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One of the Best Habits I Acquired along my Trading Journey

 

I posted the following image on social media on Tuesday, showing a nice example of a false breakout and reversal from a period of volatility contraction.

<image: One of the best habits I acquired along my trading journey>

The important point though… and the one which offers the most value to you… is not the image itself but rather the text that was posted alongside the image.

  • One of the best habits I acquired in my trading journey – EVERY DAY I find at least one price sequence which I find interesting and STUDY IT. Consider whether or not you might also benefit from actively developing this habit.

I received the following questions on Twitter:

<image: One of the best habits I acquired along my trading journey>

(1) What does my price sequence study involve?

The study relates to observations in price action or market structure. It does not typically involve study of the trades taken during the session. I have a separate part of my review process for trades.

Sometimes it is structured and will focus on a particular topic for a week or so. Maybe I will decide to study transitions from one market environment to another. Or to study price behaviour on the break from a higher timeframe trap. Or maybe… well you get the point. If there is a particular topic of interest to me then I might focus solely on that topic for a period of time.

See here if you want a list of possible "categories" for your Market Structure & Price Action study – http://yourtradingcoach.com/trading-business/market-structure-and-price-action-journal-categories/

But other times, when there is no particular topic of interest, the study will be unstructured and based on any observation which I find interesting. Often this will be a sequence which I didn't read well. Perhaps something I didn't see coming. Or something I didn't react to quick enough.

For example, the shift in sentiment occurring from point B to C in the volatility contraction above, is one that I was too slow to recognise and react to. So it became the focus of my study that day.

(2) How much time do I devote to this study?

Typically no more than 10 minutes. The topic will become obvious during the session. All it typically takes is a quick review, along with identification and recording of lessons learnt.

(3) What are some questions I ask?

That is largely going to depend upon the topic you're studying. And it should be self-evident. But it should relates to (a) how did price behave, (b) how could I have recognised this more quickly, and (c) how should I have responded to this information?

Let's look at a few more examples from Tuesday and Wednesday this week:

Tuesday:

Tuesday offered a brilliant example of the saying, "The market doesn't repeat, it rhymes".

Note the similarity – volatility contraction, expansion, and then opportunity available in the opposite direction as the expansion leg fails.

<image: One of the best habits I acquired along my trading journey>

Let me be perfectly clear – I am NOT a pattern trader. But volatility contraction and subsequent expansion is one pattern that I do often see. And one that I do often take advantage of.

Typically it's through seeking YTC PAT PB opportunity, on the first pullback after the breakout, expecting the expansion leg to continue to drive with momentum.

For whatever reason, I've been slow to react to a failure of the expansion, for two days in a row now. I missed it on Monday. I missed it on Tuesday. Through reinforcing this lesson, I aim to ensure I will NOT miss it again.

Wednesday:

Thankfully, I'm not going to bore you with another example of a false breakout from volatility contraction.

Let's start with a higher timeframe chart:

<image: One of the best habits I acquired along my trading journey>

<image: One of the best habits I acquired along my trading journey>

<image: One of the best habits I acquired along my trading journey>

<image: One of the best habits I acquired along my trading journey>

<image: One of the best habits I acquired along my trading journey>

Ok, so nothing surprising so far. The review basically confirmed my real-time thinking.

But then the review also picked up something that I "should have" been aware of intra-session, but did not consider at all.

Let's look at the overnight data leading into the session open.

<image: One of the best habits I acquired along my trading journey>

Nothing changes here in terms of decision making. The failure of the second break is still the critical point at which I should accept that my "feeling" of a bearish market bias was wrong.

But this additional information does add weight to the earlier analysis. And it's information I should have been aware of intra-session.

If the market sentiment was indeed bearish, then one of these breaks of a key overnight level, SHOULD have held. The fact that they couldn't hold confirms that my "feeling" about market sentiment is likely wrong. Watch for a break to the upside and further dominance by the bulls.

I do take note of key overnight levels pre-session. It's clear though, with hindsight, that this information did not make it into the session (at least not in the forefront of my mind).

Lesson: Greater emphasis is required on pre-session levels.

Bonus Entry:

I'm not going to do another. But I just can't resist sharing this.

From Thursday, on the 3 minute timeframe:

<image: One of the best habits I acquired along my trading journey>

This is one of the key benefits of a Market Structure & Price Action Journal. Over time you start to see familiar patterns of price behaviour. All of which builds skill in real-time assessment of market bias and real-time recognition of opportunity.

Now it's your turn:

I received this request on Facebook, following the original social media post: "Please post something on Indian markets like NIFTY or BANKNIFTY. Thanks".

My response: "I don't trade the Nifty so can't help you with that market. But I highly recommend you commence creation of your own Market Structure & Price Action Journal. You'll achieve far greater value from that daily practice, than from anything I could provide."

Re-emphasising the point from the original social media post:

  • One of the best habits I acquired in my trading journey – EVERY DAY I find at least one price sequence which I find interesting and STUDY IT. Consider whether or not you might also benefit from actively developing this habit.

Regardless of your market, your timeframe, or your strategy. Give it a try and see if you get the same benefit that I received.

Happy trading,

Lance Beggs

 


 

Trading a Massive Increase in Emotion

 

I want to write a short followup to last week's article – First Pullback After Significant Structural Change.

Email feedback during the week made it clear to me that some information which I'd assumed was obvious, was not actually obvious to all readers.

And as with most assumptions, it's actually INCREDIBLY IMPORTANT.

The article dealt with a trade taken well after my usual "stop trading" time of 12:00ET. This is normally time for my post-trading routines before heading off to bed.

But on this day I wasn't tired, so I went on with other work while keeping one eye on the markets. Not with any real intent to trade. Just to follow along. Unless of course an A+ trade opportunity came along, screaming out to be traded, and then it's game on.

So here's what happened (from a higher timeframe chart perspective)…

<image: Trading a massive increase in emotion>

If you want to see the trade, check out the original article – First Pullback After Significant Structural Change.

So this led to a reader asking why I didn't trade LONG from the obvious level of support?

<image: Trading a massive increase in emotion>

Great question!

My error last week was in approaching the trade and surrounding context purely from the technical charting perspective.

1. Obvious structure.

2. Break from obvious structure.

3. Trade the first pullback.

I didn't sufficiently explain the underlying reason WHY I consider this an A+ opportunity. And why opportunity LONG from the obvious level of support was something I was happy to pass on.

An excerpt from my response:

I think the cause of the misunderstanding here is that you're failing to appreciate how little I wanted to be trading. My trading was over. I had almost zero interest in trading. I had better things to be doing. UNLESS something absolutely amazing set up.

So yes, had I been trading from 12:00 I would have been seeking entry LONG, as you've suggested. Price held that level nicely.

But this is not the kind of action I want to take after a trading session is over. Can you see the difference between the two sequences? The sequence from 12:00 to 15:00 is just a continuation of the earlier session bias. But the move after support was broken is different. Suddenly A WHOLE LOT of traders are wrong. Everyone who is still holding a longer-term long position, established at any time in the last 3 hours, is suddenly in a drawdown. This is the kind of action I want to trade. Something that traps a whole lot of people. Something that shocks the market. Otherwise, I'll pass.

 

The break of support is something which SHOCKS the market.

Something that results in a massive increase in emotion.

<image: Trading a massive increase in emotion>

<image: Trading a massive increase in emotion>

<image: Trading a massive increase in emotion>

<image: Trading a massive increase in emotion>

<image: Trading a massive increase in emotion>

Viewing charts from the perspective and emotion of "the other trader" is the key premise underlying my whole trading approach in the YTC Price Action Trader. Outlined in Chapter Two and then evident in the whole analysis and trade process.

The same applies with every trade you see within my newsletter and blog posts. Even, as in the case of last week's article, where the discussion focused solely on the technical aspects of charting. Look to my charts from the perspective of "the other trader". It will be there somewhere.

Happy trading,

Lance Beggs

 


 

First Pullback after Significant Structural Change

 

I don't often trade after midday Eastern Time. It's the middle of the night here and I'd much prefer to get some sleep.

But from time to time I'm alert and awake and there is no chance I'd be able to sleep even if I tried.

So I'll complete some of my post-session review and then go on with other work, while keeping an eye on the markets.

The default intent is to NOT trade… unless it's screaming out to be traded.

What does that look like?

Here's one example. A trade that is so damn obvious I would have been kicking myself if I missed it.

It's a YTC PB trade. But what is important is not so much the trade itself, but WHERE it happens in the "bigger picture" market structure.

<image: First Pullback after Significant Structural Change>

<image: First Pullback after Significant Structural Change>

<image: First Pullback after Significant Structural Change>

<image: First Pullback after Significant Structural Change>

Dropping down to the Trading Timeframe to see the outcome:

<image: First Pullback after Significant Structural Change>

<image: First Pullback after Significant Structural Change>

1. Structure!!!

2. Break of structure.

3. First pullback against the break of structure.

It's no Holy Grail. Sometimes there will be losses. And sometimes you'll miss the trade.

But it's opportunity I do NOT want to miss.

Happy trading, 

Lance Beggs

 


 

Trading with a Guard Rail for Increased Confidence in Bias

 

Let's look at a tool that can help you manage the conflict between what you FEEL should be happening and what you SEE is actually happening. Particularly for those of us who prefer clean charts with price only.

Here is the NASDAQ 5 minute chart from Monday 4th March 2019.

<image: Trading with a Guard Rail>

You can't get an indication of how bearish it was due to the scale on the RHS being quite compressed.

This was a REALLY nice move.

But the day after I had some email discussion with a trader who was beating himself up over missed opportunity.

In his words…

<image: Trading with a Guard Rail>

Yep… we've all been there… sitting on the sidelines while we watch the market go on without us. Can't go short because you FEEL it will rally any moment. But can't go long because you SEE it just keep falling.

The old saying comes to mind… "trade what you see, not what you think".

But like all of these simplistic truths, they're much tougher to put into practice than you'd imagine.

My immediate thoughts – don't beat yourself up. Ever.

Or if you feel it's warranted, then allocate a few minutes to let it all out. And then move on.

Today is just one out of thousands of trading days you'll have over your career. Take the hit. Learn from it. Move on.

And really… at least you didn't try to fade the move all the way down. It could have been a whole lot worse.

(NOTE: He actually profited on the day. All the anger and regret were simply because he knew he could have got a lot more.)

So we discussed a few issues.

Missing the initial short was a key part of the problem. This then triggered a shift to "outcome thinking" rather than "process thinking"; not wanting to make a bad situation worse by following up a missed opportunity with a losing trade.

As soon as you fear losing on a trade, it's game over.

So this is an issue he will work on, recognising now that missed opportunity can be a trigger that shifts his mindset away from productive thought processes.

But that is not the point of this article.

Our discussions also led to the recent article series – My Go-To Method for Solving Trading Problems. (Part 1, Part 2)

Because it provides a technical solution to another key part of his problem.

Something that could have provided confidence in entering and holding a short position while he sees that the market keeps moving lower, despite his bullish internal bias.

In other words… he needed a guard rail.

(NOTE: We're going to leave out discussion of S/R, which may have also helped. The trader does not use an S/R framework at all, instead trading the trend structure.)

The Guard Rail is a concept that was discussed in part 2 of the article series.

Think of this:

<image: Trading with a Guard Rail>

Photo by Nathan Dumlao on Unsplash

The primary purpose of the guard rail is to prevent (or limit) damage should you veer off the road.

But it also provides a secondary function. It allows you increased CONFIDENCE in driving along the road without fear of falling over the edge of the cliff.

Can we achieve the same on our charts?

I think we can (to some degree).

<image: Trading with a Guard Rail>

<image: Trading with a Guard Rail>

<image: Trading with a Guard Rail>

<image: Trading with a Guard Rail>

<image: Trading with a Guard Rail>

<image: Trading with a Guard Rail>

<image: Trading with a Guard Rail>

<image: Trading with a Guard Rail>

<image: Trading with a Guard Rail>

<image: Trading with a Guard Rail>

<image: Trading with a Guard Rail>

Give it a try next time you find conflict between what you feel should be happening, and what you objectively see is actually happening.

Add a guard rail to the chart. Let it act as a clear line in the sand, dividing the chart into two zones. One side allowing you trade what you see is happening. The other allowing you to trade what you feel (and hopefully by then also see) is happening.

Happy trading,

Lance Beggs

 


 

Three Key YTC Lessons in this Opening Price Sequence!

 

Lesson 1: When two trade ideas fail to work, consider a break. When three trade ideas fail to work, force a break.

<image: Three key YTC lessons>

<image: Three key YTC lessons>

<image: Three key YTC lessons>

<image: Three key YTC lessons>

<image: Three key YTC lessons>

<image: Three key YTC lessons>

<image: Three key YTC lessons>

Lesson 2: When the pullback is deeper and stronger than expected, let it roll over. Get in on the other side.

<image: Three key YTC lessons>

<image: Three key YTC lessons>

<image: Three key YTC lessons>

<image: Three key YTC lessons>

<image: Three key YTC lessons>

<image: Three key YTC lessons>

<image: Three key YTC lessons>

Lesson 3: An exit is not necessarily final. Remain focused and consider re-entry if the premise is proven to still be valid.

<image: Three key YTC lessons>

<image: Three key YTC lessons>

<image: Three key YTC lessons>

<image: Three key YTC lessons>

Happy trading,

Lance Beggs

 


 

My Go-To Method for Solving Trading Problems – Part Two

 

Part One is here if you missed it – http://yourtradingcoach.com/trading-business/my-go-to-method-for-solving-trading-problems/

In that article I presented a three question framework which I use to seek solutions to any of my trading problems.

  1. Can I avoid the problem?
  2. Can I reduce the frequency?
  3. Can I reduce the consequences?

 

Or in simpler English:

  1. Is there something I can do that will ensure I never even encounter "the problem"?
  2. Is there something I can do that will ensure "the problem" won't happen as often as it has been?
  3. Is there something I can do such that when "the problem" does occur, the negative outcome won't be so
    bad?

 

To work through an example, we used a question I received on Twitter a short while ago:

<image: The problem...>

In other words…

  • An inability to trust a rally resulting in continued attempts to fade the rally and grinding your way into a completely avoidable drawdown.

 

Visualising "the problem", it would be something like this:

<image: The problem...>

I then requested your feedback on how you might solve such a problem through either one or all of the three questions.

Well didn't that create a lot of work for me! Ha ha.

I must say I was blown away by both the number and quality of the responses. I am 99% certain I replied to all of them. If I missed yours, please let me know.

Rather than simply listing all of the responses here (because there will be a lot of repetition), I will instead just summarise the main ideas:

 

Can I avoid the problem?

Is there something I can do that will ensure I never even encounter "the problem"?

This is my first go-to option. If I can find a solution here that is quick and easy to implement, I'll try this first.

This is recognising that often we don't need to address the problem and its myriad of potential underlying causes, if we can just avoid it.

If you get sick eating seafood… just don't eat seafood.

So looking at the problem of a trader who continually destroys their session through fading a bullish trend, how can they avoid it?

Many of you came up with the same idea that immediately pops into my mind for the "Avoid" category:

Don't trade bullish environments!

You said:

<image: The problem...>

You ask for help changing your mindset. But it's much quicker and easier to:

(a) Accept that this is how you are.

(b) Study your trade history to understand the market structure or environment which leads you to struggle.

(c) And develop clear and unambiguous rules to avoid this structure or environment in future.

In other words, ONLY trade in an environment which is naturally suited to short selling.

And avoid everything in which short selling is a lower probability option.

Maybe something like this:

<image: Avoiding the Problem>

<image: Avoiding the Problem>

Or maybe you will have some better idea. After all, you know your trading.

The point is… you need to dig into your trade history. Find and understand the conditions that lead to you fighting a bullish trend. And then set in place rules to avoid them.

Don't try to solve the problem. Avoid it.

Rather than fighting your bias, accept it and embrace it. And maybe specialise in being a short-seller in bearish market environments.

Note what we've done here. The problem still exists. You still have a strong preference for short entries. And the potential for danger still exists if you acted upon this tendency in a strong and persistent uptrend. But you've avoided the problem by setting clear and unambiguous guidelines which seek to avoid these uptrending environments.

We're not trying to find a way to comfortably trade long in an uptrending environment. We're not trying to find a way to improve our skill in shorting an uptrending market. You can work on these later if you wish. First things first though – let's stop the damage through the quickest means available. Identify an uptrending market and stand aside.

Avoid the problem… it's often the quickest and easiest solution.

 

Can I reduce the frequency?

Don't like the "Avoid" solution?

Ok. That's fine. You won't always find an answer. And you won't always find an answer you like. Let's move on to the other two questions.

Is there something I can do that will ensure "the problem" won't happen as often as it has been?

So here, we're not trying to avoid bullish environments. We're not limiting ourselves to certain sections of the market structure.

We are allowing ourselves to trade in a bullish environment.

But we need some solutions to ensure that when it is bullish, we can (at least sometimes) find a way to align ourselves in that bullish direction, thereby reducing the number of times we find ourselves fading the trend.

Again the responses from readers were spot on, with the following being the main ideas:

Limit to with-trend trades only.

Very closely related to the above solution. But this time we operate with clear and unambiguous rules that limit our trading to with-trend only.

Limit yourself to short opportunity when the trend structure is bearish. Limit yourself to long opportunity when the trend structure is bullish. And stand aside when the trend structure is neutral, sideways or uncertain.

Naturally this doesn't guarantee trading success. Recognition of the environment will not always be perfect. Quick recognition of change of environment will not always be perfect. Execution will not always be perfect. And compliance with our rules may not always be perfect. That's fine. We will deal with this separately if it becomes a problem.

But what this does achieve is that it ensures you will rarely find yourself repeatedly fighting a bullish market.

Trade with a guard rail.

No-one picked up on this solution. But it's one of my personal favourites so I'm going to include it here. I've recommended this to several people over the years, with great effect.

I like clean charts without indicators. But that does not mean I'm against the use of indicators if they add value to your trading. And one good use for an indicator is to provide confidence through placing a "guard rail" at your back

<image: Reducing the Frequency>

This doesn't seek to avoid bullish environments. And it doesn't prohibit trading short. Instead it acts to increase confidence in holding a long position, thereby reducing the frequency with which you'll find yourself repeatedly fighting the uptrending market.

Multiple Scenario Planning

Always have in mind multiple potential paths for price action. Ideally at least one bullish and one bearish scenario.

You're fighting the uptrend because you believe it should be moving lower. But have you actually viewed the charts too see if there is the possibility of a bullish scenario?

Assuming the market had a chance of going up today, what could it look like?

If you have pre-accepted multiple scenarios for potential price movement, and at least one of them involves price moving higher, you're more likely to recognise and accept the bullish conditions when they occur and more easily able to align yourself in that direction.

Trading level to level

Overlay the higher timeframe market structure with an S/R grid and use that to define the general market bias as price moves from level to level.

Again, this works like the idea of multiple scenario planning, discussed above. It's harder to get stuck in a mindset of "this market should be moving lower" when you've defined clear levels and have accepted that the market is bullish while above certain levels.

Limit counter-trend short entry to key levels only.

Extending the idea above of trading level to level, this now also gives us a solution for how we can still trade short against a rising uptrend.

Limit that sort of trading to ONLY the times when price interacts with one of our higher timeframe levels.

All other action, away from these levels, is limited to with-trend (long) opportunity.

Overwhelm yourself with study after study of bullish market environments.

One response suggested reviewing 100 days of uptrends. Ha ha!

Absolutely yes. This will leave you in no doubt about the fact that markets can and do go up a whole lot more than you expect. It's a beautiful solution.

What is good about the 100 charts solution is that it goes a long way to correcting the faulty underlying beliefs, leading the trader to somewhat accept the idea that markets can safely rally. And while you may at times slip back into old habits of fading the trend, the frequency of occurrence will be reduced due to the many times now when you find the confidence to go long with the trend.

Operate with multiple independent methods of assessing bias.

No-one guessed this solution. It's one of of the ones I came up with, which I think could be effective in limiting how often you get stuck fighting a trend.

I assume that you're operating at the moment with two means of identifying the potential future movement of price – some form of assessment of the trend PLUS gut-feeling. And in your case the gut-feeling is over-riding the trend analysis.

Maybe try increasing the number so that you have three or more independent methods of assessing bias, one of which might still be gut-feeling. Perhaps add some market internals, or VWAP, or a higher-level orderflow tool like cumulative delta. When a majority of methods are suggesting a bullish bias, this may give more confidence in trading in this direction and ignoring the gut feeling of "it should be bearish"

Operate with multiple independent methods of assessing bias AND a measure of confidence.

Taking the above idea one step further, why not add a degree of confidence to your gut-feeling.

We previously discussed this idea as it relates to price targets – http://yourtradingcoach.com/trading-process-and-strategy/applying-a-degree-of-confidence-to-price-targets/

It applies just as well to your bias.

"Ok, I feel like it should be going down… with maybe 60% confidence… but given all the other methods are suggesting bullish then 60% is clearly not enough. I'm trading with-trend."

Turn the chart upside down.

I didn't expect this response but ended up getting it twice.

I actually tried this myself several years ago. Like the reader who posed the question, I also have a preference for short trades. Not to the same extent where it damages my edge. But it's simply a case of short trades feeling comfortable while anything long is really uncomfortable. Even to this day. It just doesn't ever go away.

Back in the days of Ninja Trader 7, I came across an indicator which flipped the chart upside-down.

Perfect. Problem solved. Whenever there was a bullish market, I'd simply shift my focus from my normal chart to the upside down chart, so that it looked bearish.

It works surprisingly well. I could take a long position in that uptrending market, and hold it quite comfortably, simply because it looked like a short position in a down-trending market.

Unfortunately though, I couldn't execute from the chart. So I got rid of it and went back to normal charts.

But if you have a different platform which offers the ability to flip charts, or someone who can code a solution, this might be an option for you.

 

Can I reduce the consequences?

Is there something I can do such that when "the problem" does occur, the negative outcome won't be so bad?

Again we don't seek to avoid bullish environments. And this time we don't want to limit our ability to short an uptrending market.

But is there some way we can do this more safely, such that the damage incurred will be less in those times we do get it wrong?

Reduced position sizing for counter-trend setups.

Not necessarily a permanent solution. But perhaps one you can use temporarily, until such time that you can improve your skill in timing a counter-trend short entry.

Cut your size to the absolute smallest allowed in your market.

Continue to monitor stats and the impact these setups have on your edge. If you can't develop a positive edge, you will eventually need to abandon them. But until you've accepted that once and for all, cut the size to ensure smaller losses.

You can always increase again if you improve in skill to the point where these trades are providing a positive input to your edge.

Limit counter-trend drawdown to a fixed number of losses.

I've talked about my personal rule before: When two trading ideas fail to work, I consider the need for a break. When three fail to work, I force a break. Either I'm wrong about the market bias, or my execution is poor, so I have no business trading. Take a break. Walk away. Do not come back till your mind is clear and the structure and conditions have shifted to something more tradeable.

If you can do this, the consequences of fighting a market bias will be reduced to (at worst) three losses.

Better counter-trend entries… closer to the stop.

There was only one response which suggested this. I like it.

It attempts to limit the consequences of fading a persistent uptrend through bringing your entry price closer to your stop. Maybe this will be enough to bring these sequences closer to breakeven or small profit.

The suggestion was that, rather than using your entry signal as a trigger to place a MARKET or STOP entry order, you use that signal as a trigger to place a LIMIT order higher. You're fading the trend. There is a good chance of some retrace. So try to take advantage of it and improve your entry price.

As with any of these "reduce consequences" options – they're still allowing you to trade in the environment that was causing problems, in the direction that opposes the market bias. So you need to monitor stats and track the impact this has on your edge. As mentioned above, if you can't get this to provide a positive edge then you seriously need to abandon this idea of trading counter-trend against a bullish market.

 

Wrapping Up

So there we are. It really is quite simple.

In the majority of cases all we had to do was come up with a set of rules to limit our ability to short an uptrending market. The markets offer incredible freedom to enter and exit at any time of your choosing. Successful traders place limits on this freedom, to ensure trade decisions have the greatest chance of providing a positive edge.

For the trader who sent me the original question: Your path from here is to identify the potential solution (or multiple solutions) which you feel may best suit your needs. And test it. Implement the idea through a trial period, tracking the results to confirm whether or not it was effective.

For everyone else: The point of this was not to provide you with techniques to limit the damage from constantly selling into an uptrending market. Rather the point was to demonstrate the problem solving framework in action.

And given the number and quality of responses I received, it's clear that many of you have seen how easy it is to come up with solutions.

That is where the three questions help. They provide some structure to your decision making, taking you from "stuck" to at least having some idea of where to look.

This works not just with "I keep getting run over by an uptrending market". You'll find it helps with many problems throughout your trading career. So whenever you're stuck, ask:

  1. Can I avoid the problem?

  2. Can I reduce the frequency?

  3. Can I reduce the consequences?

 

Sometimes, depending upon the type of problem being solved, you'll find some overlap between the "Avoid" and "Reduce" categories. You might have felt that with the solutions presented above. If you feel a solution that you come up with fits best in the "Avoid" category while I put it in one of the "Reduce" categories, that is fine. Either way the three-question framework has led you to a potential solution. That is all that matters.

Happy trading,

Lance Beggs

 


 

PS. What are Questions Four and Five?

I was asked by a few people about questions four and five in the original framework. I didn't include these as they're not relevant to most trading problems. But for those interested, here they are:

4. Can I transfer the risk?

This typically means to shift the risk to another agency which is better able to manage or accept that risk. For problems outside of the trading world, insurance is the perfect example of this solution. Faced with the risk of loss of property, we can transfer this risk to another party through purchasing insurance cover.

In trading, an example of risk transfer might include building up a track record via sim and then seeking employment with a Prop firm, or perhaps seeking funding through one of the online sites which provide such a service. Not a viable solution for problems of continually fading a rallying market, as you'll quickly find yourself unemployed. But certainly it is a solution that could be perfect for other problems, such as lack of funding.

5. Can I accept the risk?

Sometimes, having considered options for avoiding, reducing frequency, reducing consequences or transferring the risk, we find that there is NOTHING MORE that can be done. We then have no option but to accept it. In other words, do not worry about things you cannot change. Consider whether or not that is acceptable. Sometimes it is.

 


 

My Go-To Method for Solving Trading Problems

 

The internet is full of problem-solving models and systems.

But here's one I've been using my whole trading career.

It's a simple series of three questions.

A subset of five questions regularly used back in my Aviation days in order to manage risks (only three of the five are usually relevant in the trading field).

<image: My Go-To Method for Solving Trading Problems>

Three simple questions:

  1. Can I avoid the problem?
  2. Can I reduce the frequency?
  3. Can I reduce the consequences?

 

Putting this perhaps into simpler English:

  1. Is there something I can do that will ensure I never even encounter "the problem"?
  2. Is there something I can do that will ensure "the problem" won't happen as often as it has been?
  3. Is there something I can do such that when "the problem" does occur, the negative outcome won't be so bad?

 

Most importantly, we're not after vague "touchy feely" solutions.

So I don't want an answer of "I just need to be more disciplined" or "I just need to try harder".

This social media post from last year comes to mind.

<image: I just need more discipline... WRONG>

We want REAL solutions.

Something actionable. Something measurable. Something testable.

Systems. Routines. Processes. Checklists.

Or anything else technical or process driven in nature.

Let's work through a simple example.

We'll use a question I received on Twitter a week ago:

<image: The problem...>

Visualising "the problem", it would be something like this:

<image: The problem...>

So how can we solve this?

Rather than me giving my solutions, I think we'll get more value if we make this interactive.

I want to hear some of your solutions. And then I'll share some of them next week in a continuation of this article.

So, given this problem:

  • An inability to trust a rally resulting in continued attempts to fade the rally and grinding my way into a completely avoidable drawdown.

 

How can we solve it?

Can you find a solution through one, two or even three of these simple questions:

  1. Can I avoid the problem?
  2. Can I reduce the frequency?
  3. Can I reduce the consequences?

 

Or in simpler English:

  1. Is there something I can do that will ensure I never even encounter "the problem"?
  2. Is there something I can do that will ensure "the problem" won't happen as often as it has been?
  3. Is there something I can do such that when "the problem" does occur, the negative outcome won't be so bad?

 

Please leave a comment in the blog post – identifying both the question that you're using and the solution. Or send an email to support@yourtradingcoach.com

To be continued…

Lance Beggs

 


 

Resume the Fight at a Time of YOUR Choosing

 

I sent the following post out via social media on Tuesday, prompted by some discussion with a trader who dug himself into quite a hole through doubling down on losses.

This message is so important I thought I'd share it with my larger audience here in the newsletter. And also take the opportunity to expand upon the idea a little.

<image: Resume the Fight at a Time of YOUR Choosing>

This is one of the key advantages you have as a discretionary trader.

YOU get to decide when and where you will play this game.

If the current conditions are not to your liking, NO-ONE is forcing you to play.

Get out of there.

Take a break. Clear your mind.

And come back at a time of YOUR choosing, when the conditions are more suited to your style of trading.

<image: Resume the Fight at a Time of YOUR Choosing>

<image: Resume the Fight at a Time of YOUR Choosing>

<image: Resume the Fight at a Time of YOUR Choosing>

I have clear guidelines in my own trading plan:

<image: Resume the Fight at a Time of YOUR Choosing> 

<image: Resume the Fight at a Time of YOUR Choosing>

<image: Resume the Fight at a Time of YOUR Choosing>

<image: Resume the Fight at a Time of YOUR Choosing>

<image: Resume the Fight at a Time of YOUR Choosing>

<image: Resume the Fight at a Time of YOUR Choosing>

<image: Resume the Fight at a Time of YOUR Choosing> 

 

ACTION ITEM:

Schedule some time to review or amend your Trading Plan.

Make sure to include guidelines or rules for the following:

(a) At what point intra-session will you stand aside and force a break from trading? What changes need to occur before you will allow yourself to resume trading?

(b) At what level of intra-session drawdown will you force a stop for the day?

And longer term:

(c) At what level of drawdown will you force a break from all trading, in order to review your performance and reconsider your plan?

Happy trading,

Lance Beggs

PS: For those concerned that trading should never be a fight… it's simply an analogy that I find particularly useful. See here – http://yourtradingcoach.com/trading-process-and-strategy/trading-is-a-fight/ . The concept is still relevant even if you prefer to not view the game in this manner. If you're out of sync with the market, step away. Come back and play at a time of your choosing, when the conditions are more suited to your style of trading and your preference for market conditions.

 


 

Traps on a Retest of a Level

 

My normal trading times are between 09:30am and 12:00 midday US Eastern Time. You won't see many trades after midday because in my timezone that is 3:00am. It's time to complete my post-trading routine before getting some well deserved rest.

But occasionally circumstances allow me to push a little beyond this midday (3:00am) time limit.

This occurs ONLY in those times when (a) I'm feeling wide awake and alert, (b) the market is directional with smooth price flow, and (c) something is screaming out to be traded.

So that raises a good question. What exactly is something that is screaming out to be traded? Unfortunately that's difficult to define. Essentially it's a feeling. Let me explain.

The default option is to stand aside. Most setups I just leave alone. I'd rather get on with my post-trading routine.

But from time to time the market sets up in such a way that I just KNOW… I have to be in this trade. This one is so good. It's an A+ trade. An edge that is so obvious that I'd be a fool to miss it.

A trade which I'd rather enter and take a loss than miss the opportunity entirely.

Think carefully about that last statement if you're new to trading!

From a technical perspective though, they will almost always involve a trap of some kind.

You need to sense the blood in the water. Someone, somewhere, has got themselves caught. There is pain. There is emotion. And for me… there is opportunity.

Today… we get to see one of these trades.

A trap on a retest of a level. A setup that was screaming out to be traded.

<image: Traps on a Retest of a Level>

<image: Traps on a Retest of a Level>

<image: Traps on a Retest of a Level>

<image: Traps on a Retest of a Level>

<image: Traps on a Retest of a Level>

<image: Traps on a Retest of a Level>

<image: Traps on a Retest of a Level>

<image: Traps on a Retest of a Level>

NOTE: Complex pullbacks plus the strength/weakness analysis used in this example are all covered in the YTC Price Action Trader.

Happy trading,

Lance Beggs

 


 

Applying a Degree of Confidence to Price Targets

 

I don't care how good your analysis is. There are NEVER any certainties that a target will be hit.

So let's look at a little technique which can help your decision making during both the trade planning and trade management phases.

This article idea was prompted by some great email Q&A I received recently.

Let's start with the email question and response. I'll then expand upon part of my reply, as I think it's an important topic that deserves further discussion.

EMAIL IMAGES:

The email included a 30-minute Higher Timeframe chart. It's not reproduced here. It's sufficient to know that the higher timeframe is in an uptrend.

The following is the 3-minute Trading Timeframe chart showing the prior day in the left half and the current day to the right.

Click on the image if you want to open a larger copy in your browser… or just skip down lower to where I've zoomed in to the current session.

<image: Email Trade Image>

Let's zoom in now to show just the current session:

<image: Email Trade Image>

The question is quite clear from the text on the image, but just to be sure I'll include the email text as well:

EMAIL TEXT:

As per chart on 17th I was long on the days range low also the price was above the previous day close. So decided to go long on range low (865 with sl 862) as the major trend in 30min was in up trend. So I was right in my analysis however and kept my position open even though price hit the range high of the day with the expectation of reaching the target of 874. However it didn't went as per the expected and my SL got hit and post my SL hit , price went till 875 and hit achieved my TGT. Sir if I m wrong and my SL get hit I can understand that, however if I m right and my SL space is right and my Sl get hit and post that TGT is achieved . How to handle these kind of situation?

SO HERE'S THE SITUATION:

<image: Email Trade Expectation and Outcome>

I must say… I love the trade entry. From a YTC perspective it's aBOF of the low of day support, coinciding with the prior day's high resistance, in the direction of a longer-term uptrend.

Very nice trade idea!

The following was my response:

EMAIL RESPONSE:

You ask, "How to handle this kind of situation?"

There is no "situation" here. What has happened is completely normal in the markets. The nature of price is that it often involves tests, retests, probes, spikes and all manner of action that traps people and stops them out before going on to the target. This is completely common.

How I would handle it (accepting that this is hindsight analysis and I didn't actually trade this market):

(a) The market on this trading timeframe is ranging. You entered beautifully. But I would have taken at least partial profits at the range high. It's the nature of ranging markets that they will continue to range, until orderflow triggers the breakout. There are no certainties in the market. So while you identified a good target much higher than the upper range boundary, surely you MUST have in mind the potential for the range resistance to hold. In that case, take part of the position off.

(b) And then being stopped out on the remainder, why did you not get back in? There's a beautiful re-entry just after 14:00.

Look back through my site. There are numerous articles along the theme of sometimes trades take multiple attempts. Here's one of the recent ones – http://yourtradingcoach.com/trader/how-i-think-on-trade-exit/

Sometimes a trade takes two attempts!

LET'S EXPAND UPON ONE KEY POINT

This is the point of today's article.

As mentioned earlier… I don't care how good your analysis is. There are NEVER any certainties that a target will be hit.

So here's a little tip which can improve your decision making regarding targets. After selecting your target, apply a degree of confidence.

For the example above, instead of saying "the price target is 874", the trader might have said "the price target is 874, with a 70% degree of confidence".

Or whatever other percentage they thought was appropriate.

The thing is – it's NEVER 100%.

In fact, I'd go as far as to say you should never select more than maybe 80%.

How does this benefit you?

It forces your mind to accept the possibility that the target may not be hit. If we selected the target with a 70% degree of confidence, then this means there is a 30% chance it won't be hit. So in planning out the trade we might consider alternate IF-THEN scenarios involving possible exits at the range highs, should they fail to break.

Give it a try. See if this helps improve both your trade planning and your subsequent trade management decisions.

And for more advanced application… continue to update that degree of confidence as more data unfolds in real-time.

Good trading,

Lance Beggs