Monthly Archives: April 2013

Session Management – Should We Use Daily Profit Targets or Not?

Email Question:

Hey Lance,

I have had argument after argument with people about whether it is the right thing to do, to have a daily/weekly profit target where you walk away.

I don't think it's correct to do, as long as you can maintain focus. I tend to subscribe to Mark Douglas's way of looking at it, like you're the casino, and you want to take every edge you can. But other's make a valid point that we are not a casino, and the analogy may be a bit flawed.

I want to know what your thoughts are, because I think so highly of your opinion. What do you think is technically correct?

I will say that most of my days do, in fact, end on a high watermark for the session, but I have no set target. I take what the market gives me, and also like to end the day on a nice winner.

Looking forward to hearing what you have to say,

Response:

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Stop Hoping Your Trade Will Win

 

Fact: There is a disconnect in the mind of the novice trader.

  • They know that not every trade will win.

  • But upon entering a trade, they desperately hope that it will win.

Hoping your trade will win increases the potential for poor trade management.

Hoping to win means difficulty taking a loss. Hoping to win means a desire to
take profits too soon.

But the aim is not to win on every single trade.

There is TOO much focus on win%.

There is not enough focus on win/loss size ratio.

Stop hoping to win on every trade.

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Maintaining Good Eyesight and Reducing Strain

In a recent article (here) I stated that I was planning to do some research into methods of maintaining good eyesight and reducing eye strain.

Well the YTC readers have come to my rescue.

From Di:

Hi Lance

Thanks for the newsletter this week.

I noticed on your 'to do' list is a task to research eye techniques for tiredness. Being a yoga Instructor I often practice these at home and with students.

I found this link which gives the basic ones:

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The Role of Luck in Trading

In our article last week (read it here if you missed it) we discussed the concept of the bad beat.

A bad beat occurs when you correctly identify, enter and manage a valid trade setup, but are still left with a loss or missed opportunity.

The fickle hand of fate cares little for your high probability trade, nor for your good planning and decision making. And it often seems to take great joy in stopping you out before moving on without you, or even failing to fill your position at all.

But I was reminded during the week of the other side of the bad beat, through email exchange with a YTC newsletter reader:

Really useful advice, Lance.

I tend to forget about probability when I sit in front of my platform focused on my active trading. Of course, probability only works for the consistently profitable traders, we beginners should not forget.

Let me show you what happened to me yesterday, Friday. Since I’m currently in Europe with a 6 hour time difference I was completely oblivious to the 8:30 EST news (although I should have, I use the US time on my platform). I entered one bar before the news broke, and price took off like a rocket. Admittedly I wasn’t proud of the late trade entry, but while the expert sometimes faces a bad beat, the novice can enjoy the luck of the Irish! So don’t mention how probability will hurt him in the long run!!

Cheers,

Rein

Here's the chart that accompanied the above email:

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OMG! One of My Trades Lost Money!

The more I involve myself with trader education, the more I realise that a key error on the part of most traders is their failure to truly understand and accept trade loss.

I see it all the time in reader emails – "WTF! This trade lost! How could it have lost?"

We all understand the theory of the probabilistic nature of the markets.

We know that we can't win on every single trade.

We know that we'll lose on a good percentage of them.

We know that this is a game for the "long term".

But there's a real disconnect between what we know to be true and what we are emotionally able to accept as true.

There is a concept in poker which I think we should adopt in trading. It's called the BAD BEAT!

A bad beat occurs when you play a statistically strong hand in the correct way, but get beaten by a player with a weak hand who made a dumb call, or by a player with an even stronger hand.

In trading, a bad beat is a trade which meets your setup criteria and has a good reward:risk ratio, which is managed correctly in accordance with your plan but still loses anyway. Or one that would have profited but didn't fill on the entry order. Real losses… or lost opportunity… despite playing the game in the statistically correct way.

A bad beat sucks!

But you were right to take it.

It's just part of the game.

trading - bad beat

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Expectations for the Pre-Holiday Session

For intraday traders… the following outlines my expectations for trading the last session before a long weekend.

  • I always expect a narrow-range, low volatility and low liquidity market. I monitor it with an expectation of having no trades, UNLESS the market can prove that it wants to make a strong directional move. Only then will I trade. And as soon as I suspect that directional move is over I will stop.

Here's some email Q&A:

Hi Lance,

Would you go short here…or is there any obvious reason why this is a no-go??

greets, G

Reply:

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