Yearly Archives: 2011

5 Steps to Effective New Years Trading Resolutions

As we come to the end of year you’re all hopefully spending some time to review the prior year and plan the upcoming year.

Maybe you’ll even make some New Years trading resolutions!

The following five steps will assist in making better plans and resolutions; hopefully allowing you to stick to them beyond the 2nd of January.

1. Conduct a Review

You might already have a review process in place. If so, follow your current plan. If not, it can be as simple as asking yourself questions and providing some honest answers. The following questions from a prior YTC article may offer a good starting point:

  • Am I enjoying myself?
  • Have I achieved my trading goals? Why? Why not?
  • Are my trading goals still relevant?
  • Is my trading plan current? Does it accurately reflect how I trade?
  • What is the strongest part of my trading plan? What can I do to improve it?
  • What is the weakest part of my trading plan? What can I do to improve it? What can I do to minimise the risk or impact?
  • What is the area of my trading plan that I haven’t really developed to its fullest potential?
  • Do I really know whether my plan provides a positive expectancy? How do I know?
  • What is one thing I could do right now to improve my pre-trading preparation?
  • What is one thing I could do right now to improve my identification of setups?
  • What is one thing I could do right now to improve my entries?
  • What is one thing I could do right now to improve my trade management?
  • What is one thing I could do right now to improve my exits?
  • What is one thing I could do right now to improve my post-trade review process?
  • What is one thing I could do right now to improve my record keeping?
  • What is one thing I could do right now to improve my longer term reviews (weekly, monthly, biannually)?
  • What is one thing I could do right now to improve my discipline?
  • What is one thing I could do right now to improve my consistency?
  • What is one thing I could do right now to improve my trading psychology?
  • What is one thing I could do right now to improve my money management?
  • What is one thing I could do right now to improve my risk management?
  • What do I fear most in my trading?
  • What am I embarrassed to talk to others about when discussing my trading?
  • What was the low point of the last six months? What will I do to prevent that reoccurring?
  • What was the high point of the last six months? What will I do to ensure that repeats again in future?
  • How do I plan to improve in coming months?
  • What are my current life goals? What are my current trading goals.

 

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Don’t Waste the Christmas / New Year Break

 

Trading stopped for me yesterday (22nd December) and will not recommence till the first Tuesday in the new year. Yes, markets are open during this period, but with many professional and institutional participants on holidays, volumes will be lighter and any opportunity will be lower probability. I prefer to take a break rather than push my luck.

Breaks from the market offer two options:

  1. Take a complete break away from trading to relax, recharge and refresh yourself – body, mind and soul!

  2. Take the opportunity to work on improving your trading in any of the key areas – knowledge, skill and attitude.

Or of course any combination of the two.

Option 1 is a valid choice. If you're tired and fatigued or if you've neglected your family or friends then take this opportunity to restore the balance in your life.

But if you're not satisfied with your trading, and you're not overly fatigued, you'll want to spend some time on option 2.

For me, I've allocated Christmas Day as a day free from all thoughts of trading. And January 1st & 2nd as days for… well… let's just call it recovery. But every other day I've allocated a block of up to two hours for trading review, study and practice.

Don't just make this up as you go. Plan ahead to ensure you make the most effective use of your time.

Double click the following image to open a study planner template in your browser (or right click here and save a copy of this PDF template). Print it out, get a pen, and spend an hour planning how you can best use your time over the next week and a half.

Enter your goals and tasks on page one, for each of the key areas of Knowledge, Skill or Attitude. And then reference them from the calendar on page two. For example, I would enter a reference of "S21" meaning that on this day I would work on Skill, Goal 2, Task 1).

Don't waste this learning opportunity.

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Trading Angry? F**k Yeah!

A common assumption is that a trader needs to be operating with a calm mind and relaxed body in order to trade with maximum focus and ensure peak performance.

Generally, I agree with this idea. Relaxation and positive affirmations have been some of the main tools I’ve recommended when asked for assistance with mindset and psych issues. And for years they have been a key part of my plan – relaxation and calming sessions prior to trading, along with breathing and relaxation routines during session and a recovery routine for when it all hits the fan and I need time out.

Now I’m no psychologist, but I’m not sure that this is always the best way to achieve peak performance.

Quite possibly it is, for most of us, most of the time.

But from personal experience I know that there are times I benefit greater from the very opposite of a calm, peaceful and relaxed trader – what I call trading angry.

It’s important to realise that relaxation is not our end goal. I’m a trader! You’re a trader! And this site is not YourMeditationCoach and is not dedicated to your spiritual journey towards enlightenment. Our end goal is peak performance as a trader.

We should aim to place ourselves in whatever state allows us to best maximise our performance. And while that may often be a state of calm and peaceful relaxation, it’s not always going to be the case.

Other traders have recognised the need to alter their state to maximise performance.

The most famous from recent memory would have to be Don Miller’s use of a fictional drawdown, as explained in his post here: http://donmillerjournal.blogspot.com/2008/07/cornerstone.html. Don has recognised a need for managing his state, and has developed an effective solution. And while I can only speculate as to the nature of his personal state, I’d imagine it’s closer to that of an aggressive comeback mentality, than to that of a relaxed and calm trader. (Don, please correct me if I’m wrong!)

I suspect that if you talk to most pro-traders there will be very few who constantly operate in a calm manner. Rather I expect that most will actively attempt to manage their state dependent on the personal and market-related circumstances they currently face.

What about me? How do I personally trade angry?

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Managing Part Two of your Trade

The following is some recent email Q&A regarding the management of part-two of a trade (all-in scale-out), following the exit of part-one at it’s target.

EMAIL:

Hi,

I just started demo-trading and I’ve found out that I have absolutely no idea how to manage target two. I trade GBPUSD 30min/3min/30sec.

I like the idea of having two targets and thought it through and I believe it is better concept than single target, but I don’t know what is the logic behind managing the stop just after I hit T1.

I can’t leave it too far behind, otherwise the trade would often result in less than 1:1 R:R (1 on T1, but 0.7 on T2 for example). I can’t follow the price too close, because T1 is usually at a place where some opposing order flow will come and there is reasonable place where to put the stop.

What I’m interested in is the logic behind the stop management of part 2. I understand how to manage the first part and where to put T2, but I don’t know what to do with the stop at the moment I hit T1.

Thank you very much for explaining it to me.

Wish you good luck in trading,

REPLY:

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Who Will Give Up First?

Last weeks newsletter article (“The Most Important Question You Can Ask”) generated quite possibly the second largest email workload ever (behind the 4-day backlog generated by “6.18 Reasons Why Fibonacci is an Illusion”). The feedback was all incredibly positive and supportive of my efforts with the YTC site. Thanks to all who responded. It’s greatly appreciated.

The feedback also generated some followup questions by a YTC reader, Krasimir, which I thought would be well worth sharing.

Before we get to that Q&A, if you have not read “The Most Important Question You Can Ask” then please read that article first. In fact, even if you have read it I advise a quick review of the main concept.

I’ll also place a copy of the second image from that article here, to review as you read through the question:

 

 

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The Most Important Question You Can Ask

As a discretionary trader, the MOST IMPORTANT question you can ask during analysis and trade management is:

  • Where are the orders?

I had an email chat this week with a trader, Bruce, who is progressing well in identifying potential sources of orderflow for trade entry. Bruce took a limit order buy entry at point B on the following chart, based upon the principle of Prior Resistance Becoming Support.

 

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How To Make a Strategy Your Own

There is a period of time required in implementing a new discretionary trading strategy, in which the trader must make the strategy their own.

This goes far beyond just learning the rules of the strategy.

A trader must take the time to understand the principles underlying the strategy, to confirm these principles are compatible with their current market beliefs, and to blend the new information with their existing belief systems.

You should NOT jump straight into live markets.

Success in operating a discretionary trading strategy is a result of identifying and maintaining an accurate market bias, identifying wholesale trade opportunity within that environment, and managing trades to balance competing requirements of minimising risk and maximising gains.

Significant changes to your approach (such as when adopting a new strategy) will affect both your assessment of bias and the way you identify and manage trade opportunity. You should take these changes through a graduated test and evaluation process in order to gain trust in the strategy, and trust in your ability to trade the strategy, before risking funds in a live environment.

Adjust as required for your current level of knowledge and skill, but as a general example I'd suggest something like this:

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Productivity Tip – Increased Webinar and Video Playback Speed

I watch a LOT of trading videos and webinars.

Whenever possible, rather than watching them live or streaming them, I prefer to download the video which then allows more active control over the playback speed.

I personally find that playback at 1.4 times the normal speed still allows the presenter to be clearly understood, while ensuring I minimise the wasted time through long sections of basic content and useless conversation.

If a section is of particular interest, I can always replay it or reduce the speed to normal (1x).

Not all media players will have this feature. You’ll have to check your own. It’s usually accessible through either the menu functions (top left), right click menu functions (on-screen) or from a toolbar option somewhere within the video controls.

Accepting that the control location may vary in future video-player updates, here are two current examples:

Windows Media Player

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Asian Session False Breakout

Wednesday’s price action (3 Nov 2010) in the GBP/USD provided a good reminder of the importance of being aware of the key market structure and timeframe influences that exist in our markets.

In forex, one of the most obvious features is the typically narrow range Asian Session. (See here for a related article on the forex trading sessions)

While a breakout of this narrow range can often lead to great trending moves, an even better scenario occurs when we get a false breakout.

So… here’s a rule to add to your Lessons Learnt book: A failed breakout of the Asian Session range has a high probability of a trending move in the opposite direction.

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