Tag Archives: Decision Making

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!!!

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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

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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

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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…)

This is the REAL Challenge of Trading

Price has collapsed rapidly at the start of the new session

Following the initial low, then a retest, price pulls back to offer us a 3-swing-retracement entry short (also could just as well be considered an upthrust).

(Chart Info: Crude Oil, 20 Jan 2012, 1-min chart; although the concept discussed in this article applies to all markets and all timeframes. Timeframes used for the trade were 1-min and less (YTC Scalper timeframes) although the trade decision making and management in this instance were pure YTC Price Action Trader, not YTC Scalper).

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Situational Awareness for Traders

Situational Awareness is a concept which has been instrumental in shaping how I conduct my market analysis. Many of you may not have heard of this concept, so I thought it would be good to provide a brief introduction today. And if there’s interest from readers we can go a little deeper into the topic in future articles.

This is a concept I’ve borrowed from my previous career in the aviation industry, where it is one of the key components taught in the field of Crew Resource Management and Aviation Safety.

Situational Awareness, as defined by ICAO (International Civil Aviation Organization) in their Industry CFIT (Controlled Flight Into Terrain) Task Force is…

  • “… an accurate perception of the factors and conditions currently affecting the safe operation of the aircraft and crew.”

 

You may be familiar with the statement that we don’t trade the markets, but rather our mental interpretation of the markets. Situational Awareness is about providing you with the knowledge and skills to ensure that not only is your mental model based as much on reality as possible, but that it also updates in real-time as the price action evolves.

To apply the concept to trading, I find it easier to bypass the official definition above and use the ‘working definition’ provided by Endsley (1988). Situational Awareness is…

  • “the perception of elements in the environment within a volume of time and space, the comprehension of their meaning, and the projection of their status in the future.”

 

This definition has three key components – perception, comprehension and projection.

  1. Perception – Being capable of accurately perceiving the information that the markets are providing.
  2. Comprehension – Understanding, or interpreting, the information available from the markets.
  3. Projection – Anticipating future trade setup opportunities based on your understanding of the market movement.

 

Perceiving market movement, understanding what that means, and knowing how that will most likely develop in the future.  In other words, just knowing what’s going on… or market analysis!

So in applying the Situational Awareness concept to the conduct of my own market analysis, I break the task into three distinct phases:

 

Perceive the Market Environment

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