Monthly Archives: December 2017

Why You SHOULDN’T Get Anyone to Review Your Trade

 

I receive a LOT of requests to review people's trades. Rarely winning trades. Almost always a trade which either lost or was scratched at or near breakeven.

  • "Was this a good trade?"
  • "Was I right to take this trade?"
  • "Should I have (entered earlier / entered later)?"
  • Or any other variation of these type of questions.

 

I get why. We're all trying to improve and so it makes sense to seek guidance from another trader.

And I don't mind people sending them.It's really cool. I like looking over them.

But I'm very hesitant to offer any real guidance, unless I can see something that is either ridiculously lacking in edge or completely reckless and irresponsible from a money management perspective.

Why?

Not because I don't want to help.

But because I recognise the danger of focusing on one individual trade – the fact that any advice I offer has just as much potential to damage their edge as it does to improve it.

The thing is, I am COMPLETELY LACKING in some very important information.

As discretionary traders, we are ALL unique in so many ways.

Even those who trade based upon my approach and the ideas I share through my site. No-one can become a perfect clone of me. And no-one should expect to. Those who I've seen have the most success are those who intentionally aim to blend some of my ideas and methods with their own. But even those who try to trade "exactly" like I do, I'm always blown away by the variation in how we read the markets and how we exploit edge within that "read".

Everyone is unique.

We all have our own preference for different types of trades. And different environments. The conditions that I find most favourable, might be the conditions in which you struggle the most. The conditions in which I underperform, and which I seek to avoid at all cost, might be the exact conditions that you excel in.

If I try to force you into my view of the markets, based upon review of only ONE SINGLE TRADE, I might completely mess up your trading.

Let's try a really simple example, so that this will hopefully make sense to you.

Let's say for example that I excel in with-trend setups. I feel the price flow really well. I'm in sync with the market. It feels fun. And kind of easy. But at the same time, I tend to grossly underperform whenever I find myself trying to enter counter-trend. I don't read them well. I'm rarely in sync with price movement. It's not fun. And results show it's never easy.

And then let's say you send through a trade. You guessed it – counter-trend. And of course, it lost. And you asked, "Lance, can you share your thoughts on this trade? Can you see where it went wrong and what I should do to improve?"

Have a guess what my immediate thoughts will be.

"Well there's the obvious problem. You're fading the trend. Hey, don't feel bad. Everyone seems to want to fade the market. But the odds are always better in the with-trend direction. Why don't you try to restrict yourself to the with-trend direction instead."

Ok, maybe this would help them. But maybe not.

I don't know this person. I have no insight into their unique blend of knowledge, skill and attitude. I have no insight into their preferred style of trading. Or which market environment or conditions best suit them and their style of trading.

It might be that this trader naturally struggles to trade with-trend. But they have some exceptional and natural skill at recognising exhaustion at the end of a price swing and timing a counter-trend entry for a fade back to the mean (and sometimes a complete reversal).

Yes, this one trade lost. But what if any sample of 20 counter-trend trades from this trader's journal includes not only a number of losses just like this one, but also sufficient winners to not only cover the losses but also provide a nice positive expectancy outcome.

Or (far more likely) if they're still developing and not quite profitable yet, sufficient potential to achieve those winners with only a small amount of further growth and development.

If I convince this trader to abandon their approach, or in fact vary it in any way that seems "obvious" to me from one single trade example, I could be setting them back months as I lead them blindly in the wrong direction.

It doesn't matter if it's me you're asking for the review. Or any other trader.

ONE TRADE is insufficient information for me, or any other trader, to provide you with any real value.

I'm sure this opinion is unpopular. Clearly I expect many will disagree with me.

But that's fine.

Because you shouldn't need to send any single trades through to me. Or to any other educator or trading mentor.

Let me share with you a better plan.

Let me share the response I sent out to a trader this week, who sent me a trade with a few questions about (a) the quality of the trade idea and (b) whether or not he'd be better skipping first entries and waiting instead for second-chance entries.

I'm not picking on this guy. I actually quite like his trade. The entry at least. It didn't reach the target but his timing was good enough that the market offered enough movement and time to scratch the trade or take small profits. (He got out at breakeven so no harm done).

I share this (with his permission) simply because I thought my response was important. I wanted to share it with all of you.

This trader says he's coming along quite well. In his words, he's "finally starting to see how this might work". He's found a method that seems to fit his personality, but is still requiring improvement in some areas.

The following chart shows the trade sometime well after the entry. It was eventually scratched for breakeven. The notes have been added by me.

It's not actually important you see his trade. It's my response that's important. But hey… no-one likes trading articles that don't have a chart in them. So here it is:

<image: Breakout Failure Entry>

Here's an excerpt from my email response (with a little editing to improve it):

– – –

These are difficult questions to answer. Let me explain why.

What if I tell you not to take these trades because I don't like factors a, b & c. But what if also I don't see factors x, y & z, that you do see. It might be that you're good at picking these trades in which 6 out of 10 may fail, but 4 out of 10 may go on to give 5R winners. If I tell you not to take them, I could be destroying an edge that you have but which I just cannot see.

(An example here would be… what if I told you not to take counter-trend trades because they're far more difficult… stick to with-trend trades. But I'm basing this off one single trade example. Where it could be the fact that you're quite skilled in picking the turn points and do have an edge over a longer series of trades. If I tell you not to take them, I could be destroying an edge that you have but which I just cannot see from one single trade example.)

Analysis of one trade is largely irrelevant. Look to stats for groups of trades.

When you have group stats then you can look for what is working and what needs to be changed. Without that foundation I'm just poking around in the dark. I'm lacking context with regards to the desired outcome.

So, my question to you is, based upon your 20 trade stats analysis, what part of your trading are you trying to improve? And why? Only then will analysis of this one trade make any sense.

I'm not blowing off your question. You're seeking answers in the wrong place. (I really need to do further training on how to grow and develop. Almost everyone gets this wrong.)

For a good starting point, until I get time to prepare this training, see these articles for a simple example of how to guide your growth and development:

http://yourtradingcoach.com/trading-business/its-time-to-fight-to-get-to-the-next-level/

http://yourtradingcoach.com/trading-business/its-time-to-fight-to-get-to-the-next-level-examples/

Perhaps here as well:

http://yourtradingcoach.com/trading-business/consistency-its-a-necessary-part-of-the-process/

So here's a better plan:

  • Get absolutely clear with how you want to trade the next group of trades. 20 minimum, but feel free to adjust that number higher if you prefer. I'll use 20 in the example. As much detail as you can – what type of trades are you taking? What are you trying to achieve in taking these trades?
  • Now take 20 trades. Your individual post-trade review is not important, beyond just confirming CONSISTENCY in sticking to your plan. By all means look deeper into each trade if you wish, but the priority is just to ensure that you're achieving some degree of consistency in your trade sample.
  • Don't concern yourself with profit or loss (providing of course you're not breaking any risk or money management drawdown limits).
  • On completing the full sample, analyse the statistics related to the full group of 20. There are no shortage of stats, but the absolute minimum should be the Win% and the Win/Loss Size Ratio (WLSR) (or it's component parts being the Average Win and Average Loss).
  • Find where you are underperforming. Which statistic is most in need of improvement. If you're underperforming in multiple areas, pick one for now.
  • Dig into the individual trades and charts comprising your 20 trade sample to understand WHY they gave that statistical outcome. And WHAT you can do to improve that outcome in the next 20 trade sample.
  • If you wish (and I highly recommend this) the same can be done for any area which really outperformed this time. Find out why and see if there is anything you can do which increases the likelihood of similar outperformance in future.
  • Now repeat.

 

This is the path.

Most people just trade, review that trade, and then move on to the next trade and repeat the process. Progress is very difficult this way, as you get bogged down in individual trade problems, when they might not be an issue that impacts edge at all when considering a larger sample.

Trade larger samples. Look to the stats. And use them to drive your trade review process and define the path forward.

You don't need to ask my opinion. Anything I offer. based upon one single trade, risks being irrelevant or wrong when considering a larger sample of trades.

Plus, you have all the necessary information. The group stats will identify the area that needs examining. And the charts and journal data will provide the information necessary to understand what happened, why and what needs to be done to improve.

If stuck… sure… seek advice. But it's got to be based upon larger group stats analysis and not just ONE SINGLE individual trade.

So take 20 trades and examine the stats.

Find the underperforming statistic (Win%, Average Win or Average Loss). Look to the trade data to find out why it produced this outcome. And what can be done to improve.

Trade larger samples. Look to the stats. And use them to drive your trade review process and define the path forward.

I hope that helps.

Now, having said this, let me just finish up with a few thoughts that do somewhat answer your questions.

I do actually quite like your trade location and entry. I'd like to think I might have taken an entry there as well.

And yes, second chance entries are often a much better trade. The problem with waiting for a second chance entry is that you miss a lot of good trades though, when the first entry might have worked. Hence my preference for scratching a first trade when I suspect it's not working, but watching closely for re-entry opportunity if there is another one set up. Maybe you could consider something similar. This does has it's own downside, in that sometimes I scratch and can't get back in. Ha ha. Nothing's ever easy in this game.

Summary: Again, I actually do quite like the trade idea and entry (original and second chance). But this is all irrelevant. Take 20 or more of these trades and look at the stats. Does it provide edge? If not, where do the stats suggest underperformance? Why? And then what can you do to improve the performance over the next 20 trades.

Happy trading,

Lance Beggs