It’s not me, it’s you – the relationship between your edge and variance.

It’s not me, it’s you – the relationship between your edge and variance.

One of the important things in trading is understanding from a probability perspective what is likely to happen, when you actually use your trading system over time.

Why is this important.

If we do not understand what results the trading system is likely to produce, then we cannot answer the following questions when we review our trading.

Does my system still have an edge?

Is any under performance of the trading system down to variance or is it the trader underperforming?

What do I mean by that?

The best way to explain this is to use an example.

We have a trading system that has win rate of 50%. The average winners are 1.5 bigger than the average losers, and we risk 1% of our account.

First let’s look at the probability of having a losing streak. There is a 76.8% chance of having 5 losers in a row.

If you were using this trading system and did not know that there is a high probability of having 5 losers in a row, then when this happens the first reaction could be the system has no edge and start looking for a new system.

Or the reaction could be that I am trading like shit and need to sort my trading out.

The above statements could be true, but having 5 losers in a row with this system is not an indicator of either of these statements.

Is the next trade going to be a winner?

It took me a while to understand this, but we do not know probability of the outcome of the next trade.

If we have a trading system that has a win rate of 70%, the next trade does not have a 70% chance of winning. The win rate does not refer to individual trades but to a sample size. Having a win rate of 70%, says that over a large enough sample of trades, 70% of the trades will be winners.

So what is the probability of the next one to be a winner. The answer is 50%. Why 50%, we cannot tell what order the winners and losers are going to come. So we do not know the outcome of the next trade, we just know that if we follow our trading system, that over time we will have 70% winners.

And the fact that we do not know what order the winners and losers will be in the sample size, we only know the overall percentages.

This means that over a large sample size, the actual return on the account balance can be different.

Using Monte Carlo to understand the variance in our trading system.

What is Monte Carlo? Here is the an article that explains it better than I could.

I am using Monte Carlo to simulate a trading system over a 500 trade period and what effect that will have on the account balance. But as we do not the outcome of each individual trade, the order if winners / losers are randomised.

I then rerun the simulation for another 50 times, and this gives me a range of returns.

The best way to look at this, is that we are comparing the returns of a trading system over 500 trade period against the same trading system x 50.

This is a trading system with a win rate of 50%, winners 1.5 r , losers 1 r and risk per trade 1% of account balance. Starting account balance is 10000 USD.

1. Across the 50 simulations, the worse draw down was 66%.

2. The highest finish account balance was 51,219 USD

3. The lowest finish account balance was 19,854 USD

Whilst the trading system is profitable, that actual returns are different, and different by 31,365 USD.

How do I use this information?

Every quarter I enter the previous quarters system stats into the spreadsheet, including the average number of trades per day. This will then give me likely figures for the variance in expected returns, I then break this down into months and weeks.

Once I have these figures, I use these in my end of week reviews to see how I am performing against the theoretical system. Thus giving me a benchmark range to compare my actual performance against.

I have included the excel spreadsheet at the bottom of the article so that you can run your own stats.

Here is a quick video on how to use the spreadsheet.

Here is a copy of the spreadsheet.

mc_example

Resources for Building a Trade Journal

Resources for Building a Trade Journal

Last week, I posted an article walking through my trade journal, looking at what stats I track and how I lay it out.

This week I am going to go though some resources that I used to learn excel and build my own journal.

Before we start, one of the questions to ask ourselves is do we really need to build own when there are pretty good commercial alternatives. For example, Edgewonk and Tradervue

Pro’s

Learn Excel.

This will enable us to build custom mini journals to track specific data to answer specific questions that the main commercial journals may not cover.

The process of building the journal and learning the formula gave me a deeper understanding of what the stats are actually showing.

It is free. Yay.

Con’s

Takes time to learn Excel and build the journal.

This can be done in bite size pieces but it still takes time. Around the beginning of the year, I re wrote my journal to tidy it up, turn the data into tables and re produced the stats pages using slicers.

That took me 2 solid days to reproduce. So it is an endeavour at times, but that may be just me.

As a home trader working alone, I have to be responsible for so many areas, preparation, trading, review, research and analysing.

Then there is the goal setting, the review of the best practices / processes on top of that.

I constantly find that there is so many things to do, that I have to prioritise all the time, just to get some semblance of work / life balance.

The question is, does learning how to build your own trade journal take you closer to your ultimate goal?

Only you can answer that.

If you are not familiar with Edgewonk, one of the commercial trade journals, this is an excellent alternative to building a journal. Version 2 has just come out of beta and I will be running that in parallel and will do a review of this trade journal down the line.

Read my Edgewonk Trade Journal Review

MFE/MAE Tracker

The one thing that Edgewonk doesn’t track that well, at this current time and that could change with Version 2, is the MFE and MAE as a way of optimising targets and stops and an example of my using this data is in my article How I am using my trade journal to improve my targets.

Trade Journal

I have put a quick video tutorial on how to build a basic version of my own MFE / MAE tracker.

 

Download the Excel file used in the video

Learning Excel to Build a Trade Journal

The first resource I used to build my own trade journal was though a video produced by Adam Grimes in his free trading course.

http://adamhgrimes.com/TAAS/the-course/

I recommend the whole course as it has some excellent exercises in it.

Module 3 has the video in it on how to build a trade journal.

Then the following YouTube channels where essential in learning how to write formula’s and how to use pivot tables / slicers.

MyExcelOnline

https://www.youtube.com/channel/UCMaVSMuAqV5j9WRdUz9UQfw

Excel is Fun

https://www.youtube.com/channel/UCkndrGoNpUDV-uia6a9jwVg

Trade informed

https://www.youtube.com/channel/UCNVfBUEw7yM7E0eSkhXjZ4A

Google Search

The last resource I used is Google Search. If I could not get a formula or logical statement to work, then I would type my question in to Google and preface with excel. That worked well a lot of the time.

Any questions or requests, please drop me a comment below and I will do my best to help.

A walk though of my Trade Journal

A walk though of my Trade Journal

I got these tweets during the past week regarding my trade journal.

This post, is going to take a look at what data I collect and how I organise it.

The purpose of a trade journal is to provide data to answer questions, therefore the data collected will depend on what the questions are.

My trade journal does vary depending on what questions I am trying to answer but I will focus on the main areas.

Obviously some of the data I am tracking may not be relative to questions other traders are asking of their own performance.

If a trader is just starting on the process of keeping a journal then this is very likely over the top for their needs.

But I will write an article on how to start a journal and what I would consider the very basics to get started with.

This journal was made in excel and started very simply and has morphed over many versions and a period of 2 years. Google has been a great resource in learning how to make this journal.

I am not going to cover how to generate the formulas and the pivot tables etc which make up the engine to this journal.

If people are interested then I will produce an article on how to approach this with links to good resources for learning how to write an Excel trade journal.

Main Trade Sheet

I have had to split this into 2 sections as the image will not fit neatly in the post.

Trade Journal

1. Trade number. Starts at 1. Enables me to easier see how many trades that are making up the sample size.

2. Date of trade. As I am a day trader and keep no positions over night, I have no need to have a date of exit. But if you hold overnight then you will need an exit date.

3 and 4. Time in and out. This allows me to monitor my performance at certain periods in the day and how long each trade is.

5. I trade 2 markets. So I have a column to indicate which markets this trade is.

6. Com. How much the commission / cost for this trade is.

7. Setup. I have 4 primary setups so I split them up plus a bonus setup which is an error trade. I have this so that I can monitor what errors I make and how much error trades are costing me.

8. Entry. I have 2 types of entry, blind limit order off the level and a trigger setup. Again I enter this so I can monitor which is performing well or badly.

9. L/S. Long or short. I use 1 for long and -1 for short. If you are writing your own excel journal, is a lot easier to use binary choices when it comes to composing logical statements.

10. #. No of contracts.

11. Price in. Entry price

12. Initial stop. Stop price

13. SCO. The number of contracts out at first exit which I call the scale out.

14. SCO.price. The exit price of the scale out.

15. P1. The number of contracts at second exit which I call Target 1.

16. Price Out 1. The price at the second exit.

17. MFE. The most favourable price the trade reached without hitting my stop. I define this as the next pivot high (for longs) or pivot low (for shorts) on the relative timeframe. Trading the 15min then the next 15min high or low, trading the 5min then the next 5min high or low. It does not matter whether I am in still in the trade or not. I track this as it enables to analyse my exits stats against the potential in the trade. Which in turn allows me to make decision whether I should go for bigger or small target.

18. MFE.T The time when price reached it MFE. This allows me to look at how long these set ups play out.

19. MAE. For winners this tracks how far price went against me, so I can analyse my stop size. For example my scalp trade used to have a stop of 7 ticks, but by analysing my MAE, I found that on my scalp that if price rarely went more than 2 ticks against me and that the SD of my winning MAE was 4 ticks. So now my average stop size is 5 ticks. So on every losing trade I now save 2 ticks.

20. SCO. Did the trade hit the scale out target. A binary choice of 1 yes and 0 no.

21. T.15. 15min trend.

22. T.60 60min trend.

Trade Journal

1 to 8 is a Trade Grading System. I have implement this after reading this excellent post from BreakingOutBad.

9. Log.Stat. This is a binary choice of 1 or 0 to indicate whether I have read my logical statements after each type of trade. This helps keep me focused.

10. Primary/ Secondary. Sometimes I get secondary setups after I have already got a winner off a level, and I have noticed that these tend to run longer and give bigger winners. So I have added a column so that I can collect data to see if this proves my assumption right or wrong.

11. SC/IDS Whether the trade is a scalp or intraday swing. I have clear rules defining which is which.

I also have a copy of this trade journal in a separate sheet which I enter trades I missed. As one of the questions I am trying to answer at the moment is “What effect does no fill or missed trades, have on my win rate and performance?”

Reading and making use of all this data.

Sorting the data into a readable and useful format is the next step and the key to this is pivot tables and slicers.

Below is my main stat page, which is a pivot table and a bunch of slicers.

Trade journal

A. All these are slicers, which enables me to filter the data in the main table by time, day, week, month and all of the columns in my journal.

My main pivot table covers

1. The various setups

2. The number of trades this setup produces.

3. Win rate.

4. Loss rate.

5. Break even rate.

6. Total gain compared to amount risked.

7. Total gain in money for this setup

8. Expectancy in Risk terms

9. Expectancy in Ticks.

10. Expectancy in ticks expressed over a 100 trades. This is something fairly recent I added. To help me relate this to actual trading decisions.

11. Average win size in ticks

12. Average Loss in ticks.

13. Total commissions for this setup.

14. The average size in ticks of the scale out position.

15. The number of times this setup hits the scale out exit.

16. The average size of the stop in ticks.

17. The average size of the second exit in ticks.

I also have a second pivot table covering the same information for the missed trades on a different tab.

On separate tab I have an expectancy calculator so that I can play around with new targets and stops of step ups, so I can see what the potential return is compared to my current return of these setups.

Maximum Favourable Excursion Data

This is an important data sheet for me. This is constructed using pivot tables and slicers. On an important note, MFE is always reduced by 1 tick to ensure that the MFE is recording a price that it is possible to exit at.

It takes each trade and plots the MFA (B) and MAE(C) in an histogram, which then can be filtered by the slicers (A) to show the types of trade that I am interested in.

It allows me to look at where price clusters for a setup and then I can compare this to my actual targets, to see whether they are too ambitious or am I leaving potential too much money on the table.

I also have a sheet where I compare my actual exits to the MFE on a histogram.

Again this is a pivot table with slicers.

My maths skills are pretty poor, which I have worked on to improve but there is a nagging in question I cannot answer. Maybe someone reading this can give me some help in the comments or twitter.

For example, If my scalp win rate is 68% with an average win of 6 ticks. If I increase the average target to 7 ticks, as the sheet above shows that 20% of my winning scalp trades go 1 tick further. The question is would this reduce the win rate by 20% and increase my average win to 7 ticks. Therefore the new win rate be 54.4% and average win 7 ticks.

Trade matrix

This is also a pivot table with slicers.

It records the number of trades, the win rate, loss rate, expectancy, the average length of time it takes to hit the MFE (A.SW) and the average time in trade (A.TIT).

This data is grouped into hourly slots and into days.

These allows me to see if there was any particular part of the day or a particular day where I underperformed, which then can be filter to show what I want.

One downside to this chart is that as it grouped into many different sections is getting a big enough sample size for the questions to become relevant.

Grading

Another stat I keep track off is the average Grade for the trades per day and per week.

Again this is created by a pivot table.

I will add slicers to this to see if the grading is effected by time of day, day, type of setup etc. But I have not got around to adding this to the sheet.

I also have a couple of graphs showing the equity curve and the expectancy curve, but I find these are my least most useful tabs.

Summary

My trading journal has taken a couple of years over numerous versions to get to this stage.

To get this sort of information from your trading, you do not need to make your own spreadsheet.

Check out my review of Edgewonk here.

And the new version Edgewonk 2 is coming soon.

I personally think it is a great piece of software. There are a couple of main reasons why I do not use it.

I can enter my trades a lot quicker in my journal as each trade is one line. In Edgewonk each exit has to be a separate entry.

Edgewonk does not cover the MFE/MAE stats in as much depth as I do. Which is crucial in my opinion in optimising targets and stops for each setup.

As far as I know these are being addressed in Edgewonk 2.0

If they are I will probably switch from my own journal to theirs.

How I am improving my Play to Win Mindset

How I am improving my Play to Win Mindset

During my break from trading in August, I have been thinking about the whole play to win mindset verses the playing not to lose, especially when it comes to taking trades and setting correct targets.

PLAY TO WIN

I have two types of trade, scalps which generally have a target of 5-8 ticks, and intraday swings (IDS) which typically have target of 10-16 ticks.

The problem I have, is that it is a lot easier for me to set the targets for a scalp trade and ignore that on certain trades I should be placing IDS targets.

This is due to habit and fear of losing. I am having problems accepting the risk on the IDS trades which tend to take up to an hour to play out compared to my scalp trades which play out in less than 15mins.

I have clean defined rules which decide which trades are designate an IDS, if it does not fit these rules then it is a scalp trade.

For a while now I have implemented a decision making process, to help me approach problems the same way each time.

It is based on a watered down version of John Boyd’s OODA loop called DADA loop, which stands for Data, Analysis, Decision, and then Act. Then gather more data and continue with loop.

I am going to walk through the problem using my DADA process to decide whether I should stick to just scalp targets or on certain trades aim for the larger targets.

The information generated will in turn be placed in my exit rules, so that before entry I re read these and in turn help me focus on playing the trade in my best interests.

Everything is going to be done without taking in account, commissions and costs.

DADA Process

Question

Whether I should set scalp targets or IDS targets.

NB not randomly but when the setup rules specify IDS or scalp targets.

Data

What is the likely outcome?

Scalps Targets

It is a Win. My current win rate on these trades is 68%. With an average win of 6 ticks.

It is a Loss. My current loss rate on these is 24%. With an average loss of 5 ticks.

It is Breakeven trade. My current breakeven rate on these trade is 8%.

My average reward to risk ratio is 1.2 to 1.

Now for some maths.

For me to be profitable taking trades with a 1.2 reward to 1 risk. I need to win 46% of the trades.

This is worked out using the following formula 1/(1+(R multiple)) therefore 1/(1+(1.2)) = 0.4545

Therefore I need to win a minimum 47% of the trades and my current win rate is 68%. So far so good.

My expectancy is typically worked out as follows

(Average win x Average Win rate) – (Average Loss x Average Loss rate)

(6 x 0.68)-(5 x 0.24)=2.88

One of the problems I have found with the expectancy formula, whilst telling whether my edge is profitable or not, it has little bearing to my real life trading decisions.

So I have decide to change this to try and give me a number that I can relate to.

Instead of using ticks, I will use the value of 1 contract and I will multiple the result by 100 trades. This will tell me the value for the next 100 trades for every contract traded.

Therefore

1 contract of the Bund is worth 10 euros per tick.

My expectancy is (((6 x 10) x 0.68)-((5 x 10) x 0.24))x100 = 2,880.0 euro

By scalp setups are worth 2880 euros for every contract traded over the next 100 trades.

IDS Targets

It is a Win. My current win rate on these trades is 57%. With an average win of 12 ticks.

It is a Loss. My current loss rate on these is 33%. With an average loss of 7 ticks.

It is Breakeven trade. My current breakeven rate on these trade is 10%.

My average reward to risk ratio is 1.7 to 1.

Now for some maths.

For me to be profitable taking trades with a 1.7 reward to 1 risk.

Again using the following formula 1/(1+(R multiple)) therefore 1/(1+(1.7)) = 0.3704

Therefore I need to win 38% of the trades and my current win rate is 57%. So far so good.

Therefore my expectancy for the IDS

1 contract of the Bund is worth 10 euros per tick.

(((12 x 10) x 0.657)-((7 x 10) x 0.33))x100 = 5,574.0 euros

Data Analysis

Over 100 trades my scalp expectancy is 2880 and IDS expectancy is 5574.

The difference is 5574-2880 = 2694 euros

Decision

If I do not take a trade when I should, then I am losing a potential minimum of 2880 euros.

If I place scalp targets when I should be placing IDS targets then I am losing 2694 euros.

Act

So I will take every setup that fits my process / rules and I will always place the correct target structure.

I then can collect more data and then repeat the process using my MFE and MAE to see if a change in targets and stops produces better results.

Of course these calculations are not taking in account my cost per contract, so are not a completely true reflection of the profitability. But the purpose of this exercise is to work though the problem in a logical manner using DADA and then turn the result into something that I can relate to.

It is a matter of re framing the risk acceptance.

My journal tells me that my expectancy is 2.87 and my win rate is 68% but during the trading session I cannot relate to that.

I can relate to

That if I take this scalp setup, I have to win 47% of the next 100 trades to be profitable and if I follow my process over these 100 trades then this is worth 2880 euros.

That if I take an IDS setup, I have to win 38% of the next 100 trades to be profitable and if I follow my process over these 100 trades then this is worth 5574 euros.

The next step is to transfer these figures to my exit cheat sheet. The plan is that when I stalking trades using my process, that the reminder of what a missed trade or incorrect targets means will help me accept the risk of losing 5 or 7 ticks on this individual trade when there is a lot more reward for sticking to the plan for the next 100 trades.

My Journey and other questions answered.

My Journey and other questions answered.

I was asked a couple of questions by Pete in a comment on one of my Daily Trade Plans.

I like so much your blog, but just wonder how did you got there, did you blew your account several times? what was your path?

My path so far has been nothing special or different to many I suspect.

I have not blown my account during my journey, I am a financially risk adverse person, so I have always kept my risk to around 1% of my account.

This can be a double edged sword, whilst learning and developing an edge, it is a good protection from blowing accounts, but once one develops an edge, it can make it hard to start compounding a smaller sized account.

Personally, I prefer this method, as I had a limited size pot to start with, and blowing it would be a possible game ending situation.

The biggest draw down from start to date was around 33%, when I was developing my edge.

How much do you think one needs to making a living out of it even if i know there is an edge to get first; i mean how much you think ones need to get in there without getting too much risk with what you said before ( 6000e per lot )

This is a question I myself looked for an answer to in the first year of learning to trade, and could never find a satisfactory answer to. I am afraid I will disappoint you as well. The answer is depending, as there a few factors that one has to consider.

1. What is the expectancy. How much return we expect from the trading system.

2. What is the frequency of system. This has a massive effect on the returns. An edge that gives 5 opportunities a day will give a massive different return to an edge with the same expectancy that only gives a 5 opportunities a week.

3. How much we risk per trade. One system will give a very different return profile, when risk 1% and when risking 5%. When I say risk profile I mean return, likely draw downs and risk of ruin.

All these can have a massive difference to the amount of money returned, therefore will in turn effect the starting amount needed to make a living. And all this ignores what amount of money constitutes a decent or okay living standard.

Example of how frequency effects returns.

This is a Monte Carlo simulation of 500 trades, based on a 57% win rate and a 1.3 RR and an average frequency of 2.82 trades per day and starting balance of 10000, and 1% risk.

Starting from Monday 30th May, and finishing at 3rd April 2017 (roughly 10 months), based off 5 runs of the simulation, the return is between 14181 and 19797 not including the 10,000 we started with. With a draw down of between 6 to 8%.

Therefore, over that period an average of 1418 to 1979 per month. Of course this does not take account that the first months are going to be smaller and the later months larger due to the compounding effect. This is just an average.

Now this is the same simulation with the same figures expect that the frequency is now an average of 5 trades per week.

Starting from Monday 30th May, and finishing at 18th October 2018 (roughly 29 months), based off 5 runs of the simulation, the return is between 15460 and 22944 not including the 10,000 we started with. With a draw down of between 5 to 7%. So a very similar returns profile as the first simulation, which is to be expected.

But the average monthly (using the same caveats as before) return is 533-791.

And neither of these simulations is taking in account any withdraws, just the return if we compound the funds.

All of the above examples are not even looking at possible differences in expectancy or risk amounts.

This is why it so hard to answer your question and why I never got an answer myself when I looked. As it is a chicken and egg situation. You need to know your edge, frequency and risk and what you want to withdraw at a minimum then we can work out how much we need to start with.

I know this is unsatisfactory, but I would rather be straight than give you some bullshit answer.

Good luck with your trading.

Working on improving my C Game

Working on improving my C Game

Traits that I display when I am trading at my worse. My  C game, as opposed to my A and B game.

These are the low hanging fruits to work on. These do not show up every day but the reduction / elimination of these tendencies will improve my whole trading game.

 

2016-04-16_1757

The C Game

Does not update journal

Looks at P/L and works out how many trades to get back flat

Gets distracted after entry

Easy distracted before entry

Does not update mini plan

Doses not look at hypos after session starts

Get a loser and starts to look for another trade straight away

Trades on setup with no attention to plan or context

Does not look at where stop and target until after entry

No TM – either going for Big winners or very small winners

Don’t pull the trigger

Breakdown

1. Describe the problem in as much detail as you can. Include thoughts, feelings, actions, and associated tactical decisions.

2. Explain why it makes logical sense to think, feel, react, or play that way. In other words, why does this problem occur?

3. Figure out how the logic in step 2 is flawed. Come up with a correction to that flawed logic. This correction can be used as an injecting logic statement. You can also write out a strategy that you can use to learn the correction.

4. Ask yourself why the correction you came up with will work. This is an extra step that reinforces the rationale behind the correction, and helps to firmly implant it in your mind

Grouping

Trading without a plan Revenge Trading Setup trading without thought to context
Does not update mini plan

Doses not look at hypos after session starts

Get a loser and starts to look for another trade straight away

Looks at P/L and works out how many trades to get back flat

Does not update journal

Trades on setup with no attention to plan or context

Does not look at where stop and target until after entry

No TM – either going for Big winners or very small winners

These can be grouped together as they tend to follow a string of losses or a down day

My thoughts are that of the depressive type and cannot be bothered.

A lack of focus and what focus is on the LTF rather than the big picture or context time frame.

Looking for the next quick set up to make the money back.

No plan on context or plan overall for the trade.

No clear thinking.

Take too many trades instead of 3-5 it can become 10-20. Over trading.

Don’t want to update journal or update plan in case I miss a trade and entering it into journal will recognise that I am taking trades that have no edge and / or I am over trading, and I do not want to spoil the journal with loads of shit trades.

Why does it happen

I do not like to lose, especially when they are shit trades. So I do not want to recognise that it is a shit trade by entering it into the journal thus avoiding the reality. Just want to make a good trade to make the money back and then enter it into the journal. Thus I become risk seeking.

This is flawed thinking because the eagerness to recover from a shit trade is that I break the trade process of having a plan and taking the best trade, which means I am more likely to make another shit trade thus compounding the situation and making it worse.

After a shit trade (any trade that is less than a B Grade), I will make a fresh mini plan including context, as this will give me the best opportunity to recover from this loss or string of losses.

Why will this work

Even if I miss a trade because I am doing a mini plan, it will give me a chance to take a break from market, and re assess the context. Most of the shit trades are from OK set ups but they are fading the context when I should be going with the context.

Logical statement

The hard work I have done to find an edge is not destroyed when I take a single bad trade, it is destroyed by trying to win the money back by taking subsequent trades without context and without a plan.

Fear of Loss
Gets distracted after entry

Easy distracted before entry

Don’t pull the trigger

These can be grouped together as these tend to happen after a string of winners.

Why does this happen

These feeling start to come after a couple of good trades back to back, which were profitable. And becomes stronger, the more trades that I take that are successful.

I do not want to spoil the results by taking another trade in case it is a loser. Or if I take the trade, I am uncomfortable with knowing the result and get distracted and poorly manage it.

I am still more focused on the results than the process. I do not want to lose. I want to be seen a successful and not a loser. Which again is a focus on results rather than the process.

Thus I becoming risk avoiding.

It is easy for me to say I will take every trade opportunity that presents itself. Obviously I am not doing that when I am playing my C game.

Logical statement

After every 2 good trades that are profitable, I will read the following logical statement out loud.

My ideal future will not be become a reality, if I don’t concentrate on taking the trade opportunities, which are presented to me now and during this session. Remember the Fastnet Rock.

Why will this work.

I need to remain myself that because I have done well, it is not a time to click down a gear and not follow my process. The Fastnet Rock reminder is that I did the exact thing in one of the Fastnet Races, I got to the rock with a clear lead in my class, and eased up the focus on the return to Plymouth and ended up 3rd. This still hurts, and I never did that again in racing, so I need to focus on that lesson from sailing into a motivation not to repeat this in my trading.

 

This process in improving my process and overall trading come from a recommendation on Twitter. Which fits in nicely if what I have learnt from Golf is Not a Game of Perfect.

Don’t Let Perfect Ruin Good — Jeff Davis

Don’t Let Perfect Ruin Good — Jeff Davis

 

Perfection and trading dont mix. There is no perfection in trading. Perfect entries, perfect exits and perfect setups may exist, but that shouldn’t be your goal. Your ability to perform as a trader can be directly linked to just how imperfect your entries and exits are. The trader waiting on the perfect entry may never get the chance to take an exit. This week one of my students was waiting on the perfect entry and missed a good trade. I took the trade and was paid promptly after entry. When I asked him why he failed to take the entry his first words were I thought it would go lower. The trade level we had identified as a high probability entry was fading the selling.

Plan for variance. My entries wont be perfect. Make this part of the strategy. I did this. My student failed to do this. In high volatility, the probability of the perfect entry is greatly diminished. Its about planning for pain after entry so that its accepted pain. It is just part of the trade. I entered knowing this. I planned for this. I executed the strategy and didnt bail out due to it being in an uncomfortable spot. I have done my work, I know my edge and I can be confident when others may be uncomfortable. This is where my student still has some work to do. He knows the strategy, he actually is even confident in the strategy but he needs to step up and execute. When you can find comfort in entries where others find discomfort you are probably finding edge.

Very interesting article and timely. I am confident in my strategy but suffer a lot with no fills. In my weekly review, I coming around to thinking that my approach to my no fill problem is more to do with looking for the perfect entry as close to where I am wrong as possible. But the problem is I end up not in the trade and these frustrations build up over a period of time and I end up taking a lower probability trade.

There is some excellent advice, and I am going to be looking at ways for me to include this within my strategy. More wiggle room and an expectation that the price could trade deeper into the level.

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Best Practises – Staying on top of Market News and Data

As part of my drive to get all my routines that support my trading, organised into a Best Practise Manual. I am looking at how I keep on top of the news and the fundamental side.

I do not trade the news directly but tend to trade the reaction to the news or the expectancy.

But I have found it best to have an idea of what the market is reacting to the most news / data wise and keep on top of the latest thinking.

I take the approach that there are people out there who have a better read and understanding of the current situation, therefore I tend to read a selection of blogs. Which I have found improves my knowledge and also has helped me to start to develop my own opinions on news / data and the effect they will have on the markets I trade.

General Preparation

There are plenty of websites that cover news and fundamentals in general, it is quite difficult to find decent content that actually discusses these aspects and the possible effect on the individual markets.

A good aggregator of the Macro News is Macro Digest, I use this to keep track of the general trends of what is important to the markets I trade.

Regular Reads

Every week these are the websites that I read, as I have found their content to be knowledgeable, and have helped me prepare for the possible reactions to the news and fundamental data.

Marc Chandler at Marc to Market – Whilst he tends to focus on currencies, his commentary and analysis of the data has always helped me understand the bigger picture.

Marco Man – His commentary is excellent, funny and sometime goes over the top of my head. But an essential read every time he posts.

Also I have to mention @futexlive, I am not a member of their paid services, but I do tend to watch / read the majority of their content that is released on twitter and youtube. I do not always agree with their individual analysis but I find their approach to everything is so professional that it always make me up my game.

Whilst trading I tend to avoid reading too many articles, I find that this distracts me and take my focus away from a trading to a more analytical mind set.

I use Talking Forex (part of Ransquawk), the Live Audio Market Commentary Service. The announcer squawks live news aggregated from professional sources through all the trading sessions. It is a bare bones service compared to Ransquawk or Trade the News services. I think it’s a great service and is part of my daily routine.

In my opinion these guys are good and offer a quality product which covers all my needs in getting the relevant major news to me quickly. And for £20 a month, it is very cost efficient compared to the other services.

I am sure there are plenty of other sources of commentary on market related data. Please feel free to add them in the comments and I will check them out.

Repeating the Best Practise

Repeating the Best Practise

Recently I have been doing some part time consultancy work in my old career. I do this as it fits in around my trading, apart from the odd half day couple of times a month. I enjoy the work and makes me think about my trading from a different perspective.

Recently, we had a performance review of the last race of the current campaign, and it highlighted an area which I think has a cross over with trading.

Whilst the review dealt with the areas they performed well in and areas they needed to improve in, and from that a list of actions was produced to be implemented in the future.

Pretty normal review so far, but what came to my attention was that in a few of the areas they needed to improve upon, they had done better in these areas in past campaigns.

We are what we repeatedly do. Excellence, then, is not an act, but a habit.

Aristotle

So why were they not repeating the good procedures now?

It seemed on further discussion that slowly over time with various team changes and with just the passing of time, that routines that had been habit, had slowly changed or been forgotten without anyone really noticing.

In previous campaigns I had been involved with, I had run an operations manual which listed all the best practises for all the areas under my management. This ensured that everyone followed the correct routine and we did not stray from the path of repeating the methods that resulting in good performance.

How does this relate to my trading?

Well my trading system covering my style, entry, management, risk etc., is well documented and kept regularly up to date.

After this trading weekly review, which highlighted problems due to a lack of focus, I remembered that a couple of years ago, when I moved from trading hourly and daily charts to an intraday style of trading, I had a problem with maintaining and keeping focus, so I had a procedure to get me back into the zone.

Over time as my ability to focus improved, these routines got forgotten as I did not have to rely on these to get into the zone.

Now when they are needed again, I did not need help as I already had a forgotten tool I could use. It was only when writing the review of the week’s trading that I it occurred to me that I had a problem like this in the past and looked up the solution.

In turn this has led me to me thinking about the other areas of my trading, whilst all these areas are done pretty consistently the same way each time they are not documented.

So the question is, whilst I think that these areas are repeated consistently, are they and what other good practises I have lost to time and habit creep?

Have these changes been an improvement or have they been detrimental to my trading?

Without these areas being documented, then I do not know the answer.

For example, I update some of my stats weekly and some monthly, using the same criteria each time.

But now looking back at the stats from a year ago, I collected and updated them on a slightly different time scale and criteria. Why am I doing this differently and was it an improvement? I do not know the answer to these questions.

How many times I have made an error, which I have placed a routine in place, then over time drifted from this routine and then ended up in a similar spot and ended up re-inventing the wheel.

These changes to my routines are in theory, covered by my weekly review in my hand written, and now on line journals, but these improvements are not collected in one place unless it directly relates to my trading system.

Currently it is time consuming to go through these individual reviews to check if I am still implementing the good practises into my trading.

So moving forward I will keep a Best Practises Manual, which I will document my best practises and then using my weekly review to feed into and improve this Manual.

My Problem with No Fill Trades – Update

Last week I discussed my problems with getting no fills at levels and triggers. The article is here.

A summary is that tried splitting my trigger entries in to market orders and limit orders. The results were not satisfactory, the market orders filled me at a worse price and the limit orders still tended not to get filled. Overall I got filled more often but my risk increased and reward decreased.

I do not blindly take triggers off the LTF charts but use the DOM order flow as confirmation / timing tool to get in.

I only traded half days on Thursday and Friday, this gave me some time to mull over the problem. It could be that the problem is a matter of timing, whilst I am reading the order flow on the DOM, that I react too slowly to the new information that I am seeing.

On Wednesday, FT71 gave a webinar on reading order flow and stalking trades, which is relevant to my current problem.

In this video, FT71 is using the S5 Bookmap software, I have already trialled this software once a while ago, and my first thoughts was that it is already providing me with the same information as Jigsaw Trading DOM, so I could not see how purchasing this would pay for itself. Which is my main criteria in purchasing any services for my trading. It has to pay for itself and provide a profit.

Also I read this review by traderunner, another member of the Stage 5 Trading community, who is a professional trader.

I know that I am a visual learner, I have done various tests that confirm this. Also I know from my yacht racing, that when I am watching for headers and lifts on the compass that it takes a second or so for the new information to sink in. That I am a visual learner is one of the reasons that my end of day review is chart based.

There is a plenty of free Visual, Auditory and Kinesthetic Tests, to find what style could be beneficial to you.

As Stage 5 Trading are offering a 14-day trial, my thoughts are that maybe, seeing the order flow visually might enable me to react slightly quicker and enable my limit orders to further ahead in the queue. As I have noticed that a lot of the times is not that it does not trade my price, just that I am too far back in the queue to get filled.

For the next 2 weeks starting the 16th November, I will be trialling the Bookmap software, I will still be looking for the same things as I was on the Jigsaw DOM, just seeing if using this software reduces the number of no fills. If it can then it will be make me more profitable thus pay for itself.

I will update on my progress in the next weekly review and at the end of the trial.

Any suggestions or feedback is always welcome.