Volume - Tick Volume

banglacow said...

"Yes I am very interested to know what volume does in forex also tick volume usage?It is quite "useless"? is that statement correct?"

Personally, I would say yes its useless. But of course there will always be someone out there ready to contradict me and claim that it is the foundation of his entire trading method. All tick volume shows you is an approximate number of transactions going through. Your broker may also be filtering this to some degree or combining multiple feeds and who knows what.

So you know a ton of transactions happened on this bar, and not so many on the next bar. How does it help you? Any conclusions you draw from it about what the big dogs are doing are most likely completely wrong. You have no idea who bought, or why, or how much. How exactly does this help you? And how would it help you if you did know it?

I have tried to use tick volume in the past and all it really showed me was that activity was rising and falling across the various timezones. But so what? I knew that anyway.

Traders Ego

>Been a while since ur last post

I'm still trading, yet I seem to have less and less to say about the subject. I've put this down to the fact that as a new traders ego gets slowly smashed and destroyed you begin to value your own opinions on the subject less and less.

You go silent in the face of your own shining lack of ability.

I can clearly see, as I browse through my blog, that I came into this subject with more than a healthy dose of ego and confidence and so naturally I had a lot to say on the subject... But after two or more years of near completely consistent losses I no longer value my own opinion so highly - let alone have much desire to foister them onto the unsuspecting public as facts or wisdom.

My interest now lies in the fact that during some periods over the last two years I also experienced consistent gains. I mean an equity curve that looked very health - usually to end in a great wipe out as I eventually lost my head. If anything is of interest over the last two or three years, that pattern is.

During those times, usually the market was in a clearly defined trend and I was just either buying or selling into it - nothing so difficult about that right? The rest of the time however when I shouldn't have been trading, I was.

Food for thought.

Breakfast with a bank trader

Today on my wanderings I had breakfast with an ex-trader from the currency desk at Westpac Bank; it was quite an enlightening chat. I think the thing I got most out of talking to him was the emphasis on how much big business dominates the banks activities in the forex market - more than I thought. He said that options pretty much dominate the action now. I asked him about the so called option wars that happen between the banks and he kinda said "mmmyeah... not really. Well - some times."

I did see however that his thinking was different to mine. He really did see the currency as a commodity, as an actual "stuff" and talked about buying currencies cheap and selling them high. I guess you need an innate sense of value on the currency to know how to do that, and I don't have it at the moment. I was beginning to get it a while ago when I was trading hard, but I lost the feel. One thing he mentioned that was exciting was when he talked about the bank just going massively short on a currency, he said it was just "sell sell sell" all day long. It made me realize that sometimes you can be watching some large moves and it might be just one big player doing something.

Meanwhile, I ate scrambled eggs, toast and tomatoes and listened intently. My interest is still there, currently dormant, waiting for spring.

A post!

Surely its time for a post...! I've been soooooo flat out with other aspects of my life that trading got pushed back down the list. However, I feel energy for the subject returning and so I thought I'd post (if there's any readers left that is). If not, fine I'll talk to myself... Surely "anonymous" is still around ready to abuse me. I've noticed that posting has been dropping off in a few of my old blogger mates also.

Recently I've been losing like a bitch which has been depressing. I have gone into a fairly consistent pattern of building up my equity one brick at a time, and then knocking it all down plus a bit like the swing of a mighty demolition ball.

I have also recently been using a trading simulator a lot which allows me to test my methods in a speeded up fashion, and what do you know - the pattern is the same. I found this quite remarkable actually; my equity curves in simulation were identical to those done real time.

I've gone into a phase of restudying the basics (again) - it never gets old. On a more fundamental level, I have to say I've been acknowledging that my commitment is not quite what it was - I just don't care as much anymore. I need to rekindle the fire!!!

The problem is that the process of learning to trade is accompanied by an endless beating in terms of losing money. Your efforts to study, learn and practice are rewarded with financial loss after financial loss.

Smart guys presumably paper trade first, then demo, and then finally go live. Unfortunately I was not one of them, so now I've got this deeply ingrained bruising from the market which is something I have to work over the top of. I know there's traders who read this who will nod their heads in agreement.

It's like I've already deeply convinced myself and PROVED to myself that I cannot jump the hurdle, yet I line up again for another go. This is an issue - a real issue that needs to be overcome.

The agony of the crash lives on

When the financial crisis began to take shape, I was lucky enough to make a decision early on to pull my super out of the markets and into cash, I've talked about it before as being the best trade of my life. But really it was very much good luck also.

From that perspective, I have to admit now that I then watched the unfolding meltdown with a certain glow of good feeling. Each red candle down of course made me righter. I see now that I sat there watching the action from then on like a spectator watching a football game on TV that erupts into a violent riot. Great entertainement.

But not for some. Tonight I met someone who brought the reality home to me; I FELT the crash for the first time, as this particular individual was unlucky enough to lose everything in it, and at a time of life where he is not far off retirement. He cried like a child.

He finds himself in a position now of having to rethink everything, and asked questions such as "Why me? I've never hurt anyone!"... To me the crash was an interesting chart formation, for him a new way of life.

Everyone now is talking about optimism; bury our dead and move on. Like all violent war zones, they eventually become a tourist destination.

I guess today was the first time I saw what the market can really do to someone.

Grouping trades

This is something I do now when I look at my performance, and its very beneficial from a psychological point of view in terms of dealing with losses. When i track my performance day to day, I group losers and winners, as much as possible onto the winning side.

For example, say if my last few trades looked like this:

($280)
($110)
$535
($15)
($89)
($130)
$645
($67)
$149

...I'd bunch winners and losers together thus:

($280)
($110)
$535
--- $145

($15)
($89)
($130)
$645
--- $411

($67)
$149
----$82

This is a "cost of doing business" mentality. It sounds irrelevant, but after a while you actually begin to think like this and I've found it to be very beneficial. In the mind, it literally nulls the negative charge of losses - they simply become costs.

Non Obsession

Only one post in May reveals how my mind has been on things other than trading. Yet interestingly I made great profit in May. I traded in a kind of flippant one-eye-open style, just going into the market if something was obvious.

I really didn't have time to do ANYTHING other than check my morning broker statements. I put on a position and watched it via my statements until it was looking interesting enough to load up my charts and move stops.

I've seen this before - when I obsess over trading and really work at it, I lose like hell, and when I'm almost too busy to give a damn I make money.

My conclusion is that the obsession that trading can be is the actually thing that creates the terminal losses. The obsession IS "over-trading".

Where'd he go?

Did my blogging inspiration die? Not really, I am just in the midst of other life demands, in particular starting my own business as well as helping a couple of other friends start their businesses. Forex has for the moment taken a back seat - I have no doubt it will come back up the list. Stay tuned...

Plans & Technical Analysis II

"You HAVE to watch to see if / when things look like they are starting to play out how you thought they might (or to see if the plan is being violated by the market)."

Think what an important juncture this is in active trading at which to either take a correctly timed position, stand aside and abandon the plan (two right actions) VERSES a myriad of possible mistakes one could make for psychological reasons. 

For instance, if you have a directional bias you may actually refuse to believe that the market will do what it is doing. Going back to the military analogy, its like they are coming up the hill, and you say "there's no way they will come all the way up this hill"... You could take a position based on that belief, but it would be wrong. Even if it worked out it would STILL be the wrong reason to enter. Why? Because it became a gamble at that point. 

Being rewarded for a gamble almost certainly means you will do it again next time around. You could also jump the gun, feeling so certain of your idea that you cannot wait to put it into action. Or even simply be that filled with the need to be right that you cannot see anything else (previously mentioned blindness to black numbers coming up if your money is on red). 

What we are seeking as traders is a moment when we are certain we are right based on the evidence unfolding before our eyes, having been completely open to all other possibilities. There comes a perfect moment for calculated action - the point of least risk and maximum possible reward. 

Losing a trade at these moments never hurts. You know you acted correctly and it was worth the risk. 

Plans & Technical Analysis

Continuing from a discussion of upcoming technical setups, I thought to add the following: 

Writing this I realize I may sound like I'm doing the opposite of that which I wrote about in recent posts, i.e. seeing what the market is doing NOW etc, but actually there is no conflict.

It's ok to prepare, to look ahead, to plan. BUT the market will do what ever it wants to do, so you HAVE to watch to see if / when things look like they are starting to play out how you thought they might (or to see if the plan is being violated by the market). 

It's like you watch what the enemy army is doing and say "If they march into the valley, we will bomb them, but if they come over the hill we will flee!"

Then you watch... No judgment. No directional bias. 

At a certain point in time you can say with a good degree of certainty "they are coming over the hill..."

So much for planning and technical analysis; plans that get drawn up and abandoned with the fluctuation and unfoldment of new information. 

From the art of War - Chapter 8, Variation of Tactics

"If we wish to wrest an advantage from the enemy, we must not fix our minds on that alone, but allow for the possibility of the enemy also doing some harm to us, and let this enter as a factor into our calculations."

What I think MANY traders are doing is TAKING A POSITION based on technical setups before they begin to actually to work (i.e. violating the above mentioned law)... They jump the gun in effect, are in early, commit early because they are too certain of their own ideas, and/or don't have the patience to wait. Then the market invalidates the setup (as the market has the right to do) but they have already committed to it. 

They've already ordered the bombing of the valley, but the enemy turned about and are now marching over the hill.