Complete Trader’s Corner
I post Steve Shenker’s commentary now and again from his Trader’s Corner column because it’s pretty good. His latest trader’s corner contains the entire series that has been appearing on the front page of DailyFX.com’s Daily Technicals report. It’s 14 pages in length but is worth a full read or a skim. Some subjects he touches upon are:
Don’t blame the market for your mistakes, blame yourself
Never trade without the stop loss
Never trade just to be in the market
Never think that you are better than you actually are, nobody is that good, no one, not me, not you, no one
These are just a couple and it isn’t just a list. He elaborates on everything he states.
Week 17 Performance
I have nothing to report this week because I didn’t make a trade. As I said in my previous post, in between everyday responsibilities and being sick, I didn’t have any motivation to sit in front of a computer screen.
If you don’t trade, you can’t lose but you can’t win either. I want to mention an excellent NEW article I read this week regarding money management. Before I give the link, there was some pretty powerful substance to this article that I want to post:
Put two rookie traders in front of the screen, provide them with your best high-probability set-up, and for good measure, have each one take the opposite side of the trade. More than likely, both will wind up losing money. However, if you take two pros and have them trade in the opposite direction of each other, quite frequently both traders will wind up making money – despite the seeming contradiction of the premise.
Note that a trader would have to earn 100% on his or her capital – a feat accomplished by less than 1% of traders worldwide – just to break even on an account with a 50% loss. At 75% drawdown, the trader must quadruple his or her account just to bring it back to its original equity – truly a Herculean task!
I would recommend you check out this article. It really does drill home the money management principle.
Steve Shenker’s Trading Corner
It's actually Sam Shenker's Trading Corner and it can be found here:
http://www.forexproject.com/Blog/Investing_and_Trading/Original_Traders_Corner/
Designing a Profitable System
Thanks to Greg for a great post. Read this.
I believe anyone can design a profitable system, as long as one understands market principles, what goes up, must come down faster. Twice as long to go up and half as much time to come down. I believe that if I am short the market, I need to trail my stops tighter to lock in profit than when I am in a long position. As for as my original stop, all my systems risk the same amount — small. I use to believe that the 3% rule was nonsense with a $10k account. But in the S&P and currencies, I daytrade with less than 2%. I simply cannot get wiped out that way and my profits are at least twice as much the risk in the S&P when trading one contract.
How much am I going to make? I am asked that repeatedly. I can always tell how much experience a trader has by that question. It is not what you make that is important, but what one does not lose. After I have a profit of so many pips in a daytrade, the most important ingredient to my trading takes place, the break-even stop. I have not read any books giving much attention to this concept. What a stressless (for the most part) feeling it is after I am at break-even.
The best way to trade is to find something simple, that works most everywhere and then become very consistent in your approach. Develop your own system, test it, then stick with it. Other people’s systems may work well for them, but probably will not be compatible with your psychological make-up."
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From Successful Anonymous Trader:
You simply cannot have any confidence if you do not have a method or way of identifying trades along with money management guidelines. You’re lost in the woods, so so speak. I was there for many years. What did I do? This may help a lot of you:
I threw out 99% of all the crap I learned about oscillators, divergences, Elliott Wave, cycles, timing, seasonals, Gann, pitchforks, volume, Fractals, RSI, stochastics, overbought/oversold (this is a good one–the stock indexes, currencies and cotton for example everyone said were overbought and topping in February and March this year). Look at what they did. Needless to say, I don’t pay any attention to this anymore either, etc., etc. The list goes on to infinity almost. I went back to the basics. I went back to simple chart patterns, (a simple moving average and trendline now and then for a visual aid.)
I came up with a low risk money management plan and put it together with trading with the trend and, presto, an effective and time tested trading plan. The plan is simple and has worked since trading began and will last me a lifetime. What a relief not to have to spend countless hours every night trying to find a ndw way to trade. I am sick and tired of that after 7-years.
I believe at becoming an expert at one market nd its behavior and then putting all your skills and energy to work in a concern(traded) manner. Get good at that market and trade the heck out of it. Increase your size over time and you’ll make more money with less effort. There are lots of professionals that do this. Look at some floor traders or locals that stay in the pit for many years trading one market exclusively.
One thing that I have learned this year, is that I am trying to cut back on the number of trades I take and be more selective and not trade in congestion as much as I did before. I miss some good trades out of congestion, but I save myself a lot of mental energy, buy myself some more free time during the day, and get better and more profitable trades.
My attitude is changing now to one or two good trades, and that is all I need to make my week ( a triple or a home run, so to speak). There are plenty of them during any given week.
Trading is fun. Once you have a method and money management in place, it allows you to concentrate on trading and not on searching and researching. That gets old and frustrating. Make it your goal to find a simple method for next year. One thing that you can hang your hat on will last you a lifetime. Trading is simple. Remember that it’s the Execution or Implementation of your trading plan that is the bigger challenge.
Most people make finding the method a big challenge. That is because there is so much junk thrown at traders. They feel like a child in a candy store and have to try every doodad in the place. When they are done, they are sick and never want to see another candy store (trading gizmo) again. They could have had the palin piece of milk chocolate at the front of the store (simple method price patterns) which would have done everything they desired and fulfilled all their needs.
I wish to all a great new year. I hope some will be able to end their journey in search of the holy grail or indicator that will turn their life around. Search for simplicity. You will be surprised what has been right under your nose all the time, right there in front of you on the chart or price bars. Pay attention to what they say they will will tell you everything. You need to listen and get to know them. It can be that simple.
Commodity Traders Club News (1997)
Stick to your Trading Plan
Here’s a post by Lloyd on his blog at http://tradingforaliving-assess.blogspot.com
American trader and hypnotherapist Robert Krausz argues that 75% of trading depends on your psychology and claims that hypnosis can be used to control your emotional state to maximise your trading performance.
However, he stresses on the importance of having a trading plan at the first place!
Here are the 5 basic tasks necessary to become a winning trader and my personal takes:
1. Develop an analytical methodology
– For myself, I read fundamental news and run technical analysis
2. Extract a trading plan from this methodology
– I set up short-term swing trades (1-3 days), always try to pick good entry and exit prices
3. Formulate rules for this plan including money management
– Take profits while ahead, find the best place to get out on bad trades, not relying on stop loss
4. Back-test the plan over a long period
– Start trading small positions and allow mistakes
5. Finally, stick to the plan
– Having confidence and keep practicing till perfect
Developing Confidence for Traders
Here’s a posting by Troy Peterson (private trader) titled, "Do you have confidence as a trader?."
Your level of confidence as a trader will have a huge positive impact on your success. The more confident you are the less time you will spend on second guessing your decisions. The more confident you are the more positive energy you will focus toward your desired outcome.
Confidence is based on two things; what you do and who you are. When a trade stops for a loss your confidence becomes rattled. This is because confidence is based on what you do. When confidence is based on who you are and your ability as a trader, one who is prepared for all outcomes whether a loss or a profit, then you are consistent with yourself no matter what the result. You will feel confident because you took the loss as intended or because you closed with a profit. You will choose correctly in either scenario! This is because confidence is based on you.
Each time you correctly make a decision in trading whether it is for a loss or gain, the more confident you will become with your ability to act accordingly to the current market situation in a manner that is appropriate. Your confidence is now based on your awareness as a trader (you) not on failures, mistakes or missed opportunities. Let me say that again . . . Your confidence is now based on your awareness as a trader, one who will make the correct decisions.
Help build confidence by reviewing your trades diligently to discover when, why and how you chose to act during the time of the trade. It will help your understanding of the markets and yourself. The more you choose to learn from each trade failure and success the stronger and more confident you will become. This confidence will increase your flexibility in your decisions and your behavior. This flexibility will help create comfort in your trading. This comfort will feed your confidence and the cycle continues.
Begin working on your confidence today. Believe in yourself and have faith in your abilities. Please don’t fall prey to falling someone else’s calls in the market blindly. Stick to your edge and realize that trading the markets is about you.
March Issue of Currency Trader Magazine
After all of our comments regarding the lack of substance regarding ichimoku chart analysis, the March issue of Currency Trader Magazine fills the gap. There is a 6 page article, "Demystifying Ichimoku analysis." I'm looking forward to reading it. In addition, the new issue contains:
-Dollar Bull: Can the buck stay a step ahead of pundits?
-Japanese Yen: Marching to its own drummer
-Currency Basics: All about the interbank
-Currency System Test of the Trend Strength Indicator
Content Removed: Download from http://www.currencytradermag.com
Preserving Capital
Greg made a comment regarding a trader that interests me:
Two books worth their time: Market Wizards, and The New Market Wizards. One of the traders interviewed made the observaton that on any given day trading is probably luck, but if the trader is consistently winning over time, it’s not luck. Another trader said the whole purpose of entering a trade was to preserve capital (he has never had a losing month.)
Entering a trade with the purpose of preserving capital is an interesting way to go about things. I will probably read more about this in the upcoming days.
For next week, I think I will change my exit strategy which may help with my early exits. Instead of entry of 3 lots and exit of 3 lots, I will start to use a multi-lot exit strategy, one in which is probably based on multiple targets. This will definately require more management per trade but if my worry all along has been with giving back profit, this may help curb it a bit.
This weekend I will also be working on formally drafting a real trading plan. I will post sections as they are completed.
John Carter on ABC News
John Carter was on ABC Money promoting his book, "Mastering the Trade" and talks about Making a Living As a Day Trader.
His 5 tips:
1. trading is simple, but not easy
2. trading should be boring, like factory work
3. be aware of your own emotions
4. the market reinforces bad habits
5. don’t focus on the money, focus on executing trades
You can check out the video at Making a Living as a Day Trader
Don’t Move Your Stops
Here is a quick lesson from Sam Shenker about moving stops which I’m sure we have all been guilty of.
As a trader one of the lessons I learned the hard way is to never move my stops against the position. One of the most common mistakes made by the novice traders is to move the stop against the position once the trade start going against him or her. As the trade keeps going against the trader and once again approaches the stop, what do most of traders do, they move the stop again, thus increasing an unrealized loss, but unrealized loss is still a loss and a real one at that. In order to become successful, a trader must learn that the initial stop most of the time is a correct stop, because if the stop is triggered it usually means that the trader is on the wrong side of the market and by moving the stop he or she only increases the loss. The reason why traders move stops is hope that the market turns around and goes in the direction of the trade, but hope has no place in the market, protective stops do. Remember: NEVER MOVE THE STOP AGAINST THE POSITION, BECAUSE BY MOVING STOPS AGAINST YOUR POSITION YOU ONLY INCREASE THE SIZE OF YOUR LOSS.
