Making Money Trading

[lurkerlurker]

Short 1U GBP/JPY at 222.17 on hourly pin.

Covered on the break of the previous bar high on a DBLHC off long term daily support zone. +39. I'm happy with that exit. JPY looks very weak against USD, EUR, CHF, and NZD, and GBP is strengthening against CHF and USD. Waiting for the next trade.

I've updated the equity curve for December on my journal also.

EDIT - if I had left the stop at BE, it would have been taken out at the highest tick of this hourly bar before the market plunged 100 pips. Scary indeed. Glad to have my +39!

 

[trader_dante]

Tips and Tricks *Part 8*

I have found that while a person can hear about another's mistakes he rarely learns from them.

I know this to be true because failure in the markets is almost always down to a handful of well known mistakes that have been well publicised and warned against time and time again.

Yet many traders make the same mistakes not once but repeatedly throughout their trading career.

I have suffered the emotional pain of large losses. I have wiped out accounts. I have even run them into debits and experienced the worry, the sleepless nights, the mood swings and the stress that goes along with this. But it is human nature to be optimistic and most of us have short memories.

And so the mistakes go on being made.

Some traders learn faster than others. But for all that succeed, there must eventually come the realisation that in order to progress, the mistake must be guarded against in future.

In light of what I have said I do not want to provide a laundry list of the errors I have made in the markets. A trader must make their own mistakes and draw their own conclusions from them.

However, I will tell you two of my most important realisations:

1) Patience

I cannot say this enough. In my opinion, patience is the most important attribute a trader can have. A trader must have the patience to wait for the market to provide them with an opportunity where as many factors are in their favour as possible. Unfortunately, inaction usually makes the trader anxious to trade and take average looking setups. I have seen many traders say things along the lines of "this is not the best setup but it's worth a go". I consider this to be the worst type of thinking. You should be as certain as you can be that the trade is going to work, no matter how long you must wait. If you can be patient and wait for the high probability trades, you will greatly increase your chances of making money.

2) Emotions

A trader must try their hardest to trade without emotions. It is the times that I have been led by my emotions and not my logic that I have made the greatest mistakes and suffered the greatest losses in the market.

There are many damaging emotions:

Anger: Anger has frequently caused me to compound losses by revenge trading. This is where a trader becomes angry at the market and then looks for any opportunity to "get even" with it and make back what they believe they are "owed".

Greed: Greed often interferes with patience because where there is money, traders usually see the POTENTIAL and not the PROBABILITY.

A trader must also be aware of their comfort zone. This is usually resolved by the issue of money management. I have always suffered destabilising losses when I risked more than I was comfortable losing. That is because when the position goes against me and losing becomes a reality, fear sets in.

Fear is another detriimental emotion. It causes an irrantional response in the trader. In my case, it has caused me at many times to move stops further away from the market because of the fear of losing. The further the stop is moved, the more unbearable the loss becomes and the more a trader is fearful of taking it.

There are countless emotions and mindsets that are detrimental to a traders performance. The ones above are the often repeated but there are less obvious ones that can be just as negative.

Emotions show up best once you are IN the market and if that is the case, you should make a note of what they are and what caused them so you can seek to learn from and conquer them.

Every trader should try their utmost to be aware of what guides their performance.

 

[trader_dante]

EDIT - if I had left the stop at BE, it would have been taken out at the highest tick of this hourly bar before the market plunged 100 pips. Scary indeed. Glad to have my +39!

You already knew there is a high probability the market will retrace to the entry point.

Perhaps you would be better off trading with fixed targets Lurker. At the moment, all that is happening is that you are getting shaken out of good trades for small profits by being unable to see the trade through.

 

[shadowninja]

But it is human nature to be optimistic and most of us have short memories.

When people ask me about trading, I always tell them about the time I lost ~ £250 in about 20 seconds. I did the old rabbit stuck in headlights thing. (£250 is a lot considering the potential profit was a mere £30.)

That way I never forget what a lack of discipline can do.

 

[shadowninja]

Perhaps you would be better off trading with fixed targets Lurker.

I do this, depending on the nature of the instrument. if it's going through a channel, I'll set an expected target profit to take money, knowing that it is likely to fall back into loss.

 

[timsk]

2) Emotions
A trader must try their hardest to trade without emotions. It is the times that I have been led by my emotions and not my logic that I have made the greatest mistakes and suffered the greatest losses in the market.

Whenever traders talk about the emotions, it's not long before names such as Van Tharp, Elder and Douglas etc. are mentioned to help us deal with our emotions. However, a name that is rarely mentioned and one not specifically associated with trading is Susan Jeffers. I see her classic book 'Feel the Fear and do it Anyway' has been re-printed yet again. I must dust off my old copy and re-read it - it's an absolute gem and I heartily recommend it to everyone here. By the standards of most trading books - it's cheap as chips too!
Amazon.com: Feel the Fear . . . and Do It Anyway (r): Books: Susan Jeffers
Tim.

 

[shadowninja]

Yep. A good book. I think, however, you can only adopt that attitude once you have a strategy that has an edge. Just to keep opening positions when your system isn't tested will empty your account! And not opening positions when you have a system that works... or opening too late... will also empty your account.

 

[timsk]

Yep. A good book. I think, however, you can only adopt that attitude once you have a strategy that has an edge. Just to keep opening positions when your system isn't tested will empty your account! And not opening positions when you have a system that works... or opening too late... will also empty your account.

Hi shadowninja!
I certainly wasn't trying to suggest that members read the cover only and then apply this attitude to their trading in the very literal manner implied by your post! That would be financial suicide. LOL.
Tim.

 

[shadowninja]

Fair point. Scarily, some people do just apply the cover without reading the contents (although not necessarily in training).

There's another book "Fear" by Geoff Thomson. His attitude is to ask yourself what's the worst that could happen and tell yourself that you can handle it. So, kinda risk assessment.

 

[trader_dante]

Tips and Tricks *Part 9*

Market gaps

Fortunately I have not, previously, suffered a very severe market gap against me.

However, I frequently hold overnights and as a result, I like to be prepared.

The plan I am going to outline below is NOT something that is tried and tested. It is adapted from a rule that I found in an interview with Oliver Velez, a highly succcessful stock trader. I use it because having a plan, even if it is not perfect, is in my opinion far better than uncertainty and procrastination when the market is moving quickly against you.

Velez advises to let the stock trade for a full five minutes which will give the trader time to gain their composure and usually gets rid of the bulk of the overnight or premarket selling in a stock.

He then advises to mark off the low of the day and if that is then breached to sell 50% of the position.

He goes on to add that a further thirty minutes (including the first five) should then be given so the market has had time to get all of the panic selling out of the way and encourange bargain hunters to come in. Once this has been done, the absolute stop should be placed at the low of the day and the remaining 50% of the position should be liquidated on a break of this level.

If there is a rebound from this level I would look to trail my stop up behind it by placing it below the low of each previous HOURLY bar.

If the market is, at any time, to trade back up through the initial level where my stop would have been, I will place my stop back in its original position.

This is the basic plan although it may be slightly adapted according to the severity of the break. Back near the beginning of my position in Wheat I nearly had to put this plan into action because of a gap down in out of hours trading but fortunately for me, it was trading back up by the open. This was covered earlier in the thread.

 

[trader_dante]

Once this descending TL is taken out, price retraces marginally into the zone of the 10, 21 EMA which holds it and price moves higher over the course of the next few days to take us near to the all time highs at $845.

At this point I want to see how the price can react to these highs and I would move my stops up to beneath the 50EMA to give the market a chance to consolidate before a possible move to new highs.

This brings us up to the present and hopefully shows you how I would manage a position by using s/r and the three EMAs.

As you can see the market consolidated, the 50 EMA held, previous resistance became support, and the market has smashed through to new all time highs.

 

[trader_dante]

Tips and Tricks *Part 10*

A question I often get asked is how I manage my position when the market makes new highs and trades in previously uncharted territory.

The answer is simple: I use the three moving averages to determine the strength of the trend.

I then will usually let the market have some time to trade and see what it does.

Gold is a perfect example as it has now broken all time highs.

If I was long this market I would keep my stop below the breakout of the November highs and look for price to retest from above and find support. If the market does so and moves higher I will simply let it play out and follow it with stops behind the last level of support.

As the market trades it will make new support levels which your stop can be moved to.

Trading these situations is about patience.

 

[fibonelli]

Market gaps

Fortunately I have not, previously, suffered a very severe market gap against me.

However, I frequently hold overnights and as a result, I like to be prepared.

The plan I am going to outline below is NOT something that is tried and tested. It is adapted from a rule that I found in an interview with Oliver Velez, a highly succcessful stock trader. I use it because having a plan, even if it is not perfect, is in my opinion far better than uncertainty and procrastination when the market is moving quickly against you.

Velez advises to let the stock trade for a full five minutes which will give the trader time to gain their composure and usually gets rid of the bulk of the overnight or premarket selling in a stock.

He then advises to mark off the low of the day and if that is then breached to sell 50% of the position.

He goes on to add that a further thirty minutes (including the first five) should then be given so the market has had time to get all of the panic selling out of the way and encourange bargain hunters to come in. Once this has been done, the absolute stop should be placed at the low of the day and the remaining 50% of the position should be liquidated on a break of this level.

If there is a rebound from this level I would look to trail my stop up behind it by placing it below the low of each previous HOURLY bar.

If the market is, at any time, to trade back up through the initial level where my stop would have been, I will place my stop back in its original position.

This is the basic plan although it may be slightly adapted according to the severity of the break. Back near the beginning of my position in Wheat I nearly had to put this plan into action because of a gap down in out of hours trading but fortunately for me, it was trading back up by the open. This was covered earlier in the thread.

Hi Tom,

Fibonacci retrace of the gap move and daily floor pivot levels may help you to exit more favourably.

Fiby

 

[lurkerlurker]

Maybe I should pack this in!

You already knew there is a high probability the market will retrace to the entry point.

Perhaps you would be better off trading with fixed targets Lurker. At the moment, all that is happening is that you are getting shaken out of good trades for small profits by being unable to see the trade through.

I missed the GBP/CHF move for the sake of 7 pips. I've been in GBP/JPY short twice and exited for +80 and +39 on a 1200 pip move.

Then again, I'm getting more used to price action and now price approaches zones I have already drawn on the chart and reacts to them. GBP/JPY only started to move down with momentum after going through my S/R zone, and USD/CAD bounced from 20 points of my congestion / fib zone.

 

[trader_dante]

Don't even THINK about giving up. You're getting there, Lurker

Then again, I'm getting more used to price action and now price approaches zones I have already drawn on the chart and reacts to them. GBP/JPY only started to move down with momentum after going through my S/R zone, and USD/CAD bounced from 20 points of my congestion / fib zone.

It's a great feeling, isn't it?

P.S We have out S/R zones just 3 pips away from each other on GBP/JPY.

Check out my lower one and look where it has found temporary support

I love this game.

 

[shadowninja]

I missed the GBP/CHF move for the sake of 7 pips. I've been in GBP/JPY short twice and exited for +80 and +39 on a 1200 pip move.

This is the tricky bit. Entry is just half the problem. Exit is a challenge, too. Exit too earlier, miss big profits. Exit too late, end up in loss.

I think the right combination of indicators inc moving averages hold the key for swing and position trading. If you're too reactive, you'll end up scalping.

 

[bansir]

I missed the GBP/CHF move for the sake of 7 pips. I've been in GBP/JPY short twice and exited for +80 and +39 on a 1200 pip move.

Hi Lurker,
I remember a ploy one can use to stay in a trade when your whole being is itching for you to take those profits.
The idea is that you close part of the position thereby satisfying your need to take profits and let the rest of it run on towards your intended exit conditions.

You've probably already tried this anyway but I thought it was worth a mention.

I seem to suffer from the same issue but I've got a couple or three other major ones to kill before I can even get to it

Just for the record they include:
1. Poor preparation; failure to check news / announcements etc.
2. Failure to manually exit + take loss when hard stop has failed to trigger. (Happens sometimes.)
3. Severe tendency to want to win back points after a losing trade causing sometimes wreckless risk taking.
4. Chasing the price on entry.

And that's just last month!

Best Regards,
Neil

 

[bansir]

As you can see the market consolidated, the 50 EMA held, previous resistance became support, and the market has smashed through to new all time highs.

Hi TD,
Did you manage to get back on board? It looks to have pretty well run off without offering such a chance.

Best Regards,
Neil

 

[bansir]

out too early

Guilty m'lord...
I exited too early from this pivot line play on 5min eur-gbp. Shame, could have made decent pips on this. No pins involved... is that ok:?:

Best Regards,
Neil

 

[lurkerlurker]

I seem to suffer from the same issue but I've got a couple or three other major ones to kill before I can even get to it

Just for the record they include:
1. Poor preparation; failure to check news / announcements etc.
2. Failure to manually exit + take loss when hard stop has failed to trigger. (Happens sometimes.)
3. Severe tendency to want to win back points after a losing trade causing sometimes wreckless risk taking.
4. Chasing the price on entry.

And that's just last month!

Best Regards,
Neil

Thanks for that Neil. #4 is pretty much solved for me - it cost me the Swissy short (now up almost 1000) because I wouldn't take a price 7 pips worse off. Some traders would have done, but I need to be strict because if I allow myself to chase the market "sometimes", whether I do or not will be according to my emotions rather than what the market is telling me.

I've been reading some of my early journal posts and writing some commentary on my trading progress. If somebody told me I would be complaining about winning > 70% of my trades, making around 60% of the pips risked each time, I'd have laughed at them.

I need to improve, but hopefully I am good enough now to be able to afford to stay in the market and learn to trade better. I no longer fear not finding a way to become profitable and blowing my risk capital.