Tag Archives: Decision Making

Resume the Fight at a Time of YOUR Choosing

 

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

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

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

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

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

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

Get out of there.

Take a break. Clear your mind.

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

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

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

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

I have clear guidelines in my own trading plan:

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

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

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

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

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

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

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

 

ACTION ITEM:

Schedule some time to review or amend your Trading Plan.

Make sure to include guidelines or rules for the following:

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

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

And longer term:

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

Happy trading,

Lance Beggs

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

 


 

Applying a Degree of Confidence to Price Targets

 

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

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

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

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

EMAIL IMAGES:

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

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

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

<image: Email Trade Image>

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

<image: Email Trade Image>

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

EMAIL TEXT:

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

SO HERE'S THE SITUATION:

<image: Email Trade Expectation and Outcome>

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

Very nice trade idea!

The following was my response:

EMAIL RESPONSE:

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

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

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

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

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

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

Sometimes a trade takes two attempts!

LET'S EXPAND UPON ONE KEY POINT

This is the point of today's article.

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

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

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

Or whatever other percentage they thought was appropriate.

The thing is – it's NEVER 100%.

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

How does this benefit you?

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

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

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

Good trading,

Lance Beggs

 


 

It’s All About Real-Time Contextual Decision Making

 

You've learnt the pattern or setup. Great. But that's not trading.

Now work on the real-time contextual decision making around that pattern or setup.

Look beyond the pattern itself to the wider context.

Where is the pattern occurring within the larger timeframe market structure? What structure will suggest avoiding this particular setup? What structure might suggest caution, or reduced position sizing? What structure might suggest increased odds and the potential to really press the trade for a larger gain?

Where is the pattern occurring within time? Are there news influences which suggest passing on the trade? Are their time-of-day / week / month factors which might suggest standing aside?

Consider the behaviour of price movement – the pace, the volatility, smooth vs choppy price action.

What conditions might suggest adjustments to the default plan? All-in vs scaling in? All-out vs scaling out? Closer stops vs wider stops? Closer targets vs extended targets?

Consider the real-time decision making once in a trade.

What signs might suggest a loss of edge? How will you react to this new information?

What signs might suggest greater potential than originally perceived? How will you react to this new information?

What conditions suggest a re-entry attempt should be taken, if stopped out of the position? And how many re-entry attempts are appropriate?

Trading is not about simplistic patterns. It's about real-time contextual decision making.

If you've been on the wrong path then it's time to make a change. It's time to do the real work.

Best of luck,

Lance Beggs

 


 

Is This a Trade You Would Take if You Were in Drawdown?

 

Some of my better trades lately seem to occur after a string of marginal trades which either stop out or seriously underperform.

Mostly because of my rule which says that after two poor trades I need to step aside, clear my mind and reassess the situation.

Time out!

Reassess!

It prevents a downward spiral of emotional revenge trading.

And allows me to return to the market with a new plan. Usually, a plan which waits for a change of structure and takes the first pullback opportunity within that new market regime.

<image: Two trades placing me in drawdown.>

<image: Time out. Reassess.>

<image: Consider the options when price breaks current structure.>

<image: Entry>

<image: Exit>

So this brings me to an idea that may help me cut out some of the more marginal trades.

And perhaps may help you with improving your trade quality as well.

Rather than waiting for two marginal trades to place me in drawdown, maybe I could trade "AS IF" I were already in that situation.

Prior to entry, ask:

  • "Is this a trade I would take if I were in drawdown?"

 

If so, go for it.

But if not, maybe pause and reassess.

Sometimes it will keep you out of a winner. That's how this game of probabilities works.

But if it's keeping you out of a number of marginal trades then there could well be a positive change to your edge.

If the idea appeals to you, give it a try. But track the impact it has on your edge over a series of "avoided trades".

Prior to entry, ask:

  • "Is this a trade I would take if I were in drawdown?"

 

<image: This IS a trade I'd take in drawdown.>

Happy trading,

Lance Beggs

 


 

Do No Harm

 

There is a principle within the field of medical ethics which is often expressed through the phrase, "First, Do No Harm".

To simplify the concept, it means that we should ensure that our decisions and actions do not contain potential for harm which far outweighs any potential benefit.

I like this principle. It's useful not just in medicine, but in life in general. And it certainly applies to the field of trading.

You might want to consider applying it as a principle underlying your approach to the markets.

All decisions and actions within your life have potential to either add to your edge or take from your edge.

If you avoid those which can damage your edge you'll go a long way to improving your chances for success.

What do I mean?

Think about those few extra drinks you had last night which have you feeling a little under the weather?

Do you really need to be trading today?

You'll rationalise it by saying "It's only this once. I'll manage ok.".

But it's not just this one time.

By giving yourself permission to trade this one time, you'll make it easier to repeat the behaviour in future.

So I want you to consider this… extend the behaviour into the future. A hundred times. Or a thousand times. Take it to ridiculous levels. It will help you see the damage this can cause.

"If I made this decision a thousand times across my whole trading career, is it likely to add to or reduce my edge?"

You're not trading with the effects of a hangover just once. You're giving yourself permission to do it again. Break it now.

"If I traded with the effects of a hangover a thousand times across my whole trading career, is it likely to add to or reduce my edge?"

Do no harm!

Take the day off. Return refreshed the next day.

Do you know how sometimes you feel like skipping your post-session reviews? You'll just do it this one time, right? Wrong.

"If I skipped my post-session reviews a thousand times across my whole trading career, is it likely to add to or reduce my edge?"

Do you know how sometimes you just know that the market will turn, and so all you need to do is widen the stop a little further? Just this one time, right? Wrong.

"If I widen my stop a thousand times across my whole trading career, is it likely to add to or reduce my edge?"

Do you know how sometimes you're massively pissed off at your job/spouse/partner/life/or-whatever and you know you should put it aside but just can't? So you'll just trade anyway. You're professional enough to not let it influence decision making. Right? Wrong.

"If I trade while under significant life-stress a thousand times across my whole trading career, is it likely to add to or reduce my edge?"

All decisions and actions within your life have potential to either add to your edge or take from your edge.

If you avoid those which can damage your edge you'll go a long way to improving your chances for success.

Do no harm!

Ask yourself…

"If I made this decision a thousand times across my whole trading career, is it likely to add to or reduce my edge?"

You might want to add this to your wall… just above your monitor.

Happy trading,

Lance Beggs

 


 

If I Could Only Take One Trade

 

This is a VERY useful question to ask yourself as a trade is setting up:

  • If I could only take one trade this hour, would I be happy to make it this one?

Of course, adjust the time to suit your style of trading. One trade per half-hour, per 4 hours, per day, per week… whatever suits your trade frequency is fine!

This question forces you to step back away from the excitement of the price action and the nervous tension associated with entry, and to briefly consider the quality of the trade.

If I could only take one trade this hour, would I be happy to make it this one?

If the answer is an obvious YES… take the entry.

But if there is any doubt… consider passing or waiting for more information.

You don't have to take every trade. A question like this can be useful in filtering out the lower quality trades. Give it a try!

If I could only take one trade this hour, would I be happy to make it this one?

If I could only take one trade this hour, would I be happy to make it this one?

YTC Price Action Trader references:

So would I take this trade?

If I could only take one trade this hour, would I be happy to make it this one?

ABSOLUTELY YES… EVERY TIME!!!

(more…)

Anticipate – Don’t React

 

Here's a great question I received recently from another trader.

Anticipate - Don't React

Let's start by defining the terms, as it's obvious that any decision to enter must be a reaction to some "decision making input". But that is not what was meant.

The question is asking:

  • Do I anticipate every setup, meaning that it's pre-considered and pre-planned ahead of time before price gets to the area? For example… "The rally is slowing. If we get weakness on a break of the next swing high I'll be looking to enter SHORT."
  • Or do I sometimes just react emotionally to the current price bar without any pre-considered thought and planning? For example, "Wow… that's a huge red bar… I'm getting in SHORT!".

As I mentioned in response to the question… I always anticipate.

Let's look at a recent example. It's a sequence from last week which nicely illustrates the concept of "Anticipate – Don't React", showing how keeping my focus ahead of price ensures I don't chase or emotionally over-react to any sudden movement.

As a bonus it also demonstrates the idea that "sometimes a trade idea requires more than one entry attempt!"

Anticipate - Don't React

Anticipate - Don't React

We pick up the sequence with price rallying up towards area F.

We'll view this sequence via the 30 second chart rather than the 1 minute (trading timeframe) chart. It provides a little more feel for the internal movement of the TTF and will make the article a little shorter than if I shared a combination of TTF and LTF each time (I'm all about saving time & effort!).

Anticipate - Don't React

(more…)

Sometimes you need TIME-OUT

 

No… not the naughty chair. This is not a punishment.

Sometimes you just need to separate yourself from the screen.

Get away from the computer. Get some fresh air. Relax and refresh the mind and come back to start again.

Like a reboot for the trader!

Sometimes you need time-out

(more…)

When Fighting the Trend… (Part Two)

We finished up last weeks article (which you'll find here if you missed it) with the following image…

fighting the trend

Well, my post-session review did consider this question.

In fact, the answer was obvious to me even as I traded the session. I knew I was fighting an obvious uptrend from maybe the second or third trade, and yet I still didn't flip my bias and operate LONG.

Why?

(more…)