tradingadviceblog.com » Methodology

Desperate Traders Wanted!

Mo — Fri, 12 Jun 2009 02:29:25 +0000

Lost your confidence? Fear your constant trading companion? Wondering how on earth your dream of being a successful trader is going to happen? As they used to say on the Six Million Dollar Man, “We can rebuild you!”. Not many would argue that trading can be extremely emotionally challenging. Losing money, seeing your hopes evaporate in front of your eyes, failing at something which seems as though it should be much easier than it is, can be gut wrenching. Sure, some new traders are lazy and expect something for nothing. But there are many that work really hard to be successful, and yet no matter how hard they try it seems that success keeps slipping away. What do you do when things have reached rock bottom? Here’s a tried and tested, step by step plan to turning things around: 1. Hit the pause button. When things have gotten this bad, pushing on through it is not the best strategy. Its time to regroup. You are much more likely to keep losing than you are to improve when you are in this kind of state. The more you keep damaging yourself emotionally, the harder it is going to be to turn things around. 2. Take the emotional pressure off and stop trading real money. In fact stop trading altogether until you have followed these steps. When you are in an emotional pressure cooker it is very difficult to deconstruct your trading and figure out what the issues are.

Take the pressure off
Deconstruct
Rebuild
Test

If you do this and then start replying the pressure of trading real money gradually, in the way I’m going to descibe, you’ll stand a much better chance of succeeding. As part of your deconstruction and rebuilding efforts, I suggest you read this post to give you some ideas 10 More Ways to Deconstruct Your Trading and Build a Better Plan In particular focus on these things.. 3. Be honest with yourself about your edge. ie. Do you really have one? Do you have a trading method or system that is consistently profitable, even if you haven’t yet been able to trade it profitably with real money. I say “be honest” because you’d be amazed at how many traders kid themselves that they have an edge, when in fact they don’t really know if they have or not, and invariably they don’t. Here’s a clue for anyone who is still trying to figure out a method. Its not a guessing game. Its not nebulous. When you have a method that has a consistent edge you know it. You’ve tested it. It works. You know it in your bones, and that’s what gives you the confidence to trade it. So if its not certain to you, you don’t have it yet. Assuming that you have taken the time to verify that you have an edge, and if not you’ve found one, tested it and verified it, move on to the next step. 4. Clear the baggage. If you’ve been trading real money for a while and lost consistently. If you were getting that gut wrenching feeling of fear as you traded, and particularly when you lost, then you’ve got some emotional residue from those trades that you are going to need to get rid of before you can get back on the horse and stay on. Otherwise like ghosts they are going to keep haunting you. Even though you may have sorted your method out, and you have a potential edge, you won’t be able to realize it if you are derailed by old fears. With emotional clearing techniques you can release these emotions bunched up inside you, and trade in the clear. They are easy and pleasant to do. Here are some things to clear on.

When you’ve taken a break from trading for a few days, think about going back to trading real money again. Think “tomorrow I’m going to trade real money again”. What do you feel? If you feel a clenching in your gut, or a tension, at the thought of it, use one of the clearing techniques to release the fear. Keep doing it each day, until you can plan to trade tomorrow without any tension or fear coming up.
Think about entering a trade and it turning against you, and losing money. Same idea. If you feel a clenching in your gut, or a tension, at the thought of it, use one of the clearing techniques to release the fear. Keep doing it each day, until you can contemplate losing without it affecting you. Losing is a normal, natural part of trading a profitable edge. You’ll need to be able to take a loss and be fine about it.
Think about missing an opportunity.
Think about making money. Sometimes if you have had a difficult time with losses, the thought of making money can bring up strong emotions, both positive and fearful. Release them.
Think about any other situation that you know brings up intense feelings for you, and clear it.

5. Start replying emotional pressure gradually. Start trading on a simulator and do that until you are trading your method consistently, and you can think about the questions in the previous step without any fear. Apply some imaginary pressure to your simulated trading, like “if you are not consistent for the next week you’ll have to stop trading for good”. This kind of imaginary pressure can simulate some of the pressure of real trading. Any difficult emotions come up – clear them. 6. Start trading with real money again gradually. When you can plan to start trading again without any fear, with a sense of positive anticipation about putting your method to the test, then you are ready to take the boat out in open water again. But take it easy. If you start feeling a lot of intensity again, if losing trades disturb you, ease off and clear them out. You may need to go back to step 4 and try again. The overall aim with this approach is to seperate the rational, measurable, testable aspect of your method, from the emotions of trading which will affect your ability to trade it. To be successful you need to be straight on both. You need to be confident of your method, and you need to be confident in your own ability to stay in an emotionally healthy state. Good luck!

If You Want to Make Money Trading, Stop Thinking About Making Money Trading!

Mo — Fri, 05 Jun 2009 00:36:17 +0000

I know this sounds crazy, but it couldn’t be more true! One of the biggest mistakes that developing traders make is having their focus in the wrong place. Making money is a byproduct of trading effectively — thats where your focus has to be. Focus on trading well, and the money will come. It definitely will not come unless you keep your focus on developing your skills. As a great man once said, “Bank in the bank, not in your head”. If you are losing money, sure get upset. For a minute. But don’t wallow in it. Clear the emotion , move on, and use that energy to refocus. Don’t be one of the large number of traders that are led around by the nose by their attitudes about losing money, missing out, and leaving money on the table. Don’t let it become personal. When that happens you lose all perspective. You can tell how concerned you are about money by asking yourself two questions while you are trading that Dr Brett Steenbarger included in a recent post Where Is Your Head When You’re Trading ? Are you looking at your profit/loss for the day (week,month) and filtering trades through that? Are you wanting to get your money back after a loss or hold onto it after a gain? The other thing to do is watch your thoughts in the morning before the market opens and in the evening after it closes. How often are you thinking about whether you can make $X today, or that you lost $Y dollars today. How often do you get demoralized thinking about how many days its going to take you to make back the $Y. These are all signs that your focus, whether conscious or not, is in the wrong place. Instead you should be thinking about the market, about the trades you are going to make, about your plan for the day. If you had a losing day, be thinking about the trades you made. What happened? Analyze it. Once thing that is common with traders that get emotional about losing money is that they tend to avoid examining their trading in detail. The pain of losing is such that they want to change the subject, take their mind off it. Journaling, replaying trades, analyzing in detail what happened, is too painful. But that’s exactly what you need to do if you are going to cure the problem. The good news is that it doesn’t need to be a ‘no pain, no gain’ situation. You can easily clear your emotions , take away the anxiety, so that you can face the analysis that will set you on the right track. For each trade you made today, or over a recent trading period, make notes about what the market was doing; what you were thinking and feeling; what you did (or didn’t do) in terms of entering, exiting or missing trades; what were the consequences of what you did; what you would do differently next time. If you can’t answer these questions it means you are not keeping enough records while you are trading. So tomorrow, keep notes, and then try the analysis again at the end of the day.

What the market was doing
What you were thinking and feeling
What you did or didn’t do
What the consequences were of what you did
What you would do differently next time.

If you are feeling resistent to doing this – its even more reason why you need to push yourself to do it. That resistence is your mind/body trying to keep you anaesthatized from the pain/fear of losing. But its the very fog of that emotion that is clouding your trading. Clear the emotion and do the analysis. The key part of this exercise is taking the things that you say you would do differently next time, and using them to set goals for your trading day tomorrow. This brings conscious awareness to the things that you need to focus on. If you stay focused on your goals, you will improve. If you do this diligently for a few weeks, and keep doing it, you’ll see a significant improvement in your trading, as you become more aware. And yes eventually, you may even make some money!!

Simple, Practical Ways to Transform Your Difficult Trading Emotions and Improve Your Trading Overnight

Mo — Wed, 03 Jun 2009 13:19:37 +0000

As traders we’ve chosen an intense profession, one with a very high potential for stress. The simple act of putting our money on the line, with an uncertain outcome, creates an emotional force which we need to know how to handle. If we don’t, the emotional excitement of fear, euphoria, anger, disapointment, and other intense feelings, clouds our judgement and affects our ability to stay in the opportunity flow of the market. Trading with these emotions in play, is akin to driving in a storm without windshield wipers. We can’t see the road clearly, and accidents are very likely to happen! Here’s the good news. Learning to clear your emotions is easy, and pleasurable. You’ll feel such relief that you’ll wonder why you didn’t do it long ago. Your trading will be affected in dramatic ways, as you let go of the destructive results of trading while blinded. Not only that, but once transformed into positive feelings, you can use these new emotions to inspire you and find new enthusiasm for improving your trading skills. In this post, I’m going to tell you about two easy to learn techniques that get fantastic results! As Dr Brett Steenbarger reminds traders regularly, emotions aren’t bad. Some of the best traders are very emotional. They use that energy to drive their performance and to continually improve. The fact is that we can’t get rid of emotions even if we want to. Unless you are a Vulcan, you are going to have emotions! The key is learning how to work with them, and transform them so that they are a positive force. While many of us have learned or are learning the technical skills of trading, the area of emotional management is something that many traders overlook in their eduction. Its sad really that we’re not taught how to work with our emotions as kids. Most of us learnt quite the opposite, how to escape or push down our emotions through television, food, exercise, drugs or in other ways. And now after many years of practice we are all expert at avoiding the pain of difficult emotions. But avoiding doesn’t help. The emotions are still there stored as stress in our body, and waiting in our subconscious for the right trigger to come out again. Its time for a change. Before you get gung ho with the emotional clearing, first here’s a really important point. Our emotions are trying to tell us something. Its critical that we don’t avoid or even transform our emotions without first finding out what they are trying to tell us. All the positive thinking and feeling in the world will not help you if you don’t have a trading edge. Take a look at 10 Ways to Deconstruct Your Trading and Build a Better Plan and 10 More Ways to Deconstruct Your Trading and Build a Better Plan if you need help with that. Now let’s take a look at emotional clearing. In general I’ve found that there are two types of clearing that I need to do. One type is quick, short term clearing of emotions while I’m trading. And the other type is clearing out older, longer term emotions that may be affecting my perspective, or causing a slump etc. I use two different techniques, one called the Sedona Method which I use for short term clearing. Its quick, effective and easy to use even while you are trading. And if you want to start by learning just one technique, you can also use this for longer term clearing as well. There’s nothing scary involved. No voodoo, brainwashing or electrodes! You simply ask yourself a series of questions which causes a release of emotion. In fact, the Sedona Method is so simple, that on first sight you may wonder how something so basic can work so well. I don’t know why, but I do know that it works amazingly, and that it has been validated and proven to work in studies by the Harvard Medical School. To do the technique in its simplest form, you first learn to just let the emotion be there, without fighting it, without running away from it. Then you ask yourself three questions. “Could I let it go?”, “Would I?”, “When?”. Once you have learned the subtleties of the technique, its that easy. Now imagine that you are trading. You place a trade, and get stopped out at a loss. That loss brings up strong emotions for you, which clouds your perspective. You are so caught up in feeling bad about your losing trade that you miss the next opportunity just a few minutes later, a trade which would have been very profitable. Rewind: Imagine that you are trading. You place a trade, and get stopped out at a loss. That loss brings up strong emotions for you. You quickly run through the Sedona Method and clear the emotion. Your perspective is clear and you immediately see the next opportunity and are able to respond to it. Your emotional clearing skill has supported a profitable trade. In this situation, I would also follow up at the end of the day by doing a deeper clearing to clear whatever it is that is causing the extreme reaction to losing. For this I’d use a technique called Core Transformation. It also involves a simple and easy to learn series of questions that you ask yourself in order to communicate with the part of you that is feeling the intense emotion. You learn to identify what that part wants for you, and then continue to guide it through simple questionning to its core state – very positive energy. Like every trader I’ve had hundreds, probably thousands of experiences of feeling strong emotions before, during or after a trade which I’ve been able to quickly transform into a calm, positive, opportunistic state in which I can see the market much more clearly. By using these two clearing techniques I’ve found that I’m much better prepared to execute each trade as a unique opportunity, and to maintain a positive approach to developing as a trader. I hope you find this beneficial and get as much pleasure from emotional clearing as I do. It feels great to be clear! If you’d like to learn the Sedona Method properly, I recommend starting with the Sedona Method book. You can also read FAQ’s here. If you are interested in finding out more about Core Transformation you can read the book Core Transformation or learn the method in detail through the DVD of the training course. All the best! Mo tradingadviceblog.com

How Hard is Trading Really?

Mo — Sun, 16 Nov 2008 19:50:04 +0000

In the world of traders there are two big camps – one is the group searching for what they believe is the holy grail – the perfect method that will give them easy access to consistent profitability. The second group will tell you that there is no holy grail of trading. They’ll tell you that successful trading is the domain of an elite few who have mastered the impossibly difficult conditions of trading to become consitently profitable. This apparently elite few have been compared to expert surgeons or chess grandmasters! Is trading really that difficult? Are consistently successful traders the equivilent of brain surgeons and nuclear physyicists or is trading open to those of us on a slightly less rarified level? Do we need to be Tiger Woods or can we make it if we can regularly hit par? Here’s my take on it. I’m convinced that there is a holy grail of trading and its available to those that want to find it – it won’t be found by searching for the perfect method, but at the same time its not impossible to find if you look in the right place – if you are willing to go on a challenging quest to find it! Its certainly not easy, but its certainly not impossible. The mechanics of identifying profitable trades and executing them are no harder than any other skilled profession. It takes study, effort, and practice, but what skill doesn’t? What makes successful trading appear to be so unattainable – and become so for many – is that it requires each trader to do something extraordinary. It requires you to adopt new beliefs, to retrain your mind to think differently, and to first face and then learn to manage your emotions. This is not difficult in and of itself, but most new traders simply do not do this crucial work. Its interesting that the type of people that gravitate towards trading are actually the people least likely to succeed at first blush. Predominantly male, successful professionals, cocky young twenty somethings, doctors and dentists – why would this group have the predisposition to fail? Because they (I was once one of them) believe without question in the validity of the way they think. Changing beliefs, confronting emotions is outside of our initial comfort zone. Only the few that take the bold step of focusing on the mechanics of their own thoughts and emotions become complete traders, and ultimately achieve the success that they are looking for. So here’s another question. If I’m to go on this quest to the find the holy grail within myself, is there a map? Again the answer is yes, there is a clearly charted path that you can take. BUT…don’t mistake the fact that there is a map, for it being easy. Nobody can walk the path for you. No matter how many people have blazed the trail before you – you will still need to walk it yourself and fight your own dragons. Your goal is a state of mind and being in which you can stay focused in the ‘opportunity flow’ of the market. Fear of loss cannot touch you, because you’ve learned how to accept risk, how to safeguard yourself, and how to trust in your ability to do whatever is necessary in the moment to protect your capital. In that state, free of distraction, you can see the opportunities that present themselves. You can take profits from the market effortlessly. A trader in that state can take even a mediocre trading method and make it a gold mine. The interesting thing about learning to trade is that no matter what path you take, you need to find a method with positive expectancy – an edge that you can rely on. And here’s the challenge – no matter how committed you are to a quest for the grail within yourself, watch out! Many a trader, with the best of intentions, has been distracted by the siren call of their method. They end up on a detour, constantly focused on method and never make it to the next step. Every trader that wants to be successful must understand that their method is just the beginning, its just the entry requirement. The true quest to find expertise and consistent profits lies in mastering a different kind of methodology – a new way of thinking. Have a great week! Mo

Why Some People Almost Always Make Money Trading

Mo — Wed, 13 Aug 2008 02:28:28 +0000

In many of my former posts I’ve talked about the dramatic improvement that you can make in your trading by giving as much importance to ‘time’ as you currently do to ‘price’. What if instead of being a slave to the charts you could calmly pinpoint exactly the right times to trade – times that will lead to the most decisive moves. Not only that but you could do it ahead of time so that you would know with plenty of notice when a trade was coming, and you could prepare yourself mentally and emotionally for the perfect execution of your plan. This is possible when you have a method that incorporates cycles. Even if its just to tick it off your list and say “checked it out, not for me” I encourage you to investigate the possibilities of cycle trading. In this post I’ve listed in one place a goldmine of cycle trading resources. These links represent the best of the best in cycle trading knowledge. A word of caution though. Some of these sites/books are shrouded in slightly obscure language that might appear intimidating at first. Did you ever watch the TV series Kung Fu where the old Master made the student ‘grasshopper’ stand outside the Shaolin monestery for days to test whether he was worthy of being a student? I’ve come to the conclusion that some of them purposely make things a bit complicated to scare off the people that aren’t serious about uncovering the valuable information that they contain. Persevere – its well worth it. J.M Hurst – Hurst Cycles J.M. Hurst is a legend. He was an aerospace engineer by training and background, and a pioneer in computerized research into the nature of stock price action. Devoting many years and over 20,000 computer hours to the study of cycles, his books are trading classics. The Profit Magic of Stock Transaction Timing Cyclic Analysis: A Dynamic Approach to Technical Analysis Software for implementing Hurst Envelopes: Divergence Software, Inc cyclePack Walter Bressert Walter is one of the ‘greats’ in the field of cycle trading. He pioneered the work of cycle trading using smoothed oscillators. www.walterbressert.com The website is going through some challenges right now but Walter’s Profit Trader Software is great so contact them by email if you want to try it our for 30 days. You can read the manual which tells you quite a lot about it and cycle trading here. Roy Kelly Roy Kelly’s Floor Trader’s Tools Software is in my opinion one of the best alround trading systems on the market. It incorporates excellent cycle and trend indicators that can be traded for consistent profits. Find out more about Floor Trader’s Tools here. If you are reluctant to shell out the cash without knowing more about the system check out Roy’s book The Trading Method That Will Make You Rich. John Ehlers – Mesa MESA and Trading Market Cycles: Forecasting and Trading Strategies from the Creator of MESA, 2nd Edition Cybernetic Analysis for Stocks and Futures: Cutting-Edge DSP Technology to Improve Your Trading (Wiley Trading) For more information about Mesa indicators and systems visit www.mesasoftware.com

Traders’ Guide to Keeping the Big Picture

Mo — Sun, 20 Jul 2008 16:44:05 +0000

I’ve noticed from the emails Trading Advice has been receiving recently that its at times like this, when the market changes its trend, that new and struggling traders run into the most difficulty, because they don’t have effective methods for holding the overview. Everyone gets comfortable as the bandwagon moves consistently in one direction, only to be thrown from their seats because they weren’t expecting the change in direction. So here’s some trading advice about one of the most crucial skills of the successful trader – understanding how to read multiple time frames. It doesn’t matter if you are a short-term, swing or position trader. It doesn’t matter what method you use – trend trading, reversals, whatever — you have to understand the effect of the time frames that influence your own trading period so that you can keep an eye out for impending trend changes. Failure to do this can quickly eat up trading profits as you try to enter positions without knowing which side of the trend you are on. My own preferred method of doing this, as a short term trader of the Dow and S&P futures, is to analyze the cycles operating in the 13, 30 & 60 minute time frames. I appreciate that this may be a little complicated for some so another simple and effective method is to use multiple moving averages. Thanks to Trader Mike for highlighting this method, developed by Daryl Guppy, in his article Another Look at Multiple Moving Averages. Linked from Mike’s article is an article by Daryl Guppy in which he explains the method in more detail. The gist of it is that the two sets of moving averages show the behaviour of two groups active in the markets – traders operating in the short term, and investors operating in the longer term. The very simple parterns of the two sets of averages indicate and then confirm trend change. As a stock trader, or equity futures trader, if you watch the MMA’s on the 13, 30 & 60 minute time frames of the S&P500 futures, or your other favorite leading indicator, you’ll have a good sense of what’s coming down the line in terms of significant trend change. First you’ll see the trend change in the 13, then if its real it will be confirmed by the 30 and then the 60. As you continue to watch the higher time frames 120, 180, 240 minute etc you’ll be able to see the trend being confirmed or at some point rejected. And of course you’ll see this rejection coming by going back to the smaller time frames 13, 30 etc. As you can see the whole process is cyclical. You identify an emerging trend change in the lower time frames, you watch it confirming or being rejected in each of the higher time frames, and at some point the whole process begins again in the lower time frames. This is one way to help you keep the overview. And by combining it with key support and resistance numbers you’ll have an even better sense of what is going down (or up!) around you. Have a safe week, Mo

Book Review: The Trading Method That Can Make You Rich – by Roy Kelly

Mo — Mon, 14 Jul 2008 18:00:16 +0000

Priced at $195, used copies almost unheard of, this book with its almost ‘cult-like’ following has intrigued me for years. I finally decided to buy “The Trading Method That Can Make You Rich” and see what the fuss is all about. I received in the mail one of the first copies of the second edition, hot off the press. It’s a large sized, hardback book with about 230 pages. The pages are well laid out with lots of visuals, making it easy on the eye. As I began reading, I started to feel a breath of fresh air. I don’t know about you, but I often find trading books are either hollow waffle, or so damn complicated that they give me a head ache. This book was quite frankly a relief. The book reads as though its sensible and real. Its simple without being simplistic, yet has the weight of 30 years of proven technique. You just have to open a chart on your computer to see that the method is immediately applicable. The first third of the book is background information for understanding the method – different market theories, and chapters explaining cycles. The real meat begins on page 91 with two chapters devoted to teaching the theory of the method – one chapter for long entries and one for short. Later there are 60 pages dedicated to real-world trades using the method. You get to follow Roy Kelly’s thought process as the trade sets up, then follow it through to completion. By the end of this section its hard not to be excited about loading up the charts and starting to trade. So having read the book, is it worth $195? Well here’s the answer from two different perspectives. Firstly in comparison to its competition. How many books or courses have we traders bought over the years from $20-$30 promising a trading method that ended up being absolutely useless. I know that in my early years I almost single handedly supported Amazon.com’s share price with the amount of books I purchased! So yes this is a bold book – to price itself at $195 – but the fact is that the method works! What’s better, 10 books at $30 that you turned around and sold again because they were rubbish or one book that lives up to its promise? From another perspective, if you study this method carefully, practice it, and get the hang of it in the live market – you’ll make back the $195 with your first trade with change to spare, so from that perspective its a bargain. The most interesting measure of this book for me, is that its very hard to find a used copy. The people that have purchased it and are trading the method don’t want you to find out about it!

10 Ways to Deconstruct Your Trading and Build a Better Plan

Mo — Thu, 10 Jul 2008 01:24:11 +0000

When I was a 16, I was absolutely desperate to get a car. My pop insisted that if I wanted to drive, I had to learn to take an engine apart and put it back together until I understood not just the theory of how it worked but had gotten my hands dirty with first hand experience. That was the beginning of many weekends over the years deconstructing engines, figuring out what was wrong with them and putting them back together.

Just like a mechanic, to be successful as traders we need to learn how to diagnose the different aspects of our trading and repair, replace, or adjust them. For some that’s a bit of fine tuning, for some its a complete overhaul!

I am convinced from my own experience that to be a profitable trader you have to develop the ability to diagnose, and to take an honest and detailed approach to the different areas of your trading. It doesn’t work to be vague or waffly about such important matters as the expectancy of your trading method or your state of focus during the trading day. You have to know EXACTLY what’s going on, what your issues are. And it takes a lot of courage, and a burning desire to succeed, in order to face them.

If taking a detailed measure of everything doesn’t come naturally (it was a hell of a struggle for me) you have to somehow dig deep and develop the discipline to do it.

Here are ten areas of diagnostic – with questions to stimulate your inquiry:

1. Method

Do you know your method’s expectancy? If it isn’t profitable in testing, don’t trade it!

2. Clarity & Precision

Are you crystal clear about your method? Can you explain it, inside out, from memory? If you aren’t clear about your method then how do you expect to trade it in the heat of the trading day?

Are you executing your method precisely? If not why not?

3. Intention

Do you hold a clear intention of success before and during the trading session or do you just let things happen?

4. Focus

Are you able to maintain a detached focus or do you lose yourself in the charts? In the zone or zoned out? Successful trading requires healthy detachment from any individual trade.

5. Risk Tolerance

Do you have a healthy risk aversion? Do you get out at the slightest retracement or hold on way past the appropriate stop level?

6. The Ghost Whisperer

Are you haunted by past failures or losses or have your learned to clear your emotions?

7. Excitement level

How is your excitement level during the trading session? Cool as a cucumber or hyper over-trader? Look at your diet. Learn how to relax.

8. Fail safe

What fail safes do you have in place in case you lose control and start over trading or chasing losses? Do you have a maximum daily loss limit hardwired into your account with your broker?

9. Taking Responsibility

When you have a bad day or string of losses, do you face them, analyze them, stare them in the face until you really understand what happened or do you avoid them, do something else to take your mind off them until you forget them?

10. Willingness to Journal and Deconstruct Every Day

Do you keep a trading journal or do you feel an aversion to it? That aversion, like avoiding looking at your losses, is a sign of an emotional blockage that is preventing you from improving your trading. Clear it! Learning to clear your emotions is going to be one of the most valuable skills you can learn for your trading and your life!

And one more bonus point! Do you make your trading profits real? Take some money out of your account and spend it so that it doesn’t stay money on paper – buy yourself something extravagant you don’t really need.

Losing? How to Figure Out Where You Are Going Wrong

Mo — Mon, 07 Jul 2008 13:54:58 +0000

One of the most common questions we receive at Trading Advice is “where am I going wrong?”. To the new or struggling trader, there can often seem like such a mind boggling array of variables in trading, that it seems impossible to unravel the primary issues.

When you strip away your emotions on the subject and look at your situation with cold hard analysis, there are really only two main variables:

1. Are you using a profitable trading system?

In other words is your trading method giving you entry and exit signals which if executed correctly lead to profit, in the balance of trades. Do you know your trading system’s expectancy?

You would be amazed at how many traders can’t answer this question. For many traders in their first few years of trading, the market has such an aura of mystery about it, and there are so many details in terms of charting, order entry, brokers etc. that they forget to ask the most obvious of questions. Don’t be one of these traders! Don’t be willing to go out and risk your hard earned money on hope. You wouldn’t drive your car somewhere unless you had a reasonable certainty that it was going to get you where you wanted to go. You wouldn’t eat food unless you were reasonably certain that it wouldn’t make you sick. So why trade without knowing what to expect from your trading system?

If you want to gamble, surely it would be more fun to go and bet on a sports game? Despite what some may say, serious trading is not gambling. The profitable trader knows exactly what to expect from his system over time. He won’t be able to tell you if his next trade will be profitable, but over a week or month he should be able to tell you with reasonable accuracy his trading system’s expectancy.

So test your system, either using the back testing functionality of your charting package, or by paper trading it over an extended period. Knowing the expectancy of your trading system is your foundation, without it you have NOTHING! Really, NOTHING! Without knowing your trading method’s expectancy you are building a house on sand.

This first step is really a gate keeper. If your trading method is not profitable there is no point in going any further.

2. Execution

Once you know for certain that your trading method has is (or has the expectancy to be) profitable, the only other variable is executing it correctly. Yes, you may be saying “duh!”, that’s really obvious. But when you boil your trading down to these two simple variables – when you know what to expect from your system – then you can place 100% undivided focus on mastering your ability to execute your trading system.

The mistake that many traders make is focusing on the wrong thing. Your job isn’t being the trading system! Its not to decide which trades look promising. That’s the job of your system or method. You should have a set of rules which tell you this, which you follow. Unless you are incredibly experienced or have psychic powers, don’t do discretionary trading. Don’t get lost in price movement and make up the rules as you go along.

Your job, your only job, is to sit patiently and wait for your system or method to indicate that its time to enter – and then with great focus, you execute the trade as planned, and you get out again either at the predetermined profit targets, or when your stop loss gets triggered.

I know this seems really basic, but remember that 99% of traders fail because they either don’t have a profitable system, or because even with a profitable system they don’t follow it. Taking trades not indicated by the system, second guessing the system and not taking trades given, hesitating and getting in late, anticipating and getting in early – these are all commonplace. They all boil down to a lack of faith in the system, and not having a burning focus on accurate execution.

Where does mindset fit in here? Focus on staying focused – on execution. Make it a meditation. The more you develop the ability to step back from price movement and watch the market dispassionately – waiting for a signal to trade, the easier it will be to master your emotions. The easier it will be to witness the fluctuations of your emotions without getting sucked in to them – and allowing them to throw you off your game.

5 Reasons to Use Cycles in Your Trading Plan

Mo — Mon, 30 Jun 2008 17:01:29 +0000

One of the most important pieces of trading advice that I ever received was to investigate cycles. And after 5 years of using a profitable trading system based on cycles, I’m convinced that they are of enormous benefit.

Reason 1

One of my favorite reasons for trading cycles is that a large percentage of traders don’t think they work! Without the proper understanding and tools to trade them, many traders have failed to uncover their value, and so those of us that have, get the edge!

Reason 2

A second reason to trade with cycles is that you are tuning into and getting into rhythm with the natural power of the universe. When it moves, the markets move, and when you know the rules you get to take advantage.

Cycles are everywhere in nature – the earth takes 24 hours to complete its daily cycle, the seasons move in cycles, a woman has a monthly cycle, the ocean tides move in cycles, the markets move in cycles. When you understand (or when you have the software that can understand for you!) the timing of different trading cycles, that information can be translated into trading success.

Many people get confused because when they look for trading cycles, they are thinking in terms of fixed periods. Of course, the market doesn’t move in fixed periods. If it did, my grandmother could time the market and there would be no speculation!

However, just because the market doesn’t move on a fixed schedule, doesn’t mean you cannot measure the market’s cycles and trade with them – you can!

One of the most important things to understand is that there are market cycles for each time period – weekly cycles, daily cycles, 30 minute cycles, 3 minute cycles – and they all interact with each other. The skill of using cycles in trading for maximum profit is understanding the relationship between the different time periods, understanding how cycles influence each other, and finding a profitable trading system – the best software – to indicate the cycles.

The good news is that for the purposes of trading you do not need a phd in advanced mathematics, you just need to understand the essentials of cycle movement, and have software to do the work for you.

Think of the relationship of cycles this way. Say you have a weekly cycle of playing golf with your friends on Tuesday afternoons. Your daughter has a monthly cycle of going to music class on Tuesday afternoons which your wife usually takes her to. Your wife has a monthly cycle – hence your daughter! This Tuesday these cycles which normally don’t coincide, are coming together in a spectacular way. Your wife has PMS and doesn’t want to take your daughter to music – you have an important golf match. In the market this kind of cycle action would result in a lot of chop. At home your wife may be giving you the chop!

When cycles are in harmony, they affirm each other, there will be assertive price movement in a consistent direction. When cycles conflict or are out of sync with each other you’ll see erratic behavior and chop. By reading the cycles we can tell a lot about how to trade, and how to take advantage of different market conditions.

Reason 3

The money. Using cycles to time your trades effectively will result in well timed and effective entry, and more profitable trades.

Reason 4

Using a profitable cycle trading system that tells you when to trade, will help you to overcome problems with over-trading. You can sit back and wait for the market to come to you, rather than getting lost in second guessing constant price movement.

Reason 5

The software. For those of you that want to unlock the power of cycles and take advantage of a profitable trading system there are a handful of great cycle trading systems available that will work wonders for your trading consistency and profitability. The best system in my experience is Roy Kelly’s Floor Traders’ Tools. These are add ons for Tradestation, Esignal and Multichart users that include cycle identification and a complete range of indicators to trade cycles effectively. Roy, has been trading cycles for 30 years. He originally worked with Walter Bressert, before going on to create his own system. These tools don’t come cheap – because they work so well – but they pay themselves back pretty quickly once you learn how to use them.

If you are interested in finding out more about trading with cycles, keep visiting us at tradingadviceblog.com for future posts on the subject.