertise is surprisingly limited. In other words, just because a trader excels in futures trading doesn’t necessarily mean he/she will excel in forex trading.
- Systematic differences between experts and less proficient individuals nearly always reflect attributes acquired by the experts during their lengthy training.
This flies in the face of those who may believe that expert traders are born with the qualities that make them experts. It also gives me the impression that with a lot of deliberate practice, anyone can be an expert in their field of study. Steenbarger believes a structured curriculum can progress a novice to exhibiting competent expertise.
You can’t go to college to get a degree in Forex trading so where do you go to get a structured curriculum? I don’t know? I’ve been trading for about three years now but I don’t have any formal training. I’ve read a lot of books, studied a lot of charts, managed a plethora of trades, read a lot of blogs, and listened to a lot of so-called experts. I think that with discipline and self-motivation, it may be possible to structure your own curriculum. It may take longer than formal training and may require a lot of trial and error but it may be possible. On the flip side, maybe formal training is necessary to narrow the gap between novice and expert.
I feel a lot closer to becoming an expert trader than I did last year but by no means am I anywhere near an expert. I guess the best way to know if I’ve become an expert is if I can consistently be profitable.
The questions I pose to you are, do you feel like you need a structured curriculum to become an expert trader and what attributes do you think you need to be considered an expert trader?
I can’t tell you how many times I’ve heard people say this, "If you’re a losing trader, just do the opposite of what you were thinking and you’ll be a winner." I can’t begin to say what a misconception I think this is. Don’t you think that if this were true, all the losers would be doing it? What if your target price is unrealistic or your stop is too tight? What if the market is trading sideways? It wouldn’t matter what direction you traded, you would lose either way.
Anyway, I thought I’d post an interesting email I received from a guy who is looking for bad traders to help him make money. I asked him what the incentive for the "bad" traders would be to send him their every trading move. I don’t think the guy is on the wrong track. It might be beneficial for anyone’s success to study the behavior of losing traders. The toughest thing he’s going to encounter is finding traders who will admit they’re bad traders and would provide information to someone who wants to profit off of their losing.
I found your site as I was looking for someone to help me implement my new system. I have won the FXCM king of the mini as well as placed third in interbankfx contest (on different months).
I do trade well…however I thought of a system that is essentially perfect. As you are aware about 95% of new traders lose all their money in the first 30 to 60 days of trading forex. That last 5% is left for people breaking even, making a small profit and those chosen few that can live off forex.
Point being this: New traders are perfectly bad traders. Their emotions take over, they get out at the wrong time…get in at the wrong time, take profit too early, let bad trades keep running, over margin etc etc etc.
Therefore if one does the EXACT opposite of a new trader then one would have about a 95% chance to double or more their money every 30 – 60 days. Essentially $100 could become almost 1 million in one year and over 2.6 million in 18 months.
Where I need help is finding new traders that will notify me the second they enter a trade, which direction, currency, leverage, stop, take profit, and of course if they get out early for profit or loss I need to know basically as it happens.
I would trade the opposite with two exceptions. Only trading the small pip spread currencies and perhaps only trading with the interest rate – that would help to offset the small pip spread. As well of course I would use percentage for leverage. (If they have $1000 in their account and trade $10 pip then I would trade $100 pip if I had $10 000 in my account … or $1000 pip if I had $100 000 etc.)
There will be times I would also have to accommodate the leverage size to make sure there is no margin call if the rookie trade actually hits their profit. I only want to be taken out of trades when the rookie trader closes a trade (or they are margin called out).
If this backward system makes sense to you please let me know. Perhaps through your website you have access to these perfectly bad traders.
I can’t tell you how many times I’ve flipped-flopped on the question of whether discretion is needed in my trading. Throughout the last three years, I’ve gone from stating that discretionary trading is a necessary component in my trading repertoire to stating that "
Once again, I am stating for the record that discretionary trading is not for me. I believe in a very limited amount of discretion in my trading but generally, I really think it’s in my best interest to stick with systematic/mechanical trading. It creates a sense of order in the market for me when there is none. When I make a discretionary trade, I immediately become uncertain and doubtful that I did the right thing. This always turns out bad for me. I’ll save discretion for determining things like current trend but for entries, exits, stop losses, profit targets, and position sizing, I think I’m much better off being systematic. I also think that my educational background confirms this. My background is in computer science and automating/programming repetitive tasks has been common practice in my career.
I told myself when 2008 began that I was going to be trade strictly systematic in January. So far, it’s paid off and I have not strayed from this. My account balance is currently up 13% in January.
How do you know if you’re better suited to discretionary or mechanical trading? I think that as your experience level progresses, you’ll just know.
The video below takes place on Martin Luther King Day, one day before the market opens down Tuesday morning, January 22nd, 2008. The futures trader in the video went long 10 ER2 contracts (mini Russell 2000 index) the Friday before. Unfortunately, the market gapped down and took the poor guy for his life savings. The video is pretty disturbing to watch and contains a lot of profanity. If anything, it should teach us to expect the unexpected and also that the market is unforgiving.
The Traders Website
For some reason, I can’t get my RSS subscriptions over the century mark. Every time I get close, within one or two, I fall right back down. So if you haven’t subscribed to my full RSS feed, please do so.
What a day… in my short trading career, this is the first time I can ever remember the Fed making an emergency rate cut. It was certainly interesting.
Though this may not apply to today’s price action, I feel like after 2+ years of trading that the speed of the Forex game is slowing for me. To explain this, think of the phrase typically used to describe a professional athlete when he/she finally "gets it." Commentators and athletes can commonly be heard saying, "that the game is slowing." In other words, everything around them seem to be moving slowly yet they are moving full speed ahead. This is quite an advantage. I’m not saying that I finally "get it" or that I’m a successful trader but it feels like everything around me is moving a slower than it once did and I no longer feel like I’m constantly playing catch-up. On the other hand, the stock market feels like it’s moving at light speed while I’m standing still.
This leads me to posting an email from another trader who I initially discussed this subject with. I like to post other traders comments once in a while so that you can get another perspective on things:
I have been trading a little over 2 years also, but with some real heavy hours…….10 + a day. I wanted to run something by you. I finally narrowed down from trying to trade 5 pairs, to just 1. Since the first week of Dec. I have mainly only traded the EUR/JPY. My results have been the best trading I have ever done. I have many more gains than losses. As you probably know, the pair can start moving in the early to late afternoon (MST)
and continue on into the early a.m. Since it is not dollar based, I find it to be much less volatile. Many of my trades are after 9:00 p.m. and into the early a.m. Because most of my trades are after the U.S. market is closed, I believe fewer people are trading. In my opinion the signals I use are much more true, and tend to follow thru more often.
I am trading the 30 M chart, with MA’s and MACD, using higher charts for confirmation on the moves. I am more disciplined and more patient than I have ever been. I still break my rules once in awhile, and usually suffer a loss. I also believe that because I am only watching one pair, I will miss fewer moves, and also become more familiar with how the pair moves. Guess I just wanted to know what another trader thought of this.
For the past week or so since I mentioned that I was thinking about getting into trading stocks again, I’ve been immersed in the subject. Initially it will take a little focus off of forex until I can balance the two. I realize I have a lot to learn about the stock market with its multiple exchanges, multiple industries and thousands of securities.
Right now might not be the best time to go long on any stocks considering the hit the market has taken but I also figure that it may be the best time to learn. I’ve heard too many times how people have successfully traded during the "good times" when the market is flying high (e.g. dot com) only to see them lose it all when the markets turn sour.
Like I said, there’s a lot to learn but I’m going to concentrate on reading and getting organized. I subscribed to the Kirk Report’s members only site because I’ve followed Kirk for years now and have always respected him. For only $50, there’s a lot of information that he provides that can benefit me. I’ve always been interested in his methodology and how he uses fundamental, technical analysis, and stock screening of off the beaten path stocks.
Although I’m getting more interested in the stock market, I will continue trading Forex. Becoming a successful forex trader will remain my primary objective. We’ll see how all of this goes. It’s hard enough finding enough time in the day to write on this blog.
TraderInterviews.com recently interviewed Dick Diamond, who has been trading his own account for 35 years. I don’t know if his interview provides me or you with any insight but I’ll post the notes anyway. Here are his trade characteristics:
- a very simple trader
- uses only technical analysis and a combination of 5 or 6 indicators (MACD, channel index, ergodic)
- uses the 1-minute or 5-minute charts
- only trades the S&P e-mini futures
- will go long if at least two of the indicators move from negative to positive and short if at least two of the indicators move from positive to negative
- stays very emotionally disciplined
- never trades more than 10 contracts at a time, makes 2-3 trades a day, and only has 1 position open at a time
- enters trades based on TA but exits on his gut
- doesn’t care about fundamental news but won’t take a position before a big announcement
Forex On Top was updated this evening. There were an addition of four sites this week. There appear to be a lot of changes everywhere.