Tag Archives: Performance

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.

 


 

Trader Performance Drills – Part Two

 

It's six years since we last looked at this topic. Wow!

So it's definitely time to revisit it.

Check out the prior article if you want to see the original drills – http://yourtradingcoach.com/trading-process-and-strategy/trader-performance-drills/

Today we'll discuss a drill that I've quite enjoyed from time to time over the last six months whenever I've had a spare hour or so to "play".

It provides practice and learning opportunity in real-time assessment of context and market bias. And like all good practice drills you'll received rapid feedback on your decisions.

In particular this drill works to develop the following skills:

Entry:

  • Skill in timing an entry close to the turning point through recognition of signs that either (a) the context suggests further movement is unlikely, or (b) the nature of price movement suggests that the move has exhausted it's potential.

 

Trade Management & Exit:

  • Skill in contextual placement of price targets.
  • Skill in real-time assessment of the ongoing validity of these targets, or the need to amend them.
  • Skill in real-time recognition of danger and the need to either partially reduce risk or immediately scratch a position.

 

Let's set it up…

 

The Chart Overlay

  • Open a five minute chart. Clear it of all indicators and overlays.
  • Add an EMA(5) based upon the high price (not close price). I colour it green but this is not important to the drill.
  • Add an EMA(5) based upon the low price (not close price). I colour it red but this is not important to the drill.

 

The result is a very tight channel around price as shown in the image below.

The chart overlay

The indicator parameters

 

The Performance Drill

Open your Market Replay application.

Select any random date and time.

Now trade with the following plan:

(a) You can ONLY enter trades at or beyond the channel boundaries. You can ONLY enter short ABOVE the channel. You can ONLY enter long BELOW the channel.

(b) EXIT TRADES anywhere you feel necessary in order to both minimise loss and maximise gain.

(c) AIM TO PROFIT over whatever series of trades you complete during this drill exercise.

Entry zone - short

Entry zone - long

Exit as necessary to minimise loss...

... but also to maximise gain.

Additional notes:

1. By all means examine your usual charts alongside this. Feel free to refer to your usual higher and trading timeframe charts for context. And your usual lower timeframe chart to fine-tune your decision making. Market internals or orderflow tools are fine as well. In fact… whatever you normally use for your trading is absolutely fine for this drill. The 5 min EMA channel only provides the limits to the buy and sell areas.

2. I highly recommend speeding up the replay at all times except in the entry zone. For entry, set the real speed so that you can "feel" the movement of price as it would feel in a live environment.

3. You do NOT have to enter on every excursion beyond the channel. In some cases you will miss it anyway as price just tags the channel and moves back away from it. In other cases it would be wise to stand aside, such as fading a strongly directional market. Avoiding a very low probability trade is a good decision!

4. Stop losses – I like to keep this tight in order to practice timing the entry as close as I can to the extremes. I set them at around half the width of the channel. NOTE: Re-entry is always an option if you get stopped out.

5. Remember – the aim is not to profit on every trade. Just like real trading, we aim to profit over the larger series of trades. So take your losses but keep them small. One or two winners should more than compensate for these losing trades.

 

Real-time Contextual Decision Making

At times this will be easy.

At other times, it will be quite a challenge.

Your only restriction is that you must enter at or beyond the channel boundary. Ideally with quite a tight stop.

Everything else is open to your best judgment, based upon your assessment of context and real-time reading of market bias.

How will you enter?

Will you place a limit order and let it be hit? Sometimes this will give incredible entries. Other times you will be run over, if you misjudged how far price would extend beyond the channel.

Will you wait to see how price behaves beyond the channel before entering at market? Sometimes this will result in a missed trade, when price just tags the entry zone and rapidly moves back into the channel.

Will you scale in? Or go all in on one single entry?

There is no right or wrong.

Just play!

And learn!

That's the beauty of the replay tool, allowing you maximum trade entry and management decisions by speeding up the data in-between trade opportunities.

And in providing rapid feedback to each and every decision you make.

This is not something you will do every day. No-one has time for that. But from time to time when you find yourself with an hour or two available, and a desire to play with some historical price charts, go for it.

And who knows… if you enjoy this you might just be able to expand the rule-set and create a whole trading methodology out of it.  ๐Ÿ™‚

Other markets

Other markets

Other markets

And other timeframes

Happy trading,

Lance Beggs

 


 

A Thought Experiment That Might Just Get You Profitable

 

Too many people are just spinning wheels and getting nowhere.

Here's what I think.

Many of you have sufficient knowledge and skill to achieve success.

But you're focus is on trading rather than on making money.

And the end result of this is too many low probability trades in really bad environments.

Let's fix this now.

What if you had a gun to your head and you HAD to profit over your next 20 trades?

It doesn't matter how long it takes you to get to twenty. And it doesn't matter how small the profit.

The only condition is that you must stick to your risk and money management limits.

You've got 20 trades to show a profit.

How will this change the way you view the markets each day?

What would you do differently?

Just maybe you'll be happy to stand aside and watch. Stalking the market. Waiting till the bias is so clear that it's screaming out to be traded.

Just maybe… you'll prove to yourself that you can profit over 20 trades.

And if you can?

Then just do it again.

And again.

And again.

Maybe you already are a trader, but you just haven't realised it yet because you're too busy trying to trade.

What if you had a gun to your head and you HAD to profit over your next 20 trades?

What would you do differently?

Why aren't you doing this NOW?

20 trades!

Good luck!

I believe you CAN do it.

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

 


 

Start Again – Start Better – Start Smarter

 

I love this quote:

โ€œThough no one can go back and make a brand new start, anyone can start from now and make a brand new ending.โ€

… Carl Bard

Whenever I wish to do so, I am free to reset today to DAY ONE!

Whatever happened last week, last month, or last year no longer matters.

My new trading career begins now.

Hit the reset button. Clean the slate. And build again… better and smarter than ever before.

Hit the reset button

But here's what I'm thinking…

What if I did this every day?

What if EVERY TRADING SESSION was a new beginning?

I am forgiven my imperfections.

I am forgiven my failures.

Today is a new day… I can start from now and make a brand new ending.

Better… and smarter… than ever before.

Today I will begin work with sufficient rest and relaxation to ensure a healthy body and mind.

Today I will complete my pre-session routines in full, prior to the session open.

Today I will approach the session open with a clear idea of my game plan for the day; and a willingness to amend that plan if price has other ideas.

Today I will eliminate all distractions; maintaining the conditions essential to attaining my Ideal Trading State.

Today I will enjoy the challenges which the market provides.

Today I will flow with the shifting sentiment of the market; adapting tactics to suit the conditions the market provides.

Today I will engage the markets with controlled and focused aggression – standing aside patiently when the market offers nothing but risk, accepting that risk when the market provides opportunity, and attacking the market in force should it provide perfect trading conditions.

Today I will complete my post-session routines in full, allowing me to learn from my data recording and review processes.

Today I will forgive myself my imperfections; and celebrate my successes.

And tomorrow?

Well tomorrow is a new day.

And tomorrow I get to start again; better and smarter than ever before.

Happy trading,

Lance Beggs

 


 

Improving Performance by Optimising Your Time Perspective

 

Part of my pre-session routine involves a quick review of my Motivation Journal.

The Motivation Journal is simply a folder containing various pieces of text or image material which I find sufficiently motivating; the aim being to ensure I face each trading session with focus and commitment and, most importantly, confidence.

The YTC Price Action Trader discusses the sections and contents of my journal in Chapter 10. While the content itself changes from time to time, I've been consistent in following that same format for the last six or so years.

However, last weekend I came across a video which I found fascinating, and which has led me to consider changing the format of my Motivation Journal.

It's a TED Talk by Psychologist Philip Zimbardo who you might know from the 1971 Stanford Prison Experiment.

The topic of this talk is "The Psychology of Time"

Here's the video. Please watch it. It only takes seven minutes.

 

If the video does not show here, try these alternate links: TED Talk or YouTube

If you have time (pun intended) there is a link at the bottom of this article to a longer video presentation showing a lot more detail. Highly recommended! If not… the 7 minute video shown here will be sufficient to cover the basics.

Prof. Zimbardo suggests that the optimal profile for balancing time perspective is as follows:

  • Past-Positive => High
  • Future-Positive => Moderately High
  • Present-Hedonism => Moderate

Nothing surprising here in that it's all overly biased towards the positive side.

This is a great way to view life.

But I think it also has application in daytrading, in providing structure to our Motivation Journal and ensuring it addresses all three time perspectives.

The benefits of our pre-trading routine including a motivation session based upon the optimal profile, as listed above, should be:

  • A greater likelihood of commencing the trading session with a positive and focused mindset.
  • And a subsequent increase in likelihood of quality performance.

So here's how we could structure our journals:

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My Daily “Trading Psychology” Routine

 

Here's a great question I received recently:

Q. What do you do during a session to maintain a positive trading psych mindset?

What I do during a session cannot be talked about without also discussing the pre and post-session routines. Itโ€™s all a part of one whole approach.

I've shared an image previously which I'll include here again, which gives a summary of how I see trading psychology (or performance psychology which is probably a better term).

mindmap of my performance psychology plan

You can see the article related to that image here if it interests you – http://yourtradingcoach.com/trader/creating-the-conditions-for-success/

What I want to do today is to approach this question from a different angle, by listing everything I do with a performance psychology focus as I work through my pre, during and post-session routines.

As noted though in the above image, I see there being two areas of priority for practical application of performance psychology:

  1. State Management
  2. Focus on process

 

State Management – My aim is achievement and maintenance of my Ideal Trading State. The Ideal Trading State will vary from individual to individual and will typically be found only through trial and error. But for myself, and I suspect most others, it's a calm and focused environment with no distraction.

Focus on Process – My aim is to ensure I follow the process as outlined in my Procedures Manual. It's commonly stated that we need to trade without emotion. That is rubbish. You're human. You can't trade without emotion. Your aim instead should be to ensure that you follow process, despite the presence of emotion which might otherwise interrupt or interfere with your process.

Everything I do pre, during and post-session is done with the intent of enhancing performance in one or both of these areas – state management and focus on process.

Before I step through my routine though, let's first drop back a bit and set a foundation.

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Do You Need A Better Belief System

 

"The words we attach to our experience become our experience."
… Anthony Robbins

 

The following are extracts taken from email Q&A with traders (taken at random from my email archives).

  • I love trading and keep on working hard, striving to become a better trader each day.

  • I am constantly working on my weaknesses but they are now finally in a minority of sessions.

  • I took 2 months off and took a step back from the charts. I was able to identify several very big problems with my "process", and since then I've addressed the concrete problems and am constantly working on the less tangible issues. The first half of 2013 was incredibly painful, but taking that step back was like a breath of fresh air. I came back to the screen in June, and since then I've doubled what I made in 2012. More importantly, I am much (much!) happier with my process, especially with regard to my journaling and daily review. I'm still working on it, but the idea of process > outcome has become a central theme – I've even printed it out and posted it on the door to my office and on the wall above my main monitor. I ran through the psych and emotional cap exercises in your YTC ebook, and the evolution of my answers have been very instructive as I look through the past 2 years in general and the last 10 months in particular.

What do you notice that is common amongst all these statements?

For me, they are all positive and empowering. These traders are taking personal responsibility for their own growth and development. They are actively working on themselves – expanding their knowledge, building their skill levels and adopting a positive growth mindset.

Let's compare the above statements to these extracts from other email:

  • i just wish i could find a simple method to do over and over which is successful. so far, no luck. ๐Ÿ™

  • I am not greedy – I just want to execute the perfect trade everytime and let rest take care of itself.

  • i need signals

  • Why do I always feel lost when I look at the chart?

  • I don't care that you disagree. It's clear to me that the broker screwed me over.

  • THE OWNER OF THE SITE IS VERY ARROGANCE AND I DON'T LIKE THIS SH##;

Well, apart from the last one which I just find amusing (I guess that comes from my arrogance), what are the common elements in these statements?

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Improving Focus – The Essential First Step

 

For the last year or so my trading computer has been on a desk just to the left of my work computer.

This has been fine except during quiet periods of price movement, when I've often found myself tempted by the work computer. All I have to do is turn to the right and it's within reach.

"I'll just check emails or facebook. It'll only take a second!"

Usually this is fine but occasionally I'll become so absorbed in whatever I'm looking at that I don't realise five or more minutes has passed without watching price.

The good news is that there was a simple fix, which has allowed me to maintain focus on price. I'll get to the solution just below. But let's talk in general terms first, because the solution works for many other causes of loss of focus.

How do you maintain optimal focus in a world full of distractions?

How do you maintain optimal focus in a world full of distractions?

The internet will provide many exercises on willpower and mindfulness, which should help with any focus issues you may have. These are great. But they're not the first step.

The first step is not to work on your focus. The solution is much simpler.

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Prime Your Brain for a Permanent Performance Gain (in a Few Minutes)

Guest Post by Steve Pavlina, http://www.stevepavlina.com/

Inside your skull is a massive supercomputer. You own it free and clear. With its 100 billion neurons, and with a typical neuron linking to 1000 to 10,000 other neurons, your highly networked brain is incredibly powerful and capable.

Pick up a simple object nearby like a pen or a spoon, and look at it. Turn it upside down. Spin it around. Notice that your brain is able to recognize the object no matter how you position it. You can change the lighting by putting the object in shadow. You can obscure part of it from view. You can bend or break it. And your brain still recognizes that object simply and easily. Even a child can do this.

But whatโ€™s happening under the hood? Your visual cortex, consisting of about 538 million neurons, is doing an enormous amount of parallel processing on the signals itโ€™s receiving from your eyes. Your visual cortex detects edges, evaluates color, tracks motion, interprets reflection, and more โ€” all in real time.

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