Bad Assed Trader: OK so I broke my rules yet again and will have to confess to Younger Daughter The Monitor when she comes home from school this afternoon and be denied my glass of wine this evening as punishment. But I don't care because my rule breaking has led to ground breaking.
So, from the beginning. I've been on holiday in sunny France for just over a week and although I did check the charts every working day my set up didn't come. Tuesday was departure day and we had to leave the house at 11.15am. My dedication to trading knows no bounds so I got organised the night before and was up ready to trade at 6.30.
My set up came and I took the trade. Followed my rules precisely and set a target which was hit just over 2 hours later. 4.3%. One of my best ever. And I was cool as a cucumber the whole time, it was just fantastic. My first trade and I was already ahead of my 3% target for the week.
I wondered then, should I just not trade anymore this week and allow myself the wonder of being so far up at the end of the week. I have heard that many traders do this and I've read that often we are most likely to lose money after having a really good winning trade. But my rules are simple: if the set up is there then I take the trade, whether I've done well or not. Instead, I told myself I must be extra fussy as I'm now "vulnerable" as they call it in Bridge.
Quick Bridge diversion: The scoring rules of Bridge are very complicated and still largely beyond me (I can just about handle the playing part) but I have come to learn that when one side has done well in a hand they are then labelled "vulnerable" which means that if their opponents beat them at the next hand then the opponents score extra points but if the winning couple win again then they gain extra points.
The dictionary defines vulnerable as:
This interests me greatly as this is exactly what happens in trading when one has a fab result, you do literally become vulnerable - open to temptation and more capable of being wounded. I believe it is because the emotional side (greed...fear etc) has been triggered by the win.
So my logical brain tells me I'm vulnerable and to watch out. But my limbic brain (the bit that harks back to when I evolved from a single cell amoeba and is responsible for my irrational and emotional behaviour...just occasionally you understand) is having none of this caution, is excited and is secretly plotting to get in there again as quickly as possible.
On Wednesday then, before toddling off to my paid employment, I check out the charts and a battle is fought in my head between the two bits of my brain (not a pretty sight). My set up is still some way off but the Euro is very bullish (strong) at present and my rat (limbic) brain is itching to get in and fearful that I will miss out on a move if price bounces off the 20 Moving Average instead of retracing all the way to the 50. Ratty brain finds missing out on a 5% move much more painful than losing 1%.
My rational brain tries to take a stand against ratty by pointing out that my rule is for price to bounce off the 50MA and that in our experience price doesn't bounce off the 20MA as consistently. Rational brain urges us to stick to the rules.
But this rat brain is strong. It seduces the rational brain by telling it what a clever brain it was at understanding price action so much better and that now it was more experienced it could CHANGE the rule (not break the rule of course) and from now on start taking trades with a bounce off the 20MA. Ratty pointed out how everything else about the set up was falling into place and that the risk was only 1% and I already had 4.3% in the bag so could afford to risk it...
Ratty brain won. But the trade didn't.
At first I was pissed off (I believe ratty brain was then blaming rational brain for not sticking to the rules) but I'm lucky in that my rational brain has a special feature. It's been pointed out to me a few times by various people and comes in handy at times like this. I don't know where it came from but it's dead useful.
I'm always looking to turn a problem into an opportunity. So whenever the situation is difficult or seems bad I tend to look beyond the immediate crap and try to find that opportunity. There always seems to be one there, whatever the situation. It may be that I'm planning my way out of trouble again (see my blog of 6 April for more detail) but it is a handy skill.
So on this occasion, where ratty brain triumphed, I firstly allowed myself to feel the pain of disappointment in breaking my rules and losing a trade and didn't try to avoid it. Strangely there wasn't much pain there at all once I put it under the spotlight. And then my rational brain looked for the opportunity in the mess and found one.
Hence the Hallelujah Moment and turning a negative trade into a positive one.
I suddenly realised why I've had so much trouble sticking to the rules and how I could overcome that. And now I've realised it seems so bloody obvious I'm a bit ashamed of myself for not twigging earlier.
The background is that I've never been very good at following rules given to me by some higher authority. I know I'm better if I have created the rules that I have to stick to - that's ownership for you (and my stubborn personality). But it's mainly because I then understand the reason for the rules. I know I am someone who needs meaning. I always need to understand the strategic direction in my work as a Faceless Bureaucrat to make decisions and hate it when there is a contextual vaccuum (as there is now in the NHS as we all pause and reflect with Mr Lansley).
What happened when I mulled over this trade and this particular rule about bouncing off the 20 or 50MA is that my rational brain had to confront and fully appreciate the two reasons why I have the rule about the 50MA. The first reason is that when the trend is up the 50MA is lower than the 20MA (because it shows the average price of the last 50 moves rather than the last 20 which will have been higher in an uptrend) and so if price has gone that much further down in its dip then it has that much further to go back up - hence the good rewards (3, 4, 5%) I get when my trades are successful.
The second reason is that price often interacts with the moving averages on its way down, so when I watch price retracing back to the 50MA it often appears to start to bounce on the 20MA - enough for something like my set up to occur - but it doesn't then bounce right up to the place where I set my target (the main resistance line for the day). If I was looking for just a few pips, maybe sometimes 20 pips, I might get them by trading the bounce on the 20MA but I'm not. That's not my strategy. So it is completely daft to take a trade off the 20MA.
I feel so much better for understanding this at a much deeper level than I did before. Maybe I'm just the dimmest or slowest trader in town but it's taken me a while to appreciate fully why I have that rule and therefore why there is absolutely no point in breaking it. Prior to yesterday I was just relying on me telling myself that it is my rule and I mustn't break it. But now there is real meaning to the rule and I am fully conscious of the meaning. Perhaps it will have even got through to ratty brain.
I reckon that now I will be much less likely to break that rule again. Especially since I have now removed the 20MA from my hourly chart so I won't be able to take a trade off it as I can't see where it is anymore. If I recall correctly this is something my coach Emmanuel suggested I do a few weeks' ago - he's obviously light years ahead of me...which is why he's a coach and I'm still wrestling with my ratty brain.
So, from the beginning. I've been on holiday in sunny France for just over a week and although I did check the charts every working day my set up didn't come. Tuesday was departure day and we had to leave the house at 11.15am. My dedication to trading knows no bounds so I got organised the night before and was up ready to trade at 6.30.
My set up came and I took the trade. Followed my rules precisely and set a target which was hit just over 2 hours later. 4.3%. One of my best ever. And I was cool as a cucumber the whole time, it was just fantastic. My first trade and I was already ahead of my 3% target for the week.
I wondered then, should I just not trade anymore this week and allow myself the wonder of being so far up at the end of the week. I have heard that many traders do this and I've read that often we are most likely to lose money after having a really good winning trade. But my rules are simple: if the set up is there then I take the trade, whether I've done well or not. Instead, I told myself I must be extra fussy as I'm now "vulnerable" as they call it in Bridge.
Quick Bridge diversion: The scoring rules of Bridge are very complicated and still largely beyond me (I can just about handle the playing part) but I have come to learn that when one side has done well in a hand they are then labelled "vulnerable" which means that if their opponents beat them at the next hand then the opponents score extra points but if the winning couple win again then they gain extra points.
The dictionary defines vulnerable as:
1. capable of being physically or emotionally wounded or hurt
2. open to temptation, persuasion, censure, etc.
3. liable or exposed to disease, disaster, etc.
4. (Military) Military liable or exposed to attack
5. (Group Games / Bridge) Bridge (of a side who have won one game towards rubber) subject to increased bonuses or penalties
This interests me greatly as this is exactly what happens in trading when one has a fab result, you do literally become vulnerable - open to temptation and more capable of being wounded. I believe it is because the emotional side (greed...fear etc) has been triggered by the win.
So my logical brain tells me I'm vulnerable and to watch out. But my limbic brain (the bit that harks back to when I evolved from a single cell amoeba and is responsible for my irrational and emotional behaviour...just occasionally you understand) is having none of this caution, is excited and is secretly plotting to get in there again as quickly as possible.
On Wednesday then, before toddling off to my paid employment, I check out the charts and a battle is fought in my head between the two bits of my brain (not a pretty sight). My set up is still some way off but the Euro is very bullish (strong) at present and my rat (limbic) brain is itching to get in and fearful that I will miss out on a move if price bounces off the 20 Moving Average instead of retracing all the way to the 50. Ratty brain finds missing out on a 5% move much more painful than losing 1%.
My rational brain tries to take a stand against ratty by pointing out that my rule is for price to bounce off the 50MA and that in our experience price doesn't bounce off the 20MA as consistently. Rational brain urges us to stick to the rules.
But this rat brain is strong. It seduces the rational brain by telling it what a clever brain it was at understanding price action so much better and that now it was more experienced it could CHANGE the rule (not break the rule of course) and from now on start taking trades with a bounce off the 20MA. Ratty pointed out how everything else about the set up was falling into place and that the risk was only 1% and I already had 4.3% in the bag so could afford to risk it...
Ratty brain won. But the trade didn't.
At first I was pissed off (I believe ratty brain was then blaming rational brain for not sticking to the rules) but I'm lucky in that my rational brain has a special feature. It's been pointed out to me a few times by various people and comes in handy at times like this. I don't know where it came from but it's dead useful.
I'm always looking to turn a problem into an opportunity. So whenever the situation is difficult or seems bad I tend to look beyond the immediate crap and try to find that opportunity. There always seems to be one there, whatever the situation. It may be that I'm planning my way out of trouble again (see my blog of 6 April for more detail) but it is a handy skill.
So on this occasion, where ratty brain triumphed, I firstly allowed myself to feel the pain of disappointment in breaking my rules and losing a trade and didn't try to avoid it. Strangely there wasn't much pain there at all once I put it under the spotlight. And then my rational brain looked for the opportunity in the mess and found one.
Hence the Hallelujah Moment and turning a negative trade into a positive one.
I suddenly realised why I've had so much trouble sticking to the rules and how I could overcome that. And now I've realised it seems so bloody obvious I'm a bit ashamed of myself for not twigging earlier.
The background is that I've never been very good at following rules given to me by some higher authority. I know I'm better if I have created the rules that I have to stick to - that's ownership for you (and my stubborn personality). But it's mainly because I then understand the reason for the rules. I know I am someone who needs meaning. I always need to understand the strategic direction in my work as a Faceless Bureaucrat to make decisions and hate it when there is a contextual vaccuum (as there is now in the NHS as we all pause and reflect with Mr Lansley).
What happened when I mulled over this trade and this particular rule about bouncing off the 20 or 50MA is that my rational brain had to confront and fully appreciate the two reasons why I have the rule about the 50MA. The first reason is that when the trend is up the 50MA is lower than the 20MA (because it shows the average price of the last 50 moves rather than the last 20 which will have been higher in an uptrend) and so if price has gone that much further down in its dip then it has that much further to go back up - hence the good rewards (3, 4, 5%) I get when my trades are successful.
The second reason is that price often interacts with the moving averages on its way down, so when I watch price retracing back to the 50MA it often appears to start to bounce on the 20MA - enough for something like my set up to occur - but it doesn't then bounce right up to the place where I set my target (the main resistance line for the day). If I was looking for just a few pips, maybe sometimes 20 pips, I might get them by trading the bounce on the 20MA but I'm not. That's not my strategy. So it is completely daft to take a trade off the 20MA.
I feel so much better for understanding this at a much deeper level than I did before. Maybe I'm just the dimmest or slowest trader in town but it's taken me a while to appreciate fully why I have that rule and therefore why there is absolutely no point in breaking it. Prior to yesterday I was just relying on me telling myself that it is my rule and I mustn't break it. But now there is real meaning to the rule and I am fully conscious of the meaning. Perhaps it will have even got through to ratty brain.
I reckon that now I will be much less likely to break that rule again. Especially since I have now removed the 20MA from my hourly chart so I won't be able to take a trade off it as I can't see where it is anymore. If I recall correctly this is something my coach Emmanuel suggested I do a few weeks' ago - he's obviously light years ahead of me...which is why he's a coach and I'm still wrestling with my ratty brain.
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| Battle of the Brains - that green mass up top has to win out in the end Top: Human Brain Bottom: Rat Brain |
hahaah Younger Daughter The Monitor.
ReplyDeleteThanks :)
Great post
xxx