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.

If you are not growing as a trader, then this is the problem…

 

I received the following message via social media late last year.

  • I am frustrated. Despite all knowledge on stock analysis, momentum indicators, writing journal I make losses. Whereas I know person with nothing of these making huge profits everyday. She goes and buy stock and it would fly higher. When she sells stock would go down. I am beginning to believe in luck.

 

This was my immediate reply:

 

We've covered this topic several times over the last couple of years but I continue to see evidence that more work is required.

Let's examine my response in a little more detail.

First, my writing was "lazy" in suggesting that success is not a result of knowledge. Nor of simply working hard.

Of course, there is some level of knowledge required. And of effort.

I simply made an assumption that the trader had reached adequate levels of both knowledge and effort. Perhaps this is wrong. I have no idea. They mentioned the stock market, but I have no insight into their strategy, their level knowledge, nor their levels of skill.

However, regardless of this deficiency in my reply, the last part is the key.

  • 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.

 

Frustration for someone already possessing the necessary knowledge and effort, will typically be a result of deficiency in strategy, processes or skill.

Regardless of the cause, an effective review process will make this clear.

Ensure your trading process captures sufficient data to provide meaningful feedback.

Ensure your review processes adequately assess this feedback in order to understand the cause of the current results and identify potential areas for growth.

Growth requires an effective feedback loop.

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

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

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.

Ensure your trading process captures sufficient data to provide meaningful feedback.

Ensure your review processes adequately assess this feedback in order to understand the cause of the current results and identify potential areas for growth.

Happy trading,

Lance Beggs

 


 

So When Should You Quit?

 

Over the ten years that I've been running this site, I've chatted with quite a few traders on the verge of quitting out of frustration.

In the last month, there have been two. And for both, as for everyone before, I've offered an alternate plan.

Because I don't think frustration is a valid reason for quitting.

For me, there are only two reasons to quit.

Firstly, because of unacceptable threat to relationships, finances, health or lifestyle. (And even then, quitting might just be temporary while these things are put back in order).

And secondly, because the passion is completely gone.

So I thought this might be worth documenting on my website (via this article).

In two parts:

(1) Before you continue on this journey, do this one thing…

Spend some time alone or with your partner and get absolutely clear about this:

  • What are you NOT WILLING to risk losing?

 

Trading DOES pose a threat to relationships, finances, health and lifestyle.

What are you not willing to risk losing?

Document it. Put in place strategies to protect it as much as possible. Define a clear "stop trading" point. And constantly monitor.

If your "stop trading" point is hit, stop trading. Protect what is more important.

For most of us, trading is not an end-goal but rather just a means to provide other benefits. There are other ways to achieve these benefits. Find another path which poses less risk to that which is most important in your life.

(2) Before you quit out of frustration, do this one thing…

Burnt out? Exhausted? Tired? Frustrated?

Completely lost?

Ready to quit?

Fine. It's not for everyone.

Perhaps your path is elsewhere.

But first, here's another idea.

Maybe burnt out is not necessarily an "end-state" but rather a feeling that we get when stuck at some particular stage along the journey.

And if it's just a feeling, then this means there is more journey ahead. We just can't see it right now.

So rather than quit, what if you instead let the emotion and pain subside. And then made your decision with a clearer mind.

Try this plan instead:

  1. Take some time off. Minimum three months. Completely free from all contact with the financial markets and financial media. Ignore all social media from traders. Ignore all email newsletters (including mine).
  2. Then, consider whether or not you want back in.

 

You'll know after a break from trading whether or not the passion remains.

If not, if there's nothing there but dread, you'll know you're making the right decision. Never look back. Surrender yourself to the possibility of new beginnings and new adventures ahead. Your path is elsewhere. Find it.

But if you find something inside screaming in excitement at the idea of getting back into the game, that's fantastic.

Start again. Start smarter.

Burnt out is not necessarily an "end-state". It's just a feeling that we get when stuck.

And it's not the time to be making critical life decisions. Take some time out. And reconsider with a clear mind.

I've recommended this extended break to quite a few traders. Some have contacted me after the three-month break. More often than not they're feeling refreshed and excited about a new start to the game.

But there have been some who found the opposite. They're grateful for having had the break and allowing themselves the chance to reassess. But also incredibly relieved to see that quitting is the right decision. They know with 100% certainty that trading was not the path for them. And they now look forward with excitement as new opportunities open up in front of them.

Take a break. And then reassess. You'll know for sure whether or not the passion remains.

Best of luck,

Lance Beggs

 


 

Why You SHOULDN’T Get Anyone to Review Your Trade

 

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

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

 

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

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

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

Why?

Not because I don't want to help.

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

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

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

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

Everyone is unique.

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

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

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

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

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

Have a guess what my immediate thoughts will be.

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

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

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

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

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

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

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

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

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

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

But that's fine.

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

Let me share with you a better plan.

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

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

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

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

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

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

<image: Breakout Failure Entry>

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

– – –

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

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

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

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

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

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

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

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

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

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

Perhaps here as well:

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

So here's a better plan:

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

 

This is the path.

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

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

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

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

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

So take 20 trades and examine the stats.

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

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

I hope that helps.

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

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

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

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

Happy trading,

Lance Beggs

 


 

3 Methods to Manage a Negative Expectancy Setup

 

Let's start by assuming that you are tracking your trade results and compiling stats to drive further growth and development. (See here if you're not!)

What do you do when you discover one part of your trading plan consistently underperforming?

It might be one particular setup.

It might be one particular type of market environment.

Or it might be any other subset of your trading plan which you're tracking through your spreadsheet.

Either way, that subset of data is providing a negative expectancy and damaging your overall edge.

You need to take action.

Common advice is to just drop that part of your trading. But it's not the only option.

In general risk management theory there are five methods for dealing with negative risk.

<image: 3 Methods to Manage a Negative Expectancy Setup>

Let's scrap the last two as they're not really appropriate to our situation.

Option 5, accepting the risk, is not a solution. It's negatively impacting your edge. Even if this is more than adequately overcome by the remainder of your trading, this is not something we're willing to accept.

And option 4, transferring the risk, would be something like trading other people's money. Again, not applicable in this case, as it doesn't really solve our problem.

So that leaves us with three options.

<image: 3 Methods to Manage a Negative Expectancy Setup>

 

Option 1, avoid the risk, is the common advice.

Just stop doing it.

<image: 3 Methods to Manage a Negative Expectancy Setup>

Simple. And effective.

Avoid the risk entirely by just avoiding these sequences.

But it's not the only option.And often we just "know" there is potential within that negative expectancy performance. Somewhere. We just have to find it.

So let's look for additional options.

Option 2 allows us to continue trading these sequences, but not all of them. 

<image: 3 Methods to Manage a Negative Expectancy Setup>

We still want to trade. But we don't want to trade them all. So let's see if we can filter out the marginal trades, leaving only those A+ trade opportunities.

Dig deep within the stats and data for this setup. There may well be certain conditions which provide a positive expectancy.

This will allow you to continue trading live, but with a smaller frequency. Only trading this setup when these specific conditions are met.

Or if you are absolutely sure that you can develop skill over time, to take your negative expectancy performance into positive expectancy territory, then option 3 might best suit your needs.

Option 3 allows you to continue to trade as before, but in a way that is much safer and has less negative impact upon your edge.

<image: 3 Methods to Manage a Negative Expectancy Setup>

The extreme case here would be to trade these sequences in sim mode, rather than with live funds. Track your sim results separate to your live results.

But you might also prefer to simply cut position sizes. Markets such as spot forex offer significant flexibility here, with the ability to trade right down to the micro-lot level.

Positive edge sequences can continue to be traded at normal size. Those sequences which are currently showing a negative edge should be traded at reduced size.

An example:

Through tracking your stats you find that you "mostly" have a positive edge in your trading.

Except in one particular market environment, in which you find yourself repeatedly trying to fade the market.

It's one of those situations where you get it right often enough to sense you have potential in this environment. But get it wrong often as well and end up taking a positive session to your daily drawdown limit.

The end result with these sequences is a negative expectancy over time.

NOT COOL.

Here's an example of what we're dealing with. In this case, a strong and persistent trend with low volatility (small, shallow pullbacks).

<image: 3 Methods to Manage a Negative Expectancy Setup>

Let's examine the three options:

<image: 3 Methods to Manage a Negative Expectancy Setup>

 

Option 1: Avoid the risk

Simple.

Determine clear and objective rules to confirm this type of trending environment.

And when that triggers, either:

(a) Limit trading to the with-trend direction only.  (Duh! Seems like the obvious solution, right!)

or

(b) If there is some reason why you prefer not to trade with-trend, then stand aside.

 

Option 2: Reduce the Frequency of Occurrence

Dig into your stats. Examine all occurrences of counter-trend trading within a strong, persistent, low-volatility trend.

Is there a subset of trades within this data which DOES offer a positive edge?

Second chance entries perhaps?

Trap entries?

Entries which involve size traded at the extreme high?

There may be nothing there. But if there is, FIND IT.

Determine clear and objective rules to confirm this type of trending environment.

And then only trade the positive expectancy subset. Of course, continuing to track results to confirm this positive expectancy continues into the future.

 

Option 3: Reduce the Severity of Occurrence

You believe there is potential with these trades. You don't want to trade them on sim, because you feel you need some "skin in the game".

Fine.

Keep trading.

Determine clear and objective rules to confirm this type of trending environment.

And cut the position size to a fraction of your normal size.

Continue to track results and work to improve over time.

Option 1 is of course the simplest. And it provides a very quick solution. But it's not the only option. In discussion with traders who are fighting against a negative expectancy setup or environment, I find they're often unwilling to give it up. That's fine. There are other options. Dig deeper to find a more highly selective setup, which does offer a positive edge. Or cut size and continue to "more safely" build skill and expertise.

Best of luck,

Lance Beggs

 


 

EDIT: From a discussion with another trader on twitter it appears I did not make the following point clear enough. The intent of reducing size (option 3) is to allow you to continue trading more safely WHILE determining why it’s a negative expectancy and turning that around to positive. There is no point just reducing size if you do no further work on attempting to correct the issue. Simply reducing size on a negative expectancy setup will still provide a negative expectancy, albeit smaller. You MUST continue to study the problem. Identify the cause. And correct it. Then work to slowly and incrementally increase size again, as success is proven at each level. The problem may be contextual. It may be an execution issue. Whatever it is, reduce size so that any negative edge can be easily absorbed within your other results, and then work to fix the problem.

 


 

That is a LONG TIME to be without Internet

 

Thursday 16th March to Friday 2nd June!

That is a LONG TIME to be without Internet

Yes, that’s how long I was without any fixed line Internet at my house.

But that’s what you get when the Government monopolises the internet infrastructure!

Aussie readers, AVOID THE NBN as long as possible.

So thankfully I was prepared and had my backup mobile broadband system in place, ready to take over and keep me trading (albeit with reduced size due to concerns over stability).

Granted, the backup system was only ever expected to be a short-term measure, put in place for short-term outages. Not 11 weeks. But it performed well and did the job it was meant to do.

So… the task for you this weekend…

  • What is your backup plan in the event of internet failure? How quickly can you get back online to manage (or close out) any positions?
  • What is your backup plan in the event of long-term internet failure? How will you manage to continue trading?

 

And if you feel up to it, consider other system failures as well:

  • What is your backup plan in the event of computer failure?
  • What is your backup plan in the event of power failure?
  • (Repeat for any other system your business relies upon!)

 

Happy trading,

Lance Beggs

 


 

How to Kick-Start Your Growth and Development

 

If your progress has stalled in any way, it is just SO IMPORTANT to realise the following truth:

Progress comes from your growth and development plan, not from your strategy.

This just won't work:

The typical failed process

Hoping, wishing and praying doesn't work.

Just trying harder doesn't work.

You need something ACTIONABLE.

Let's fix it NOW:

STEP ONE: Implement a growth and development plan based upon GROUPS OF TRADES.

Here is the concept. Review the following articles:

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

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

(c)  http://yourtradingcoach.com/trading-business/you-can-do-this/

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

(e)  http://yourtradingcoach.com/trading-business/before-making-changes-to-your-strategy/

A GROUP OF TRADES Growth and Development Process

Also… any changes you're making…  consider making them the stretch goal for your next group.

See here – http://yourtradingcoach.com/trading-business/stretching-to-the-next-level/

A stretch goal - just a little stretch beyond current capabilities

Most importantly, major process changes can only occur at the end of each group. And they must be based upon proper review and analysis of your group stats and journal entries.

STEP TWO: Intra-group, monitor daily to ensure consistent implementation of your process.

No major process changes occur here.

Only tweaks or minor changes to how you execute your processes.

A daily review to improve implementation of your processes

Now move the response to question three to tomorrow's pre-session planning.

Remember:

Progress comes from your growth and development plan, not from your strategy.

If you're not progressing, then something HAS TO CHANGE.

Something actionable.

Something concrete.

Between groups, you MUST identify a concrete, actionable improvement to process.

Within groups, you MUST monitor consistency in implementing process, and tweak as required to improve implementation.

Hoping, wishing and praying that somehow this time it will be different, doesn't work.

Just trying harder, doesn't work.

Find something REAL that you can implement.

It won't always be easy. In fact it will rarely be easy. But damn it, you can't progress by just continuing on the same treadmill.

Fight to find an actionable change that progresses you in the right direction. Implement it. Repeat.

You can do this, 

Lance Beggs

 


 

An Exceptional Example of Historical Chart Study

 

Today I want to share with you some examples of the work done by Johnny, as he learns to read and trade the charts as taught in the YTC Price Action Trader ebook series.

Chapter 17 of Volume 5 of the ebook series provides a graduated development plan.

Before you trade live you must prove success on the sim.

And before you trade on the sim, you must ensure complete understanding of the analysis and trade concepts via historical chart study.

Johnny is working through that first stage, through detailed study of prior sessions in his chosen market (YM) and timeframe (3 minute TTF, 1 minute LTF).

His work so far is of the HIGHEST STANDARD. So much so that I absolutely had to seek permission to share it.

If you're just starting out in your journey as well, whether with my strategy or with one you developed yourself, set Johnny's work as the benchmark that you try to also achieve.

Imagine doing this for 100 prior sessions, before you even hit the sim. Yes, there are completely new challenges at the hard, right hand edge of the screen. But you'll be tackling those challenges with complete confidence in knowing what it is you're looking for. And more importantly, why!

The following charts have been compressed in size in order to fit on the webpage. If you click each image it will open a larger copy in a new browser window.

You'll note that they all examine the exact same price sequence, from a number of different perspectives – (a) Trend Assessment, (b) Clues and Observations, (c) Changes in Sentiment, (d) Changes in Structure, and (e) Setup Areas.

I hope you get great value out of this. If it inspires even just one of you to improve the quality of your own learning, this will have been a massive success. Thanks Johnny!

Enjoy…

 

TREND

An Exceptional Example of Historical Chart Study 

CLUES AND OBSERVATIONS

An Exceptional Example of Historical Chart Study

CHANGES IN SENTIMENT

An Exceptional Example of Historical Chart Study

CHANGES IN STRUCTURE

An Exceptional Example of Historical Chart Study

SETUP AREAS

An Exceptional Example of Historical Chart Study

LOWER TIMEFRAME CHARTS  (note: there is some overlap from one chart to the next)

An Exceptional Example of Historical Chart Study

An Exceptional Example of Historical Chart Study

An Exceptional Example of Historical Chart Study

An Exceptional Example of Historical Chart Study

 

Happy trading,

Lance Beggs

 


 

It is NOT your job to win on any particular trade!

 

Before you can consistently win, you're going to have to learn how to lose really well.

That is…

  • Completely accepting losses as a normal part of the game.
  • And containing the damage to pre-accepted limits.

 

This has been one of my favourite themes of the last year or so. Let's go over it one more time.

It really is that important!

Here's an extract from an email discussion I had on Wednesday with another trader in response to a really challenging sequence of price action.

(5) This point may not be a problem for you. You might understand it completely. But in my experience, while the vast majority of "developing" traders say they do understand this, the reality is that very few traders actually do REALLY GET it at a deeper level. Their actions and decisions prove they don't get it. And often when I'm sent an email asking "why didn't this trade win", it's obvious that this is the case – they don't really understand the game.

It is not your job to win on any particular trade.

It is your job to identify opportunity that contains edge. And to take it and manage it well. Some will win. Some will lose.

Our aim is not to profit on any particular trade. But rather to profit over a series of trades.

Feel free to define a "series of trades" based upon whatever number you consider provides a sufficient sample size. For the sake of this email, let's assume it's 20 trades, which is the absolute minimum I'd consider as sufficient.

So we aim to profit over 20 trade groupings. Within each group there will be some winners. There will be some losers. Both are absolutely fine. They're meant to be there.

And in fact, there will likely be strings of losers, from times when either the market environment was not optimal. Or our decision making was suboptimal.

Again, that is completely normal.

So our decision making pre-entry should be in confirming that (a) the trade idea has edge, and (b) regardless of whether it wins or loses, it's a trade that we really want contributing to our 20 trade sample.

And during the trade management stage, at the forefront of our mind is always the thought about whether or not we still want this contributing to our 20 trade sample.

The reason for bringing this up, is because the interaction with S/R that you have provided in your example, is rather messy. We don't know that will be the case until after the fact, when we can view the charts with the benefit of hindsight. But it's not unusual in messy price sequences to end up with two, or maybe even three losses or scratched trades. This is completely normal. And it should be absorbed within the 20 trade sample, with other better sequences providing sufficient profits to overcome them.

This is also why I will typically only limit myself to two attempts at a trade idea. Three at most (if the prior losses are less than 1R each). If after these 2-3 attempts, I've not captured a good entry, then I'm clearly not reading the market well. Stand aside. And wait for the structure to change. If one further entry would have been sufficient to capture the planned move, and it now occurs without me, so be it. It wasn't mine to catch. Let it go and move on to the next.

 This is VERY IMPORTANT. In fact, key to success. ALWAYS be thinking about the larger sample of trades. Is the current trade one you want contributing to the sample? And if it's one of the losers, keep it small so that it can be easily overcome. And if it's one of the winners, work to take as much out of it as you can.

 

There is no need to review the sequence from that email.

Let's instead look at a few trades in the first hour on Tuesday.

Trades in which there is nothing particularly special. They're just normal run-of-the-mill trades.

Some lose. Some win.

It is not your job to win on any particular trade.

It is not your job to win on any particular trade.

It is not your job to win on any particular trade.

It is not your job to win on any particular trade.

It is not your job to win on any particular trade.

Let's look at the two losses…

It is not your job to win on any particular trade.

It is not your job to win on any particular trade.

Here's the plan:

KEEP THE LOSSES SMALL.

CONTAIN THE DAMAGE.

SO THAT IT ONLY TAKES ONE OR TWO SMALL WINNERS TO MORE THAN MAKE UP FOR THEM.

It is not your job to win on any particular trade.

It is not your job to win on any particular trade.

It is not your job to win on any particular trade.

Before you can consistently win, you're going to have to learn how to lose really well.

That is…

  • Completely accepting losses as a normal part of the game.
  • And containing the damage to pre-accepted limits.

 

Stop worrying about profiting on every single trade.

Aim instead to just manage them well.

And seek to profit over a larger SERIES of trades.

Happy trading,

Lance Beggs

 


 

Before Making Changes to your Strategy, Ask These Questions…

 

We're one week into the new year. Are you already trying to tweak your strategy, or your trading process, based upon a bad session or two?

Before making changes to your strategy or process, ask yourself the following questions:

1. Is the change the result of deliberate analysis of past performance, in order to improve upon a recognised deficiency or to further enhance a current strength?

A Deliberate Process

2. Or is the change a result of looking at a few different indicators or settings and thinking, "This might be a good idea"?

I know it will work this time!

It better be the first one!

If not, the major problem is not with strategy, but with your growth and development process. Yes, the strategy may well need further work. But without an effective growth and development process you'll likely never find the right solution.

Let's fix it now.

First, review this article – http://yourtradingcoach.com/trading-business/dont-break-the-chain-a-simple-tool-to-improve-consistency/

We're going to use this method to try to force some consistency. But with a tracking sheet designed just for this purpose.

Right click to save a PDF copy

(Larger copy: http://www.yourtradingcoach.com/products/ebooks/consistency-tracker.pdf)

And second, commit to a better process.

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

Print out the article if necessary.

And take action.

A Deliberate Process

Your trading success requires consistency in application of your plan… and an effective process for driving growth and development.

You can do it!

Happy trading,

Lance Beggs