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Winning in Trading... and Beyond
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Winning in Trading... and Beyond

  #1 (permalink)
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Winning in Trading... and Beyond

So let's get to the point. Or rather not.

The main problem of trading without question is that all that it needs is pressing the BUY or SELL button. So why is this a problem? Chiefly is because it leaves a lingering doubt in the mind of the person who just got into this that this is somehow easy, it is easy money - you have probably started off the same way. The Loss happens and the mentality changes to - it can be done using SOME KNOWLEDGE THAT CAN BE STUDIED AND ASSIMILATED. Or in other words - LOSSES CAN BE AVOIDED.

Sadly, there is no secret, no method, no simplistic perseverance that can conquer this particular mountain. In fact a lifetime can be ruined searching for wrong answers simply because one is walking the wrong path.

To become a Consistently Profitable Trader there are a series of undoings and unlearnings that must happen - and for that the right questions need to be asked.

For example, the first question - WHY?

Why trading? In fact what is the reasoning for entering this world, what is the dream, where are you coming from?


This and other correctly asked questions would form this journal.

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  #2 (permalink)
Quick Summary
Quick Summary Post

Quick Summary is created and edited by users like you... Add FAQ's, Links and other Relevant Information by clicking the edit button in the lower right hand corner of this message.

 
  #3 (permalink)
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Advice


If there ever was a summary of a Consistently Profitable Trader's habits, this is it:



The advantage being that this is a song hence it enters your subconscious mind-stream pretty quickly!

In this journal, created with the belief that if my posting helps you it also helps me, because writing it out further enhances the quality of the process.

At it best trading is the repetitive taming of the monkey mind, being in the now and staying clear in the head in a place called 'The Zone'.

However, some disclaimers before we become too happy and slip into the zen state:

1. Trading is a marathon and not a sprint

Expect to give up the best years of your life. You will be lonely and cry often. No one will understand you, sometimes not even other traders. As someone said 'This is the hardest easy money you will ever make.' If you are unprepared for the time commitment leave now and save yourself some agony (a lot).

2. Trading can cause you to go bankrupt.

Nice statement isn't it - especially as we were contemplating the Aladdin's cave! You need to focus on the RISK. Focus on LOSING SMALL! And maybe, just maybe we will make money - whether because we threw darts or whether our method worked will always be suspect, but keeping losses small is the ONLY way to become a CPT.

I may be successful now (started in 2007, so 10 years is a good thumb rule to plan for...) but I have spectacularly blown up MANY TIMES OVER. The dismay, the feeling of utter powerlessness, the freezing up of self, the resulting depression - been through it all.

So, for those who start out - fake it till you make it. That is to say - do not, please DO NOT, trade with real money for the first six months of your 'career'. Stay on sim. And even on sim keep your losses small.

3. Understand your Prime Responsibility

Your prime responsibility as a trader is... guess?

No its not to make money, more money and then even more money.

It is, repeat with me - KEEP LOSSES SMALL. 2% of your account size. 1% is even better.

What does this really entail:

a. Your strength is in your patience to wait for your setup

Allow price to come to you, do not chase price.

b. Your poise is in recovering from the small loss that the current trade gave you

Wait for the next setup. Get up and recover and start watching again. This come with practice.

c. Protect your capital, but most of all protect yourself

Never let looming opportunity entice you into going for high leverage. Trade small enough to 'sleep at night'. (see Ed Seykota's song at the start of this post). Only if you do not overleverage can your stop loss be at a logical place where you SEE that it is wrong. Small stop losses mean you are overleveraging! Calmness comes with the disengagement that only small size allows. Protect your mental state by trading small!

d. Learn to swim

This will come only if a,b and c are followed. Stay in the game long enough and you will have picked up a lot subconsciously. Even if you are on a higher time frame stay with the order flow, micro level to get a feel of the instrument.

More about that later - in the WHEN? part where I demonstrate the entry, exit and trailing to protect yourself.

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  #4 (permalink)
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and @iqgod...if i may add:

e. Learn to trade stress free...with a small enough position that you can let it run throughout the day into the close without it damaging your account and morale...you are probably right more times on trade direction than your stop loss if you think about it.

just my .02

cheers

Johnny

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  #5 (permalink)
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The Foundation

A man must love a thing very much if he practices it without any hope of fame or money, but even practice it without any hope of doing it well. Such a man must love the toils of the work more than any other man can love the rewards of it. - G.K. Chesterton.

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  #6 (permalink)
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Understanding The Base: Your Dreams

All answers to questions can be found inside you; all that needs to be done is to ask the right question.

In order to become a consistently profitable trader this groundwork is not optional, in fact it is necessary, like laying the foundation.

The first question is - what do your dreams consist of? The short answer - making money - is the equivalent of starting to build your empire on quicksand. The more you elaborate, the better you can trade.

To understand our motivations we need to begin from the universal image of a 'good and perfect world' which allows an unending feeling of feeling good always. This utopia is thus based on an endless variation of feeling good where individual freedom and a harmonious society are the lasting values.

There is no conflict till this seems unachievable - however suddenly Trading allows this to become a possible world. Thus as long as the dream was confined to 'after heaven' it was freely floating, but when this dream became a PROJECT and endeavour to be completed in this real world of NOW, the dreamy good feeling shrinks and beomces a profane PROJECT.

Thus, and this is an important point, the dream which shapes the direction of progress is projected to the fringes of the horizon and purposefully made abstract. Directing ones efforts towards this horizon, perhaps represented by a heap of money, is what remains.

This is where the disconnect between the real and achievable trading results begins.

It will be my endeavour in this journal to show you how I bridged this divide so that trading became effortless and then almost an art for its own sake.

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  #7 (permalink)
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Taking on Trends and Ranges, and the importance of your state of mind

Once you have convinced yourself that the market has trends, you need to know to anticipate and catch the major part of the trend.

Here is the combination of the factors I check:

1. 20 EMA: Moving averages, like any indicator are lagging, but are useful as a reference point to anticipate trend resumption, as long as one keeps in mind that there is no miracle associated with entering based on moving average and that one is not using them alone.

2. Choosing the entry point will be covered in detail; however it is important not to focus on the entry as the end all be all holy grail. Keeping your losses relatively small to the entry price is the key concept that should always be kept in mind, and that should be the goal of the entry - to define when you can get out with a minor loss.

3. Faith, not hope: Going all in with the entry and keeping your losses small involve a struggle that has to be won. The struggle involves:

- Your state of mind

This changes with whatever the price does. However, you need faith that the odds are in your favor and a strong belief that you are right. The state of mind is a good indicator at every point of the trade. Our state defines how much profit we can ride out.

- Being wrong many more times than winning

Yesterday I was wrong on 65% of my entries. I took my stops. However the 35% of the times when I was right I rode the trade completely till the end of big move - the waiting was more than I anticipated because of the bank holidays but in the end I caught the trending downmove.

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  #8 (permalink)
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01 May Trading Journal

When I started trading, when Europe had just opened, I was neutral and still planning my trade. The current position of the market was down, however I was open and this is how it unfolded - the market had formed a BLOCK and given a valid entry for a short trade which was nearing its target. So I entered my short at almost the end of the move and then was out and also reversed 7:15 as the target was quickly reached.

Here is how the chart looked

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The reason for going long at this point was the mean reverting anticipation of the range where the downmove had reached the target and stops by the late shorts were more likely above the block and the time of the day - Europe often tends to completely turn the trend on its head at the beginning of the session. This is not a rule of thumb, only that the opinion was fortified by the lot of attempts at upswings which had been made at the end of the downtrend gave the clue.

Thus, going long at the bottom allowed me to capture the entire upmove. At the top of the upmove once the stops were taken out there was bound to be respect for the trading range so I waited for some indication for the downtrend to resume and went short there (though I was early and should have waited for confirmation).

The faith allowed me to be in my short position for the next six hours. The market made lot of attempts to shake off all shorts but as I said my only risk was pre-planned and small and my short position was never invalidated, thus I ride it all the way down and completed my trading day relatively emotion free.

I streamed my entire session live - here is the complete session recording:



Note that I also took multiple entries on another platform. Most of those entries were wrong - however I did not lose much and one good trade paid for them all. So losing 65% of the time was something that needs to be anticipated as well, with faith that you will be up at the end of the session (or week, or month, based on the timeframe).

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  #9 (permalink)
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The Constant Vigil on the SELF in Trading

Mindfulness and yoga keep coming on as recurring themes for successful trading. I am currently reading The Inner Voice of Trading by Michael Martin which says so multiple times.

A long time ago (before this century had dawned!) someone recommended Vipassana Meditation which means seeing things like they really are. Little did I know how invaluable this technique would be in my trading.


Understanding the technique was simple and seemed superficial in application. This was a technique of expanding breath awareness and body awareness, and needed a dedicated ten days at a center. You needed to be in complete silence for all of the period - the days were completely filled with mindful practice. Each day starts at 4 AM and the only activity you do is sitting still in observation of breath and sensations - this goes on for full ten hours broken only by breakfast and lunch, followed by a video sermon that puts the day's practice in context. The student was expected to go without dinner for ten days, but that paled in comparison to maintaining the silence, apart from no luxuries of life - no books, no music, no contact with the outer world.

The technique can be summarized in a few words - the goal is to restore the mind's focus to the breath. Every time the mind wanders away from breath, which means if it has enveloped the stray, random, important thoughts that remove its attention from breath, gently guide it back to breath.

This is called the technique of Anapana and is the first step. It sounds simple, but recognizing that the mind is actually wandering is the key. By the time you realize that you have strayed away, the mind is wide off the mark of the breath, and refocusing is done - this happens over and over.

This is where the realm of successful trading lies, and not conquering this realization of wandering is why a trader stays mediocre, never achieving the goals he had started of with. These are the 'voices' that a trader identifies as 'me' and these are the voices, on the fringes of awareness, that blow up our trading. Becoming mindful of these hidden conversations that keep playing inside is the 'holy grail' - becoming first aware of the structure inside you - the deeper fears, the internal self-talk that trading really exposes.

The sensations are of two types: 'Desire' type of sensations and 'avoidance' type of sensations - and as we observe them we realize that these sensations themselves are impermanent and dissolve quickly, but they leave behind a layer that keeps adding up over life as a residual repository leading to a life of addiction, compulsion, obsession etc. all of which directly affect trading.

The real effectiveness for a trader then is to actually come to terms with the impermanence of each of these feelings - trading can then be tackled effectively by letting go of the past, breaking free of the self-imposed limitations and keep the consciousness on a positive workable level - eventually a trader has to realize that loss and change are a part of trading and life but more than impulsive behavior and self-destruction don't have to be! Looking mindfully we come to terms with our emotional beings that cling to our insecurities and allow us to propel ourselves to balance and peace while trading.

Inner silence is very helpful as a place from where one's self talk then clearly emerges.

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  #10 (permalink)
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Questions


Some questions that produce insights into my habits and patterns work to derail my trading -

For each item I keep asking my mind: Why?

Why do I pull the trigger early?

Why do I consistently buy tops or sell bottoms?

Why do I exit early and not allow a target to be taken out?

Why do I hesitate to pull the trigger? Why do I want confirmation upon confirmation upon confirmation?

Why do I pull the trigger at random places?

Why do I aim for trying to be right and being ok with losing money?

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