Monthly Archives: June 2016

The Other Trader (3)

 

In recent months we looked at a number of metagame examples – trading at places where the "the other trader" feels extreme stress or fear.

You'll find some of these articles, if you missed them, here, here and here.

Today, I thought we could look at another one. Because I just LOVE these setups.

You might recall this general concept from prior articles:

Trading based upon feeling the stress and fear of "the other trader"

Things don't always go according to plan though.

Trading based upon feeling the stress and fear of "the other trader"

If you missed the entry… no problems.

Let it go. It wasn't yours to catch.

There will be MANY other trade opportunities. Stay focused.

In fact… sometimes that next opportunity comes along VERY quickly.

Trading based upon feeling the stress and fear of "the other trader"

Trading based upon feeling the stress and fear of "the other trader"

Let's look at an example, a BOF setup on break of the high of day.

We'll start with the higher timeframe chart to get some context. And then move on to the trading timeframe and lower timeframe charts to discuss the trade opportunity.

Trading based upon feeling the stress and fear of "the other trader"

Trading based upon feeling the stress and fear of "the other trader"

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Not All Sessions Provide Equal Opportunity

 

On Thursday morning I woke to find two emails somewhat related to the same topic – the challenging trading conditions we've experienced so far this week.

So my first thoughts were to expand upon a topic I shared via social media a bit over a week ago. Because I know that only a small fraction of you receive my social media posts.

And this one is important!

Here's the post which shows the daily chart for NQ as at the 1st of June. The same concept applies for ANY market.

Not all trading sessions provide equal opportunity

Let's first talk about what is showing in the bottom half of the image. And then we'll get to "what it means".

The daily chart overlay

It's simple to set up:

Setting up the Range Indicator

Setting up the Channel Indicator

Nice and easy.

And it gives an immediate comparison of the current days range versus the average over the last month.

So let's see exactly what prompted the email concern over challenging trading conditions.

The emails related to ES and CL, but I'll start by updating the earlier social media post.

This is NQ as at the time of writing, early on the 9th of June 2016:

NQ - low daily ranges so far this week

ES - low daily ranges so far this week

CL - low daily ranges so far this week

Of course, low daily ranges DO NOT necessarily mean a tough session. There are other factors involved as well.

But for many of us, who operate a strategy that requires price movement to profit, there's a high likelihood that narrow range days are those that get on our nerves.

Narrow range = limited opportunity = frustration!

Here's the thing though…

It's completely normal. Narrow ranges are a part of the game. And we need to learn to work with them.

We need to learn to profit over the longer time scale… comprising periods of both wider range markets and lower range markets.

The good news though, if you're stuck in a period of quiet markets and narrow ranges, is that it won't last. At some point the markets WILL move. 

So what do we do with this data?

1. Use it manage expectations.

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Do No Harm

 

There is a principle within the field of medical ethics which is often expressed through the phrase, "First, Do No Harm".

To simplify the concept, it means that we should ensure that our decisions and actions do not contain potential for harm which far outweighs any potential benefit.

I like this principle. It's useful not just in medicine, but in life in general. And it certainly applies to the field of trading.

You might want to consider applying it as a principle underlying your approach to the markets.

All decisions and actions within your life have potential to either add to your edge or take from your edge.

If you avoid those which can damage your edge you'll go a long way to improving your chances for success.

What do I mean?

Think about those few extra drinks you had last night which have you feeling a little under the weather?

Do you really need to be trading today?

You'll rationalise it by saying "It's only this once. I'll manage ok.".

But it's not just this one time.

By giving yourself permission to trade this one time, you'll make it easier to repeat the behaviour in future.

So I want you to consider this… extend the behaviour into the future. A hundred times. Or a thousand times. Take it to ridiculous levels. It will help you see the damage this can cause.

"If I made this decision a thousand times across my whole trading career, is it likely to add to or reduce my edge?"

You're not trading with the effects of a hangover just once. You're giving yourself permission to do it again. Break it now.

"If I traded with the effects of a hangover a thousand times across my whole trading career, is it likely to add to or reduce my edge?"

Do no harm!

Take the day off. Return refreshed the next day.

Do you know how sometimes you feel like skipping your post-session reviews? You'll just do it this one time, right? Wrong.

"If I skipped my post-session reviews a thousand times across my whole trading career, is it likely to add to or reduce my edge?"

Do you know how sometimes you just know that the market will turn, and so all you need to do is widen the stop a little further? Just this one time, right? Wrong.

"If I widen my stop a thousand times across my whole trading career, is it likely to add to or reduce my edge?"

Do you know how sometimes you're massively pissed off at your job/spouse/partner/life/or-whatever and you know you should put it aside but just can't? So you'll just trade anyway. You're professional enough to not let it influence decision making. Right? Wrong.

"If I trade while under significant life-stress a thousand times across my whole trading career, is it likely to add to or reduce my edge?"

All decisions and actions within your life have potential to either add to your edge or take from your edge.

If you avoid those which can damage your edge you'll go a long way to improving your chances for success.

Do no harm!

Ask yourself…

"If I made this decision a thousand times across my whole trading career, is it likely to add to or reduce my edge?"

You might want to add this to your wall… just above your monitor.

Happy trading,

Lance Beggs

 


 

Your Number One Priority… Survive the Learning Phase!

 

Before you even think about strategy…

Reduce the risk of single trade catastrophic failure.

Stop losses are essential. If you think you can operate without them, leave my site now. Unsubscribe. Professional traders respect the risk within the market.

If your platform does not allow for automatic submission of stop loss orders when your entry order is filled, then get a new platform.

And keep single-trade risk to acceptable levels (see Chapter 8).

 

Reduce the risk of single session catastrophic failure.

Ensure your plan contains a session stop. That is, the dollar or percentage loss that will trigger a decision to HALT ALL TRADING for that day.

If you're out of sync with the market, get out of there.

Survive to trade another day.

And if you do not have the ability to stick to this decision then find a broker who will implement it for you, preventing further trades once the session stop is hit. They're out there. If you need this, find one who offers it.

Swing traders… you might wish to extend this to a weekly stop. Or monthly stop.

 

Reduce the risk of a slow-bleed loss of account over time.

Implement a maximum drawdown stop.

Your trading is clearly not going according to plan.

It's time to stop. Take a lengthy break. And then reassess.

Take this trading halt as an opportunity to review your trading plan and your trading performance, with the benefit of hindsight.

Return to a simulator environment until such time as (a) consistent profitability is again proven in that environment, and (b) the account balance has been replenished via other sources.

 

Always remember – your number one priority is to survive the learning phase.

Happy trading,

Lance Beggs