Tag Archives: Review Process

The Counter-Intuitive Path to Trading Success

 

I recently received an email from a YTC reader with an incredibly important insight into trading success.

Here's an extract from the email:

Hi Lance,

I heard this recently while watching football.

It's not how many great plays you make, it's how few bad plays you make.

I immediately emailed this to myself because it is so applicable to trading. I know where the good places are to trade, but the key is waiting for price to get there and not "forcing" a trade.

It also ties in well to your Facebook posts last week and the latest blog article.

Here is the full quote I found online:

"Like I always say, it's not how many great plays you make; it's how few bad ones you make. I know fans, and even some losing coaches, are enamored with long pass completions or the great run plays, but that doesn't offset the interception or the fumble."… Jimmy Johnson 

Excellent!

I love it!

This is absolutely 100% applicable to trading.

It's the counter-intuitive path to trading success.

Reduce the number of bad trades.

How do we do that?

1. We limit our trading to our best setups only.

Get absolutely clear on what an A+ trading opportunity should look like. And then cut out anything that doesn't meet these strict requirements.

Define the context. Where will these trades be found within the wider market structure? Now limit trading ONLY to those places on the chart.

How should price be moving (speed, volatility, smoothness)? Define your ideal conditions and put in place controls to ensure you trade ONLY when those conditions are in play.

2. We have a predetermined plan for execution.

Now that we're limited to trading only within an ideal context (market structure and price conditions), you need to be completely clear on how you execute and manage your trade opportunity.

Consistency in execution requires standard default plans with regards to sizing, entry triggers, stop and target locations. Plus any additional techniques which might be relevant to your style of trading, such as when you will scale in or out, or under what conditions you will re-enter if stopped out. Your decisions may involve some discretion. That's fine. But this discretion should be built into your standard management plan.

You need to know what to do… and when to do it. No hesitation. 

3. We monitor our performance to identify and reduce errors.

Track everything! If you make an error or poor decision, record it.

Look to your longer term stats during your weekly or monthly reviews. If you find something repeating over time, then that is cause for celebration. You have found a way to improve your edge. Find a way to cut out the error, or at least reduce the likelihood or frequency of occurrence.

<image: Track Your Errors>

Image: Error tracking via the Trading Journal Spreadsheet!

It's not how many great plays you make, it's how few bad plays you make.

Along the same lines, but for those who are not into sport and perhaps relate more to art, I saw this quote recently which I quite liked:

"The sculpture is already complete within the marble block, before I start my work. It is already there, I just have to chisel away the superfluous material."… Michaelangelo

Trading success is already there.

It's just hidden beneath all the errors and poor decisions. We just need to chisel away at them, getting rid of the bad trades and poor decisions, and allow the underlying success to reveal itself.

Trade well,

Lance Beggs

PS. See here also for the same theme – http://yourtradingcoach.com/trading-business/are-you-closer-to-profitability-than-you-thought/

 


 

Chasing Performance

 

Here's a little post-session exercise which may help stretch your performance to "never-before-reached" profit levels.

Pick a target just above your all-time-high for a trading session. Whatever that is – $100, $500, $1000, $5000 or more.

And ask yourself the following.

Looking at the chart for today's session, with the benefit of hindsight, how could I have achieved an all-time high in profits?

It's not about beating yourself up for having failed to reach new highs. Most days you won't reach them.

But it's about pushing yourself. Never settling for mediocrity. Always stretching to achieve more.

Look at the chart. Look at your trades.

Were there were price sequences which you failed to see? Is there some way you could you have captured them?

Were there price sequences in which you underperformed? Could you have taken more out of the move? Could you have increased size somehow? Could you have re-entered if stopped out? Could you have extended the targets or trailed price differently?

If you somehow did manage to squeeze all the profits out of your strategy that day, then ask if there were other ways could you have viewed price and profited? Operate from an assumption that there WAS some way to have achieved new all-time highs today. NOW FIND IT.

And just maybe… next time… you'll take the lessons learnt and actually push through to achieve these new levels of performance.

<image: Chasing Performance>

<image: Chasing Performance>

<image: Chasing Performance>

<image: Chasing Performance>

<image: Chasing Performance>

LWP Reference (for those who want to review the concept) – Vol 3, Ch 4, pp 72-77

<image: Chasing Performance>

<image: Chasing Performance>

<image: Chasing Performance>

<image: Chasing Performance>

Post-session:

Consider your outcome. And compare it with your all-time high.

Review the charts and find ways you could have stretched yourself to never-before achieved levels of performance.

Perhaps next time, this exercise might just help you reach the new target.

Happy trading,

Lance Beggs

 


 

What Puts You In Sync (or Out of Sync) With Price Flow?

 

I sent out the following post via social media earlier this week. It's a theme I've pushed quite a bit over the last few years because I feel it's incredibly important.

No matter what markets you trade. No matter what timeframe you trade. No matter what strategy you trade.

There will be price sequences where you are in sync with the movement and smashing it out of the ballpark.

And there will be price sequences where you are out of sync and just nothing seems to ever go right.

Here's the post:

<image: Not all conditions are equal>

Why is this important?

The quicker you can recognise change to favourable or unfavourable conditions, the quicker you can adapt tactics to suit.

In response to the post, I received the following question on twitter:

  • What are some things one can do to put together a framework for identifying these transitions?

 

Great question!

Here's one thing that you can do…

Before you can study the transitions, you need to know what type of price sequences lead to you underperforming. And which lead to exceptional performance. From that foundation, you can study the transitions in and out of these sequences.

So here is the plan…

Something you might want to consider post-session…

Examine the price sequences where you just couldn't read the market bias!

These are the sequences where you have no idea what is going on. "It's bullish. No… it's bearish. No… wait.. hang on…it's going… damn it! I have no idea at all."

The sooner you can recognise this (and accept it) the sooner you can stand aside and limit damage, waiting until some clarity returns to the market.

Post-Session:

1. Take note of any price sequences which resulted in complete uncertainty about the directional bias.

2. Review the conditions – market structure, price action and human performance factors – which may have influenced your decision making.

3. Document your findings.

4. Over time, you'll start to identify those conditions which have the potential to put you out of sync with the market, allowing you to recognise and adapt more quickly in future.

Examine the price sequences in which you found yourself fighting the bias for multiple trades!

These are the sequences in which you were confident that you had picked a market direction, but then got stopped out of one trade… and then another… and maybe more… as you fought what was in reality a completely opposite bias. Hindsight is a beautiful thing. But it's also where we learn. Study these sequences and learn what puts you 180 degrees out of sync.

Post-Session:

1. Take note of any price sequences which resulted in multiple attempts to trade the market from the wrong side.

2. Review the conditions – market structure, price action and human performance factors – which may have influenced your decision making.

3. Document your findings.

4. Over time, you'll start to identify those conditions which have the potential to put you out of sync with the market, allowing you to recognise and adapt more quickly in future.

Examine the price sequences in which you read the market bias well but just couldn't execute in sync with the market!

These are the sequences in which were 100% spot-on regarding the market bias, but just couldn't get those trades going. Choppy price action leading to hesitation. Or maybe tripping stops and leaving you watch from the sidelines while it goes to the target without you.

Post-Session:

1. Take note of any price sequences which resulted in a correct bias but a complete inability to profit from your market read.

2. Review the conditions – market structure, price action and human performance factors – which may have influenced your decision making.

3. Document your findings.

4. Over time, you'll start to identify those conditions which have the potential to put you out of sync with the market, allowing you to recognise and adapt more quickly in future.

Examine the price sequences in which you read the market bias well AND executed well.

These are the sequences in which you just smash it out of the ballpark. Not only can you see the market bias, but every fibre of your being senses it as well. And your timing just fits perfectly.

Post-Session:

1. Take note of any price sequences which resulted in A+ trading and clear outperformance.

2. Review the conditions – market structure, price action and human performance factors – which may have influenced your decision making.

3. Document your findings.

4. Over time, you'll start to identify those conditions which have the potential to put you quickly in sync with the market, allowing you to recognise and exploit the situation more quickly in future.

A whole lot of work, but it will pay you back a thousand-fold.

Happy trading,

Lance Beggs

 


 

The Mindset of a Champion

 

This social media post from last Sunday is just SO IMPORTANT, I thought we should expand upon it and get the ideas out to the whole YTC audience.

<image: The Mindset of a Champion>

This is just a perfect example of a growth mindset, viewing losses as feedback that serve to drive further improvement and growth.

There are two things that I love about this.

1. It is SO ACTIONABLE.

Look to your own post-session procedures and ensure that you are approaching your review in the same way.

Serena Williams:

  • "I'm already deciphering what I need to improve on, what I need to do, what I did wrong, why I did it wrong, how I can do better…"

 

Let's make this relevant to our job:

  • What decisions were less than ideal? (Consider all aspects of today's trading, including your physical, mental and emotional state, your work environment, your ability to analyse the market, to get in sync with the price action, to recognise opportunity and to execute on that opportunity.)
  • Why did I make these decisions?
  • What alternate decisions would have improved my performance?
  • What can I do to ensure I make better decisions in the future?

 

2. It finishes with POSITIVE ENCOURAGEMENT.

After the review is complete and steps for improvement have been identified…

Serena Williams:

  • "OK, I do improve with losses. We'll see how it goes."

 

"I do improve with losses."

Beautiful!

Zero baggage carried forward into the next game.

Consider adding that to your own post-session procedures:

  • "I do improve with losses. Let's see how it goes tomorrow."

 

But Wait… Let's Make this Even Better…

Sunday's post also featured some great points from Nicholas…

<image: The Mindset of a Champion>

<image: The Mindset of a Champion>

If you want to be great you cannot settle for "good enough". You need to CONSTANTLY PUSH TO BE GREATER.

So let's improve the earlier post-session review items, ensuring they consider all sessions regardless of whether we outperformed or underperformed.

Step 1:

  • What decisions were less than ideal? (Consider all aspects of today's trading, including your physical, mental and emotional state, your work environment, your ability to analyse the market, to get in sync with the price action, to recognise opportunity and to execute on that opportunity.)
  • Why did I make these decisions?
  • What alternate decisions would have improved my performance?
  • What can I do to ensure I make better decisions in the future?

 

Step 2:

  • What decisions were excellent? (Consider all aspects of today's trading, including your physical, mental and emotional state, your work environment, your ability to analyse the market, to get in sync with the price action, to recognise opportunity and to execute on that opportunity.)
  • Why did I make these decisions?
  • What can I do to ensure I continue to make similar decisions in the future?

 

If you want to be great you cannot settle for "good enough". You need to CONSTANTLY PUSH TO BE GREATER.

Growth will be found at and beyond the edge of your comfort zone.

Welcome the frustration!

Welcome the pain!

Welcome the challenge!

And use it to DRIVE YOURSELF TO HIGHER LEVELS OF PERFORMANCE.

Happy trading,

Lance Beggs

 


 

You’re Fired!

 

I recently sent out the following social media post:

<image: You're Fired!>

This was my favourite reply:

<image: You're Fired!>

Ha ha! Awesome.

All jokes aside though, I think this is just so important. I feel we need to discuss it in greater detail (and get it out to thousands of you via the newsletter, rather than just a few hundred via social media).

That is what we are aiming to achieve – consistent, high-quality implementation of processes on a day-to-day basis.

So, here is the original post again:

If you employed someone to trade your money for you, would you be happy if they prepared for today's session the same way you just did?

Let's extend that idea to all aspects of our daily operations. (Of course, adapt as required to suit your business.)

  • Would you be happy with the way they prepared themselves physically and mentally for the upcoming session?
  • Would you be happy with the way they analysed charts in preparation for the upcoming session?
  • Would you be happy with the degree of focus they applied during the trading session?
  • Would you be happy with the consistency they applied to following any workflow cycles throughout the trading session?
  • Would you be happy with their ability to follow your analysis and trade checklists or routines throughout the trading session?
  • Would you be happy with the way they documented their trade outcome and performance.
  • Would you be happy with the way they reviewed their daily performance and planned for improvements the next day?

 

NOTE that none of the above is concerned with the outcome of trades. Win or lose is irrelevant in this case. I'm concerned here ONLY with how well your employee is implementing your daily processes and routines. If they're providing quality implementation and the results continue to be poor, then that is on you (the employer). You need to provide your employee with an improved plan. For today though, our concern is only with how well they are carrying out your current plan.

You may wish to consider adding a step to your post-session routine, for you (the employer) to grade your trader in all aspects related to quality, consistent implementation.

<image: You're Fired!>

Update daily. Improve daily.

And most importantly, watch for problems which continue to appear on a regular basis. They will need priority attention.

Now, accepting that most of us are both the employer and employee, let me finish with an important point. 

Do not be overly critical of yourself. You need to be as positive and encouraging as possible. But you MUST set clear boundaries as to what IS and IS NOT an acceptable standard of behaviour and effort. And work to improve daily.

Happy trading,

Lance Beggs

 


 

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

 


 

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.

 


 

Learning from the Must-Trade Price Sequences

 

Almost all trading sessions will contain one to two price sequences which are absolutely the best.

These can be the difference between an average session where you just grind out a small positive result and a great session where you hit it out of the ballpark.

The price sequences which make your day.

How you define a "must-trade" price sequence will vary from trader to trader. But for most of us they will be the largest and most directional price swings, with smooth price flow at a nice pace. Everything just right!

There can be value in reviewing these post-session.

  • Which were the Must-Trade Price Sequences?
  • Did I capture them?
  • If so, how well did I perform? How did I recognise the opportunity? How could I have done better?
  • If not, was it reasonable to expect that I should have caught them? Why did I fail to capture them? How could I have done better?

 

Let's look at a couple of examples.

Learning from the MUST-TRADE price sequences

Learning from the MUST-TRADE price sequences

Learning from the MUST-TRADE price sequences

Learning from the MUST-TRADE price sequences

Learning from the MUST-TRADE price sequences

Learning from the MUST-TRADE price sequences

 

Another example:

Learning from the MUST-TRADE price sequences

Learning from the MUST-TRADE price sequences

Learning from the MUST-TRADE price sequences

Learning from the MUST-TRADE price sequences

Learning from the MUST-TRADE price sequences

Learning from the MUST-TRADE price sequences

Learning from the MUST-TRADE price sequences

Learning from the MUST-TRADE price sequences

Learning from the MUST-TRADE price sequences

Consider adding this to your post-session review, if you think it will offer value:

  • Which were the Must-Trade Price Sequences?
  • Did I capture them?
  • If so, how well did I perform? How did I recognise the opportunity? How could I have done better?
  • If not, was it reasonable to expect that I should have caught them? Why did I fail to capture them? How could I have done better?

 

Happy trading,

Lance Beggs

 


 

You Can’t Catch Them All

 

Never judge a missed trade by how it looks AFTER THE SESSION.

Always judge a missed trade by how it looked AT THE RIGHT-HAND SIDE OF THE SCREEN AT THE TIME OF ENTRY.

This article is in response to a question I received based upon the following image, from this prior article – http://yourtradingcoach.com/trading-process-and-strategy/how-do-you-find-time-to-plan-a-trade-on-a-1-minute-timeframe/

I didn't get an entry SHORT here... 

Here is the question I received:

  • Thank you Lance, again, for your recent article. One question that has stuck in my mind comes from the second image where you talk about the earlier missed entry. You said you can see it's an obvious trap entry point. But you weren't looking for that. Why not? Why did you miss the trade? Because, I agree with what you said. It looks obvious.

 

Check the prior article if you missed it – http://yourtradingcoach.com/trading-process-and-strategy/how-do-you-find-time-to-plan-a-trade-on-a-1-minute-timeframe/.

Ok, this is a common error.

It's so easy to look back at a chart post-session and find the largest and smoothest price swings. And then analyse the entry point to find the obvious way to get into that trade.

Followed shortly after by calling ourselves all kinds of names for having missed such a blindingly obvious entry. And then vowing to never make such a newbie error again.

Let's try it with this trade…

You can't catch them all

You can't catch them all

You can't catch them all

But it's not like that.

Trades look different at the hard right edge of the screen.

Here is the same missed trade from a different perspective, looking back at some earlier structure and positioning the entry point at the right-hand side.

You can't catch them all

You can't catch them all

You can't catch them all

You can't catch them all

I'm ok with missing this trade. I feel my assessment at the hard right edge was reasonable. I accept that you can't catch them all. And this is simply one that was not mine to catch. Hopefully you were able to catch it and profit from the whole move.

YES… we must review our charts post-session.

And it's very important to review the strongly directional price swings that were missed.

But make sure that the primary part of this review occurs at the hard right-hand edge of the screen.

Is it really something you should have caught? Or are you influenced by the hindsight view of the trade outcome?

Because the simple fact is….

as much as you'd love to…

You can't catch them all.

Happy trading,

Lance Beggs