Monthly Archives: November 2016

The Good, The Bad and The Ugly!

 

Here is another way to track and review trades… with a classification system that makes it a little bit of fun!

During your post-session review you classify them into one of three categories:

  • The Good – Trade ideas which DID have edge and were well managed.
  • The Bad – Trade ideas which DID have edge but were either poorly entered or poorly managed.
  • The Ugly – Trade ideas which DID NOT have edge.

 

Some clarification:

  1. "Trade ideas which DID have edge" – I need to do some more work on teaching this in the future. For now, consider them to be trades in which your hindsight review says, "Yes, taking this trade was the right decision". This does not necessarily mean it profited. You might have taken a loss. But without any doubt, it meets all your trading plan criteria and it's one you were right to have taken.
  2. "Trade ideas which DID NOT have edge" – Those trades which are clearly not a part of your trading plan. You had no right to be in that trade. This doesn't mean it lost. It may well have profited, but was still a poor trade (for example… a revenge trade that works!).
  3. Feel free to vary the definitions in any way that makes more sense to you. But keep them in three classifications – The Good, The Bad and The Ugly!

 

Our aim is to seek constant improvement in our stats. When analysing the stats associated with larger groups of trades (20 minimum), we look for the following:

  • The Good – We want more of these. Always be aiming to increase the percentage of The Good within any sample of trades. And to increase the profit they provide.
  • The Bad – We want less of these. Always be aiming to decrease the percentage of The Bad within any sample of trades. And to reduce the damage they do to P&L.
  • The Ugly – Ideally, we aim for NONE of these. That might be tough. But it's the goal.

 

It's a continual striving for improvement in skill and expertise.

And of course we drive our performance improvement through an effective review process:

The Good:

  • How can I ensure I take more of these in future? What signs were there pre-trade to suggest this could be one of The Good? Consider both the market structure and the way that price was moving.
  • How could I have have performed even better? Was there any way to have increased size (assuming you scale in and out)? Was there any time or place at which I could have added to the position? Was there reason to extend the targets even further?
  • Were there any non-technical factors present which may have assisted with my decision making? How was my physical state? How was my mental state? How was my emotional state? How was my trading environment?

 

The Bad:

  • In what way did I underperform with this trade?
  • Why did this occur?

  • How can I ensure I do less of this in future?
  • Were there any non-technical factors present which impacted upon my decision making? How was my physical state? How was my mental state? How was my emotional state? How was my trading environment?

 

The Ugly:

  • How can I ensure I avoid these trades in future? What signs were there pre-trade to suggest this WAS NOT A VALID TRADE? Consider both the market structure and the way that price was moving.
  • Why was I not aware of this at the time?
  • Were there any non-technical factors present which may have assisted with my decision making? How was my physical state? How was my mental state? How was my emotional state? How was my trading environment?

 

The Good

The Good

The Good

The Good

The Good

The Good

The Good

The Good

The Good

So… given that it's now closer to 4:30am… how about we come back next week with part two. We'll look at the earlier trade from this same sequence (The Bad). And I'll see if I can find you one of The Ugly ones as well.

Happy trading,

Lance Beggs

 


 

A 50% Win Rate IS Enough

 

I love this recent email exchange with a new trader…

Email received: (We'll come in mid-stream as the earlier conversation is not relevant to this article!)

Great Lance, thanks for responding and giving me all this information.

I plan on trading highly liquid stocks and probably the intraday with the occasional swing trade. I've been out of the market for a while so I am going through some of the reads you have recommended. Come Into My Trading Room is excellent.

My problem is that I need to fine tune my studies because what I think works ends up not 50% of the time.

I love how you explain things and looking forward to buying your strategies. Your emails are great also. Thanks Lance.

 

My response:

Thanks. I'm glad you're finding value in my writing.

You said, "My problem is that I need to fine tune my studies because what I think works ends up not 50% of the time."

Obviously I don't have an real insight into how you're trading. But here is a different way of thinking of the problem…

What if 50% winners was enough? What if you could work to capture more of the move in those that did win. And cut the losses quickly on those that lost.

That is, accepting 50/50 and profiting from a higher win/loss size ratio.

Seriously… 50% can be enough.

See here also: http://yourtradingcoach.com/trading-process-and-strategy/stop-hoping-your-trade-will-win/

 

His response:

I have never thought of it in that way but now I will!!

 

Awesome! This is one of the many important breakthroughs that we need to achieve along our path to professional trading.

It's such a simple concept. But it's hard to see. In some ways it goes against our natural desire to win. And we're bombarded daily with advertising copy promoting high win percentage strategies.

But the fact is that long-term profitability is not just a function of our win rate. Just as important is the Win/Loss Size Ratio (WLSR).

  • WLSR = Average Win / Average Loss

 

If you achieve a 50% win rate across a series of trades you can still profit provided your average win is greater than your average loss.

In my own trading, the win rate is the least important of these trade statistics.

In a 20 trade sample I expect to achieve a win rate anywhere between 40 to 70 percent. But I aim to profit by keeping the average win greater than the average loss.

Yes… 50% can be enough.

50% winners across a whole month can be profitable, provided your average win is greater than your average loss.

50% winners across a whole year can be profitable, provided your average win is greater than your average loss.

50% winners across your career can be profitable, provided your average win is greater than your average loss.

Let's look at a few trades. Obviously eight trades are too small a sample size to really concern ourselves with the stats.

But it's eight trades that provided four wins and four losses.

And yet it profited.

Because the average win was greater than the average loss.

A 50 percent win rate is enough

A 50 percent win rate is enough

A 50 percent win rate is enough

A 50 percent win rate is enough

A 50 percent win rate is enough

A 50 percent win rate is enough

A 50 percent win rate is enough

A 50 percent win rate is enough

 

By all means, aim for as high a win rate as you can achieve.

But seriously… 50% can be enough.

Happy trading,

Lance Beggs

 

PS. Note: This discussion has excluded consideration of commissions and other business expenses, as they will vary from trader to trader. Obviously while a series of trades may well be profitable in and of themselves, a business profit is only achieved if these trade profits are sufficient to overcome commissions and other expenses. But the fact remains, a 50% win rate will still be sufficient. You'll just need a slightly higher WLSR to cover these costs.

 


 

The Other Trader (4)

 

Let's continue with the metagame concepts discussed in recent months.

Here – The Other Trader
Here – The Other Trader (2)
Here – The Other Trader (3)
Here – Metagame Trading

And of course based upon concepts from here: YTC Price Action Trader

Here is the basic idea…

If I can't feel someone on the other side of the market getting it really wrong, there is no trade.

Here's how we do it.

 

1

Identify a potential trap

 

Identify a potential trap

Identify a potential trap

Identify a potential trap

Identify a potential trap

Identify a potential trap

 

1

Feel the pain

 

Feel the pain

Feel the pain

Feel the pain

 

1

Spring the trap

 

Spring the trap

For those with the YTC Price Action Trader:

  • Setup – See Volume 3, Chapter 4, Pages 28 to 31
  • Entry trigger – See Volume 3, Chapter 4, Page 87, Figure 4.63 (third entry in the table)

 

If you're not achieving the results you wish to achieve, consider placing more thought towards who is on the other side of your trade.

It may be the paradigm shift you're seeking to take your trading to new levels.

Happy trading,

Lance Beggs

 


 

Trade Less; Review More!

 

Day Traders

If you're not currently profitable, or achieving the level of success you wish to achieve…

Is your current situation something like this?

Trade Less Review More

WRONG! WRONG! WRONG!

I know there is a LOT to be learnt through live trading. But it's the review process which drives growth and development.

You'll see things during a review session, after the fact and away from the emotion, which were not visible in the live market.

You'll discover things within your stats, which were not visible in the live market.

If you want to progress, time for an effective review session is NOT negotiable.

You must make a choice.

You either HAVE TO cut something from the time outside of trading, to allow for an effective review session and ongoing learning.

Trade Less Review More

Or you have to cut your trading…

Trade Less Review More

Trade Less Review More

Longer Timeframe Traders

The same applies to you.

If you're not currently profitable, or achieving the level of success that you wish to achieve…

Is your current situation something like this?

Trade Less Review More

If you want to progress, time for an effective review sessions is NOT negotiable.

You must make a choice.

You either HAVE TO cut something from the time outside of trading, to allow for an effective review session and ongoing learning.

Trade Less Review More

Or you have to cut your trading…

Trade Less Review More

We all want to trade more.

But if you're not yet consistently profitable, or not yet achieving the standards of success you believe you are capable of achieving, then your priority must be ensuring an effective review process as well as time for learning, testing and development.

You can always trade full-time again in the future.

But for now, less is more.

Trade less. Review more.

Happy trading,

Lance Beggs