Bad Assed Trader: I've been reflecting long and hard on a particularly instructive trade I took last week. It's been another learning opportunity, let's put it that way.
No, it was not a disaster. I didn't lose any money, in fact a gained a bit. But not the full 1% I aimed for and could have achieved had I not indulged in the typical trading errors to which I am clearly still vulnerable (but working on it - or rather to be positive: am over it). The reasons were 100% mine and the errors so typically and classically mine (and so typical of many traders I believe) that I feel I should hold this trade up as a standard "why I should not interfere" trade.
I had only recently gone over a clutch of my trades to compare what would have happened had I not interfered with them whilst they were on and compared the outcome with my actual results (with my interference). It gave me the evidence to prove that my coach Emmanuel is right when he repeatedly says I should find a great trade, set realistic profit and stop loss targets and then let it run its course. Do not start changing the target mid trade, for example.
So here's how not to do it.
The Yen (USD JPY) has been buggering about for some time and I'd practically scratched it off my list for daily analysis until, on Friday, I noticed an interesting repetition in price action. I've picked this out on the chart on the right by drawing the emerging trend line as price started to make higher lows and higher highs. MACD (the indicator showing at the bottom of the chart as an ascending row of peaks) also indicated that price was turning upwards.
I can't pretend this was a conventional trade in any sense.
But I'm a girl of principle. By which I mean I work from principles. My understanding of trading is that we look for patterns which show a repetition of some behaviour and use that as a basis for assessing the balance of probability for where price might go next.
When I saw this it looked exactly as the chart above shows. I checked on the hourly chart (left) and entered the trade on the break of the 7am bar (the last one) at 76.68. I set my target at 76.93 (initially), below yesterday's high and the whole number (77.00) where price will often fall back. I was right, price got there (see chart below where I have marked on my entry with a fully shaded blue arrow, my (altered) target with a purple arrow pointing down and my stop loss with a red arrow.
It looks straightforward doesn't it? Did I take the easy road? Did I buffalo. So here is my honest appraisal of my performance on this trade:
1. Fundamentally I lacked confidence in the trade. Although I had some good justification for it, it was an unconventional trade (going long in a downtrend where indecision about price and a narrow range of price were predominating). The hourly also showed a lower high and low which I discounted as mini cycles. I believe this lack of confidence underpinned all my subsequent errors. It shows me how important it is that I have full confidence in and justification for my trades.
2. Despite the lack of confidence I took the trade. I put this in as an additional point to reinforce it really as it is so pivotal.
3. I watched the trade too much. This is the addictive side of trading which I need to spot as it happens and overcome. It went up initially and then plodded for two hours, gradually drifting down (the red bar just before the purple arrow). I went out for about an hour and when I returned price was having a growth spurt and quickly moving in on my initial target.
4. At this point I became greedy. Sigh. This has happened before. I realised my target was not the full 1% and so moved my target further away by 4 pips. Price hit my initial target. It did actually reach the place I had moved my target to: 76.97 according to my charting software as you can see, but the broker's "spread" kept me in. It then started to retrace in line with the normal way of things.
5. From greed to fear. The typical trader pendulum. I became sensitised to all price signals for a move down and started to lose my bottle. Price sat on the pivot point (the black horizontal line at 76.75) for some minutes (felt like hours) and when it threatened to drop below it I took the trade off for 0.25% profit. As you can see, the dip was price simply retesting the 50 Moving Average line (the red upward moving line) before shooting up at some speed to career through my target and beyond.
6. I was influenced heavily by two other factors. The overriding one was my strong desire to end September in profit and this trade was making a significant contribution to this. I did end the month about 1.2% in profit. But this desire encouraged the greed and fear every new trader battles.
7. I allowed myself to get drawn into managing the trade and then wanted to finish the trading and relax. I ran out of patience...as well as bottle.
Seven errors...all in one trade. And yet I have felt no pain. This at least indicates I have moved on to some degree since my early trading days. That and the fact that I can now dispassionately deconstruct all my errors, seeing them in clearer, sharper detail and hopefully understanding my weaknesses better. Deep down I think I didn't feel I deserved that trade because it was unconventional and I lacked full confidence in it. Apart from my moment of greed I was governed by this lack of confidence and so didn't achieve the 1% target I had seen as possible.
My resolutions going forward are:
1. Only take trades where I have sufficiently high confidence that I will not be tempted to tinker.
2. Do not interfere once in a trade - there lies greed, fear and ruin.
3. Work on spotting the three key issues I have: being drawn into managing the trade (I see that as trading addiction), greed and fear. I will raise my awareness of when I feel these three sins arising and learn techniques to banish them. I've now developed a mantra for the early warning signs of all three and how I will talk myself out of them. If this works it'll be material for a future blog...
4. Stick to the plan - as the experienced traders have told me repeatedly from the beginning, plan your trade and then trade your plan. End of story.
Onwards and upwards. What ho!
No, it was not a disaster. I didn't lose any money, in fact a gained a bit. But not the full 1% I aimed for and could have achieved had I not indulged in the typical trading errors to which I am clearly still vulnerable (but working on it - or rather to be positive: am over it). The reasons were 100% mine and the errors so typically and classically mine (and so typical of many traders I believe) that I feel I should hold this trade up as a standard "why I should not interfere" trade.
I had only recently gone over a clutch of my trades to compare what would have happened had I not interfered with them whilst they were on and compared the outcome with my actual results (with my interference). It gave me the evidence to prove that my coach Emmanuel is right when he repeatedly says I should find a great trade, set realistic profit and stop loss targets and then let it run its course. Do not start changing the target mid trade, for example.
 |
| USD JPY 4 hour chart on 30 September 2011 |
So here's how not to do it.
The Yen (USD JPY) has been buggering about for some time and I'd practically scratched it off my list for daily analysis until, on Friday, I noticed an interesting repetition in price action. I've picked this out on the chart on the right by drawing the emerging trend line as price started to make higher lows and higher highs. MACD (the indicator showing at the bottom of the chart as an ascending row of peaks) also indicated that price was turning upwards.
I can't pretend this was a conventional trade in any sense.
 |
| USD JPY on hourly chart just before 8am 30/09/11 |
 |
| USD JPY: What happened next...on the hourly chart |
It looks straightforward doesn't it? Did I take the easy road? Did I buffalo. So here is my honest appraisal of my performance on this trade:
1. Fundamentally I lacked confidence in the trade. Although I had some good justification for it, it was an unconventional trade (going long in a downtrend where indecision about price and a narrow range of price were predominating). The hourly also showed a lower high and low which I discounted as mini cycles. I believe this lack of confidence underpinned all my subsequent errors. It shows me how important it is that I have full confidence in and justification for my trades.
2. Despite the lack of confidence I took the trade. I put this in as an additional point to reinforce it really as it is so pivotal.
3. I watched the trade too much. This is the addictive side of trading which I need to spot as it happens and overcome. It went up initially and then plodded for two hours, gradually drifting down (the red bar just before the purple arrow). I went out for about an hour and when I returned price was having a growth spurt and quickly moving in on my initial target.
4. At this point I became greedy. Sigh. This has happened before. I realised my target was not the full 1% and so moved my target further away by 4 pips. Price hit my initial target. It did actually reach the place I had moved my target to: 76.97 according to my charting software as you can see, but the broker's "spread" kept me in. It then started to retrace in line with the normal way of things.
5. From greed to fear. The typical trader pendulum. I became sensitised to all price signals for a move down and started to lose my bottle. Price sat on the pivot point (the black horizontal line at 76.75) for some minutes (felt like hours) and when it threatened to drop below it I took the trade off for 0.25% profit. As you can see, the dip was price simply retesting the 50 Moving Average line (the red upward moving line) before shooting up at some speed to career through my target and beyond.
6. I was influenced heavily by two other factors. The overriding one was my strong desire to end September in profit and this trade was making a significant contribution to this. I did end the month about 1.2% in profit. But this desire encouraged the greed and fear every new trader battles.
7. I allowed myself to get drawn into managing the trade and then wanted to finish the trading and relax. I ran out of patience...as well as bottle.
Seven errors...all in one trade. And yet I have felt no pain. This at least indicates I have moved on to some degree since my early trading days. That and the fact that I can now dispassionately deconstruct all my errors, seeing them in clearer, sharper detail and hopefully understanding my weaknesses better. Deep down I think I didn't feel I deserved that trade because it was unconventional and I lacked full confidence in it. Apart from my moment of greed I was governed by this lack of confidence and so didn't achieve the 1% target I had seen as possible.
My resolutions going forward are:
1. Only take trades where I have sufficiently high confidence that I will not be tempted to tinker.
2. Do not interfere once in a trade - there lies greed, fear and ruin.
3. Work on spotting the three key issues I have: being drawn into managing the trade (I see that as trading addiction), greed and fear. I will raise my awareness of when I feel these three sins arising and learn techniques to banish them. I've now developed a mantra for the early warning signs of all three and how I will talk myself out of them. If this works it'll be material for a future blog...
4. Stick to the plan - as the experienced traders have told me repeatedly from the beginning, plan your trade and then trade your plan. End of story.
Onwards and upwards. What ho!
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