My Go-To Method for Solving Trading Problems

 

The internet is full of problem-solving models and systems.

But here's one I've been using my whole trading career.

It's a simple series of three questions.

A subset of five questions regularly used back in my Aviation days in order to manage risks (only three of the five are usually relevant in the trading field).

<image: My Go-To Method for Solving Trading Problems>

Three simple questions:

  1. Can I avoid the problem?
  2. Can I reduce the frequency?
  3. Can I reduce the consequences?

 

Putting this perhaps into simpler English:

  1. Is there something I can do that will ensure I never even encounter "the problem"?
  2. Is there something I can do that will ensure "the problem" won't happen as often as it has been?
  3. Is there something I can do such that when "the problem" does occur, the negative outcome won't be so bad?

 

Most importantly, we're not after vague "touchy feely" solutions.

So I don't want an answer of "I just need to be more disciplined" or "I just need to try harder".

This social media post from last year comes to mind.

<image: I just need more discipline... WRONG>

We want REAL solutions.

Something actionable. Something measurable. Something testable.

Systems. Routines. Processes. Checklists.

Or anything else technical or process driven in nature.

Let's work through a simple example.

We'll use a question I received on Twitter a week ago:

<image: The problem...>

Visualising "the problem", it would be something like this:

<image: The problem...>

So how can we solve this?

Rather than me giving my solutions, I think we'll get more value if we make this interactive.

I want to hear some of your solutions. And then I'll share some of them next week in a continuation of this article.

So, given this problem:

  • An inability to trust a rally resulting in continued attempts to fade the rally and grinding my way into a completely avoidable drawdown.

 

How can we solve it?

Can you find a solution through one, two or even three of these simple questions:

  1. Can I avoid the problem?
  2. Can I reduce the frequency?
  3. Can I reduce the consequences?

 

Or in simpler English:

  1. Is there something I can do that will ensure I never even encounter "the problem"?
  2. Is there something I can do that will ensure "the problem" won't happen as often as it has been?
  3. Is there something I can do such that when "the problem" does occur, the negative outcome won't be so bad?

 

Please leave a comment in the blog post – identifying both the question that you're using and the solution. Or send an email to support@yourtradingcoach.com

To be continued…

Lance Beggs

 


 

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6 Comments to “My Go-To Method for Solving Trading Problems”

  1. RobR says:

    Avoid = no shorts until trend line is broken (can use MA’s for this too)
    Reduce frequency = a rule like max 2 of the same trade – in this case reversal of trend
    Reduce consequences = 1) stop out 1 tick above swing high at worst, 2) never chase – enter on retrace back up to bottom of the supposed topping candle.

    • Lance Beggs says:

      Thanks RobR,

      Perfect. Especially the “avoid” solution, which is the most simple and obvious solution. Create a procedural way of limiting SHORT trading to ONLY those times when the structure says the bias is short. Whether through trendlines, MAs or simple Dow Theory swing high/low structure, provided the trader has CLEAR and unambiguous rules for how they structure the market and how they will trade that structure, there is nothing more effective.

      Thanks.

  2. Dan says:

    This is something i had to face and resolve too… i would take too many trades trying to fade a trend, resulting in many losses and even more frustration. The rule that i set to myself is: “follow the trend until a reversal becomes clear”. Basically i don’t care about being the first jumping on a reversal. I will keep trading the trend on every pullback until it runs out of steam and i can clearly see that is reversing (at the end of the yellow boxes in this case, after a couple of very bearish bars). I don’t want to anticipate, i want to follow. This way, my losing trades are fewer and makes much more sense in hindsightthst those many losing shorts in the middle of an uptrend.
    The only times i will try to jump on a reversal early is around s/r levels if i spot weakness or on a topping pattern after a climactic move that could end a trend. Otherwise, in an uptrend until the lows are not broken i will keep seeking bullish opportunities, and viceversa in a downtrend. If i can’t identify a clear direction and a clear bias, i don’t trade.

    1. Can i avoid the problem?
    Stop trying to anticipate the reversal. Follow the trend, follow the bias until proven wrong, then reassess.

    2. Can i reduce the frequency?
    Only take trades in the direction of the trend. Until the trend structure is in play, don’t be tempted in anticipating a reversal until you have a valid reason to (fading weakness at s/r, fading weakness after a climactic move or clear opposing bias breaking the trend are my go to patterns)

    3. Can i reduce the consequences?
    If you only trade reversals in a few defined circumstances you will limit the avoidable losses in the middle of a trend.

    • Lance Beggs says:

      Hi Dan,

      Beautiful – “I don’t want to anticipate, I want to follow.”

      The difference between you and the guy who asked the question, I suspect, is that you’re (a) clear on how you have structured the market, and (b) clear on where within that structure you will seek trade opportunity.

      And so given this clarity, I imagine it would be extremely rare for someone like you to find yourself constantly fading a directional bias simply because you just “feel” it has to go down.

      Simple solution. Not necessarily easy though. He will have some work to do in determining the (a) and (b) that works to his strengths.

      Thanks,
      Lance

  3. Mihail Bukov says:

    Thanks Lance for the post and thanks Dan and RobR – awesome answers. Beautifully said and so true.

    This felt as if it was written personally for me. Currently, working hard on shaping my short bias. Have the same mental ‘issues’ as the guy who wrote to you asking for help.

    I have partly implemented the S/R areas for entry, based on the logic of supply coming from higher time frames as well as waiting for the trend to brake. Those work great.

    NOTE: Here’s what I have been doing lately (for the last month), not sure if it is going to work out as I am still in the process of seing what the results look like and even saying it makes me doubt it. As Lance had said many times, doubt in your edge could do only wrong so practice is needed to gain confidence and this is what I am doing. So far I have not started being on profit but I at least have stopped losing.

    Sometimes, however, I just go to a lowertime frame (one must feel comfortable as I do there) – a 15/30 sec chart, where the trend is not as strict and where I could find a decent RRR scalp opportunity that fits in the higher timeframe trend.

    Lance, feel free to correct me or even to delete my comment if you think it could do more wrong than good to anyone reading it. Fully trust your experience in the field.

    • Lance Beggs says:

      Thanks Mihail, Much appreciated.

      You’d be amazed to hear how many people have a SHORT bias. I do myself, although not to the extent it damages edge. But I’m always really comfortable trading short, but struggle with every long position.

      What you’re doing is fine. What matters though is whether or not it’s effective. And that requires a process of trial and error. Implement these changes for a predetermined period of time, track the results, review, and then plan the next trial.

      Thanks again for your comment. I wish you all the best of luck,
      Lance.

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