Yearly Archives: 2016

I Was Wrong Again

 

You won't be successful as a trader until you're comfortable with the idea of being wrong.

I'm wrong EVERY DAY.

Numerous times.

I'm ok with that.

And that's part of why I'm successful.

Trading success requires that you accept and understand that success...

comes over a series of trades.

Individual trades are irrelevant.

You will be wrong!

I was wrong again.

Part of the position was stopped out at -2.0 points; the rest was at -2.25 points.

Whatever!!!

I step aside.

I regroup.

And I return and do it right.

Because, you know what? One trade does not define the success or failure of my trading business.

A trading edge plays out over a SERIES OF TRADES.

Often!

It took me two more trades to get back in front.

One that almost did it… it's just the commissions that kept me in slight drawdown.

Accept it. And...

What was I saying before about "right but mismanaged"?

Thankfully there was opportunity to re-enter!

learn to profit despite your imperfection in decision making and trade execution.

Yep… playing The Fourth Principle would have worked out so much better.

But instead, I'm left with a whole lot of IMPERFECT DECISION MAKING!!!

And yet… that's reality.

I'd love to show you only the "perfect" trade sequences.

But that would be doing you a disservice.

Reality is sometimes messy. You need to accept that.

And you need to learn to profit DESPITE your imperfection.

So if you find yourself overly frustrated after a trade loss, and unable to get back in while the premise is still valid, ask yourself why?

Do you not believe in your edge?

Do you not believe in your ability to trade your edge?

Are you trading too much size, such that a single loss actually HURTS?

Or have you not yet truly understood and accepted the long-term nature of this business (aiming for positive results over a series of trades rather than on every single trade)?

You won't be successful as a trader until you're comfortable with the idea of being wrong.

I'm wrong EVERY DAY.

Numerous times.

I'm ok with that.

And that's part of why I'm successful.

Happy trading,

Lance Beggs

 


 

Wait till the Reversal Trader is Trapped

 

I am quite a fan of Al Brooks' first book, "Reading Price Charts Bar by Bar", despite the fact that we trade very differently.

Out of close to 400 pages, there is the one idea which has stuck with me more than any other. From page 384:

"Countertrend setups in strong trends almost always fail and become great With Trend setups…"

The idea is simple.

In a strong trend you will find all manner of reasons to suspect that the trend is ready for reversal. And you'll find yourself easily tempted to enter counter-trend.

But more often than not, it's a trap.

When you feel this strong desire to trade counter-trend, do NOT trade. Be comforted by the fact that others will notice it as well. And that they'll enter.

Then watch their position, waiting patiently until they're trapped.

The failure of their counter-trend position will often provide a great entry for you, back in the with-trend direction.

Those who trade the YTC Price Action Trader methodology will be very familiar with this concept – timing our entry off the failure of "the other trader".

This concept came to mind on Tuesday, as I felt a strong desire to enter counter-trend against a strong bearish trend in NQ.

Let's look at the charts.

Don't fade a strong trend... wait for the trap and enter with-trend.

Don't fade a strong trend... wait for the trap and enter with-trend.

Don't fade a strong trend... wait for the trap and enter with-trend.

Don't fade a strong trend... wait for the trap and enter with-trend.

Don't fade a strong trend... wait for the trap and enter with-trend.

Don't fade a strong trend... wait for the trap and enter with-trend.

Don't fade a strong trend... wait for the trap and enter with-trend.

Don't fade a strong trend... wait for the trap and enter with-trend.

Don't fade a strong trend... wait for the trap and enter with-trend.

Don't fade a strong trend... wait for the trap and enter with-trend.

Actually, I'm not happy with the exit decisions. But that's something for me to explore in my trade review process.

In terms of setup and entry… I love this one.

"Countertrend setups in strong trends almost always fail and become great With Trend setups…"

Keep this in mind next time the price bars scream out for you to fade a strong trend.

Is it actually a trap?

And is better opportunity perhaps available if you stand aside and wait for the "other traders" to be caught?

Happy trading,

Lance Beggs

 


 

Fighting to Regain Losses

 

I had an interesting email exchange with a trader a couple of weeks ago, who is struggling with occasional massive losses.

email excerpts

email excerpts

I've had the opportunity to speak to a LOT of traders over the last 8 years of writing these articles. You'd be surprised at how common this problem is.

We discussed several options to investigate further, related to money and risk management, strategy, and of course psychology.

What I wanted to share with you all today though, was just one simple concept that might help, should you ever find yourself suffering from a similar problem.

It's just a slight shift in mindset. It may not be easy. It certainly won't be the full solution. But it could well play a part in overcoming the problem.

Here is what is happening right now:

The current plan

I get it.

Losing sucks. We don't want to lose.

And even more than losing, we don't want to admit we were wrong.

So we fight! We double down on our earlier decision, hoping, wishing and praying that the market will turn. Just enough to get us back to breakeven.

There is a problem though.

IT'S NOT WORKING.

You said that yourself!

But it's not working!

Sure, sometimes it will work out just fine, but it's only a matter of time till the market provides another extended drawdown which takes you out of the game.

Your current money and risk management plan provides you with NO EDGE.

And here's a key part of the problem:

Here is part of the reason why...

Let's repeat that for effect!

  • When you FIGHT to get back to breakeven, you're doing so at a time when the market environment is NOT working in your favour.

 

Seriously!

You're fighting against a strong and persistent trend!

I'm not saying don't fight. But if you're going to fight to get back to breakeven, let's see if we can do it a bit smarter. Let's rethink this concept.

Let's break the current plan into three stages.

The current plan (in stages)

What if we planned our fight differently?

A better plan

Use HOPE as the trigger.

Any time you find yourself HOPING that an extra "unplanned" entry might just help you get out at breakeven… EXIT.

Take some time out to clear your mind.

And resume the fight at a time and place when the market movement and price conditions are IN YOUR FAVOUR.

Don't make this game any harder than it needs to be. Fight to regain losses at a time and place of YOUR CHOOSING.

It's the same challenge; taking a drawdown back to breakeven and maybe even positive territory. But you're doing so when the odds are more in your favour.

And even if four out of five times the market would have got you out at breakeven, had you just entered one more time, ignore it. Remind yourself that averaging down has proven to have NO EDGE. Because the fifth time will not only blow out to a huge loss, but will also take away all these previous gains.

If you're going to fight to regain losses… do so at a time and place of YOUR CHOOSING.

Step aside. Clear your mind. And resume the fight at a time and place when the market movement and price conditions are IN YOUR FAVOUR.

It's just a slight shift in mindset. But it can make a really big difference.

Good luck,

Lance Beggs

 

PS. A pro-trader will NEVER EVER let a single trade, or a sequence of trades, take them out of the game. Always, before any other goal, your priority is to survive to trade another day. If your current money management plan involves adding to positions just based out of hope and fear, then your money management plan sucks. Fix it. Or you're unlikely to last long in this business.

 


 

Open Drive – First Pullback

 

When the market drives in one direction straight from the open, I’m ALWAYS watching the first pullback for trade opportunity.

Open drive - first pullback

Open drive - first pullback

Open drive - first pullback

Open drive - first pullback

Open drive - first pullback

Open drive - first pullback

Open drive - first pullback

Open drive - first pullback

Open drive - first pullback

Open drive - first pullback

A strong open drive might only happen a couple of times a month.

But when it happens, I'm ALWAYS watching the first pullback for trade opportunity.

Happy trading,

Lance Beggs

 


 

Review and Improve

 

You might like to consider your review process as the vehicle which drives your trading business to its ultimate destination.

Whether that destination is ongoing improvement and eventual success… or continued mediocrity, frustration and failure… is completely up to you.

If you've got nothing in place, here is a simple process to get you started.

Once you're comfortable with this, there is great scope to expand it to new areas of review. It doesn't solve everything.

But again, if you've got nothing in place, consider implementing this process RIGHT NOW.

Review and Improve

Look at your last 20 trades. Study them with the benefit of hindsight.

Examine 50 if you prefer. Or 100. Find the right compromise for sample size, which is large enough to be statistically significant and small enough to ensure your review process occurs on a regular basis. But not less than 20. I would suggest that is the absolutely minimum.

Once you've gathered all the trade data and charts, let's check the quality of the setups.

How many of your trade ideas were in chart areas which DID offer potential for multiple-R profits (2R minimum)?

It doesn't matter whether you actually managed to profit, or not.

We're checking the general concept. The trade idea.

We're making sure you're trading in the right areas of the chart.

Did price move from the setup area a sufficient distance to provide multiple-R returns?

Take note of all the trades within the sample which achieved this goal. And now let's check the quality of trade entry.

Now consider those trades that were in good multiple-R setup areas. How many were you able to enter at a place and time which offered good potential to catch those multiple-R profits?

Again, it doesn't matter if you achieved a profit or a loss.

With the benefit of hindsight, given where you entered, is it reasonable to expect that a successful trader could manage that position to achieve multiple-R profits?

How many of these trades would you classify as having a good entry?

Take note of them… and let's move on to check the trade management.

Now consider those trades that were in good setup areas and which were entered well. How many of these were successfully held from entry to the first target level?

How many were you able to hold open to the initial target point, avoiding all temptation to scratch the position early?

And then…

Of those which did achieve the initial target, how many of these were held to a further "hindsight perfect" exit point?

Again, take note of how many achieved this aim.

And now let's use this information to drive our business forward.

Looking at these figures, which area do you need to improve when trading the next sample?

It's important that we focus on one area at a time.

And that we work in order.

Get the setups right first. Are you happy with the number of trade ideas that are actually providing multiple-R profit potential? If not… focus on improving the quality of your trade ideas.

Then work on entry.

Then initial management.

And then ongoing management.

Find the first area that disappoints you. Examine why. Determine a course of action for the next 20 trade sample.

And repeat.

Happy trading,

Lance Beggs

 


 

It’s Not About Being Right

 

One of the great things about being involved in trading education is that it provides me with the ability to chat with a LOT of developing traders.

Common themes appear over time. This is one of them…

"Can you review this trade. It's a trade idea which I thought was good, but it just didn't work out."

They want to know where they failed with their analysis or decision making. They want to know what they did wrong.

But often, there was nothing wrong with their analysis or decision making.

Here's the reality of this game – we won't always get it right.

But we don't have to.

That is not what this game is about.

I can understand it. We're wired that way. We like to win. We don't like to lose.

We like to be right in our analysis and trade decisions. We don't like to be wrong.

And there's a whole technical analysis and trading education industry out there, which promises to "show you how to find winning trades".

But that's not what this game is about.

It's not about being right.

Not EVERY TIME.

It's about profiting over a SERIES OF TRADES.

A series that includes both winning trades AND losing trades.

It's about ensuring that when you are right you take as much out of the market as you can. And when you're wrong you cut the loss as much and as quickly as you can. So that, when the whole series of trades is done, the end result is a profit.

Let's look at a very short series of trades from Wednesday night. It's a sequence in Crude Oil which occurred in the hour immediately following the Crude Oil Inventories report.

This is a very low timeframe. And it's high volatility, fast pace stuff. Don't be put off by that if you trade other markets, other timeframes, or in fact other strategies. The concept still applies. It's not about being right. It's about managing the winners and losers such that you profit over a series of trades.

In this sequence, EVERY TRADE ENTRY DECISION I MADE, EXCEPT ONE, WAS WRONG.

But it still provides a profit.

It's not about being right!

This was the only entry decision that actually worked out according to plan

Arrgggggh! Wrong direction!

Wrong!

Wrong!

And wrong again!

And yet the whole sequence shows a profit!

Stop trying to be right.

Instead, try to find the places on the chart where you can win bigger (when right) than you lose (when wrong).

It's only a slight shift in perspective. But it makes a massive difference in how you see this game.

Happy trading,

Lance Beggs

 

Related Articles:

 


 

Trader Performance Drills – Part Two

 

It's six years since we last looked at this topic. Wow!

So it's definitely time to revisit it.

Check out the prior article if you want to see the original drills – http://yourtradingcoach.com/trading-process-and-strategy/trader-performance-drills/

Today we'll discuss a drill that I've quite enjoyed from time to time over the last six months whenever I've had a spare hour or so to "play".

It provides practice and learning opportunity in real-time assessment of context and market bias. And like all good practice drills you'll received rapid feedback on your decisions.

In particular this drill works to develop the following skills:

Entry:

  • Skill in timing an entry close to the turning point through recognition of signs that either (a) the context suggests further movement is unlikely, or (b) the nature of price movement suggests that the move has exhausted it's potential.

 

Trade Management & Exit:

  • Skill in contextual placement of price targets.
  • Skill in real-time assessment of the ongoing validity of these targets, or the need to amend them.
  • Skill in real-time recognition of danger and the need to either partially reduce risk or immediately scratch a position.

 

Let's set it up…

 

The Chart Overlay

  • Open a five minute chart. Clear it of all indicators and overlays.
  • Add an EMA(5) based upon the high price (not close price). I colour it green but this is not important to the drill.
  • Add an EMA(5) based upon the low price (not close price). I colour it red but this is not important to the drill.

 

The result is a very tight channel around price as shown in the image below.

The chart overlay

The indicator parameters

 

The Performance Drill

Open your Market Replay application.

Select any random date and time.

Now trade with the following plan:

(a) You can ONLY enter trades at or beyond the channel boundaries. You can ONLY enter short ABOVE the channel. You can ONLY enter long BELOW the channel.

(b) EXIT TRADES anywhere you feel necessary in order to both minimise loss and maximise gain.

(c) AIM TO PROFIT over whatever series of trades you complete during this drill exercise.

Entry zone - short

Entry zone - long

Exit as necessary to minimise loss...

... but also to maximise gain.

Additional notes:

1. By all means examine your usual charts alongside this. Feel free to refer to your usual higher and trading timeframe charts for context. And your usual lower timeframe chart to fine-tune your decision making. Market internals or orderflow tools are fine as well. In fact… whatever you normally use for your trading is absolutely fine for this drill. The 5 min EMA channel only provides the limits to the buy and sell areas.

2. I highly recommend speeding up the replay at all times except in the entry zone. For entry, set the real speed so that you can "feel" the movement of price as it would feel in a live environment.

3. You do NOT have to enter on every excursion beyond the channel. In some cases you will miss it anyway as price just tags the channel and moves back away from it. In other cases it would be wise to stand aside, such as fading a strongly directional market. Avoiding a very low probability trade is a good decision!

4. Stop losses – I like to keep this tight in order to practice timing the entry as close as I can to the extremes. I set them at around half the width of the channel. NOTE: Re-entry is always an option if you get stopped out.

5. Remember – the aim is not to profit on every trade. Just like real trading, we aim to profit over the larger series of trades. So take your losses but keep them small. One or two winners should more than compensate for these losing trades.

 

Real-time Contextual Decision Making

At times this will be easy.

At other times, it will be quite a challenge.

Your only restriction is that you must enter at or beyond the channel boundary. Ideally with quite a tight stop.

Everything else is open to your best judgment, based upon your assessment of context and real-time reading of market bias.

How will you enter?

Will you place a limit order and let it be hit? Sometimes this will give incredible entries. Other times you will be run over, if you misjudged how far price would extend beyond the channel.

Will you wait to see how price behaves beyond the channel before entering at market? Sometimes this will result in a missed trade, when price just tags the entry zone and rapidly moves back into the channel.

Will you scale in? Or go all in on one single entry?

There is no right or wrong.

Just play!

And learn!

That's the beauty of the replay tool, allowing you maximum trade entry and management decisions by speeding up the data in-between trade opportunities.

And in providing rapid feedback to each and every decision you make.

This is not something you will do every day. No-one has time for that. But from time to time when you find yourself with an hour or two available, and a desire to play with some historical price charts, go for it.

And who knows… if you enjoy this you might just be able to expand the rule-set and create a whole trading methodology out of it.  🙂

Other markets

Other markets

Other markets

And other timeframes

Happy trading,

Lance Beggs

 


 

You WILL Have Trade Sequences Where You Are Out Of Sync With The Market

 

Let's examine the opening hour and a half of the emini Dow from Tuesday's session.

As seen in the charts below, the session commenced with a sequence of trades where I was out of sync with the bias of the market. And then another when I was completely in tune with the market.

You WILL have trade sequences where you are out of sync with the market.

So you'd better learn to recognise this ASAP in order to minimise any damage.

Ok, so the sequence where I was out of sync still resulted in a small profit. That's cool. I'm certainly not complaining.

But the fact is that there is potential for significant damage to an account balance if you don't quickly recognise and adapt to this "out of sync" issue. In the past, I'd usually take several losses out of a sequence like this, typically trying to fade the move two or three times before giving up in frustration.

So, there are some lessons to be learnt.

First though… what exactly was going on that resulted in me being out of sync with the bias?

Let's start with the daily and 30 minute charts, in order to get some context.

You WILL have trade sequences where you are out of sync with the market.

You WILL have trade sequences where you are out of sync with the market.

You WILL have trade sequences where you are out of sync with the market.

There is a saying in the trading industry:

  • "Trade what you see, not what you think"

 

What this means is… since I can see the the market is moving higher with a BULLISH bias then I should trade from the LONG direction. It doesn't matter at all what I think the market should be doing. Trade what I see.

And yes, normally that is not a problem. I'm usually ok with dropping my expectations and trading in accordance with the market bias.

But not this day. The feeling was too strong.

And although I was able to enter LONG on two really good signals, I just wasn't able to hold. The trades were scratched for small profits.

So I decided to stand aside and wait for the market to turn.  (Accepting of course that if it just trended higher all day then I'd miss the bulk of the move. No problems. I'm fine with that.)

As a discretionary trader, you WILL have trade sequences in which you're completely out of sync with the market movement. It's a fact!

This internal feeling of unease WILL act as an input to your decision making. And it will influence both entry and trade management decisions.

Your job is to learn to recognise this as quickly as possible. And if you can't shift to the correct bias then take immediate action to mitigate the risk. Otherwise… you may find yourself quickly on the way to your session drawdown limit.

Set a trigger to catch yourself as soon as possible, when you do find yourself fighting the market.

One of our recent articles is perfect for this – http://yourtradingcoach.com/trading-process-and-strategy/two-attempts-then-reassess/

After two poor trades… pause and reassess.

Is your gut feeling about market direction causing you problems? If so, take action to limit the risk.

Possible actions:

  • Reduce position size for all further trades.
  • Limit trade direction to the with-trend direction only, and adopt a passive hands-off trade management style. Set the trade and walk away.
  • Or… best of all… just stand aside and wait for something easier. You don't have to trade every day. There is always more opportunity coming along in future.

 

You should aim to stack the odds as much as possible in your favour. A MASSIVE part of that is having a good read on market bias.

So you'd better learn to recognise this ASAP in order to minimise any damage.

Happy trading,

Lance Beggs

 

PS. To take it to the next level, consider adding this to your post-session routine:

1. Take note of any price sequences which resulted in multiple attempts to trade the market from the wrong side.

2. Review the conditions – market structure, price action and human performance factors – which may have influenced your decision making.

3. Document your findings.

4. Over time, you'll start to identify those conditions which have the potential to put you out of step with the market, allowing you to recognise and adapt more quickly in future.

 

 


 

Where Price Can’t Go

 

I'm always VERY interested in these places on the chart – the places where price can't go. The places where it tries… it pushes… but it just can't go there.

This is opportunity.

Let's start with the Higher Timeframe chart…

Where Price Can't Go...

Where Price Can't Go...

Where Price Can't Go...

Where Price Can't Go...

Where Price Can't Go...

Where Price Can't Go...

Where Price Can't Go...

Where Price Can't Go...

Where Price Can't Go...

Where Price Can't Go...

Let's switch now to the trading timeframe… 

Where Price Can't Go...

Where Price Can't Go...

Where Price Can't Go...

Where Price Can't Go...

Reference… this is a BOF Setup as described in YTC Price Action Trader Volume 3, page 28.

Happy trading,

Lance Beggs

 


 

Why Did I Not Enter Short on Rejection from Resistance?

 

This short article is to share some excellent Q&A following our recent series on "patience".

Check out the prior articles if you missed them:

Part 1 – http://yourtradingcoach.com/trader/patience-is-a-key-component-of-your-edge-part-1/

Part 2 – http://yourtradingcoach.com/trader/patience-is-a-key-component-of-your-edge-part-2/

In particular, it relates to last week's trade sequence:

Patience - you don't have to trade every price sequence

 

Q. Why did I not enter SHORT on the initial rejection of session high resistance?

Patience - you don't have to trade every price sequence

I was really happy to get this question. It shows people are thinking!  🙂

Here's an excerpt from the email:

(more…)