It has been weeks since my last waffle… forgive me for I have sinned (OOOOOh it has been nice, lol!)
Trading Waffle
Okeley Dokeley… I reckon this waffle will be all about ways to improve my trading, which in this particular case will be focussed towards REDUCING MISTAKES. I am also engaged in a little bit of current market analysis which if I get it into a reasonable form I’ll chuck it up as a separate post.
Firstly as I pointed out I had a bit of a bash at trying day trading full time during three weeks of annual leave…
Pretty vigorous time, and a few pitfalls I fell into.
I’ve had a good ole look at the trades I made, after a nice little rest and here are the major mistakes I made, and the rule set I have laid out for myself as a result:
Note… this is my own personal analysis of my own personal psychology… we are all different (and believe me that is something to be thankful for ‘cos if you were all like me, this would be one freaky chaotic world… plus a huge dearth of attractive people, and that would suck! Wot I am saying though is that what I do WILL have different slants to what others do, and as such I believe we all need our own specific rules.)
Also note, many of these things have been said by traders here on HotCopper and famous traders throughout history… this is not anything new, but sometimes, at least for me, the process of self analysis and actually writing stuff down, or reading it multiple times from multiple sources actually helps get things to sink in.
Mistake number one
making old mistakes look like new ones bahahahaha!
No really…
mistake number one
ADDING TO LOSING POSITIONS
This has been my number one ”killer” all along.
I understand the psychology behind it and here is how it goes.
I am buying/selling based on a particular setup.
Belief that the setup foretells impending turn/change.
If turn doesn’t happen at time I place my trade, then does not negate the chance of turn.
Thus ADDING to my position means I am even better off when the turn does happen.
So add add add… still no turn
Add
Sweat
Add
Ahhhhh dammit I can’t take the pain close position. Ouchy there goes some capital.
Conclusion… although this methodology pays handsomely if/when the turn does eventuate, if the turn does NOT eventuate, the losses are freakin HUGE, and not a good look and basically negate a lot of hard won winners. Wink MUST not do this..
So RULE Number one..
DO NOT ADD TO LOSING POSITIONS.
Cut the bloody things and start again…
As a subsequent POSITIVE trading suggestion here for me…
I actually find this one pretty funny. As you may have noticed in many of my posts I’ll chuck up targets of where I think price will get to, areas of support/ resistance. Tis weird but true, that in the past, once I have done the analysis, before I trade, I start thinking that my analysis has already come into play and start trading AGINST it before it hits a target, mentally believing that because already analysed, that price has already moved beyond my analysis and targets and is about to turn. Crazy but true.
Consider opening a position WHEN A TURN or TREND has occurred, NOT BEFORE.
Mistake number two
Getting involved in the lower time frames/ not considering the potential range as depicted by larger timespan.
Personally, I find it very easy to sit watching a one minute chart, in a nicely liquid market… Stuff is always happening, and it is easy to make judgements on movement of price at this granular level, which seem quite convincing at the time. But the focus is too narrow for me without reference to higher time spans. As well, A HUGE looking move on the one minute may in reality only be a little blip on the 5 and above. And might be just a handful of points hardly worth the effort.
Conclusion:
Do not trade off the one minute chart…
Positive trading suggestion, sure, observe it, and look for confirmations of what appears to be unfolding in the higher timespans, but use the higher timespans to understand the range
Mistake number three
Changing the reasons for opening a trade ONCE THE TRADE IS OPENED.
Personally and currently, I use a number of parameters/reasons for opening a trade. These can be time/cycle based, price level based, or price action based, and in the bestest of best situations, a combination of all three.
HOWEVER, if a trade is opened based on a specific set of parameters, and a resultant expectation of price movement, IF THE TRADE does not act as expected within the parameters used to open and goes against expectations, THEN THE TRADE IS INCORRECT.
Conclusion: If a trade is not going as expected… Cut the bloody thing. Positive trading suggestion Know and be certain of the reasons for opening a trade and know and be certain of the point that these reasons are invalidated.
Mistake number four
Watching the money not the chart.
This is a mistake that I have perpetuated on Positive trades, not negative. Like many n00bs, I have, shown a propensity to let losers run (see mistake number one) and cut winners short.
Particularly in the latter case where I get all excited about ANY profit, and want to ensure I take it off the table. This is not a good look, as it can easily result in lots of small winners, and then a couple of big losers that kill the capital. Many have said we will all have expenses (losing positions) as traders, and even that some successful traders will have a greater NUMBER of losers , but will still come out in front… why? Cos the fewer winners are greater in value than the losers.
Conclusion:
DO NOT close a position purely cos it is profitable. Close positions based on profit targets, or employ trailing stops when targets are reached.
Mistake number five
Position sizing
Like it or lump it I will not make the income I desire through trading by playing with $1 contracts. However, trading larger contract sizes can appear a little scarey as the dollar sums are increased when a position goes against or for a particular trade setup.
When placing a larger position trade, I MUST be resolute in trading off the charts and not off the size of the position. If a potential of too huge an amount being at risk before the trade will confirm or deny it is correct, reduce the position size (and see rule/mistake three)
Conclusion, if you cant stomach the risk, don’t take the trade
Mistake number six
Losing faith in my own analysis/reasons for a trade.
This has been the most painful, mentally of all my mistakes. In all humility, I do pretty darn good analysis. Many many too many times, I have analysed a market, figured out what price could do, and then decided I was wrong, either in the face of other’s analysis, or just through my own internal heebie jeebies. I have cut profits, opened positions against my own analysis and taken losses too early without letting a position breathe.
Conclusion Do not be influenced by others or your own internal “scared little man” once a trade is opened.
Further notes:
Multiple contract positions
Now I try to open multiple contract positions… This has a number of advantages to me:
One, even though watching a dollar figure is not right, a losing position is a hell of a lot more noticeable as a losing position when it has a large dollar value. This helps reinforce cutting losses.
Two, If I am sitting on INSANE profits, I can make my inner money monkey happy by taking SOME of the profits off the table by closing a portion of the contracts, without closing the entire position. Instead I put a trailing stop on break even at worst for the remainder, and peeling of profits if the position continues in my favour.
Of not on this, with IGMarkets, if one opens a multiple contract position in one hit, one can only place a trailing stop on the entire position… something I will be trialling in the nights to come is opening a number of contract parcels separately for a position, to try and see if I can put trailing stops at different levels for the positions. .
Walk away from a trade
If a trade has been placed and it is yet to be determined whether it will go in favour or against, watching it will not help reaching a conclusion.
Sometimes, to get a stop loss in at the level which is appropriate I need the position to go in my favour, as there are certain restriction s in the trading platform I use (IGMarkets) where the minimum level of placing a stop loss is higher than I am willing to risk, and I need to watch the trade til it either breaks the level or goes enough in my favour to be able to place the stop.
BUT… I have PERSONALLY had my biggest winners when I am either asleep or only occasionally watching the market whilst a position is working.
Thus walking away/removing minute focus from the trade enables me to let the trade run.
Know the style of trading that one is doing A scalp trade is a scalp trade, the idea being to reach a target price and take the moulah.
If scalping, take the moulah, don’t let the trade turn negative just in case it gets better.
Swing trading, the idea is to try and follow a trend, use trailing stop losses and try to keep contracts alive whilst in your favour. Don’t close the trade just because it has reached a profit target.
Every trade is a new trade If I just made a huge win, that does not mean I can get cocky and throw money at the market on a whim because I am a winner.
If the last trade was a loser, that does not mean I will continue to lose, nor that the next setup wont be that much better.
If A long trade did not work, that does not mean the next trade should be a short trade.
If a short trade did work, that does not mean the next short trade will work also.
Be Resolute and confidant EACH TRADE MUST HAVE ITS OWN MERITS AND SHOULD NOT RELY ON THE RESULTS OF THE PREVIOUS TRADE.
So in summary
Rules: 1. DO NOT ADD TO LOSING POSITIONS. 2. Do not trade off the one minute charts… 3. If a trade is not going as expected… Cut the bloody thing. 4. DO NOT close a position purely cos it is profitable. Close positions based on profit targets, or employ trailing stops when targets are reached. 5. if you cant stomach the risk, don’t take the trade 6. Do not be influenced by others or your own internal “scared little man” once a trade is opened.
Positive trading practice
1. Wait for conclusions/targets to be reached before opening a position against price.
2. Consider opening a position WHEN A TURN or TREND has occurred, NOT BEFORE. 3. Let a trade work… watching it will not influence it. 4. Open multiple contract positions and take profits gradually. 5. Understand that every trade is a new trade 6. Be Confidant.
And that folks as they say, is that…
Onward and upward and the last two weeks have been great, trading wise, for me.
Big love to all
A huge shout out to all the contributors, the XJO thread, the weekend charting thread, and the Day trade diaries thread.
(20min delay)