Bad Assed Trader: My coach, Emmanuel, has liberated me this week which is both daunting and exciting. The weight of responsibility feels heavy on my shoulders. And when he looked directly into my eyes and said "I trust you" I felt there was no way on Earth I could let him down.
What exactly is he trusting me to do?
Firstly, to not blow my account. In this respect he's backed a winner as I won't be doing that anytime soon given the tiny amounts I now trade as part of my acceptance that I'm still very much in the Learning Zone.
Secondly, to behave sensibly in using the skills I have developed over the months. He has liberated me by removing the requirement that I stick to one strategy with tight rules and trade it to death, so I must rely on my skills and use them well.
At our coaching session last week he suggested that perhaps I needed to adopt a trading approach which uses both left and right sides of the brain - the knowledge and the creativity. Immediately this resonated for me and I'm always keen to try a new approach. We discussed the general rules I would be following: trading with the trend and the usual risk management (which I never have a problem with) but the main thrust of the new approach is that I am to look at the market environment first, see where the action is (eg where is price trending well) and then look for a technically justifiable way in. No currency pair or commodity/index/whatever excluded.
The acid test is to find a market where I can see what's likely to happen next and weave my way into it. I like the sound of that.
But we all know that in trading, life is never that simple.
I've tried this approach for just two days so it's far too early to talk about performance. But the interesting thing for me is how much this has shone a spotlight on my strengths and weaknesses.
I've looked back at the five trades I placed and realised that in four of them I found the move that was about to happen. The fifth was a good old "snapback" (see my recent blogs) which didn't, er, snap back.
I also looked back at the analysis I do first thing in the morning where I summarise for each time frame where each currency pair and gold are at. This is more than just up, down or chopping, I also try to assess where they are in their cycles to anticipate the next move and whether I should be looking to buy or sell or just stay away. I was right 36 out of 51 times.
One of my weaknesses, I found, was that I then failed to follow my own advice! For example, I wrote next to gold "Don't!" in my "Buy or Sell" column on Friday and then placed a long trade in gold. It did start to go my way initially (so I was probably reading the immediate price action fairly accurately) but then tanked because I failed to take into account the market conditions I myself had earlier assessed. Duh*.
*For my readers from India, China, Russia and other far away places (I love you all!) the meaning of "Duh" is: "Used to express disdain for something deemed stupid or obvious, especially a self-evident remark." ...Hope that clarifies...!
I also took a long "sniper" trade on the New Zealand dollar (NZD:USD), putting a target 44 pips away. The price shot up 30 pips pretty much straight away, a lovely move, and then it gradually drifted down until it stopped me out a few hours later...whilst I was having my hair cut. When I looked back at my morning analysis, the previous day I had noted that the NZ dollar was "turning to phase 2" (ie about to start retracing back down), that on the hourly chart it showed it was losing steam and that the MACD indicator was diverging, suggesting it was losing the upward momentum. These notes should have guided me to set a more conservative target if I was going to place a long trade on this pair.
Duh and duh again.
It was heartening to read the notes which then proved so true - EUR JPY on Friday where I wrote "WATCH OUT - could just tank" (it had been ranging all week on the daily, 240 and hourly charts and now was starting to droop on the hourly). And tank it did.
And EUR GBP on Friday when again I wrote "Don't" and "Could spring up, down or chop" and when I looked back I found it had sprung up, chopped and then tanked.
I should confess here (as I do like to confess) that my analysis of cable (GBP USD) was crap all week (buy, buy/sell, buy) until Friday when I finally got it right...sell. But by then it was a question of stating the bleeding obvious!
So, some confidence in the bag then regarding my analysis. But more to confess. Hence the title of my blog. When I reflected on the trades and the outcomes (which were not so inspiring) I realised there is a recurring theme lurking behind my trades. Regular readers will sigh and say "duh!" when they hear this. I seem to be setting my targets too optimistically. I know it's a problem with some traders that they don't let profits ride and cash them in too early. Well I seem to do the opposite - I let them ride all the way and back again.
Traders say "Trade what you see, not what you think" - very wise words. But for me right now the message is as per my title. I want the profit to be at the more ambitious target so that's the one I choose, rather than where price action and evidence shows, if I cared to look.
I'm a bit reluctant to start using my discretion during the trade too much as I prefer to set targets and leave the trade to unfold - and given that I do still work 3 days a week in the good old National Health Service I don't always have time to manage the trade. But I'm going to have a new rule and I've pinched it from the traders' bible "Trading in the Zone" by Mark Douglas which I've mentioned previously:
I've read this book four times now - it's a must read for anyone seriously considering trading. Mark Douglas describes on p193 his method for minimising risk and taking profit simultaneously. He describes it as dividing your position into thirds and scaling out as the market moves in your favour. For example, if you are risking 1% of your capital for a 3% return you might take a third of the profit when price moves one third of your objective pip target in your favour. Another third of a percent is taken when price hits this objective target you have set (at which point you move your stop loss to break even). This objective target is based on some longer time frame of support or resistance, or on the test of a previous significant high or low. So you now have a net profit whatever happens to the final third of a percent. He describes this last third as a "risk-free opportunity" and then he says "I can't emphasize enough nor can the publisher make the words on this page big enough to stress how important it is for you to experience the state of "risk-free opportunity". When you set up a situation in which there is risk-free opportunity, there's no way to lose unless something extremely unusual happens...you get to experience what it really feels like to be in a trade with a relaxed, carefree state of mind." He clearly feels we all need to experience that relaxed and carefree state of mind to become confident and successful traders.
Mark Douglas was prompted to develop this routine when following analysis he found that only one out of every ten trades he placed was an immediate loser that never went in his direction. Out of the other 25-30% of trades that were ultimately losers, the market usually went in his direction by a few tics before revising and stopping him out.
Why am I going to use Mark Douglas's approach to taking profits? Two reasons.
Firstly I reflected on why I am setting such ambitious and optimistic targets and sticking to them in the face of evidence from price action (or my earlier analysis - as I discovered this week) that suggests these targets will not be hit. At first I did the self support thing of acknowledging that I am an optimistic, quite steely nerved in terms of sitting the trade out rather than banking profit prematurely and always had some technical justification for my trades.
Then I did the honest thing of acknowledging that I am greedy and want maximum profit for each trade. I was setting the target where I wanted price to get, rather than where - taking ALL evidence into account - it was most likely to get.
I also acknowledged that I don't like the thought of "missing out" and that for me as a trader it is more painful to leave money on the table than to lose a trade. It really is. I've wondered why and in "Your Daily Trading Coach" (see my blog of June 5) Brett N Steenbarger prompts us to reflect on how our trading mistakes reflect learned patterns from the past - usually pain avoidance.
Many traders take profits too early or kill trades prematurely because of fear of loss. I don't do this because my fear is of missing out - so instead I set unrealistic targets and ignore evidence to the contrary. I believe this stems from the fact that I was lucky as a child not to experience any significant loss (eg death of family member or friend) so my actions are not guided by avoiding the pain of loss. But I was the third of four siblings and even in well off households there is a lot of competition amongst siblings for resources - whether that's parental attention, gifts, or chocolate biscuits. I have to put my hand up and say that a large part of my childhood (and even teens!) was spent checking whether I was missing out on what I perceived to be my fair share of the resources on offer and making sure that people heard my cry of "It's not fair!" if I felt I was.
My Mum, who kindly reads my blog, will be nodding and smiling at this. Mum - I don't blame you by the way, sibling rivalry is just normal. I'm not a child anymore and it's time I got over it.
And my second reason for using Mark Douglas's approach? Because coach Emmanuel has been telling me for ages to scale out and because of the reason I explained above and all my emotional/psychological baggage I've resisted doing this. But now I've worked through it and acknowledged the deep seated behaviour that's been controlling me I've taken it's power of control away and am free to follow his advice. Steenbarger says "When you describe a pattern of behaviour, you're no longer identified with it."
You will, I'm afraid, read again in future of relapses in this new rule. In fact, you've read before of my intention to do this and wondered why I hadn't already. And now you're wondering why I am so stupid if I am aware of all this and not just doing it. Well, Steenbarger explains that it takes time to identify old and entrenched pain avoidance behaviours and even longer to change them. He recommends seeing your old (unhelpful) behaviour as the enemy and says:
"It will take sustained effort to tackle your enemy, but it can be tremendously fun and empowering as well. Each time you notice your old ways of loosing money and refuse to engage in them, you've won a victory against your enemy - and struck a blow for your own sense of confidence and mastery."
What exactly is he trusting me to do?
Firstly, to not blow my account. In this respect he's backed a winner as I won't be doing that anytime soon given the tiny amounts I now trade as part of my acceptance that I'm still very much in the Learning Zone.
Secondly, to behave sensibly in using the skills I have developed over the months. He has liberated me by removing the requirement that I stick to one strategy with tight rules and trade it to death, so I must rely on my skills and use them well.
At our coaching session last week he suggested that perhaps I needed to adopt a trading approach which uses both left and right sides of the brain - the knowledge and the creativity. Immediately this resonated for me and I'm always keen to try a new approach. We discussed the general rules I would be following: trading with the trend and the usual risk management (which I never have a problem with) but the main thrust of the new approach is that I am to look at the market environment first, see where the action is (eg where is price trending well) and then look for a technically justifiable way in. No currency pair or commodity/index/whatever excluded.
The acid test is to find a market where I can see what's likely to happen next and weave my way into it. I like the sound of that.
But we all know that in trading, life is never that simple.
I've tried this approach for just two days so it's far too early to talk about performance. But the interesting thing for me is how much this has shone a spotlight on my strengths and weaknesses.
I've looked back at the five trades I placed and realised that in four of them I found the move that was about to happen. The fifth was a good old "snapback" (see my recent blogs) which didn't, er, snap back.
I also looked back at the analysis I do first thing in the morning where I summarise for each time frame where each currency pair and gold are at. This is more than just up, down or chopping, I also try to assess where they are in their cycles to anticipate the next move and whether I should be looking to buy or sell or just stay away. I was right 36 out of 51 times.
One of my weaknesses, I found, was that I then failed to follow my own advice! For example, I wrote next to gold "Don't!" in my "Buy or Sell" column on Friday and then placed a long trade in gold. It did start to go my way initially (so I was probably reading the immediate price action fairly accurately) but then tanked because I failed to take into account the market conditions I myself had earlier assessed. Duh*.
*For my readers from India, China, Russia and other far away places (I love you all!) the meaning of "Duh" is: "Used to express disdain for something deemed stupid or obvious, especially a self-evident remark." ...Hope that clarifies...!
I also took a long "sniper" trade on the New Zealand dollar (NZD:USD), putting a target 44 pips away. The price shot up 30 pips pretty much straight away, a lovely move, and then it gradually drifted down until it stopped me out a few hours later...whilst I was having my hair cut. When I looked back at my morning analysis, the previous day I had noted that the NZ dollar was "turning to phase 2" (ie about to start retracing back down), that on the hourly chart it showed it was losing steam and that the MACD indicator was diverging, suggesting it was losing the upward momentum. These notes should have guided me to set a more conservative target if I was going to place a long trade on this pair.
Duh and duh again.
It was heartening to read the notes which then proved so true - EUR JPY on Friday where I wrote "WATCH OUT - could just tank" (it had been ranging all week on the daily, 240 and hourly charts and now was starting to droop on the hourly). And tank it did.
And EUR GBP on Friday when again I wrote "Don't" and "Could spring up, down or chop" and when I looked back I found it had sprung up, chopped and then tanked.
I should confess here (as I do like to confess) that my analysis of cable (GBP USD) was crap all week (buy, buy/sell, buy) until Friday when I finally got it right...sell. But by then it was a question of stating the bleeding obvious!
So, some confidence in the bag then regarding my analysis. But more to confess. Hence the title of my blog. When I reflected on the trades and the outcomes (which were not so inspiring) I realised there is a recurring theme lurking behind my trades. Regular readers will sigh and say "duh!" when they hear this. I seem to be setting my targets too optimistically. I know it's a problem with some traders that they don't let profits ride and cash them in too early. Well I seem to do the opposite - I let them ride all the way and back again.
Traders say "Trade what you see, not what you think" - very wise words. But for me right now the message is as per my title. I want the profit to be at the more ambitious target so that's the one I choose, rather than where price action and evidence shows, if I cared to look.
I'm a bit reluctant to start using my discretion during the trade too much as I prefer to set targets and leave the trade to unfold - and given that I do still work 3 days a week in the good old National Health Service I don't always have time to manage the trade. But I'm going to have a new rule and I've pinched it from the traders' bible "Trading in the Zone" by Mark Douglas which I've mentioned previously:
I've read this book four times now - it's a must read for anyone seriously considering trading. Mark Douglas describes on p193 his method for minimising risk and taking profit simultaneously. He describes it as dividing your position into thirds and scaling out as the market moves in your favour. For example, if you are risking 1% of your capital for a 3% return you might take a third of the profit when price moves one third of your objective pip target in your favour. Another third of a percent is taken when price hits this objective target you have set (at which point you move your stop loss to break even). This objective target is based on some longer time frame of support or resistance, or on the test of a previous significant high or low. So you now have a net profit whatever happens to the final third of a percent. He describes this last third as a "risk-free opportunity" and then he says "I can't emphasize enough nor can the publisher make the words on this page big enough to stress how important it is for you to experience the state of "risk-free opportunity". When you set up a situation in which there is risk-free opportunity, there's no way to lose unless something extremely unusual happens...you get to experience what it really feels like to be in a trade with a relaxed, carefree state of mind." He clearly feels we all need to experience that relaxed and carefree state of mind to become confident and successful traders.
Mark Douglas was prompted to develop this routine when following analysis he found that only one out of every ten trades he placed was an immediate loser that never went in his direction. Out of the other 25-30% of trades that were ultimately losers, the market usually went in his direction by a few tics before revising and stopping him out.
Why am I going to use Mark Douglas's approach to taking profits? Two reasons.
Firstly I reflected on why I am setting such ambitious and optimistic targets and sticking to them in the face of evidence from price action (or my earlier analysis - as I discovered this week) that suggests these targets will not be hit. At first I did the self support thing of acknowledging that I am an optimistic, quite steely nerved in terms of sitting the trade out rather than banking profit prematurely and always had some technical justification for my trades.
Then I did the honest thing of acknowledging that I am greedy and want maximum profit for each trade. I was setting the target where I wanted price to get, rather than where - taking ALL evidence into account - it was most likely to get.
I also acknowledged that I don't like the thought of "missing out" and that for me as a trader it is more painful to leave money on the table than to lose a trade. It really is. I've wondered why and in "Your Daily Trading Coach" (see my blog of June 5) Brett N Steenbarger prompts us to reflect on how our trading mistakes reflect learned patterns from the past - usually pain avoidance.
Many traders take profits too early or kill trades prematurely because of fear of loss. I don't do this because my fear is of missing out - so instead I set unrealistic targets and ignore evidence to the contrary. I believe this stems from the fact that I was lucky as a child not to experience any significant loss (eg death of family member or friend) so my actions are not guided by avoiding the pain of loss. But I was the third of four siblings and even in well off households there is a lot of competition amongst siblings for resources - whether that's parental attention, gifts, or chocolate biscuits. I have to put my hand up and say that a large part of my childhood (and even teens!) was spent checking whether I was missing out on what I perceived to be my fair share of the resources on offer and making sure that people heard my cry of "It's not fair!" if I felt I was.
My Mum, who kindly reads my blog, will be nodding and smiling at this. Mum - I don't blame you by the way, sibling rivalry is just normal. I'm not a child anymore and it's time I got over it.
And my second reason for using Mark Douglas's approach? Because coach Emmanuel has been telling me for ages to scale out and because of the reason I explained above and all my emotional/psychological baggage I've resisted doing this. But now I've worked through it and acknowledged the deep seated behaviour that's been controlling me I've taken it's power of control away and am free to follow his advice. Steenbarger says "When you describe a pattern of behaviour, you're no longer identified with it."
You will, I'm afraid, read again in future of relapses in this new rule. In fact, you've read before of my intention to do this and wondered why I hadn't already. And now you're wondering why I am so stupid if I am aware of all this and not just doing it. Well, Steenbarger explains that it takes time to identify old and entrenched pain avoidance behaviours and even longer to change them. He recommends seeing your old (unhelpful) behaviour as the enemy and says:
"It will take sustained effort to tackle your enemy, but it can be tremendously fun and empowering as well. Each time you notice your old ways of loosing money and refuse to engage in them, you've won a victory against your enemy - and struck a blow for your own sense of confidence and mastery."
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| Getting over Sibling Rivalry for better trading: ...and how does the mother feel, faced with this?? |
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