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.

The Good, The Bad and The Ugly!

 

Here is another way to track and review trades… with a classification system that makes it a little bit of fun!

During your post-session review you classify them into one of three categories:

  • The Good – Trade ideas which DID have edge and were well managed.
  • The Bad – Trade ideas which DID have edge but were either poorly entered or poorly managed.
  • The Ugly – Trade ideas which DID NOT have edge.

 

Some clarification:

  1. "Trade ideas which DID have edge" – I need to do some more work on teaching this in the future. For now, consider them to be trades in which your hindsight review says, "Yes, taking this trade was the right decision". This does not necessarily mean it profited. You might have taken a loss. But without any doubt, it meets all your trading plan criteria and it's one you were right to have taken.
  2. "Trade ideas which DID NOT have edge" – Those trades which are clearly not a part of your trading plan. You had no right to be in that trade. This doesn't mean it lost. It may well have profited, but was still a poor trade (for example… a revenge trade that works!).
  3. Feel free to vary the definitions in any way that makes more sense to you. But keep them in three classifications – The Good, The Bad and The Ugly!

 

Our aim is to seek constant improvement in our stats. When analysing the stats associated with larger groups of trades (20 minimum), we look for the following:

  • The Good – We want more of these. Always be aiming to increase the percentage of The Good within any sample of trades. And to increase the profit they provide.
  • The Bad – We want less of these. Always be aiming to decrease the percentage of The Bad within any sample of trades. And to reduce the damage they do to P&L.
  • The Ugly – Ideally, we aim for NONE of these. That might be tough. But it's the goal.

 

It's a continual striving for improvement in skill and expertise.

And of course we drive our performance improvement through an effective review process:

The Good:

  • How can I ensure I take more of these in future? What signs were there pre-trade to suggest this could be one of The Good? Consider both the market structure and the way that price was moving.
  • How could I have have performed even better? Was there any way to have increased size (assuming you scale in and out)? Was there any time or place at which I could have added to the position? Was there reason to extend the targets even further?
  • Were there any non-technical factors present which may have assisted with my decision making? How was my physical state? How was my mental state? How was my emotional state? How was my trading environment?

 

The Bad:

  • In what way did I underperform with this trade?
  • Why did this occur?

  • How can I ensure I do less of this in future?
  • Were there any non-technical factors present which impacted upon my decision making? How was my physical state? How was my mental state? How was my emotional state? How was my trading environment?

 

The Ugly:

  • How can I ensure I avoid these trades in future? What signs were there pre-trade to suggest this WAS NOT A VALID TRADE? Consider both the market structure and the way that price was moving.
  • Why was I not aware of this at the time?
  • Were there any non-technical factors present which may have assisted with my decision making? How was my physical state? How was my mental state? How was my emotional state? How was my trading environment?

 

The Good

The Good

The Good

The Good

The Good

The Good

The Good

The Good

The Good

So… given that it's now closer to 4:30am… how about we come back next week with part two. We'll look at the earlier trade from this same sequence (The Bad). And I'll see if I can find you one of The Ugly ones as well.

Happy trading,

Lance Beggs

 


 

A 50% Win Rate IS Enough

 

I love this recent email exchange with a new trader…

Email received: (We'll come in mid-stream as the earlier conversation is not relevant to this article!)

Great Lance, thanks for responding and giving me all this information.

I plan on trading highly liquid stocks and probably the intraday with the occasional swing trade. I've been out of the market for a while so I am going through some of the reads you have recommended. Come Into My Trading Room is excellent.

My problem is that I need to fine tune my studies because what I think works ends up not 50% of the time.

I love how you explain things and looking forward to buying your strategies. Your emails are great also. Thanks Lance.

 

My response:

Thanks. I'm glad you're finding value in my writing.

You said, "My problem is that I need to fine tune my studies because what I think works ends up not 50% of the time."

Obviously I don't have an real insight into how you're trading. But here is a different way of thinking of the problem…

What if 50% winners was enough? What if you could work to capture more of the move in those that did win. And cut the losses quickly on those that lost.

That is, accepting 50/50 and profiting from a higher win/loss size ratio.

Seriously… 50% can be enough.

See here also: http://yourtradingcoach.com/trading-process-and-strategy/stop-hoping-your-trade-will-win/

 

His response:

I have never thought of it in that way but now I will!!

 

Awesome! This is one of the many important breakthroughs that we need to achieve along our path to professional trading.

It's such a simple concept. But it's hard to see. In some ways it goes against our natural desire to win. And we're bombarded daily with advertising copy promoting high win percentage strategies.

But the fact is that long-term profitability is not just a function of our win rate. Just as important is the Win/Loss Size Ratio (WLSR).

  • WLSR = Average Win / Average Loss

 

If you achieve a 50% win rate across a series of trades you can still profit provided your average win is greater than your average loss.

In my own trading, the win rate is the least important of these trade statistics.

In a 20 trade sample I expect to achieve a win rate anywhere between 40 to 70 percent. But I aim to profit by keeping the average win greater than the average loss.

Yes… 50% can be enough.

50% winners across a whole month can be profitable, provided your average win is greater than your average loss.

50% winners across a whole year can be profitable, provided your average win is greater than your average loss.

50% winners across your career can be profitable, provided your average win is greater than your average loss.

Let's look at a few trades. Obviously eight trades are too small a sample size to really concern ourselves with the stats.

But it's eight trades that provided four wins and four losses.

And yet it profited.

Because the average win was greater than the average loss.

A 50 percent win rate is enough

A 50 percent win rate is enough

A 50 percent win rate is enough

A 50 percent win rate is enough

A 50 percent win rate is enough

A 50 percent win rate is enough

A 50 percent win rate is enough

A 50 percent win rate is enough

 

By all means, aim for as high a win rate as you can achieve.

But seriously… 50% can be enough.

Happy trading,

Lance Beggs

 

PS. Note: This discussion has excluded consideration of commissions and other business expenses, as they will vary from trader to trader. Obviously while a series of trades may well be profitable in and of themselves, a business profit is only achieved if these trade profits are sufficient to overcome commissions and other expenses. But the fact remains, a 50% win rate will still be sufficient. You'll just need a slightly higher WLSR to cover these costs.

 


 

Trade Less; Review More!

 

Day Traders

If you're not currently profitable, or achieving the level of success you wish to achieve…

Is your current situation something like this?

Trade Less Review More

WRONG! WRONG! WRONG!

I know there is a LOT to be learnt through live trading. But it's the review process which drives growth and development.

You'll see things during a review session, after the fact and away from the emotion, which were not visible in the live market.

You'll discover things within your stats, which were not visible in the live market.

If you want to progress, time for an effective review session is NOT negotiable.

You must make a choice.

You either HAVE TO cut something from the time outside of trading, to allow for an effective review session and ongoing learning.

Trade Less Review More

Or you have to cut your trading…

Trade Less Review More

Trade Less Review More

Longer Timeframe Traders

The same applies to you.

If you're not currently profitable, or achieving the level of success that you wish to achieve…

Is your current situation something like this?

Trade Less Review More

If you want to progress, time for an effective review sessions is NOT negotiable.

You must make a choice.

You either HAVE TO cut something from the time outside of trading, to allow for an effective review session and ongoing learning.

Trade Less Review More

Or you have to cut your trading…

Trade Less Review More

We all want to trade more.

But if you're not yet consistently profitable, or not yet achieving the standards of success you believe you are capable of achieving, then your priority must be ensuring an effective review process as well as time for learning, testing and development.

You can always trade full-time again in the future.

But for now, less is more.

Trade less. Review more.

Happy trading,

Lance Beggs

 


 

Review and Improve

 

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

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

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

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

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

Review and Improve

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

And then…

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

Again, take note of how many achieved this aim.

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

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

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

And that we work in order.

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

Then work on entry.

Then initial management.

And then ongoing management.

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

And repeat.

Happy trading,

Lance Beggs

 


 

Keep It Simple

 

It's very easy in this business to bury ourselves in complexity. Typically leading to nothing but feelings of extreme overwhelm and doubt.

It can help at these times to "step back" a little and look at the bigger picture.

At a simpler level, what exactly are we trying to achieve here?

I would suggest that many of us could describe our trading by the following "simplified" flowchart.

Higher level simpler overview of the trading process

When you get one wrong, work to contain the damage as much as possible.

When you get one right, work to take as much profit as you can out of the move.

Aim to keep the losses smaller than the wins, on average.

Record data on your decisions and performance.

Identify what adds to your edge across a large sample of trades. Seek to understand why. And do more of it.

Identify what reduces your edge across that same large sample of trades. Seek to understand why. And aim to avoid it or reduce the damage.

And improve over time.

Essentially, that's how I run my trading business.

But perhaps the best use for this "simplified" flowchart is in it's ability to help us find the way forward when we're stuck.

Because the same flowchart can be used to guide our learning process. And to narrow our focus to ONE AREA OF IMPROVEMENT at a time.

Using the simplified flowchart to guide our learning

We won't get it right in every trade, of course. But our aim must be to learn to do so with sufficient frequency to provide an edge across a series of trades, assuming acceptable trade entry and management.

Using the simplified flowchart to guide our learning

Again, we won't always get this perfect. But we must get it right sufficiently often to ensure that our edge remains, assuming acceptable trade management.

Using the simplified flowchart to guide our learning

And once more, we don't expect to get this perfect every time. But across a large enough sample, we need to get this right enough to maintain our edge.

Using the simplified flowchart to fix a failure to provide edge.

Are you trading in the right area? Or do you need to work more on your strategy?

Are you entering well enough? Or are you getting chopped up as you try to consistently pick the exact turn point?

Are you holding for a reasonable portion of the move? Or are you regularly failing to manage the opportunity that is available.

Success requires that you first identify the source of current failure. So simplify! And then narrow your focus to one area at a time.

Do you need to work on your trade areas? Or trade entry? Or trade management.

There's work to be done.

Best of luck,

Lance Beggs

 


 

Your Number One Priority… Survive the Learning Phase!

 

Before you even think about strategy…

Reduce the risk of single trade catastrophic failure.

Stop losses are essential. If you think you can operate without them, leave my site now. Unsubscribe. Professional traders respect the risk within the market.

If your platform does not allow for automatic submission of stop loss orders when your entry order is filled, then get a new platform.

And keep single-trade risk to acceptable levels (see Chapter 8).

 

Reduce the risk of single session catastrophic failure.

Ensure your plan contains a session stop. That is, the dollar or percentage loss that will trigger a decision to HALT ALL TRADING for that day.

If you're out of sync with the market, get out of there.

Survive to trade another day.

And if you do not have the ability to stick to this decision then find a broker who will implement it for you, preventing further trades once the session stop is hit. They're out there. If you need this, find one who offers it.

Swing traders… you might wish to extend this to a weekly stop. Or monthly stop.

 

Reduce the risk of a slow-bleed loss of account over time.

Implement a maximum drawdown stop.

Your trading is clearly not going according to plan.

It's time to stop. Take a lengthy break. And then reassess.

Take this trading halt as an opportunity to review your trading plan and your trading performance, with the benefit of hindsight.

Return to a simulator environment until such time as (a) consistent profitability is again proven in that environment, and (b) the account balance has been replenished via other sources.

 

Always remember – your number one priority is to survive the learning phase.

Happy trading,

Lance Beggs

 


 

CONSISTENCY – It’s a NECESSARY part of the process!

 

In a previous article we discussed the various levels you need to pass through on the way to achieving your long-term trading goals:

It's Time to Fight to Get to the Next Level

See here if you wish to explore this path in greater detail – http://yourtradingcoach.com/trading-business/its-time-to-fight-to-get-to-the-next-level/

And we also discussed the process required to drive your development through each of these levels:

Manage your growth and development via twenty trade groupings

This has been discussed a number of times, but I believe the flowchart was first used here – http://yourtradingcoach.com/trading-business/you-can-do-this/

20 trades is of course the absolute minimum required. Feel free to increase it if you prefer larger sample sizes. But do not reduce it. Any less that 20 and your sample size is too small to provide useful data.

Anyway, today I want to discuss a NECESSARY component of this 20 trade review process.

I had a chance to speak to a trader this week who was not progressing well, despite tracking stats for 20 trades at a time.

Here's the thing though…

(more…)

Seeing the Market in New Ways

 

An amateur and a professional trader can look at the same price charts and see completely different things.

The difference is not as simple as the professional having a better strategy, but rather that they have superior mental models and belief systems.

They see the market in ways that the new trader cannot yet comprehend.

A lot of my writing has been with the intent of helping shift the way you view markets and price movement.

A key goal with the YTC Price Action Trader was to help you see this trading game in a superior way; playing the metagame rather than the usual pattern-based game that most play.

  • Seeing the charts from the perspective of "traders making trading decisions" rather than just as somewhat random price movement.
  • Feeling the hope and fear within the other traders; especially at the point where they get trapped in a low probability position.
  • And using this information to profit from their loss.

 

The obvious section to reference is the whole of Chapter Two, but the concept underlies all the material which follows through chapters three to six.

Much of the last eight years of the YTC article archives was also devoted to helping you see things in new ways.

Just recently there has been a focus on the following:

 

And a key aim with the upcoming video course will be redefining how you apply deliberate practice principles to drive your growth and development. A recent insight led to a new level of understanding that has completely shifted the way I manage my own progression. I can't wait to share it. More on that later.

Until then though, let's see if you can trigger your own paradigm-shift!

I'd like you to consider the idea that maybe your next improvement in results will not come from a new system, or some new knowledge, but rather from changing perspective and learning to see some particular aspect of this business in a new way.

It's not easy. You can't force new insights. They typically come at unexpected times.

And they often need a trigger to shift your perspective and open up a whole new world of possibilities.

The good news… there is one method that can help provide this trigger… assuming you do have the required foundation of knowledge and experience.

Schedule some time to question your beliefs and assumptions.

You may find they're quite valid. But you may also find a new way forward.

You may find that something you held to be true, is perhaps not 100% certain. 

Time spent questioning your beliefs or your assumptions, is NEVER time wasted.

Consider the following areas of your trading business:

  • Your understanding of how and why price moves.
  • Your understanding of how and why you expect to profit from price movement.
  • Your reasons for market and instrument selection.
  • Your personal routines for achieving and maintaining a peak performance state.
  • Your routines for pre-session preparation.
  • Your method of position sizing.
  • Your method of assessing market conditions and selecting appropriate tactics for those conditions.
  • Your method for rapid recognition of a change in market conditions and adjustment of tactics to suit the changes.
  • Your method for real-time contextual reading of market bias.
  • Your method of identifying trade opportunity.
  • Your method of entry.
  • Your method of risk management.
  • Your method of trade management.
  • Your method of trade exit.
  • Your routines for post-session review.
  • Your routines for longer-term review… and the way you use this to drive further growth and development.
  • Your routines for ongoing personal and professional development.

 

For each of these areas of your business, question your beliefs:

  • What are your beliefs about this aspect of your business?
  • Why do you have this belief?
  • Is there evidence to support this belief?
  • Is there evidence which suggests that it's wrong? Or incomplete?
  • Is it possible that this belief is only valid in a certain context? Only in particular times, or places on the chart, rather than being an always 100% certainty?
  • Imagine a professional trader who has mastered this aspect of the business. Are they likely to operate with the same belief? If not, what would they have to believe in order to operate more effectively?
  • Can you adopt this new belief? What can you do to test this new belief for validity? What actions can you take on a regular basis to reinforce this new belief and instil it into your daily habits and routines?

 

Time spent questioning your beliefs or your assumptions, is NEVER time wasted.

Schedule some time this weekend to question your beliefs.

All the best,

Lance Beggs

 

PS. YTC Price Action Traders: If you need a new way to "question" price movement at the hard right edge of the screen, try the questions listed in section 3.9, on page 209 of Volume 2.

 


 

Finding The Places Other Traders Got It Really Wrong

 

I really like this statement from last week's article, where we discussed how I use "the other trader" to identify good trade opportunity.

  • If I can't feel someone on the other side of the trade getting it really wrong, there is no trade.

Step one in implementing this idea into your trading, is to learn to find these areas where "the other trader" might have got it really wrong, with the benefit of hindsight.

And to achieve that, I recommend you use one of my old favourites – your Market Structure & Price Action Journal.

Let's add a new category to our journal entries – "Places Other Traders Got It Really Wrong".

Print your trading timeframe chart. Cover it with notes. File it. And review it often.

You don't have to find every single occurrence.. Just the obvious ones which really stand out to you. Anything which immediately screams out to you, "that was a dumb place to trade!!!"

Here's an example covering the first hour and a half of the most recent session.

(Click on the image to open a full-size version in your browser)

Finding the places other traders got it really wrong

What if you did this every session for the next few months?

Could the potential improvement in your edge more than justify the five minutes it may take each day?

What are you waiting for?

Happy trading,

Lance Beggs

 

PS. It's important to note that in trading like this I rarely enter via a limit order placed ahead of time in the area of interest. My personal preference is to let price enter the area where I think other's might have got it wrong. And then watch to confirm the behaviour. Ideally I'll see some sort of stall or exhaustion, indicating a failure to continue further in this direction. That's my cue to enter. Sometimes it comes VERY quickly. Other times it provides a nice stall structure which allows entry as it breaks. With experience you'll know whether it has potential to snap back quickly or not. First step though… learn to see them with hindsight. So get started on your Market Structure & Price Action Journal.

 


 

Miscellaneous Thoughts on Making Progress as a Trader

 

One of the things I love about what I do here at YTC is the opportunity to chat with other traders, at all stages of their development.

My email archive provides an absolute treasure-trove of information and ideas spanning all areas of this business from strategy to peak performance to business management.

I was reminded of this by two different email conversations in the last week, in which two traders both achieved a similar breakthrough in understanding. I'll share these right at the end of the article, so that we can finish on a real positive note.

But this got me thinking. I don't dip into the email archive enough for inspiration for articles or social media posts.

So let's rectify that today with a surf through my Sent Mail folder.

I thought we should start with a search for some miscellaneous thoughts related to the challenging task of making progress as a developing trader.

When Overwhelmed…

Let me start with a phrase that is often repeated in my email replies; perhaps more than any other. It's short and to the point. I'll let it stand on it's own without further commentary. You'll know if it's relevant to you and your circumstances.

Excerpt from an email reply:

When overwhelmed… SIMPLIFY!

 

Quality of Effort is Perhaps More Important than Quantity

Sometimes less is more!

If you're putting in a whole lot of effort, but finding no consistency in results, perhaps this email conversation will help you refocus in a new and more effective way.

Excerpt from an email reply:

If you're inconsistent in application of your strategy then I think you seriously need to consider WHY you are trading a full session.

If your inconsistency is leading to doubts about the strategy, then again, seriously consider WHY you are trading a full session.

Yes we need to maximise our exposure in order to grow.

But quality is important as well.

At the moment you're trading a full session but life is providing limited time beyond that for effective review processes.

Is there perhaps a better way to use your time?

What if you traded only half a day and used the remaining half for a more effective and thorough review and learning process?

What if you narrowed focus even further and just traded the opening hour?

Let me run with that idea for a second. What if you did this:

Focus on the first hour of the market open. Learn to trade it well.

Trade for 1 hour.

And then follow that up with 3 hours of review and REPLAY.

Study the session from a strategic perspective. Study the session from an execution perspective. Study the session from a human performance perspective.

Find the setbacks. Study them. What happened? Why? Is there a pattern of behaviour repeating here? What can you do to improve in future?

Find the successes. Study them. What happened? Why? How can you achieve more of this in future?

Replay the hour with the benefit of hindsight. What can you learn in comparing your actual performance, with hindsight perfect performance?

1 hour of FOCUS. 3 hours of QUALITY review.

And you've still got half a day then to allocate towards other areas – general reading and study, idea generation, testing and development, personal development. And occasionally, reward yourself with a half day off.

Start with increasing efforts to trade the first hour well. Find consistency and success in this small period of time. Later you can consider expanding this to 2 hours. Then 3. Then 4.

Inconsistency doesn't just disappear because you found an awesome new affirmation. If you're inconsistent in the first hour, you'll be inconsistent in every hour of the session. Narrow focus. Fight to get the first hour working. Then expand.

 

Stop Comparing Yourself With Others

We all do this. It's natural. But it serves no good at all.

This idea comes up often in my email conversations.

Excerpt from an email reply:

Stop comparing yourself with others. Their results are irrelevant. And for God's sake, ignore what (name removed) says he achieved.

There is no race against others. Only against yourself.

All that matters are your own results.

Whatever they are… accept them. And work to improve from there.

Have you improved when comparing with your abilities a year ago? Great. You're winning. Keep improving. This is the ONLY comparison you need to make.

 

Work With What You've Got

It can be tough to fit trading around a full-time job and family responsibilities. It seems we can never find enough time to work on our dreams.

But it does no good to dwell on it. Accept it. And find a way.

Excerpt from an email reply:

So you can only manage to trade one half-day per week. Fine! It is what it is. Family and income needs have to take priority.

But you've got one half-day per week.

That's 50 sessions in the next 12 months.

50 sessions to trade. 50 sessions to review and learn from. 50 sessions to get better than you are now.

And maybe next year you'll be able to manage a whole day. And the year after that you might be able to manage two.

Maybe this year you'll do 50 sessions on the sim.

But then maybe next year you'll be able to do those 50 sessions live, with a small single contract position. Building gradual success. Slowly increasing confidence.

Maybe the year after that you'll be able to increase size.

And maybe the year after that, success will lead you to new opportunity and new ideas, allowing you to trade more days per week.

The next year is going to pass anyway. It's your choice how you use it.

The next five years are going to pass anyway. Where you find yourself then, will be a direct result of the decisions and actions you take now.

You've got one half-day per week. Go for it. Use it well.

 

It's All About Learning To Perform in an Environment of Uncertainty!

Let's finish on a real positive note by sharing excerpts from TWO different email conversations in the last week, in which two different traders both achieved a similar and related breakthrough in their understanding of this game.

I was fascinated that I received these emails within two days of each other. This was what provided the inspiration to dip into the archives for today's article.

Initially I wrote this section with just "notes" taken from my reply, but in editing I've come to realise that unlike the above sections it reads best when you get to experience the breakthrough in the words of the sender.

The lesson for us – sometimes our progress as a trader comes not through small incremental growth, but through sudden and massive leaps of understanding. A paradigm shift!

The thing is though, typically these paradigm shifts are just the end result of long months of trading, review, thought and reflection. Underlying a paradigm shift is often an whole lot of work that remains unseen by other observers. So if you're putting in the work and not seeing results, keep your chin up. Perhaps you're still just setting the foundation for your next breakthrough in understanding.

Enough from me… let's just share the email conversations and wrap up the article.

Excerpt from email:

Strangely enough I was also going to email you yesterday as I also had a significant aha moment.

You said in your book something along the lines of we are operating in an uncertain environment and therefore looking for certainty is never going to work – all we can do is try to enter at good structural locations, with strength and against weakness, and manage our risk accordingly.

While this made sense to me immediately, last night I was looking through some charts and all of a sudden realised that I was guilty of doing exactly that. How the hell do we know what all the other traders in the market, and therefore price, is going to do next? All we can do is assess weakness/strength, get in with the strength and 'likely' future trend and manage the risk as best we can. The R/R will take care of the rest.

I now realise that I was far too focused on winrate and avoiding losses without even realising it and while I'm obviously not going to go all gung ho now, something has definitely shifted subconsciously and I now genuinely feel so much more comfortable with the mindset of expecting the the next trade I place to lose, and the next one, and the next one and not being obsessed with finding the perfect A+++ entry.

Absolutely fascinating how these things just happen from no where (albeit after 100s of hours of chart time and thinking).

Except from reply:

I'm glad you've come to this realisation. It's one of those things that everyone rationally understands and says they get, but it's clear from their actions and behaviours in the market that they don't REALLY get it. I'm not sure it's possible to teach. It perhaps just requires experience and loss and a whole lot of self-reflection and pain.

I'm reminded of something Mark Douglas said in The Disciplined Trader (his first book). "Most people like to think of themselves as risk takers, but what they really want is a guaranteed outcome with some momentary suspense to make them feel as if the outcome had been in doubt."

Trading success is not about achieving certainty. Rather it's about accepting and managing our imperfection within an environment of uncertainty. Expect losses in the short-term. Play to win over the long-term.

Excerpt from email:

Really enjoying your book, just thought I'd share some contradictory concepts & thoughts I didn't expect that are encouraging for me. Besides getting much needed "structure" from your work, (which I lack in all areas of my world), I never expected to experience the comfort in seeing professional traders actually missing opportunities and taking losses. Over the years I've noticed this underlying gut feeling of anger when I get stopped out or miss an entry, no matter how often I've heard to expect losses & missed trades, it never erased or cleared it mentally for me until now. It's been liberating to take the time to heal an issue I never really noticed how much was holding me back.

I've noticed it's been going on for a while and realized I've held a belief that "perfection is the only way to succeed" and it's been keeping me from progressing. It's comforting to read successful traders also go through this every day, and clearly for me it's taken until now to actually feel and connect with this unconscious nemesis and address it.

Thanks for sharing you're weakness as well as your strengths !

Excerpt from reply:

Thanks for sharing these thoughts. It's great stuff. I love hearing when people have these breakthroughs in understanding.

You're right. Belief that "perfection is the only way to succeed" is almost a guaranteed way to fail. It's setting an impossible standard. It's much better, in my opinion, to believe that "accepting, forgiving and learning to manage our imperfection is the only way to succeed."

Now begins a new stage of your trading journey! Exciting times ahead.

There is no greater "personal development course" on the planet, than trading the markets! 🙂

 

Happy trading,

Lance Beggs