Today was an interesting day in the market. When the market opened last night 3 out of the 4 trades I placed last night were in a profitable position. However, I woke up to a big surprise. The Euro got some good news over the London session and because of that the markets rallied eating up all of the profit I earned. Well not earned, but was in. Thankfully I was only stopped out on one of my trades. the others rallied, but because I had by stops tucked above some pretty relevant structure I was not taken out. It's funny because as I watched a pretty healthy profit swing turn into a pretty hurtful draw-down, I didn't change emotionally at all. I had faith that I protected myself not to be stopped out just yet and if I was then it just wasn't meant to be. After returning home a few minutes ago, I noticed that I am still in the 3 trades and that although 2 of them are still in the red, it is much lesser than when the day began. The other 1 is actually in the profit zone and I am trailing it at my original target.
Hey guys, I apologize for the lack of updates, but I'm feeling a lot better and I'm right back at it. Currently I'm involved in 4 trades. I don't expect any of them to close any time soon so this will be a good test of my discipline. Out of the 4 trades I'm in I would say that 2 are good and 2 are bad. I originally thought that all 4 were well executed but after sitting through a class with my mentor, he talked about why he wouldn't be involved in those trades yet. So I guess, technically they aren't bad trades, but they don't have his blessing. The reason he said he wasn't involved wasn't because it was a bad setup, but rather because he is waiting for the chance of an even better setup. This kind of hurt my feelings at first but he mentioned it was one of those things that simply come from experience in the market. So today I learned a great lesson. I'm still in the trade and am going to stick to my guns, but next time before I jump into a trade, I'm going to take the time to analyze the setup a little bit better. That way I enter the trade at the most opportune time.
You never know where knowledge may hide
Today has just been one of those days. :-( I've been feeling under the weather, it's the middle of the week, and to top things off it is snowing. This morning I got a message that the college I work at is closing early, therefore I didn't have to go in to work later. When I got this message the first thing that came to my mind was, 5 years ago I would have been jumping up and down celebrating, thinking about what video game I'm going to play all day. Or even better, "let me take my behind back to sleep." But today was a little different. What came to my mind today was "yes! I have more time to research and master my investment craft." I don't know what it is (maybe it's a survival issue) but I always ask myself how can I get better? How can I achieve the things I see my mentors achieving? The answers are more knowledge and hard work.
This brings me to a conversation I had with one of my closest friends the other day. We talked for a while about how when he goes into work, he doesn't just do what's asked of him, he's always networking and trying to talk to others. Does he have a reason for this? No. But he understands that the world (along with his goals) are much bigger than his desk and computer. He knows that knowledge is out there. But it just won't knock on his door and say "what's up", he has to go out and uncover it and sometimes it's hiding in the strangest places. To this day I believe that I've learned much more from talking to others and going through my own successes and failures than I did in college. Don't get me wrong, I'm not knocking college or anything, school is cool (me giving the thumbs up with a kool aid smile), but sometimes talking to a real person that lives that experience is the best knowledge you can receive. Sometimes a person can make one comment that opens up a world of thought for you, weather they meant it or not.
To get back on track, today I started reading and watching a lot of videos on the various investment markets, fully knowing and accepting that half of the stuff I hear (especially on youtube and google searches) will be BS or just plain non-credible. However, out of the blue I heard one little piece of information, and idea, that got me thinking. And from that one idea I was able to create something that may help me out in my trading. And that made it all worth it.
"Trying to find a needle in a haystack is almost impossible . Not trying to find it takes that almost away." - P
Yesterday I missed two great trading opportunities. I'm not really mad in a way that I'm throwing my computer and breaking things, but I am upset. However this proves that if you stick to your guns the payoff will come. So it's a great confidence builder to say that I would have been right, but it doesn't help the bank account. It also proves that I need to focus more in my analysis. Because of yesterday I have decided to change my daily routine to that I have specific times that I check my charts. In the past it was kind of an unwritten rule that I just did because it was a habit. But I've learned that if you right things down in a schedule, it forces you to be more accountable. So we'll see. I just entered a trade a minute ago and have another one on the radar for some point today so we'll see if we can restart this winning streak.
Decisions, decisions, decisions. As you know I've been back testing a new strategy that I've been working on. So far it has been profitable for the most part. The problem is that throughout the year I've noticed that I have to deal with a lot of losing trades in a row. Eventually I big winner comes along that clears up all of the draw down and puts me in the black. So you ask yourself, if I'm in the black then what is the issue? The issue is that, even though I know the system is profitable, will i be able to stomach loser after loser after loser. That is the part that I'm having trouble with. I would love to give you a conclusion to my decision but I honestly don't know. It's easy to say i can do it now, but when the actual money is on the table and I'm losing hundred after hundred in a row, will i be able to wait it out for the big winner? We'll have to wait and see.
After what seems like and endless loosing streak, today was finally a good day. My day trading system was about 50-50 today but some swing trades that I ha don for a few days finally reached my profit targets. This proves that when things are going bad, you have to stick to your guns and follow your rules. You must treat your trading like a business and not like a game. In a game you can quit whenever you want, but in a business you have to stay in the game through thick and thin.
Other than that I'm still working on my new trading strategy. After testing trade after trade after trade and year after year after year, i discovered that what I was doing was not profitable enough over time for me to use. Therefore, I had to go back to the drawing board and (not start from scratch), but make a few tweaks. Its all about trial and error. So I'm testing it again and we'll see how it fairs.
While continuing to read the Market Wizards book in order to help with the new system i'm trying out, I read a story about a great trader who's entire mindset was to control risk. Although he did not take as many trades as he could have (in which he said he missed out on a lot of money) he did not enter many losing trades and if he was in a losing trade he would exit it asap. Over trading has been one of my main problems. Instead of waiting for the "perfect" opportunity I used to want to enter everything that looked moderately good. This is one of the quotes from the book that I think we can all relate to.
"One of the basic problems that most traders face is dealing with risk... two primary rules to successful speculative trading are: Cut your losses short and let your profits run. Most people cannot deal with those two rules...If making money is important to you - as it is to most people who play investment games- then you will probably have trouble taking small losses. As a result, small losses turn into moderate losses, which you are forced to take - all because it was hard to take a small loss. Similarly, when people have a profit, they want to take it right away. They think, I'd better take this now before it gets away... most people are risk adverse...they prefer a sure, small gain to a wise gamble for a larger gain... in the realm of losses- they prefer an unwise gamble to a sure loss. As a result, most people tend to do the opposite of what is required for success. they cut their profits short and let their losses run." (Dr. Van K. Tharp)
I'm a little bit late on this update because it is currently a busy trading day for me. I'm in 4 right now. So we'll see how they turn out and hopefully you'll read about some good news tomorrow.
With today looking like it will be a rather slow day (at least for my trading system), instead of hunting around the market for something to trade I'm going to simply continue to work on my side projects in the market. Although I have a system that works, I am always asking myself "how can I get better". I live my life by the Japanese word "Kaizen" which means continuous improvement. And I have on wall the symbol of that word followed by a question asking myself "How can I become more efficient today?" Since I'm not a market expert that understands every single mathematical equation that goes into every indicator, I am always reading or watching video so I can understand them more. I have a good understanding of how each indicator works and how to use it. However I want to be able to make adjustments to the parameters in order to have the indicator work more efficiently of the particular market and time frame that I'm trading. So pretty much I use a lot of trial and error. Last night I was doing some reading, and a light switch went off in my head about a new strategy I should try out. So that's what I've been doing all night and all of this morning so far. Of course I'm not trading it with real money, rather I am just looking through the market adjusting it here and there and writing my rules for how I will use it. Once I settle on my rules then I will go ahead and back test it. After I back test it (assuming it meets my requirements, which I spoke about in another post) then I will trade it with real money. I know, I know, it's a long process, but it's also a safe one. And in this profession safe always trumps sorry. Also this system isn't going to be used to replace my current system if you were wondering. Simply something to supplement it on more of a long term basis.
Yesterday was another slow day in the market. Seems like this entire week has been slow to me, but that usually happens after an action packed week. A good thing about a slow day is that it frees up time for me to get some back-testing done. (For those who are unfamiliar with back-testing, it's when a technical analysis trader takes his/her strategy or system and goes back through historical charts and tests it). My day trading strategy uses a 15min chart so I usually like to go back a year, but for those who use higher timeframes I would go as far back as you can. A few things I like to look for in my back-testing are 1)Profit 2) Draw-down and 3)
Win percentage. Profit is important for obvious reasons; I want to see if the pair I'm testing is profitable or not. Next I look at draw-down. Not only do I want to see how much I average on a loss, to make sure I don't blow out my account, but I also want to make sure that a particular month doesn't clean out the earnings of another. Personally I don't like to see more than 2 losing months in a row and if I more than four losing months throughout the year then I usually stop testing the pair and move on to another. Lastly I look at my win percentage. I like to look at this statistic in order to give me a confidence and calmness when I trade. If I know that my win percentage on the EUR/USD is 50%. Then I know that after a few winners, a loss is bound to come. That way when the loss does come I'm not in shock or upset, because it was expected.
Now for the lesson well learned. It is important that you finish what you start. I recently back-tested a pair that looked very very promising through the first 9 months of testing it. I was honestly very excited and was seriously thinking about just adding the pair to my portfolio and trading it with real money. Then a little voice in my head (my trading mentor Jason Stapleton from 4xtraderslive.com) told me to finish the entire year first. I did so and the last 3 months went horrible. My losses is those final months completely wiped out everything I had earned during the year. I'm not sure how the pair is doing now, but after seeing that, I knew it was something that I didn't want to get involved in.
After a slow start to the week, yesterday was a great day as far as confidence goes. Swing trading wise, I see nothing out there and I'm in no rush to find something. Especially with the luck we've been having in the markets lately. But my day trading system performed pretty well yesterday. Yesterday I took four trades and won two of them which means I finished the day in the black. Again, the way I set up my system is that when I win, the profit is always more than the drawdown when I lose. So basically, as long as I'm 50% on my W/L I will come out profitable. With that being said I don't just trade any pair a lot of back-testing was involved. But thats a story for another time.
One of the tools that helped me stay on track is having a daily routine. Working from home is difficult because there are tons of temptation out there. Food, TV, entertainment, just to name a few. Plus since I don't have to drive to work my bed often calls my name. My key to success has been setting up a work schedule as if i was working for another. I have a specific wake up time, and to make a long story short I have about every hour of my day planned out. It may seem small but humans are creatures of habit and If I can install good work habits, I personally feel more professional.