CATCHING THE BIG WAVE
Surfing is often used as an analogy to trading, and most traders dream of catching the big waves. But, similar to trying to surf monster waves, if you haven't acquired the necessary skills to do so, you 'll probably wind up smashed on the reef. Even expert surfers are going to take an occasional beating, but through years of practice and patience, they have a much higher chance of success than most.
Over a series of posts to this thread, I'm going to list some things that can help you catch a big ride, and show you a specific trades as they occur. Some posts will be in advance, and you might be able to try to catch a wave with me. I know from experience that trading can be extremely lonely and difficult, and you may find it helpful to watch someone with thousands of hours of trading and studying share their views on setups. Other posts will be the results of what just happened, and this will most likely be more common, as I do not initially make analysis to share with anyone, I make it to trade myself.
As I write these posts, my goal is that it helps you, and and the same time helps me. Training the mind requires repetition, and writing it out for someone else to benefit from it is an important part of my own conditioning.
My wave of choice is crude oil, or CL, known for big powerful moves and high
volatility.
Crude is not for the beginning trader. Similar to the Banzai Pipeline, it can tear you to shreds if you don't know what you are doing. But, if learning to catch big waves is your thing, crude oil produces them with high frequency.
Crude runs at a 10-day
ATR of 250 ticks +/-. But, the odds of you catching the top/bottom are stacked against you pretty hard, and trying to do so will be financially painful. But getting closer to the bottom gives a higher reward-to-risk. What I look for are places where to opportunity is greater and the risk is less. Tough orders, but that is my approach.
Before we even head for the coast, so to speak, please take some time to consider a few things;
1) TRADING CAN WIPE YOU OUT
That was unpleasant, wasn't it? We were just about to make a lot of money, no?
Maybe.
But you should be aware of the fact that I have “blown up” more than one account, totaling more money than you want to know, and enough to make some men cry. This is not the wave pool at Disney World. You can and will get hurt.
Am I successful now? Yes. But it took a lot of work and a lot of tenacity. Had I had more patience, more understanding of myself, better discipline, longer training, I would be far ahead of where I am today. There are surely better traders than me on this site, but I can at least provide a lot of hard-earned knowledge.
If you are not already profitable on a consistent
basis, my advice is stay in simulation mode. There are opportunities every single moment of every trading day. You are not going to miss anything by practicing. On the contrary, you will ultimately make more money (or lose less) by having the patience to really learn your market before you put real dollars on the line. When you are ready, the market will be there.
If there is one thing I should stress to you, it is that you need to protect your capital. Do not trade with high leverage, do not average into losing trades, do not take a trade just because the market is open. You might get away with some of that for awhile, but long term it does not work. To succeed at trading takes a lot of practice, a lot of patience, a thorough understanding of risk, and a thorough understanding of the market you choose to trade, and most important, a thorough understanding of yourself.
Your job as a trader is
not to make money. Making money happens when your job is to NOT LOSE MONEY. Does that mean ridiculously tight stops? No. In fact, that can be the fastest way to lose. It means taking only the best opportunities.
2) YOU MUST BE COMFORTABLE WITH BEING WRONG
In big move trading, you are not going for high win percentage, and so you have to get comfortable with the fact that you
will most likely be wrong more often than you are right. That concept is tough for a lot of traders, as many of us believe that to be profitable we need to be right more than we are wrong. Yes, for
scalping that is true, but for big swing trading, with the proper risk to reward ratio, you can be profitable even if you are wrong more often than you are right.
You must have the patience to wait for a trade to come, and also patience to wait for a trade to work.
Unlike surfing, you don't get the luxury of knowing which direction the wave you are on is headed, but trust me, it is going somewhere and is not going to sit around in any one place for very long. I may spend days watching for a sequence of events, enter a trade and get stopped out in minutes. But, if I want a big move, I have to just get back up and start watching again. That is tough to swallow for traders that enjoy the adrenaline of a fast-paced trading environment. I may have to sit out for hours, days, weeks, depending on what size move I am looking for. Wrong. Wait again...
3) YOU MUST LEARN TO IGNORE INHERENT VOLATILITY.
The extreme volatility of crude most likely whipsaws anyone who trades it. It typically has 20-30 tick swings that can feel frustrating when you are going for a longer move. It can be hard psychologically to be up 30 ticks per
contract and then watch it disappear, and harder still to have your stop hit a few minutes later. But if you are going to ride the big wave, you have to learn to see that volatility as nothing more than the nature of the wave. Think of it as an exercise in endurance, and train your muscles (mind) to push past the pain as you maintain your balance. This could be a long ride, and you are going to have to find your second wind if you expect to be able to hold on.
The next posts will show a specific trade setups and discuss the tools and patterns that were used in making a trading decision. I plan to update this thread as new trades develop, and to continue to emphasize the factors that contributed to the trade being succesful. Until then, stay safe.
