Monthly Archives: September 2012
Reviewing Old Charts
Reviewing Old Charts (AKA… "I can't believe I held the trade past that stop loss")
I highly recommend keeping ALL your old trading charts and journal notes.
They're great to review each now and then.
Not only do they offer educational value but they also offer a source of motivation in allowing you to see the incredible progress you've made, as well as a source of amusement at how you could have been so naive. 🙂
I would have bet good money on the fact that I'd NEVER consciously made a decision to hold a trade beyond the initial stop loss. I certainly don't ever remember doing so; and was aware of the concept of risk management at the start of trading as it's a fundamental part of a prior career.
And so, on Tuesday as I was flicking through some old folders of trade data and chart printouts, I was incredibly surprised to find a trade which I held past the stop.
It was early 2003 and I was trading Aussie stocks. In this case it was Croesus Mining (CRS). The strategy at the time was one of identifying a strongly trending market and buying after a pullback followed by evidence of continuation. I was operating from the LONG side only, as do most stock traders. This may have been a good idea had the market as a whole been trending upwards, but early 2003 was the latter stages of the several year bear market. As such, the strategy produced a disappointing mix of winners and losers for approximate breakeven results overall. Perhaps this would have come good if I'd continued into the following several years of bull market; but that wasn't to be. In the months following this trade I made the transition to options in order to allow easier access to both long and short directional plays. This also involved a variation in strategy.
Here's the CRS trade (Yeah, I really did use line charts at this time! I didn't buy my first "real" trading platform till mid 2003.)
(Click on the image if you wish to open a larger copy in your browser window)
Stopped Out… But The Premise Remains Valid!
The recent Winning Through Losing Better series talked, amongst other topics, about the importance of pre-acceptance of risk.
In particular the following:
- Pre-acceptance of trade risk means that I'm not overly concerned with the monetary loss and can keep my focus on the process of analysis and effective decision making. My focus remains on process, rather than outcome!
Without pre-accepting trade risk your analysis and decision making will be compromised at all times, but especially following a loss.
For some people this will result in emotional trades in order to take revenge on the market. Maybe sometimes this will work in your favour. Most often it won't.
For others this will lead to hesitation and missing out on any following opportunity, which leads to a spiral of ever-deepening frustration.
I thought of this again during the past week, in two occurrences in which I was stopped out (full stop for the first example; partial stop for the second). In both cases though the premise remained valid and the environment and setup warranted a re-entry. The important point here is that this re-entry was a conscious analysis decision rather than an emotional based reaction to the prior loss.
Winning Through Losing Better (2 of 2)
Last week we examined losing trades from a mindset perspective (see here for article 1).
This week, let's examine a different aspect of "winning through losing better" – using losing trades as a source of improvement.
Wherever you currently sit on the P&L scale, whether consistently in drawdown, stuck at breakeven, or achieving some degree of consistent profitability, the focus on improving your stats is almost always on:
- How to find better winners; or
- How to better manage our winners.
But this is not the only way to improve your stats.
Improvement can also be found through learning to avoid some of your losers.
Where is the Bias after a Strong Impulse Move?
Excerpt from email received at YTC:
Lance,
I have attached a couple of 5 min charts for you to take a look at. Both charts show a strong quick move, one is 60 pips, the other 80 pips. (I trade using 60/30 min, 5 min, and 1 min charts… so 5 min is my trading timeframe)
I am often very hesitant to trade after a move like this. Could you share with me your thoughts and the process you would go through in assessing the market after this type of move?
By the way, the second chart does form a complex pullback and then breaks the low by 12 pips or so at the time of this writing.
Lastly, I would like to again thank you for all you do. I’ve been following your web site for about 4 years now, and purchased your YTC Price Action Trader book just after Christmas. I’m well on my way to realizing my dream of trading for a living. I’m not there yet, but on my way!
Thanks again,
CR
Winning Through Losing Better (1 of 2)
I was asked during the week by a reader (MB) why I don't show more losing trades in my newsletter articles. This is a great question. The reasons are of course less than perfect – all typically ego related – so I won't go there. 🙁
However MB has a good point. There is great learning potential in losing trades. So in this article, and the next, I'd like to look at a few issues related to losing!
We won't look at the analysis for or against a trade today… we'll get to that in followup article.
First I want to talk about mindset.
The decision to discuss mindset comes about through this comment made by MB in his email, "… in your examples I rarely see you not break even. It's like you have the most amazing ability ever to scratch trades sometimes literally immediately after entering."
I can promise you I do have losing trades.
And I have shared some of these from time to time. For example:
- Surrender your Fate to the Markets
- Trading is a Fight
- You have Too Much Focus on Individual Trade Results
- 3 Different Breakout Pullbacks… Three Different Outcomes
- Sorry to be So Blunt
- This is the REAL Challenge of Trading
- What is Scalping
- Dumb Trades
True, it's not many. I'll improve that in future.
But here's the key thing that you'll notice in looking at any of these losing trades, and that I can confirm as I look over my recent trades to find a loser to share in this article… the losing trades are all relatively boring.