Category Archives: Trading Business

Trading Business – In this category we explore the business side of our trading endeavour. This includes topics such as: (a) Market and timeframe selection, (b) trading procedures – pre, during and post-session, (c) The journal and review processes, (d) Money Management, (e) Risk Management, (f) Hardware and Software, (g) The office environment.

Managing Trading Decisions with Simple Compliance Checks

 

I want to share a simple process used by a reader in addressing a recurring problem in his trading. I was happy to see him use this approach, because it references a post-session technique I shared quite a few years back.

And perhaps it will be useful to you as well, in ensuring compliance with any changes you wish to make to your trading.

Problem:

With-Trend (WT) trades were providing positive stats but he was consistently giving too much back through his Counter-Trend (CT) trades. The CT trades show some promise so he's not quite willing to abandon them entirely. But he wants to cut back on the number.

So here's the plan:

(a) No CT trades unless the daily P&L is positive.

(b) Aim to ensure that there are more WT trades than CT trades.

The plan for this month is to ensure 100% compliance. Item (a) will avoid his tendency to dig himself into a hole occasionally in fading a trending market. And item (b) will ensure that he is trading (more often than not) in the direction that "should" offer the most opportunity.

One month only. Then reassess.

In particular item (b) because he does recognise that some days are quite rotational and may be better suited to CT trading.

But that's for the future. For this month, 100% compliance. And let's see if that provides improvement to the trading results.

Implementation:

Pre-Session:

  • Reading the plan and making a verbal declaration of intent to comply with both items.

 

In-Session

  • A single sheet of paper with two columns – WT and CT. Place a checkmark after each trade. The aim is to ensure more checkmarks in the WT column than the CT column.

 

Post-Session

  • Addition of two Compliance Check questions to his post-session routine.
    • (1) Were any CT trades taken with P&L at or below zero? If so, why?
    • (2) Did the WT trades outnumber the CT trades? If not, why not?
  • Marking up a calendar with a large green tick if he complied with both items.

 

The use of the calendar is something we discussed here – http://yourtradingcoach.com/trading-business/dont-break-the-chain-a-simple-tool-to-improve-consistency/. The original discussion aimed to ensure consistency in completing each part of your daily routine. What he is doing differently is using this same technique to ensure compliance with desired changes in his decision making. Effectively, using it as a reward or punishment system to guide and shape changes in the way he trades.

I also love the use of green ticks rather than the red crosses we used in the original article. Green ticks provide a more "positive" reinforcement than red crosses.

At Month End:

  • Review the outcome, ideally achieving both WT and CT profits, but at the very least ensuring that CT losses are somewhat contained and do not completely erode the WT profits.
  • Assess the effectiveness of the plan in making positive changes to the trade results.
  • Continue or amend, as required.

 

It's Your Turn to Take Action:

What trading behaviour do you need to reinforce on a daily basis? Is there something you know you need to change, only to find yourself repeating the old behaviour over and over again?

Consider trying a similar process, as described above. Just for a month.

Pre-Session declaration of intent. In-Session tracking to manage your decision making. Post-Session confirmation of compliance and a visual reward system to track your progress.

See if you can keep those green ticks going for the whole month!

It only adds a couple of minutes to your trading routines. But if it can help to reshape your behaviour away from destructive practices, then the benefits could be priceless.

<image: Managing Trading Decisions with Simple Compliance Checks>

Happy trading,

Lance Beggs

 


 

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

 


 

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

 


 

What if you Redefined your Primary Role as a Discretionary Trader?

 

Most discretionary traders see their job like this:

<image: What if you redefined your primary role as a trader?>

What if you switched this around a bit?

What if you redefined your job as follows:

<image: What if you redefined your primary role as a trader?>

Is it possible that relentless focus and commitment to the processes and routines which guide your decision making and behaviour… might just see improvement in the actual trading results?

This doesn't mean we're no longer discretionary traders. Discretion can be built into processes. But how we come about our trade decisions, is standardised and made as consistent as possible.

The following post was shared recently on social media:

<image: What if you redefined your primary role as a trader?>

Essentially, we're expanding upon this idea.

For each of the areas listed in that post, we aim to:

  • Seek excellence in development of routines and processes for carrying out that role, and
  • Seek consistency in implementing the routines and processes.

 

It's said, "That which is measured, improves".

But ONLY if that which is measured is applied consistently.

And consistency will only occur if the process is clearly defined.

So maybe consider a little shift in how you define your role as a trader.

Primary role: Development, out-of-session, of world-best routines and processes for (a) finding and exploiting edge, and (b) reviewing and driving growth.

Secondary role: Trading, for the purpose of implementation, validation and testing of the routines and processes, defined above.

Happy trading,

Lance Beggs

 


 

Thoughts Leading into the New Year

 

My performance last year… NO LONGER MATTERS.

WHAT MATTERS… IS WHAT I DO RIGHT NOW!

I am scheduling time during my Christmas and New Year break for three major areas of focus:

1. REST

I don't yet know the challenges that I'll face in the new year, but I know that I will be ready.

As the opening bell rings on day one, I will be primed for peak performance.

Physically, mentally and emotionally recharged.

Confident, alert and FOCUSED.

2. REVIEW

I don't yet know the market conditions that I'll face in the new year, but I know that I will be ready.

And I will have learnt from the lessons of the past.

My performance and process reviews will have identified both successes and failures.

That which I did poorly… I'll know exactly how to improve.

And that which I did well… I'll know exactly how to do better.

3. PREPARE

I don't yet know the price sequences that I'll face in the new year, but I know that I will be ready.

Clearly defined goals.

Clearly defined routines.

All set for quality decision making and process-driven focus, no matter what the markets throw at me.

Rest… review… and prepare!

When the new year comes… I'll be ready.

Will you?

Lance Beggs

<image: Rest - Review - Prepare> 

 


 

The Counter-Intuitive Path to Trading Success

 

I recently received an email from a YTC reader with an incredibly important insight into trading success.

Here's an extract from the email:

Hi Lance,

I heard this recently while watching football.

It's not how many great plays you make, it's how few bad plays you make.

I immediately emailed this to myself because it is so applicable to trading. I know where the good places are to trade, but the key is waiting for price to get there and not "forcing" a trade.

It also ties in well to your Facebook posts last week and the latest blog article.

Here is the full quote I found online:

"Like I always say, it's not how many great plays you make; it's how few bad ones you make. I know fans, and even some losing coaches, are enamored with long pass completions or the great run plays, but that doesn't offset the interception or the fumble."… Jimmy Johnson 

Excellent!

I love it!

This is absolutely 100% applicable to trading.

It's the counter-intuitive path to trading success.

Reduce the number of bad trades.

How do we do that?

1. We limit our trading to our best setups only.

Get absolutely clear on what an A+ trading opportunity should look like. And then cut out anything that doesn't meet these strict requirements.

Define the context. Where will these trades be found within the wider market structure? Now limit trading ONLY to those places on the chart.

How should price be moving (speed, volatility, smoothness)? Define your ideal conditions and put in place controls to ensure you trade ONLY when those conditions are in play.

2. We have a predetermined plan for execution.

Now that we're limited to trading only within an ideal context (market structure and price conditions), you need to be completely clear on how you execute and manage your trade opportunity.

Consistency in execution requires standard default plans with regards to sizing, entry triggers, stop and target locations. Plus any additional techniques which might be relevant to your style of trading, such as when you will scale in or out, or under what conditions you will re-enter if stopped out. Your decisions may involve some discretion. That's fine. But this discretion should be built into your standard management plan.

You need to know what to do… and when to do it. No hesitation. 

3. We monitor our performance to identify and reduce errors.

Track everything! If you make an error or poor decision, record it.

Look to your longer term stats during your weekly or monthly reviews. If you find something repeating over time, then that is cause for celebration. You have found a way to improve your edge. Find a way to cut out the error, or at least reduce the likelihood or frequency of occurrence.

<image: Track Your Errors>

Image: Error tracking via the Trading Journal Spreadsheet!

It's not how many great plays you make, it's how few bad plays you make.

Along the same lines, but for those who are not into sport and perhaps relate more to art, I saw this quote recently which I quite liked:

"The sculpture is already complete within the marble block, before I start my work. It is already there, I just have to chisel away the superfluous material."… Michaelangelo

Trading success is already there.

It's just hidden beneath all the errors and poor decisions. We just need to chisel away at them, getting rid of the bad trades and poor decisions, and allow the underlying success to reveal itself.

Trade well,

Lance Beggs

PS. See here also for the same theme – http://yourtradingcoach.com/trading-business/are-you-closer-to-profitability-than-you-thought/

 


 

Slow, Steady, Incremental Progress

 

Excerpt from an email from J.L.

  • Finally, do you have any articles that could be helpful going from sim to live?

 

Let's write one now…

Do NOT rush.

The markets will always be there, ready and waiting for when YOU are ready.

The journey takes as long as it takes. And the psychological challenge is different at each level of risk.

So aim for slow, steady, incremental progress.

Let's break the journey into stages, noting that this is for discretionary traders. Systems traders will use a different process.

 

Stage 1 – Historical Chart Study

Stage 1 involves study of past data in order to achieve the following two aims:

  • Understanding the strategy – HOW to trade it and WHY it should work.
  • Confirming potential for edge through study of historical chart sequences.

 

This stage takes as long as you need it to take, until the point at which you you understand the strategy and believe it has potential for edge.

The key word above is "potential". Any edge you perceive through historical study is only a potential edge. It needs to be proven at the hard right-hand side of the screen, with real-time data. This will be done in the following stages. For now – just confirm that all evidence appears to show edge.

The more thorough your work at this stage, the greater the likelihood that you'll not be wasting your time in the following stages with a strategy that does not offer any real long-term sustainable edge.

 

Stage 2 – Simulation – Proving Edge

Stage 2 involves operating the strategy in a simulated environment in order to confirm the edge is real.

Some people are tempted to skip this stage, through concern that a simulated environment does not offer the same psychological challenge of a live environment. But that is exactly the reason why you should start on the sim – keep it simpler. Why risk actual funds when the edge is not yet proven. Take the time to prove the edge in the simpler and safer environment, without this higher degree of psychological challenge. Then, once proven, you can advance to the live environment with a greater degree of confidence in the strategy and your ability to trade it.

Slow and steady!

Incremental progress!

We will be analysing our trade performance in groups of trades. So you need to start by determining a suitable group size for analysis of stats, ensuring that groups will contain no less than twenty trades. It doesn't really matter whether your groups contain a variable number of trades (perhaps weekly groups, or daily for more active traders who complete dozens per day), or whether your groups contain a fixed number of trades (20 or 50 or 100 trades). Pick something that makes sense for your frequency of trading. Just ensure it's no less than 20 trades. And be consistent.

Trade a complete group, recording your individual trade results in your Trading Journal Spreadsheet. While trading a group your concern is not profitability but rather consistency of process and quality of execution. Your trading should be carried out with minimum size, simulating the EXACT processes you will follow when you first transition to the live environment.

Only when the whole group is complete should you concern yourself with performance. Analyse the stats for the group, in particular the win percentage and win/loss size ratio. Confirm whether you have proven edge across this sample of trades.

If edge is not proven, determine which group statistic is underperforming. And then study the component trades to identify (a) one potential cause of this underperformance, and (b) a plan to improve performance over the next group. Now document the changes and start again with the next group.

If edge is proven, congratulations. Now do it again.

Repeat the process until you can prove edge in terms of profitability and consistency, maybe five times in a row. Only then should you consider transitioning to a live environment.

 

Stage 3 – Live Environment – Proving Edge

Stage 3 takes you live, with the ABSOLUTE MINIMUM exposure to risk that your strategy and your market allows. That is, the smallest position sizes possible.

The aim is to trade in exactly the same manner as just carried out in the simulated environment. The only change should be live execution and the additional psychological challenge of having money at risk.

Be completely clear regarding your maximum acceptable drawdown during this stage. And commit to dropping back to the sim again, should this limit be hit.

Slow and steady!

Incremental progress!

Performance will again be assessed in groups of trades, using the same group size as when sim trading.

Trade a complete group, recording your individual trade results in your Trading Journal Spreadsheet. While trading a group your concern is not profitability but rather consistency of process and quality of execution.

Only when the whole group is complete should you concern yourself with performance. Analyse the stats for the group, in particular the win percentage and win/loss size ratio. Confirm whether you have proven edge across this sample of trades.

If edge is not proven, determine which group statistic is underperforming. And then study the component trades to identify (a) one potential cause of this underperformance, and (b) a plan to improve performance over the next group. Now document the changes and start again with the next group. If performance is completely unacceptable then consider dropping back to the sim.

If edge is proven, congratulations. Now do it again.

Repeat the process until you can prove edge in terms of profitability and consistency, maybe five times in a row. Only then should you consider increasing risk.

 

Stage 4 – Live Environment – Improving Edge

Stage 4 is a never-ending process of stretching yourself to new levels of performance.

Identify the change you wish to make, ensuring that it is in ONE PART of the process.

The obvious example here is an increase in size. Make it a small and incremental increase.

But this may also be any changes to process. Keep it small and incremental. One change at a time.

Performance will again be assessed in groups of trades, using the same group size as in previous stages.

Trade a complete group, recording your individual trade results in your Trading Journal Spreadsheet. While trading a group your concern is not profitability but rather consistency of process and quality of execution.

Only when the whole group is complete should you concern yourself with performance. Analyse the stats for the group, in particular the win percentage and win/loss size ratio. Confirm whether you have proven edge across this sample of trades.

If edge is not proven, determine which group statistic is underperforming. And then study the component trades to identify (a) one potential cause of this underperformance, and (b) a plan to improve performance over the next group. Now document the changes and start again with the next group. If performance is completely unacceptable then consider rolling back the changes in order to return to something that was working, before again attempting change at some point in the future.

If edge is proven, congratulations. Now do it again.

Slow and steady!

Incremental progress!

Two final points here.

Firstly you should never completely trust an edge. Maintain constant vigilance. Continue to monitor the stats for your groups of trades, in order to confirm not just profitability but also some degree of consistency from group to group.

And secondly, if you're not growing as a trader, then the problem is that your review processes are not driving any growth. Fix your review processes.

<image: If you are not growing as a trader, this is the problem...>

Best of luck with your journey.

Remember, there is no hurry.

Slow and steady!

Incremental progress!

Lance Beggs

 


 

30 Days to Becoming a Better Trader

 

Before departing on holidays recently I preloaded Facebook and Twitter with 30 posts to help improve your trading business.

And it seems that people loved them. I had a few requests to put them all together in one group.

So here they are. (Also in PDF form here if you prefer – http://www.yourtradingcoach.com/products/ebooks/30-days-to-becoming-a-better-trader.pdf)

They're all quite simple. Just 30 questions to get you thinking about your trading business. If something catches your attention, explore the idea deeper. It might lead nowhere. But it might also lead to improvements in process or even new sources of edge.

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Happy trading,

Lance Beggs

 


 

You’re Fired!

 

I recently sent out the following social media post:

<image: You're Fired!>

This was my favourite reply:

<image: You're Fired!>

Ha ha! Awesome.

All jokes aside though, I think this is just so important. I feel we need to discuss it in greater detail (and get it out to thousands of you via the newsletter, rather than just a few hundred via social media).

That is what we are aiming to achieve – consistent, high-quality implementation of processes on a day-to-day basis.

So, here is the original post again:

If you employed someone to trade your money for you, would you be happy if they prepared for today's session the same way you just did?

Let's extend that idea to all aspects of our daily operations. (Of course, adapt as required to suit your business.)

  • Would you be happy with the way they prepared themselves physically and mentally for the upcoming session?
  • Would you be happy with the way they analysed charts in preparation for the upcoming session?
  • Would you be happy with the degree of focus they applied during the trading session?
  • Would you be happy with the consistency they applied to following any workflow cycles throughout the trading session?
  • Would you be happy with their ability to follow your analysis and trade checklists or routines throughout the trading session?
  • Would you be happy with the way they documented their trade outcome and performance.
  • Would you be happy with the way they reviewed their daily performance and planned for improvements the next day?

 

NOTE that none of the above is concerned with the outcome of trades. Win or lose is irrelevant in this case. I'm concerned here ONLY with how well your employee is implementing your daily processes and routines. If they're providing quality implementation and the results continue to be poor, then that is on you (the employer). You need to provide your employee with an improved plan. For today though, our concern is only with how well they are carrying out your current plan.

You may wish to consider adding a step to your post-session routine, for you (the employer) to grade your trader in all aspects related to quality, consistent implementation.

<image: You're Fired!>

Update daily. Improve daily.

And most importantly, watch for problems which continue to appear on a regular basis. They will need priority attention.

Now, accepting that most of us are both the employer and employee, let me finish with an important point. 

Do not be overly critical of yourself. You need to be as positive and encouraging as possible. But you MUST set clear boundaries as to what IS and IS NOT an acceptable standard of behaviour and effort. And work to improve daily.

Happy trading,

Lance Beggs