Simon Super Trader

No more ads

2011-10-28T12:51:00.002+11:00

I don't know why I agreed to put ads on this blog, but it looked bad so I killed them all. And in the last two years I made $1.58 hahahaha.

Two mindsets

2011-10-28T12:47:00.006+11:00

My response to someone who was talking about what trading is: I think you can think about trading two ways (not the usual ways): I prefer to think of it as "doing business"... You are willing to buy and sell your wares at the market (it just so happens that in this case your wares is money). If you are a good business person you will buy and sell at the right time most of the time. Sometimes you won't sometimes you will, but most times you do. This is why good traders call losing trades "the cost of doing business", because you have to expect a certain amount of losses just to be involved.

The other way is to gamble. Most people think that they are trading the first way, when in fact they are trading the second way. If there is any emotion involved at all then you are gambling - why? Because you are hoping every punt is a winner. Losses mean a failure of some kind.

Its a long hard rode to switch mindsets. It has to be beaten into you, if you are around that long.

Financial Crisis Explained

2010-07-12T13:50:00.000+10:00

Brilliantly done short explination of the Finanical Crisis...

http://www.youtube.com/watch?v=Q0zEXdDO5JU&feature=channel

http://www.youtube.com/watch?v=iYhDkZjKBEw&feature=channel

S

Thoughts on the current financial climate

2010-07-02T12:01:00.005+10:00

A few thoughts after a chat with a friend who is trying to trade stocks in the current market and getting whipsawed by the sound of it. Here's what I think - look at the chart above, which is a monthly chart of the DOW going back into the mid 80's...

What drives a bull market like this? In my opinion, it is a technical innovation that could be called 'revolutionary'... In the above chart we see the greatest bull market in the history of the world that more or less terminated in early 2000... At the time we had in the 80's the invention and proliferation of the home / office computer which changed and created thousands of businesses and new industries around the globe. It literally changed the world. Following on from that the invention of the Internet which created a bubble which burst horribly around 2000 when everyone realized that half the companies out there were based on thin air...

Then there was a correction, and after that the world recovered... The rally that took us up after that was possibly mostly technical due to the breaks of the 2000's highs, and in my opinion wasn't really based on anything as fundamentally sounds as the rally that preceded it (optimism flowed again - and perhaps the invention of the mobile phone could also be a part of it).

Finally the financial crisis hit as the genius fund managers had been very clever with their exotic option spreads etc and had created wealth out of nothing. One fine day - *POP!*

The bounce from those lows at the end of the crisis, in my opinion, was purely stimulus inspired (and bargain hunting of course). The governments around the world injected trillions into the system to prevent a catastrophic crash. Here in Australia, the government simply gave every citizen some money and said "Go buy something - ANYthing!!!"

And now we are... where? Hanging like over-ripe fruit... No reason to rally at all. No major innovations around changing the world (yes the Ipad is cool, but it wont change the world).

The current sentiment is horrible - our belief in the genius fund managers is shattered...

Its a BEAR market.

Message for Spammers

2010-02-07T16:54:00.002+11:00

Dear Spammers,

Just letting you know that ALL comments here are moderated, and so unfortunately for you not one of your posts will EVER be let through. Damn frustrating ain't it? You may consider going on with your campaign in the hope that I'll slip up and let one through by accident - but I'm afraid its totally hopeless. I have full control - you have zero control. What can you do? Nothing... The war is lost.

Brokers question

2010-01-22T09:30:00.002+11:00

Gustavo was recently asking about brokers, which I use and what problems I've encountered. I have to say that all of the problems that used to be common when I first got into this (broker monkey business) seems to have faded away.

I have used Oanda, FXCM, FXDD, InterbankFX... All with no trouble. I think I caught the tail end of the stop hunting and general bucket shop practices (also I imagine that in the early days the brokers were beset with technical problems too. Many's the time the platforms would lock up or drop out during high volatility news announcements etc)...

As long as you use a decent well known broker you really won't have much trouble. I think also in part traders that are losing hand over fist will look for an external to blame, and the broker is an easy target.

Any of the ones mentioned above are good. I don't think you need an ECN broker unless you are trading big volume (in fact my understanding is that you can't trade with ECN's unless you are using 100K lots, but that may have changed). Also as far as I know, companies like FXCM can switch you over to "no dealing desk" (i.e. ECM) once your volume is big enough.

Until you can trade and make consistent profits this issue is basically irrelevant.

Effects of position sizing

2010-01-08T22:52:00.003+11:00

Here are a couple of tests from my current system using a standard lot all the way through compared to the effects of fixed fractional position sizing. The trades themselves are identical

Interesting that the profit factor actually goes down but the % gain is still bigger. It also has the effect of flattening down the equity curve when losses and gains are similar, but capitalizes on a good run taking you up to a new level (the volatility in the equity curve goes up too because you are swinging a bigger line (to quote Livermore...)

An increase in maturity

2010-01-08T11:41:00.007+11:00

I have noticed a change in my behaviour over this expanse of time which I could only put down to gaining a more mature and realistic approach to this subject. In particular it shows up in my unwillingness to trust the results of even extensive backward and forward tested data without running the same tests through many different markets and time periods. In the past by contrast, if the method showed three winning trades in a row I was a full believer and ready to trade it in the live market. Ha! What folly...

In a sense, when developing or testing a trading system, I now seem to spend more time trying to BREAK it than prove that it works (thats all I'm trying to do in fact), such as seeing what happens to it if I run a test through the 2008-2009 financial crisis period. I try to disprove that the system works. After testing on recent data, I might see how it performs on data from the 1990s... I'll do the same again on different markets; I'll test it on the majors and the crosses. I'll run it through historically unusal market behavior, low and high volitility.

What I'm looking for is something that still comes out of all this alive and showing similar results to other data from different conditions. If it does, it quite possibly has something. One thing I've noticed with a truely interesting system is that the drawdown, profit factor and so on will always be uncanily similar despite what you put it through. The system is in a sense seperate from the market you run it on - it behaves with a degree of consistency on data that is totally unpredictable. THAT is the true magic and genius of trading really...

Also, I am happy with a system that gives me a profit factor of 1.5 or even less, providing that it seems to be able to withstand my running it through many different types of market behavior and shows the kind of robustness mentioned above. Such a system is worth running on the live market in a series of forward tests, but they have to lengthy - I run tests now in blocks of 100 trades. Then I compare blocks, as many as I can get. By the way, this process is work and it is time consuming - hence the phrase "trading is a business." I now see that this statement is a truism, not just a piece of friendly advice relating to keeping a neat record of past trades.

People that talk about 90%+ winning systems and no experience necessary is now laughable to me. Truly laughable. And its not because I'm a bad trader, its because in these cases I just see simple curve fitting and snake oil.

PS: Here is my new website: http://www.c21simonhart.com.au/

2010

2010-01-01T09:16:00.004+11:00

I thought that today would be a good time for a recap of the things I learned in 2009. Despite my posting being down, 2009 was an important year for me on the trading front, in particular because I finally began to understand (and utilize) the following:

1) Trading - Speculating - Gambling - In the eyes of the vast majority, these things are blurred together, and very many things that the herd get up to in the name of "trading" is really either speculating or gambling. To that end, much of the advice published on the subject of trading can equally be as confused.

But not to real traders; real traders know the difference and are very clear that what they are doing is neither speculating or gambling. Just because you can know your risk per trade when speculating or gambling does NOT mean you are trading. Every game at the roulette table you can know your risk. Think about that...

2) Real traders create and trade systems. They follow the rules exactly because they know that to break the rules is to break the fundamental expectation of their system which immediately throws them back into the speculation/gambling camp. Oh by the way, casino owners do not gamble; they trade. Think about that too...

3) True systems can be rigorously forward and back tested and withstand shifts in the market, or at least behave more or less as expected as the market switches between trending and non-trending, high volatility and low volatility.

4) Real traders take every trade, even when their systems are getting a hammering. Why? Because they know that the next trade could be the turn around, and that their system can weather the storm. Again, to tinker with the system is to immediately be back to speculating and gambling.

5) All systems experience drawdown. Real traders know this, and they weather it without emotion. You can be flat or in drawdown for an extensive period, but they keep on following the rules. It's a part of the business.

Those five things are the difference between real traders and the mass herd of people that lose their capital. They seem like a fine line, but they are worlds apart.

Irrelevant Indicators

2009-11-29T11:01:00.003+11:00

If you've been grappling with the forex market for some time now, no doubt you've come to realize that its movements are mysterious to say the least. It fails to conform, especially to technical indicators. Over the three years or so that I've been trading it, I've come to believe that all of the indicators available (the thousands of indicators) are mostly useless.

Last week I was reading an article that made me realize that the market today is not the market I read about in all the books. It talked about an investment firm that traded heavily in the forex market that was being investigated for unfair practices. The core of the article explained that this firm was about 70% I.T programmers, and about 30% actual traders. They had custom built trading software that would place orders into the interbank market at the speed of nanoseconds so that orders could be placed and withdrawn in order to test the reaction from other institutions automated trading software.

This was called "bullying up the market"... Regulators were questioning whether this had left the realm of trading and was into something else but the investment firms hit back that they were not breaking any rules as such - they were just more sophisticated, and should they really be penalized for that?

At a more macro level the point was that trading is becoming now more of a battle between programmers than a battle between traders. Welcome to the future. The programmer is now more important than the pit trader.

Consider then that most of the indicators you have at your disposal and attempt to apply to this ultra-modern maket were invented in the 80's and 90's when were were all using Sinclair Spectrums and Commodore 64's... And the plethora of new indicators being dreamed up on the forums are usually derivatives of these old indicators or fancy graphical depictions of the same.

To the modern forex trading firm, this stuff is about as relevant as the skills needed to fix the wheels on a horse and cart. The average independant forex trader is fully locked out from certain levels of market sophistication and so trying to use technology (especially old outdated technology) is unlikely to produce results. To quote H.G.Wells, your MACD and RSI are "bows and arrows against the lightening".

However some things still work - bigger fundamental things, classic trading rules that will last for all time. Go back to those and try to fathom their inner meaning.

Volume - Tick Volume

2009-11-19T12:34:00.003+11:00

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

2009-10-18T10:45:00.002+11:00

>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

2009-07-16T14:14:00.002+10:00

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!

2009-07-10T12:23:00.002+10:00

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

2009-06-08T21:35:00.004+10:00

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

2009-06-06T09:42:00.002+10:00

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

2009-06-03T17:32:00.003+10:00

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?

2009-05-18T14:59:00.002+10:00

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

2009-04-23T15:27:00.002+10:00

"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

2009-04-23T15:14:00.004+10:00

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.

What's the market doing NOW?

2009-04-21T16:49:00.005+10:00

This is a question I had to train myself to ask AND see... Over time it became the most important question to ask. I would normally spend hours staring at charts and coming up with all kinds of different technical scenarios based on indicators or price action setups etc. It's actually an addictive pass time.

The thing to note with this kind of activity though is that you are often doing it when the market it is idling; i.e. in moments of boredom or non-activity or even on weekends. Unless you are a professional analyst, quite possibly you are doing it simply in order to feel PRODUCTIVE. Rarely does the amateur technical analyst sit there doing this when the market is flying. I'm not saying its a bad or useless activity of course, as many people make a lot of money from it, but at the same time bear in mind that all you are really doing is looking at a historic database of past prices depicted in a graphic form, and then making predictions. This was something that stunned me somewhat when I first heard it - "a database of past prices". I had never thought of my beloved charts in that way before. A database?

That's all.

So we stare at this database and make predictions, and when you look at your charts with your predictions in mind you WILL be filtering whats actually happening through that particular pair of spectacles. Why? Because you will be looking to see if your prediction was correct. Of course.

For instance, if you are at the casino playing roulette and put your chips on red, what are you looking for when the ball spins? Of course, you are looking for the ball to land on red - black hardly even exists in the moment. When it lands on black, it's almost offensively wrong; a shock. I've experienced this shock myself many times: "what the hell? GBP/USD sold off??!!"

How could I even think this way if I didn't have a strong directional bias in the first place?

Prepare but don't predict

Imagine being in a place where no matter what the market did it did not surprise you... Hmmm. Revolutionary thought isn't it? Even if it runs a thousand pips, no surprise. A complete reversal in direction? No surprise. If you are not making predictions, why would you be surprised?

To do away with this directional bias train yourself to watch the current bar; watch how it moves... In this moment, is it being bid up or sold off? With what degree or speed? How active is it right now? Is it aggressive or passive? Obvious or confused? Yes past prices matter, but they are nothing compared to the action unfolding on this current bar.

Cut the beast some slack

2009-04-20T20:21:00.004+10:00

"MARKET STEAL UGG'S MONEY??!!"

I'm flat tonight after I shorted AUD and GBP and even though this market might go to hell in a hand basket I don't care.

Once I get over $500 a day profit (which I just did, which is nothing compared to 95% of traders I'm sure) AT THIS POINT IN MY TRADING CAREER it starts to make me feel sick, so I take my money and leave. I ALLOW myself to trade at the level I can trade at...

Why do I feel sick at that particular amount? I have no idea. Possibly because I've got YEARS of experience working with my nose to the grindstone for some barrel chested bully-boy boss, 8 hours a day for X number of days to achieve the same thing, and it starts to fry synapses in my brain. The open position hits $500 and my brain starts saying "ERROR!!!"

In some sense this is taking profits early - a classic traders mistake. But its ok, I cut the beast some slack. He is still dumb, you know? Yes, he has not attained Dr Spock like mental purity yet, but he's doing what he can. So I shut down the charts now and wont look at them until tomorrow.

If I open them tomorrow and see the GBP and the AUD dropped another 1000 pips I do NOT kick myself or say "damn". Practicing not having any reaction if it DID is a part of the process.

Trading in my FEELING ZONE is a recent thing for me really - I used to read all the books and fight it. In a sense try to do the opposite of what I wanted to do. You can't go on like that...

So if I'm in a trade and I feel weird about it - I cut it. If I'm in a winning trade and I start to feel sick I cut it. The secret is that when a trading session is over for me then its OVER. I won't look now until tomorrow. Its not my session anymore...

I think this is a problem for traders. They read the books and then try and jump too far over their true ability. Trust yourself as well. Work just slightly outside of your comfort zone but not a million miles outside of it or you'll never get a feel for this.

How good is your WHY?

2009-04-07T09:20:00.003+10:00

I've been taking a minor natural break in trading over recent weeks, and in the meantime I've been pondering the power of the "WHY" I have when entering trades. You need a good why, no matter what you are doing in life, but especially when you walk into one of the toughest and most volatile markets in the world and put your money on the line.

What's your WHY?

I can see looking back that the vast majority of my trading had a feeble why behind them; no wonder I lost cash hand over fist. Really my reason for entering was that I just wanted to enter, thats all. The second problem most likely is that even when I THOUGHT I had a good reason, the idea behind it was faulty.

So you can have no reason to enter, or you can have a wrong reason to enter.

Also I notice on the forums that the VAST MAJORITY of newbie / semi newbie traders there are trying to formulate their own personal why. Their own UNIQUE system, inventing unique indicators.

They think that the idea of the game is to outsmart everyone else in the market; to be unique. The obsession with system creation or inventing new indicators has being unique and outsmarting everyone else behind it as a hidden motivation. The thing with markets though is that its not about you, its about consensus. If you invent your own amazing oscillator and you are the only person in the world looking at it, then how good a reason is this to enter the market? How much consensus do you have behind you? Who supports your decision? Who agrees with you?

Probably nobody, except a handful by pure chance.

There's more to say on this, but ponder your WHY when you pull the trigger. How good is that why?

Shifting moods, shifting opinions

2009-03-27T10:25:00.003+11:00

Interestingly, regarding my previous post on how to tackle waning interest by focussing on routine, I received several flames suggesting I have no right to be a trader etc.

I did not publish these comments, for the following reason:

The thing with human beings is this - when Person X is in a hyper dedicated mood regarding trading, then he (in that particular moment) feels justified and motivated to flame me if I'm not feeling the same.

I don't see why I should let such comments through, as sooner or later his mood will pass and quite likely he might find himself in the same mood as myself when I wrote that post - in fact we could even switch positions. I might be feeling hyper focused and dedicated again, whilst Person X has now swung into a fit of depression and laziness regarding the subjects.

It's not like I'm a Nazi for not giving these people the option to vent their opinion, its just that I know for a FACT that their opinion transitory and therfore worthless.

Either force your mind to understand the broad picture beyond your current mood, or else shut the hell up.

Tackle waning interest

2009-03-21T09:19:00.003+11:00

It's very difficult to maintain interest in something that does not reward you. I myself have found this to be the case over the years of trading forex - for a very long time it appears to be like pouring your time and energy into the void. You work and work - loss. You pick yourself up and try something else; losses. You try again, loss. It's an endless grinding down of your initial enthusiasm.

I imagine that for many people "washing out" happens when their interest in trading arrives at a point that is lower than normal daily activities. It is not hard to do, as you reach a point where you can spend time trading and experience pain, disappointment and loss, or just watch tv and experience pleasure. For the human central nervous system, it does not take long to 'train in' a natural repulsion to trading. After all we a programmed to move towards pleasure and avoid pain.

How to tackle this problem? The answer is to replace interest with routine. If you've reached an all time low where you can't even bear to look at trading without feeling slightly nauseous, then trade a system that takes you no more than a few minutes a day, and make a set time of the day to do it. Have the attitude that you are currently ONLY working on DISCIPLINE. Your goal is to just do the same thing at the same time of the day, then do not look at it until the next day.

You may after a few weeks or months begin to notice to your surprise that you are actually now making money, almost as a side effect. Build routine and discipline first, above all.

Surfer vs Gambler

2009-02-28T22:42:00.008+11:00

Waiting for a wave..

The ocean and the markets have many things in common. For one, they are both a dynamic event that is constantly in flux, and from the average traders point of view, beyond any possibility of manipulation. It is what it is; it will go where it goes.

This analogy works if we consider the mindset of a surfer. He knows that he is in a passive relationship to the sea, yet he also knows that he can develop a skill in relationship to its ever changing movements in order to reward himself. The surfer cannot demand anything from the sea, he can only wait for it to present him with an opportunity and engage it when the time is right. To go in during a total calm or a tsunami would be both equally foolish; he must wait for the conditions to be right.

From this point of view too, it would be absurd for the surfer to take anything the sea does to him personally (such as a wipe out, or even a shark attack). Just by entering the seas domain, he has accepted all responsibility for any good or bad outcomes that come his way.

The sea does not know the surfer exists - it is absolutely neutral towards him. Just so with the market. Even though sailors have been known to try to personify it (often as a "she" and in particular as a cruel mistress) we know that whilst this idea is romantic, it is not rational.

This situation is identical for the trader and the market. Consider this - it is as irrational for the trader to have an emotional reaction of anger towards the market as it would be for a surfer to have towards a wave that throws him off his board.

Now lets compare this mindset to that of the gambler. Whats the difference? The gambler feels as though his power lies in his ability to gamble when ever he wishes. There is an illusion of being in control of the situation. The gambler can pull the trigger at will, and he feels as though every pull of the trigger has a possibility of bringing reward. THAT is the difference. If we try to define clearly these two mind sets, they come out something like this:

Surfer : "I am in a passive relationship to the sea, I cannot control it - only myself. It is dangerous yet means me no harm. What ever happens to me is my own doing. I must wait for conditions to be right, and then the sea might present me with an opportunity to reward myself."

Gambler: "I can play the game at will, and each shot has an equal chance of rewarding me. If this turn fails, it brings me closer to winning the next time. Sooner or later, a massive reward must come. It could be the very next pull of the trigger."

These mindsets are fundamentally different. One is good for the trader, the other is a disaster in the making.

Madame Market

2009-02-24T08:19:00.004+11:00

If you have the feeling that the market has a split personality, one day out to shower you with peace and blessings and the other to punish mercilessly, it can only mean that on some level you are still taking it personally.

Think of it this way - there are too many players with too many conflicting ideas about market direction for it to ever form one cohesive personality. The only exception I have witnessed to this rule is when fear clearly dominates the scene, and ironically these are times that are the easiest to trade.

The highest attainment for a traders developing psychology is to achieve what has been called "intellectual purity" - that is the state free from emotional reactiveness to market behavior; the ability to accept both reward and punishment with equanimity and understanding.

That said, we know that big players perform 'market sweeps' to take out stops at sitting duck levels, so we can at least attempt to protect against that. The main point though is to struggle against any dimly forming impression of the market being a single entity with a personality.

That is an illusion.

Will try to keep up here

2009-02-19T13:39:00.004+11:00

I've been posting more on the new mini forum I set up, so posting here is down as I now no longer have to talk to myself.

However I will post things here still when they are worthy.

[Note to Anonymous]:

Non of your comments will be released on this blog anymore, ever, unless you grow up. You have contributed nothing except venom and complaints.

Seeing as you think everything happening here is moronic, I presume this is because you believe you have other methods or opinions that are correct / better.

Why not contribute something meaningful instead of "nya nya you guys suck!"

To the spammer

2009-02-16T09:36:00.002+11:00

A personal message to the mindless moronic chode who tries to spam my blog on every post:

Comments on this blog are MODERATED, and therefore I will NEVER publish one of your retarded spam messages, so WHAT'S THE POINT?

Therefore, why not go forth and throw yourself under a train?

Kind regards,

Simon Super Trader

Why a forum?

2009-02-03T22:03:00.003+11:00

Anonymous said...

As I read this post, I could see why not to open a forum, all the reason show the in-depth view of existing forums. Is there a stronger justification to open a forum? Does it have to be a forum? A blog has always been a ground for one man show, If you are seeking for others contributions, how would you make sure they are not nerds and chodes ?

Good questions all. What I really seek is a small band of brothers who are focused on the goal, who are willing to put nonsense aside and get down to business. A blog is good, but it is kind of like being an actor on a stage with the lights in your face - you see nothing as you perform your routine, and rarely do the audience clap. And even when they clap, how does it help? For the most time, they are either silent or else occasionally you hear one man boo or one man cheer from the back of the room. You know what I mean? That's blogging.

The large forums are mostly like trying to have a conversation at a football match. And I feel I understand the mindset of the majority of people on them - they are not ready. They are not really serious, they are just playing around. What they have is a form of lust - and the lust drives them into frenzied and obsessed activity, but it is mostly just puppies chasing their tails. Haven't you ever had that feeling, hanging around a forum? There is a cloud of sleepy hopelessness attached to it.

If I had my way, I would have a small group of people that I like and trust, and we would work on the problem, like focused enthusiasts do in other spheres of interest. Who knows if this is possible?

Expressions of interest

2009-02-02T11:29:00.003+11:00

I'm mulling over starting a small forum to discuss my trading methods in the hope that as a hardcore little group we could polish it up into something awesome. Bearing in mind that its all still a work in progress, I'll say this - I'm definitely on to something...

I'm half-half about this idea, as forums tend to just run out of control and become dumb. Almost all the guys on forex factory that post their methods are soon swamped by nerds and chodes who end up taking the whole thing off in a different direction and diluting the energy into nothing.

However I would like to know how many readers would be interested in this, if so write me:

simonhartfaceman@hotmail.com

Interesting

2009-01-30T16:39:00.004+11:00

Even though I adore flaming anonymous people that flame me, it does make me wonder exactly what they are hoping to get from this blog. Why read it? What are you hoping for that you are not getting? A magic pill perhaps...

When I read other traders blogs, it is usually out of a curiosity regarding their progress, and also because I tend to pick up ideas along the way. I am not particularly interested in exactly how much money they made or lost, just whether or not they are having any success at all.

But that's just me.

Arm and a Leg

2009-01-30T09:46:00.003+11:00

Anonymous said... "If my loyalty to forex trading is any thing to go by, you aint going to see any dissenting view from me. I have lost an arm and a foot in the market, yet I am at the surgeons to cut off the other arm and foot just to stay in the market."

This is a refreshing dose of honesty. Not many people are willing to admit they lose you'll notice. Most people come from a frame of kicking the markets ass, much of which (I suspect) is lies and bravado. You can pretend to be anything on the net after all.

The forex market is one of the toughest markets to trade, I have no doubt about that. I've traded stocks and commodities, and forex is WAY tougher in my opinion. Not from an actually mechanics point of view (placing orders) which is super easy, but just from a pure trading point of view.

I invite you, anonymous, to say more about your experience and I'll put it up. Why do you think you've lost an arm and a leg? How are you going to turn this around?

Here's something I've discovered over time. Most of the so called "knowledge" out there on trading is old stock trader shit that seems to originate from the 70's and 80's, and it just flat out doesn't work in the forex market. I have over the last two years been forced by trial and error to adopt a certain style of trading that I believe is unique to trading forex. I mean I wouldn't trade stocks and commodities this way, but it works for forex (most of the time).

I would say more about this at some point but its still in a kind of nebulous developing state. Trust me, if I finally locked down a method that was making me a serious amount of cash, I would have no problem with getting together a bunch of honest folk on a forum and teaching it for free - but I currently don't have it locked down.

New Blog Rules

2009-01-23T13:56:00.002+11:00

As of this day, anyone making comments on this blog has to agree with everything I say. Dissenters and trouble makers will no longer be tolerated.

Ist das verstanden?

An Average

2009-01-23T08:55:00.003+11:00

Regarding the 65 SMA Anonymous said... "A better question might be how many points don't line up."

It's not a better question, its called "playing the devils advocate". Of course not every point will line up, because it is an average, and if every point did line up then surely the entire market would cease to function. Isn't this retardedly obvious?

I'm simply stating that price tends to show an unusual amount of respect to that average. Put it on your chart and have a look.

Best tool for currency traders

2009-01-20T14:44:00.003+11:00

Essential tool for currency traders in my opinion - buy yourself one of these cheap-ass digital watches that beeps every hour. When it does, check your chart - 1H roll over is a key time, watch the market fight like hell 2 minutes before the close. Happens all the time.

Don't make any decisions until your watch beeps. I'm not kidding...

More...

2009-01-20T13:39:00.004+11:00

Daily bars... these charts are a year apart, makes no difference.

More 65 madness

2009-01-20T10:25:00.005+11:00

In trend, look for a vicious sell off at the 65, don't jump the gun, works better to the downside. Let market players close the first bar and look like they are taking no prisoners, you take the second and run with the pack. Don't panic if your bar stalls, they probably just hit a ton of market orders, trust bar number one off the 65. Trail behind resistance internal to each bar.

*Ka-Ching!*

The Superb 65

2009-01-20T08:05:00.002+11:00

You guys with your multi-coloured EMA ribbons, tunnels and crossovers can do what you like, but there's only one moving average for me; the 65 SMA... She's fast enough to pick the trend and strong enough to stop price in its tracks. Don't think I'm the only one looking at it either. Someone once told me a reason why its significant in forex but I wasn't paying attention.

Plot thickens on Bolze

2009-01-19T22:45:00.004+11:00

Fascinating reading - he's currently just vanished off the face of the earth:

http://www.wate.com/global/story.asp?s=9672509

etc...

What next? These guys don't seem to get jail though - Aden Rusfeldt blew about a million and a half of investors money with a similar scheme and as far as I know he just got banned from trading and is now happily ensconsed back in the mortage business where he came from.

Intelligence Test

2009-01-19T13:46:00.004+11:00

Which side should you be on in the following markets, long or short? CLUE : they both have something in common....

If you can solve this mind boggling puzzle, you may well be on your road to riches!

Why does it happen?

2009-01-17T15:08:00.002+11:00

There seems to be a consistent pattern when it comes to these trading teachers turned rogue traders. The story usually is that a trader struggled for years, then "made it", and decided to teach others. Students etc began offering them money so they set themselves up as a money manager and then *bling* collapse in flames and do a runner.

One obvious theory is that their trading psychology had adapted to trading their own money at a certain equity level, and they might even have been very successful at that, thus making them confident and bold. But then all of a sudden they are thrust into new territory in terms of both a massive influx in equity and thus volume to have to trade, and the burden of being the crux for investors hope and fear all day.

Imagine it - you are happy trading 1 or 2 standard lots and you have a good rate of return on your own account, but now all of a sudden you are trading 100 lots per trade, and the phone is going every half an hour with someone yapping "So?! How's it going? What level is my investment at now?! Has their been any losses??!!"

*Brring Brrring!!* - "Someone grab that god damn phone, I'm trying to focus here!"

You could almost feel how this would cause your heart to start pumping and you would break out into a sweat; your mind would go foggy - yet you are supposed to stay cool and trade. I personally sense that many of these guys just didn't consider this at all. They thought they were ready; they weren't.

Add to this possible new market issues that throw a spanner in the works, such as trying to get filled with bigger volume, slippage - your positions maybe starting to show up on the radar of other market players and drawing interest to yourself.

The trusty old scalping system seems to not work like it used to work. One bad day and you've drawn down 20% of the account and you can't sleep at night. You can't bring yourself to tell the investors right now until you try to reduce that loss, so you tell a bit of a white lie.

Down the rabbit hole you go. Soon everyone is calling you scum and saying the honourable thing to do is commit suicide and you are facing six years jail. The moral of the story - think twice before becoming a home-brew money manager.

Capitalism

2009-01-16T10:37:00.002+11:00

Check out this dude; he seems to have achieved a moment of perfection of some kind, like "I AM CAPITALISM!"

No way!!!

2009-01-14T17:36:00.001+11:00

One of my favourite bloggers (see blog roll, Traders Paradise) has turned out to be a scamming rogue trader:

http://www.knoxnews.com/news/2009/jan/09/investors-may-be-mostly-european/

Is there anyone out there whose honest? Oh yes there is - ME!!!

A few January ramblings

2009-01-09T17:43:00.003+11:00

I've noticed that my grasp of taking a position on currencies based on a fundamental perspective is widening somewhat. It's not easy though - you really have to begin to feel multiple factors criss-crossing over each other in order to gauge sentiment. You have to consider the news, the equity markets, oil, gold, everything. Its all interconnected.

I also have been doing more research. Read a lot of opinions, and look for clues. Other traders will be doing the same. You don't have to be influenced by it, but you can be prompted to keep your eye on something if it makes sense.

The bottom line is I like position trading, I always have. The problem is its a slow dog of a process to get anywhere when you are messing about with (relatively) small amounts of capital. However I'm also now attempting (by a messy sort of trial and error) to combine a position trading approach with shorter term technicals to build positions in the market. I find this actually very satisfying, especially when you pyramid your way in and see that at a certain point in time you have built up a significant position.

For instance, there is one currency pair that I am waiting for a move on, but it hasn't started yet. When it does begin (if it does) I will start building a position on that pair, for the long term. I will pyramid and pyramid my way in and protect profits as I go until a point comes where it will all get liquidated.

I also formed a new habit of keeping a diary - an actual book, like an organizer. I don't write trades in it etc, it is mostly for collecting interesting pieces of investment news or market clues.

I realize a lot of this may not be of interest to anyone else, but its just something I like to do. Each to his own. This is just one side of my trading I am starting to try to develop.

2009

2009-01-02T13:19:00.002+11:00

So.... lets see what this year brings. I have a couple of irons in the fire for this year so hopefully I can stay focussed and make some real progress. Good trading all. Lets go!

On writing a book

2008-12-17T21:45:00.000+11:00

Response to Lonely Trader :

If I was to write a book on FX, I have to ask myself what would actually be a cool book and not just be something to be tossed onto the mountain of dross already out there? I wouldn't even start unless it had a hope of being a classic and that takes heart and soul and a real story to back it up. To me, it would have to be about a guy who started at nothing and made it all the way to success and somehow articulated what was necessary to do that. Depends also on the definition of success.

Now THAT would be god damn interesting... I'd read that. If it was real.

Unfortunately I don't feel like I'm in such a position. I have certain fairly lofty life goals which if I met I would be able to look around at my life and go "yeah... I did it." - then possibly I could write a book.

Mind you there needs to be some kind of transformation in the process. Who cares about the idiot that was poor and then the idiot became rich? It can happen by accident to any fool. There is something about the tone of succesful (so called) traders that bores me - you know the sort. So now he's got a boat and ferrari *yawn*.

I do however feel the current need to consolidate what I've so far achieved, which is not nothing. Climbing a mountain takes periods of effort followed by periods of pitching a tent and having a think about what just happened. I feel currently like the potential is right in front of my face yet out of some kind of blind wilful stupidity of my own I sabotage my efforts constantly - and I'm not just talking about one bad month. Its a pattern - I see it.

It's almost like I don't actually WANT to succeed. Seriously. Don't you think that's interesting? Why the hell would that be? I've been observing this closely and what I see are beliefs that are so ingrained and unconscious that you need perfect mental stillness to have a hope of even seeing them. In such a moment it's difficult to write, as I just add to my own mental racket.

I'm sure there are guys out there for whom trading is a piece of cake. Its like "duh, you just wait until X crosses Y and if Z is positive then you enter... whats the issue?" --- Either there is a different breed of you out there on the forums who can speak like this and your brain really can function like this, or else you are lying to impress others and get some kind of feeling of importance. Almost it seems if you are a simple moron who can follow instructions to the letter you will succeed, but a complex person such as myself full of quirks and strange phobias, memories, desires and fears is thrust by the market into the labrynth of his own mind.

I am confronted by myself. I have periods of winning effortlessly and feeling like I flow with the markets and then I go half crazy and throw it all away; it's a most peculiar thing. As of December 2008 I think I can only take stock and go "Hmmmm.........." - this is year two and I've basically simply churned my account over and over and over to no great effect.

Deeper things are going on here. Why do I sabotage my success? Perhaps in 2009 I will find the answer. Anyway, regarding writing a book - I'm currently still stuck in the story...

On ice...

2008-12-14T22:18:00.002+11:00

I'm going to take a holiday from blogging about trading until the New Year some time... I will not be taking a break from trading, but just writing about it. The reason being that I have some new writing projects that I'm working on and I just do not have the creative fuel to do it all. (Now I've said that, I'll probably feel like writing something this week, but anyway...)

Just letting you know, you folks that check back often. Hope you all have a good Christmas and New Year!

Waves of emotion

2008-12-09T22:18:00.004+11:00

One of the most difficult things I personally have found in trying to develop a sound trading psychology in myself is the fact that markets move in waves. The fact that price can actually turn around and aggressively move against you into the negative before turning positive again I think is something I will always find challenging.

Those who react to this phenomenon might find themselves bailing out of positions and then watching like a stunned mullet as the price slows, halts and then begins to race in the intended direction. I've done this a thousand times or more. It actually feels absurd at the time.

The two strategies I developed for dealing with it are first of all not to be there. Enter a position and a stop and just go away, as you will do more harm than good by being around. This works quite well - I was actually amazed to discover sometime late last year that I could get better results by going out than staying in watching the charts.

Second was to create a realistic set of rules by which you say if price gets to this point then my reason for entering is no longer valid - and thats usually where I place my stop. Of course the forex being the F5 tornado that it is can stomp on and violate any trading rule you attempt to create, but I've found that this works well enough.

Thats one thing I'm really starting to get to know now - the forex market is NOT like the stock market. It is altogether a different beast. It moves differently. Half of the indicators you attempt to apply to it are useless simply because they are old stock market indicators. This market is also most likely being moved around by an army of sophisticated software and robots that have human drivers who sit and monitor them. Just imagine whats out there... Do you really think the average bank or commercial trader enters all his orders manually? I doubt it. This is 2008; they will be using advanced risk models and algorithms and every damn thing possible. No wonder the currency moves hardly make any sense half the time.

NOVEMBER REVIEW

2008-12-04T09:51:00.003+11:00

Nothing much to write I must say. I started to get carved up in November and give back all my October profits as the markets went sideways so I stopped trading. I've been watching the market noise as it gyrates up and down looking for direction and grabbing at every piece of fundamental news.

Every time I try to trade in sideways markets I get carved up. Every time. So I turned my attention back to study and experimentation, always a good thing to do when you get "that feeling" --- that feeling of putting on trades and your gut says "I shouldn't be doing this."

Ignore the noise, long term

2008-11-29T10:12:00.003+11:00

You may notice at the moment that the market is behaving like a manic depressive. I have been watching how the reporting entities such as Bloomberg and CNBC handle these swings between optimism and pessimism, and they seem to have no problem with it, mainly because they never bother to really predict or forecast anything; they just commentate - they are a lagging indicator!

One of the scarier things in times like this is the innate inability we humans have with seeing where we are in large slow moving macro trends. You'll notice today bloomberg is talking in positive tones about the largest gains on the S&P since 1974, so its hard in the face of such short term burst of optimism on the part of the masses to keep your head.

The author of Hedge Fund Edge wrote something that keeps coming back to me when I look at these market swings. He said that when economies contract, stocks tend to go down in value, and when economies expand they tend to go up. So obvious. Brian Dollan from Forex.com (who actually writes quite a sold weekly newsletter) states "It seems that without recurring government initiatives, markets are unable to sustain rallies, which is to be expected given the unfolding global recession."

"Without recurring government initiatives, markets are unable to sustain rallies." -- why? Because we are still in a contraction phase of the business cycle. For me at this time the thing to do is watch those monthly charts, and watch the economic data... those are the only things that say it how it is. If you take the fundamental outlook and a basic technical picture of the Dow for instance, to me it seems like a time to still be bearish and ignore the noise. Let the masses party when a rally happens and howl in fear when it stalls... You won't be missing anything if you just sit on the fence for a while longer I think.

Shades of Grey

2008-11-25T14:58:00.005+11:00

Philip said... "I'm a little confused by the 'shades of grey' analogy - 'shades of grey' sounds like a complex process as opposed to 'black and white' which sounds like a simple process."

By that I simply mean the ability to see whats basically going on without feeling the need to nail things down to exact parameters. For instance, take the current situation on the AUD:

If you squint your eyes you should be able to see that there is an approximate trend line in there which (without being pedantic) we can all agree is about here:

Now the reason not to bother about nit-picking over exactly where this trend line should be is that there are a million things going on, two false breakouts, other minor tests and pushes... Its not created by everyone in the world looking at the same line - its created by supply and demand pressure so how could it be exact? Hence there's no black and white about this, it IS a shade of grey situation.

Finding meaning in the noise

2008-11-21T15:00:00.003+11:00

There is something that took me quite a long time to notice in my behavior with trading, and it was a peculiar obsession with trying to find exact measurements of price action. Once you kick the habit you begin to see other traders doing it all the time.

They discuss how RSI reached this particular value, or the ever present fascination with fib numbers, or how to correctly and precisely draw trend lines or support and resistance, and the endless combinations of indicators. You really need to shift from this kind of black and white thinking to a more "shades of grey" frame of mind - is price GENERALLY going up, down or sideways?

If you just think about what price IS and how many players are pushing it around then you'll see that its folly to bother measuring things with any precision. The human mind can actually find patterns if it looks for them - hence the old game of lying in the grass and looking at clouds to see what they look like - "oh that one looks like a rabbit - that one looks like an old man - that one looks like a womans breast!" - You can do this with price action too; you do after all have a MOTIVATION to find something as on a core level you believe that the pattern contains profits.

Lets just call this activity "looking for trades"... A good rule is that if you are looking for it, its not there.

When I do my technical analysis these days it is a more "broad brush" kind of activity - if I see a fairly obvious trend line I will approximately mark it out, and the same for price patterns, and S/R... The best description I heard or read somewhere was that these areas are like a wire fence that the bulls and bears push up against - not brick walls. There are no hard lines in the market. If its obvious I put it in, and if its not then just consider it to be noise.

Or at least I TRY to do this - there is a peculiar seductive fascination with chart tinkering... Its strangely pleasurable and amusing, but in terms of trading as a business there's really no place for it. Take up chess instead.

Loosen up in your technical analysis - the real picture is more blured. Wait for obvious patterns. Don't chart-tinker for amusement. Good rules all, not so easy to follow.

Momentum

2008-11-19T11:49:00.003+11:00

More and more I'm finding that momentum is the crucial aspect of my trading, no matter what the time frame. Practically speaking its almost the only edge that ever means anything to me. If the market is moving then its good to trade, and if its drifting then there's no point being involved.

Something so simple as that - you don't even need any indicators, you can just use your eyes. You can tell by how the bids are coming in, how the bars tick up and down. You can almost hear the pit noise (virtual pit noise) by watching the bars and how they move.

When I trade intra-day then the sessions become important. Just watch the inflow of trading activity and feel the energy building up as we cross over from Asia into the London session. Wait for some kind of clue as to the direction and get in. I guess this is getting close to tape reading, but if thats where I'm going then so be it.

A tip for EA programmers

2008-11-12T16:15:00.002+11:00

Something I didn't know until today - it's actually possible to run multiple sessions of Metatrader on the same machine.

What you do is install Metatrader to a differently named directory, and just create a new shortcut on your desktop. So you would install it thus:

metatrader_1
metatrader_2
metatrader_3 etc...

Ideal for testing EA's on multiple broker platforms etc, and just generally good to know.

There's nothing you can do

2008-11-06T18:08:00.006+11:00

You might be at a stage of feeling very frustrated with yourself.

I know what this feels like - you begin to marvel at your own lack of discipline and ability to do what you know. It's like "Arrgh! Why can't I just WAIT for the damn setup?! Why am I such a screw up at this?!"

Speaking from experience, it's frustrating because you just want to get on. You have plans and goals and now you see that your own idiocy is preventing you from making any progress towards them. All I can say is that there's nothing you can do about this period except keep going and wait for it to pass... It's deeply ingrained. You have to trade through it; six months, a year, two years... Grit your teeth and plow on.

In a way, you have to relax into your own ability to seemingly pick every wrong move in the market. Just accept it. Providing you are not losing big money, you CAN relax into it. The good news is you are in fact building up a tolerance to taking losses during this period - you ARE actually developing a skill. It's called "risk tolerance."

If you're still in that "God dammit!" phase then do this: just keep losing and losing, but begin to try to take the losses without any emotional reaction what so ever and move immediately to the next trade.

Once you can do this, you then move on to learning to let go of your need to have success NOW. This combines with learning to do nothing in the market - learning to wait. Why not wait, you're gonna lose anyway right? So you might as well wait...

Now you're building up patience. This is a foundation that leads to a little magic further down the track, when you get to the point where you see that you could take any system and trade it properly to discover its true potential. All those millions of methods you tried for 3 days and abandoned in disgust now sit there like a pile of spare parts in the bike shed. You become interested in them again - there could actually be a few decent ideas amongst that lot.

So learn to lose.
Then learn to wait to lose.

You will be building risk tollerance and patience. There are more steps after that, but there is no way to skip this process, it has to be gone through by all.

OCTOBER REVIEW

2008-11-02T12:04:00.003+11:00

I missed a couple of months reviews, because quite frankly I was too busy to do them. But October was a very pleasing month of solid trading and solid discipline - this is a month I should remember as the markets were flying but I kept cool and tried to do the things I know I should do.

Performance this month is as follows for anyone that cares. As you see I'm not dealing with big volume or making millions (or even enough to live on), but thats ok. This is still only basically year 2 of my project, so I'm still focusing on performance and discipline. I should also say that I think this was a fairly easy month to trade as it was pretty clear which direction to trade, in other consolidation or directionless periods its not so easy.

+---------------------------------

Total Number of trades = 13
Num Winning trades = 7
Total Profits = $3176
Average Profit = $454
Largest Winner = $1013

Num Losing trades = 6
Total Losses = $548
Average Loss = $91
Largest Loss = $177

P/L TOTAL = $2628
Percentage Winners = 53.85%
Profit / Loss Ratio = 4.97

+---------------------------------

Nothing earth shattering there folks. Cherry picked trades, wrong about half the time, average winner bigger than average loser. Mainly focused on risk management and only taking trades that said "trade me!"... I have an equity goal that I want to reach at which point I will add to my account, but until then its sitting in cash and earning interest.

Good comment from Lonely Trader

2008-11-01T09:02:00.002+11:00

Regarding my comment on Profit Targets, thelonelytrader said...

"[Expletive Removed]. Just trade your method and your plan. You can have two or more different methods with different exit methodologies. If profit targets work, fine. If changes in momentum tell you to exit, fine. If the market tells you to get out, then get out. Why do we always have to rely on trading ideologies? Kinda like political ideologies...I think that somewhere, deep down, these ideologies provide decision-making efficiencies. But what is efficient is not always -- in fact it is rarely -- optimal.I have heard very credible people take the other side of the argument here: "It's amazing what can happen if one embraces profit targets...."

He's quite right. I have to confess that sometimes I feel like writing in the affirmative regarding some topic (i.e "this is how it is!"), but thats just a writing style thing and should be seen as such. Trading is such a massive subject that anything can be right from one side and wrong from another.

For me personally profit targets never really worked, but this is tied in to the method I trade. Another method may require profit targets. The reason I don't like them is because a profit target smacks of telling the market where it can or cannot go, so I don't do it. But for someone else taking profits might be fundamental to their systems performance.

Horses for courses... The main point to be gleaned from this discussion is you have to decide whether you take profits or not. I imagine that broadly speaking if you are a swing trader or scalper, profit targets might be the go, but as a trend trader you would be less inclined to use them.

The problem with record keeping

2008-10-28T17:59:00.003+11:00

Record keeping is a drag - I know it... I think though that half the problem is recording useless stuff; if you can limit the data you collect to the things that MEAN something to you, then I think you'll find it much more interesting and thus easier to do.

I used to log all kinds of useless crap, such as ticket number, long or short position, entry, exit, blah blah blah. This data may be useful to someone, but to me at this stage it just isn't. All I want to know is my outlay, and my win / loss size, plus some basic math to tell me my performance.

I also keep a second tab on my spread sheet called MoM Scorecard where I log the end of month results. These were ideas I have copied from other traders. So if you are logging all kinds of useless facts, consider trimming it back to what actually means something to you.

Question on Exits

2008-10-27T19:15:00.004+11:00

Jaroslav said: "What is then interval when you check the trade for manual exit?"

I trade daily bars, so my goal once a trade is triggered is to step up in timeframes from the five minute chart (which I use for fine tuning entries) until the trade is at break even and can be managed on a daily time frame, then I will manually trail my stop until I get taken out. This method tends to ensure that I walk away with SOMEthing even in a whipsaw bar or at least cut my losses short.

The thing is this - to me, a 1R loss is the WORST CASE SCENARIO. It is not something I want to do over and over, so I keep my eye on trades when they open up and manage them on a five minute chart and keep my stop snug behind minor support or resistance levels. I can usually get to my computer 3 times a day, and I will tighten them up once more before bed. If I was moving some bigger volume I might get up during the night, but currently I seem to be doing fine without this. Because I'm in Australia and I sleep through the US session, in the morning I wake up and see the damage (or glory) that was heaped upon my account, but I have not found a way to avoid these overnight surprises (unlike the banks who work night shift). I gotta sleep dammit! This is the risk management part of the trade, the most important part.

My primary concern is to limit risk. This is where the work is.

Once I'm at break even I then want to back off and let the trade ride and not grab profits too quickly so I manage the trade on a daily timeframe. Now I'm in the market, and I'm correctly positioned. But it's part of a trend followers lot that you miss some at the start, and give back a portion at the end - but you content yourself with catching a piece in the middle. I think this relates to the cryptic advice given by veteran traders when they talk about "not being greedy" and "leaving something on the table for someone else" (see the Market Wizards books).

I have my own version of it (I got it from somewhere but can't remember where) which is "accept what the market gives." - You really have to have this attitude, accept what you get, and feel nothing for the bit you gave back, it was never really yours. It's not yours until you lock it in.

Admittedly it is not the normal way to think. So the trade hit a 20% high and then thrashed back and stopped you out with a 3% gain. So what? You made a 3% gain! Average citizens will think in terms of losing 17%, not gaining 3%!!! Don't be like them.

To desire to catch the full trend from bottom to top is being greedy and unrealistic. It's not the correct mindset. For instance on that pound fall the other day I caught half of the move but got stopped out on the big pullback, and at first I caught myself about to say "damn!" but then quickly recited my mantra - "accept what the market gives."

errr....

2008-10-24T22:09:00.000+11:00

Just a quick post here, but what the hell is going on in the currency markets huh? GBP down a thousand pips since I ate my dinner 4 hours ago?

Give me a reason...

Something I've noticed

2008-10-23T20:28:00.006+11:00

I now seem to exist between periods of trading a lot and doing nothing at all for days, weeks or even a month or more, where as in the past my trading activity was constant every day.

The active periods nearly always coincide with trends breaking out on all the major currencies, and my times of doing nothing are the periods in between. I think there is a clue in this.

Are you trading all the time? If you are, then probably you are looking for trades that are not there. The currency markets, in my experience, seems to explode in a flurry of activity on all pairs and the whole market is on the move. Not always, but the real money for me happens in those moments when you feel the whole world uproot and start moving. Obviously at the moment due to the world financial situation we are highly correlated in terms of overall volatility.

It's certainly been in one of those periods this week, although at the time of writing we seem to be taking a breather. If you can feel SPEED in the market its a good time to be trading, and if it's ticking over like an old quiet grandfather clock or walking across your screen like a drunken man, most likely not.

But anyway the point is the markets move in waves and cycles, so you would think that no matter what your trading method your activity would tend to ebb and flow accordingly.

Something to think about.

Profit targets

2008-10-22T22:31:00.001+11:00

Marcoa said: "Its amazing what can happen when you let go of the 'profit target' mantra and let the market decide what it will pay you."

Quite so. Here's another good reason to abandon that arcane science, just wander over to the USD/CAD pair, monthly bar...

Precision trade timing

2008-10-22T16:27:00.003+11:00

Over the last couple of months or more I have come close to doubling my trading account, and one of the key factors in achieving this was precision timing of the trades I took (and also the big moves that happened). By this I basically mean taking signals from a high time frame such as the daily chart, but then waiting for an entry to present itself on the 15 or 5 minute chart.

When the trade is triggered I will then manage that trade on the low time frame until it gets to break even, and then I will begin to manage it on the next higher time frame (4H) and finally back to the daily chart. I take my exit signal from the daily chart, and have no profit targets.

If my account actually hits double I will implement that part of my core trade plan that deals with funding and double the equity in my account to match it. I.e if I have $1000 in my account and trade it to $2000, I will add another $2000. Then I'll be shooting for $8,000 and so on. Of course at some point I won't have any more risk capital to add, but for now I do.

This is the way I have chosen to fund my account, by a process of 'creeping commitment'. I also will cut this funding if I suffer a certain amount of drawdown on the account and take a step backwards. The trick is to take that next step and manage to stay there. I've found this is a good way of rewarding myself for good trading; of course I WANT to be trading bigger volume but firstly I have to earn the right.

Also I find this has been a good way to acclimate oneself to bigger volume. There is a definite psychological pressure added when you increase your volume, but dealing with it step by step seems to have worked well so far.

Warren Buffett

2008-10-20T07:40:00.004+11:00

Anonymous said... "I guess that is why Warren Buffett is rich and most ppl aren't. Greedy when others are fearful and fearful when others are greedy."

Warren Buffett is an investor not a trader (though the line is blurred as to what classes you as one rather than the other) - he buys stocks for the income those stocks throw off in the form of dividends etc. His basic moto is buy good companies that are at a discount, which they now are, and hold them for a long time. He also has ample risk capital to buy enough shares to become really involved in the companies he buys.

This is different to what I hear some people beginning to talk about now which is using money they can't afford to lose and picking the bottom. They are certainly being greedy when others are fearful, but in their case it might backfire. Sure they might be lucky and pick it and will then happily attribute this to their own genius.

Warren Buffetts Way was one of the first trading/investing books I ever read.

Bottom Pickers

2008-10-13T20:07:00.004+11:00

I am recently amazed at how many people have been asking me if now is a good time to be buying stocks because its all so cheap... At dinner the other night a friend told how one of their relatives has just mortgaged his house to buy stock.

I tell them they can do what they like; but one good question to consider would be "is this a bull or bear market?" Even people who know virtually nothing about the subject can say its a bear market, so I say "why do you want to buy then?"

This concept of cheap and expensive, high and low, is one of the core fundamental mindsets that a trader has to overcome. It took me ages to even see this, let alone try to live by it. Stocks are now cheap, unless the market dives another 700 points and then they'll be expensive.

Sure, it might rebound now with the rescue packages and cash injections etc, but its not really a bull market is it. Its not true optimism, its more like global hope. Maybe the last two years of getting my ass kicked in the foreign exchange market has made me risk averse, but this is one bottom I don't want to try to pick.

More quality advice from strangers

2008-10-08T20:58:00.007+11:00

Anonymous: "You have been studying trading now for how long? Imagine if you placed $50k on a play that you decided was going to move in a certain direction. Then you have something on the line, see how you go with that."

Why - to prove that I'm a man? In my experience, if you try to prove your masculinity in the markets it will not be long before you get castrated.

Lets talk facts instead of nonsense, just for a moment. Trading is hard and requires a good deal of practice, study and experience. If this were not the case, everyone would do it and be millionaires, or buy a $90 dollar cash cow system and turn their bedroom into an ATM machine. The fact that common knowledge suggests that approximately 5% of traders in the world rise to greatness whilst the other 95% lose or break even tends to support this point of view.

Secondly, to risk your life savings whilst still considering yourself as being in the learning curve is pure folly.

For the life of me, I cannot understand why my policy of taking my time, being patient, and slowly ramping up my risk capital as my confidence grows rubs clowns such as yourself up the wrong way. Something about it really irritates you... Why is that?

There is only one possible explanation - bitterness. You must have tried your hand in trading and "lost a packet" due to your own greed and stupidity, possibly by acting out the advice you now dish out to me. Did you place 50K on a play when you thought the market would go in your direction?

How did it feel?

Now I have to say, I like to let all comments through and not moderate, but I think I have given the Goon Squad about as much air time as they deserve. If you have got nothing sensible to say then quit bothering me with this pish.

A suggestion

2008-10-07T07:45:00.002+11:00

Anonymous said : "One good trade does not make you a trader and it certainly does not make you a "super" trader. You should rename this blog to simon the mediocre investor."

I will if you change your name from Anonymous to "Miserable Git"...

Best trade of my life

2008-10-06T14:45:00.010+11:00

Around the middle of the year I began to look at the bearish reversal patterns that were showing up in the major indices including the All Ordinaries, and began to worry about my super fund. Put it this way, if it was a currency chart I was looking at and I was long, I'd be thinking to move my stops up close and get ready to sell short, but I had never tampered with my super before.

I guess I had a deeply entrenched belief that the fund was under management by professionals and I was just a newbie. I was also at the time reading Hedge Fund Edge, and became alarmed at his description of how under-managed "managed funds" were and that to recover from secular bear markets can take decades with a simple buy and hold strategy. His basic message there was "take responsibility for your investments."

I watched the action unfold until it dawned on me that my fund was going to stay fully loaded in stocks and ride it out. They were 45% Australian shares and 45% International shares, and the rest in 2% lots in cash, property etc. The performance of their fund therefore matched exactly the performance of the major indices. I realized that the funds were so large that they could not just dart in and out when ever they felt like it. I was in a trade I did not like at all. One day I thought "My God, they are going to do nothing..."

I jumped on the phone that morning and said "get me out, put it 100% in cash"... The guy at the end of the line tried to advise me not to tinker with my super and am I sure and there is a fee for switching and... I said "yes yes get me out NOW!"

This was around June / July.

Then I felt better. The anxiety that was brewing in me went away, and I was happy to be on the sidelines until the market sentiment turned more positive. Since then of course... well you know what happened. Hence over all my drawdown was around 7-8% when I "cut the loss" so to speak, and I've been happily collecting significant interest all the while the markets have been dying.

I think my fund is now down around 16 - 18% [addition : make that 21% after today] whilst my drawdown has been reduced to about 4% from interest... Therefore I can currently call this the best trade of my life as I saved thousands.

The one liners

2008-09-28T10:50:00.002+10:00

Sorry : "...as a parting observation, the only homespun truth that the successful traders I have talked to seem to adhere to is 'whatever makes money'."

Great traders are well known for giving short pithy responses when replying to questions about how they have success in this game. I think this is for two reasons; number one they have internalized the process to the point where it seems natural and easy to them, and number two the subject itself is so huge that it is impossible to explain the entire process to newbies.

Hence we get statements such as "the trend is your friend." - Who ever first said that was obviously someone who did not have the time or the inclination to explain the entire mammoth process of learning to trade to a newbie.

Its like asking a pro-baseball player "how he does it." You are likely to get an answer like "I just swing the bat!"

However if you were to take this at face value and go out into the field and just swing the bat you might be disappointed to find you do not all of a sudden get rocketed into the major league.

More from Sorry...

2008-09-27T17:16:00.002+10:00

I'm not trying to make a public spectacle of you here, you are raising interesting points that are worthy of bringing out of the comments section:

Sorry said : "I'm not sure what logging on to Forex Factory has to do with anything Simon, I've never seen anything worth emulating there. Getting your head right obviously plays a role, but if you don't have a edge you have nothing. You are trying to put the icing on before you have the cake.

You somehow seem to think that if you read enough books about trading that suddenly some synapse will connect in your head and voila! suddenly you will be able to trade. 'Classic' trade books are good for inspiration, but nothing else."

If it seems like that, I really don't. I think that nothing - NOTHING - teaches you more than trading itself. Even losing like a mofo for months or years is productive providing you are not stupid enough to be losing big money doing it. I've always said this. Trade until you want to smash your forehead on your desk, just don't lose your savings in the process.

What you need to do, I think, is combine the process of trying to trade with self education, because you actively reenforce what you read. Its a disgustingly messy and frustrating process, the net result of which - looking at myself - is that your are ultimately humbled and quiet down and develop a true respect for the market and the reality of trading.

From a blogging perspective, this also curiously shows in that the more you know, the less you have to say.

Also there is more meaning in the classic one liner statements than meets the eye - such as "cut your losses short, let your winners run" and "never let a winner turn into a loser" etc... These are just statements until such a day you see the brilliance of their inner meaning. You see their inner meaning the day when you see how much you violate these rules constantly.

A combination of active trading and study, in my experience, generates a third thing - true understanding. However, it is true that when I first started doing this blog I was more brash and confident and bold and had plenty to say, and now I am more of a silent watcher of the market who occasionally spots an opportunity to take a position.

There is not a lot to say about trading at that point, it is what it is.

The Grail!

2008-09-27T07:44:00.007+10:00

EDIT : MarcoA said (in a sarcastic tone): "...and the books you quote are filled with quotes from other books, research papers etc. It goes on and on. This constant cross referencing, reinforcement and development from other peoples ideas must end (not quite sure what you'll put in the blog then).

Show me the ONE."

Interestingly this constant cross referencing and development from other peoples ideas is a good description of the process the mind should be going through. You sift and connect ideas. Something happens in the mind when you realize that two people are talking about the same thing in their own words.

It should never end.

[FLAME REMOVED] ~:-)

Each to his own, is where I'm at now. If you don't care much for study etc, and you can succeed by just finding a system and applying it then more power to you. And by the way, I have also been through the phase of listening to people such as myself waffling on and thinking "cut the crap, gimme the system."

Sorry said...

2008-09-26T12:17:00.003+10:00

Sorry, had to say it. said...
You need an edge Simon, not a bunch of quotes out of books.

You are playing down the role that psychology and study plays in the development of ones trading life. You think that all that is required is an "edge", i.e. a system that wins more than it loses.

Over these last few years I have personally seen that the role that psychology plays in trading is gigantic, requiring metanoia (change of mind). Study of trading books, especially the classics, along with list making and note taking is a part of the process of this change of mind.

If this were not the case, you could simply log on to Forex Factory at the start of your trading career and find an "edge" and set about making millions. I do not know many people who found it to be this straight forward.

Learning to do nothing

2008-09-24T17:39:00.001+10:00

This is a lesson I keep needing to come back to. I can see that trading for amusement has been my own downfall a thousand times in the last few years, and to just sit at the sidelines can be painful.

I just read a brilliant quote by the trader John Piper.

"Once able to trade, it is very likely that a person will make the emotional decision to do just that when bored. This timing is unlikely to correspond with a low risk trading opportunity."

Bam. You can't argue with that.

Back to weekly timeframe

2008-09-20T09:58:00.001+10:00

Due to starting a new career, I currently do not have the time or mental focus to trade daily so I'm having to push back to looking at weekly bars. There's nothing wrong with this, and I have in the past had more success with it than trading daily or intraday.

This is just the necessary process of making your trading plan fit your lifestyle.

There's only so much mental energy

2008-09-15T21:11:00.000+10:00

I've started my new job today and it's very cool, but I've noticed that my connection to the market now seems severed. I guess this is because I am also a little spun-out by it all. I look at my charts today it and it doesn't make sense at the moment. Instead of me feeling some kind of connection to it its just red and green lines.

But thats ok, I'm putting that down to the fact that the market needs mental focus, and when you focus goes elsewhere you should not trade. I know right now is a bad time for me to trade, I'll make a thousand mistakes.

So just standing aside as a casual observer for a little while until I feel I have enough reserves to commit.

Know your faults

2008-09-09T09:30:00.003+10:00

I recently sat down and made a list of all my trading faults. If you have a capacity for honest self assessment you will know what they are. I then created a goal for each of the things on my list which was its opposite.

So for me consistent journal writing and record keeping I knew was not that great. I have bursts of it, then either have no time or get bored - and I also think that accurate journal writing is fuel for the rocket of personal development so I MUST do that. I worked out that half the problem was not having a consistent format that I was happy with so I think I've fixed that.

There were a few other things, but that was the process. Create a list of your known issues and reverse them, and focus more on those goals than anything else.

Modelling and Creativity

2008-09-04T16:26:00.004+10:00

I just read an interesting thing in a book about modelling (the act of doing what someone else does who has been successful in order to match their results). Its an NLP thing. However some new advice regarding this process which I had not encountered before was to restrain your creativity until you have mastered what ever it was you were modelling.

In trading terms, what this means is that if someone gives you a system, you should try to use it exactly as they used it in order to match their results, and not start tinkering with it until you have mastered it according to the original format.

You can see (relating to the previous post) that this is exactly NOT what the people on forums do when presented with a trading idea, and it is also an issue I can see I have myself. The FIRST thing people do is start changing it, adding things, being creative with it.

Something to think about.

Forum Life

2008-09-02T17:03:00.006+10:00

I actually lurk on quite a few trading forums, because there is quite often a lot of decent ideas going through, or chit-chat from really experienced traders. One comment that stood out to me recently was from an experienced and very successful trader who TRIED to post a few ideas out there, but he was shot down in flames by an army of "aggressive newbies" so he just buggered off.

That kind of sums it up. Aggressive newbies. And the EA nerds. It might have taken you a year and a half to master your system, but they can convert it into an EA in about half an hour.

When you venture into the forums, you have to put on your wellies and wade through the dung in order to find the occasional dropped pearl that someone has overlooked. The really interesting thing is to note how many threads are started by people who wish to present their favourite system - then forward to the end of the thread to see what its morphed into - usually something completely different with EA's and indicators gallor.

The original poster is long gone, drowned in the mental diarrhea of the masses and sick of arguing in an attempt to prove that his system works.

My advice for forum trawling is to only read the start of threads, they are usually dead by about page 2, even if they go on for another 300. You can sometimes pick up on part of an interesting and enlightening piece of something if you are lucky. But mostly its all white noise.

Belief

2008-09-02T12:39:00.003+10:00

ORION MACHINE said... How would YOU suggest people develop a true belief in something?

When it comes to trading, the FACTS are what establishes your belief and faith in the system, i.e. its real performance. I think the problem for newbies is that they are basically too bone idle to collect such data, so their ride goes something like this:

They read the hype on some website about possible gains to be had from a certain system and they instantly believe it.

The system has two winning trades in a row so they are totally convinced and filled with joy. They are CERTAIN. They write to the seller with a glowing review so that he can put it on his website in a little yellow box (and delete the ones he wrote himself).

The system then goes on a losing streak and their faith in the system is suddenly on thin ice.

After another loss or two they pull the plug out of panic and are now totally convinced the system doesn't work.

Return to the start. I know this for a fact because I've been through this period myself - the problem is nearly everything was based on belief rather than facts and solid data. Actually most of all it was fuelled by HOPE. In most decent trading books they say that 60 trades are minium to get any idea about a systems worth, and over a hundred is more like it.

It's a pain in the ass, but you have to sit there with a spread sheet and collect data. There's no other way folks. When you come to this conclussion, you are then confronted with the mirror of your own laziness and lack of patience.

About systems

2008-09-02T12:32:00.005+10:00

Carreidas said...
That's not my view of discipline.Discipline is executing your trades by following scrupulously the plan, not changing the rules midway when something unexpected occurs.... And I am yet to see ANY system working. So called 'systems'( or the idea of what most people have of systems) is precisely the cause of major losses in the markets. Systems are as much elusive as a magic box.

This seems to be a contradiction - following the rules of a plan scrupulously tends to suggest that some kind of system is already established (or there would be no rules). Even something so simple as buying when price is above an EMA and selling when its below it is a system.

If you mean robot trading, then I agree that most of what is available to the public (EA's) are just rubbish, but consider Chaffcombe over at Futures Tech who uses totally robotic trading systems (designed and programmed by himself) to run his hedge fund.

It can be done, but not by amateurs on the look out for get rich quick schemes.

The secret of discipline

2008-08-29T22:11:00.005+10:00

Discipline seems to be that elusive element in trading, the thing you just can't seem to get no matter how hard you try. Its a willo-the-wisp that we've only heard rumours about. Do you jump from system to system, method to method, change your chart constantly and have a favourite indicator of the month? We roughly call this poor discipline.

However I've discovered that there is something more fundamental underneath this behavior, which is a lack of belief in the system you are using. You have no faith in it. If you did, all such behavior and "discipline problems" would vanish in a puff of smoke.

To prove the point, consider this: imagine if I gave you a magic box, and if you put a dollar in this magic box and pulled the lever it would always dispense one dollar fifty.

What would you do? Yes thats right, you would do it over and over and over wouldn't you? Probably for hour upon hour you would do it.

Would you at any time become bored with this magic box and go in search of a better one? Would you try to improve it or invent your own? If you had absolute faith in the fact that the box will dispense the dollar fifty I say you would have no discipline issues what so ever. You'd sit there putting in dollars and cranking the handle like maniac.

The problem is that in trading the dispensing of the dollar fifty is not so obvious but blurred under a win / loss ratio and other complications, but quite honestly the process of trading is the same.

Hence I say that if you are still jumping from system to system and have poor discipline, try reframing it as having no faith or belief in the system you are using.

How to deal with early positioning

2008-08-21T11:20:00.004+10:00

If you see a trade setting up, I find that you need to be clear and committed about your reasons for entry because if you get positioned early, this is the most uncertain time in the trade. Of course its the best time to be in if you are right, but it requires a fair amount of conviction. If you are weak in your conviction about the trade, you can suffer those frustrating events where you get out with a loss and then it goes in your direction 200 pips.

It's like trying to pick the moment before a tree is about to fall. It's been half cut through and is swaying in the wind, but there comes a point where you would say "NOW!" as it starts to fall. But you might be wrong in the moment, but right in your opinion. The tree sways back one more time, but you know whats coming. Look back at your reasons for even being attracted to this setup...

Therefore I find that journaling such trades is a good thing to do; you make a list of your reasons for entry, and I tend to have my confirmations listed for a lower timeframe. Once I'm in, and the trade kind of sways around in an uncertain fashion, then I need to refer to my trade log which clearly shows my thought process.

Basically, make a decision! Are you in or not in?

A good service

2008-08-21T09:53:00.005+10:00

ORION MACHINE said... "Oh I get it. FXCM is attracting the little guys and hoping they will blow out even faster with that ridiculous leverage."

I can't agree. Even though on the one hand its true - from a business perspective, the whole retail trading world KNOWS that they are on a good wicket in terms of the fact that they have an edge over the average punter (the edge being the fact that most clients will be inexperienced newbies who can't trade), but I am still grateful that I live in a time where these opportunities are open to me.

It wasn't twenty years ago that you would have to have big money and a seat on the trading floor to be doing what we are now, and we'd have no access to the currency market at all. I think quite honestly that the bucket shop aspect that was there when the retail forex brokers first started off has been drastically cleaned up, probably due to the death rate of so many of them and a crack down by the CFTC etc.

You have to remember this, something that I think Boris Schlossberg said somewhere - the retail brokers want you to SUCCEED. They want you to kick ass and start moving big volume. Why? Because once your volume is large enough that its worth the retail broker not taking the other side of the trade, then you will be pulling in spread costs to them from the real market. They WANT you. As your account is going up and down, you are doing "turnover" on the account, and this goes to the broker. The bigger the account, the higher the turnover. Once your trades are large enough to go out to the interbank you are then in a real broker/trader relationship with them.

I am not sure of the internal workings of how they manage this, but it seems obvious that when you are a newbie and you first sign up, its worth their while taking the other side of the trade as most likely you will lose and give up anyway. It would be cool to hear from a retail broker about this, if there are any reading. Tell us how it works!

But if you are a great trader I imagine that you at some point belong to this "other category" of trader that brings in money for them via execution and spread costs alone. This is more profitable for them in the long run than newbies that lose their 5K and then go take up ballroom dancing instead.

FXCM, Oanda, and Interbank are now all solid professional businesses. For someone like me having access to a micro account with large leverage, fast execution and low spreads is a brilliant service. I have no complaints.

Now the only reason I left FXCM in the first place was because I needed to switch to micro, so its good that they've finally done it.

FXCM goes micro

2008-08-20T09:40:00.002+10:00

This is good news, another large broker going micro. All beginner traders should be trading micro accounts, I have absolutely no doubt about that. I will probably try them out with a demo account, but there is one thing Oanda have over all of their competitors which keeps me with them, and that is paypal support. It is SO easy to add and withdraw from my account, that its worth its weight in gold. This is where Interbank really fell down in my eyes. It was nice to be able to execute trades through metatrader, but moving funds to and from my account was a pain in the ass, having to go into the bank and wire funds around.

http://www.forexmicrolot.com/mission-statement.jsp

Forex gone mad

2008-08-19T11:18:00.005+10:00

There seems to be a sudden new push in Australia to get average citizens to trade Forex. There are adds everywhere - the one that really shocked me was a large freeway billboard I saw that harped on with the usual stuff - a smiling hot babe in her tailor-made business suit clutching a wad of dollar bills. "Trade Forex! Low commissions! Leverage! Its so EASY! Fill your pockets with a single click!"

A friend of mine was just contacted by a mobile phone company saying that if he switches plans he can get forex trading included on his phone. I guess it makes sense from a business perspective, get the whole world trading forex. Liquidity! Here's my contribution to this exciting new nation wide marketing campaign :

A curious fact

2008-08-17T20:31:00.003+10:00

I began blogging in January of 2007, and during that time I have done hundreds of trades, thousands maybe. I have tried and abandoned so many systems its just a blur, invented and rejected many of my own. I've experimented with every indicator I could get my hands on, and learned all kinds of classical charting techniques and fundamental news trading. I've read books, changed brokers, won money, lost plenty, learned a lot...

The whole journey is encapsulated by the handful of monthly bars shown above, but even more curious is that I could have just gone long on day one and saved myself all the hassle!

The lesson here, if there is one, is don't forget the primary trend.

Activity and Inactivity

2008-08-17T20:06:00.003+10:00

I've noticed that my trading is more and more characterised by periods of doing a lot of trading, followed by periods of doing nothing except watching.

This seems to be a positive thing, as the old days consisted of trading every day no matter what the conditions, where as now I find that the markets will go into a mode that I just do not like the look of. In such cases if I try to force something, to "find a trade", then I'll get burned for sure.

To some degree I think this is because I have not yet spent much time on developing my strategies for trading insides large consolidation patterns. Of course it gets easier as they become more developed but by that time they are also getting old, and in the past I start making good trades in them just as they are about to end. The hard parts to trade are the start of trends / end of consolidation, and the end of trends / start of consolidation. These are times when the market is changing its basic mode, and are great places to lose money.

Sold the highest tick

2008-08-08T09:26:00.006+10:00

To balance out my recent feat of selling the lowest tick, last night I managed to sell the highest tick.

What does this mean? The answer is that it means NOTHING.

It's just coincidence, an interesting thing... However if it contains any meaning at all, one can see that it would obviously be stupid to assign such things to either my own stupidity or superior skill.

If I had been cursing myself as the biggest loser in the market after having recently sold the lowest tick then here is proof that my thoughts were ridiculous. And it would be equally ridiculous to now be telling myself that I'm the worlds greatest champion.

Zero emotion is the way - intellectual purity shows us that these events are just strange quirks of trading, purely random and of no importance what so ever.

Change is spooky

2008-08-07T13:19:00.003+10:00

It is quite an interesting thing to read my old posts on this blog and be able to see that I had no clue what the hell I was talking about. This must mean that I now have greater perspective than I did then (obviously I would, but it is a strange experience to tangibly be able to recognise it).

This also applies to trading journals. I look at some of my old trades from a year or two ago and I frown in confusion as to why I would do what I did.

At least I know some kind of process is taking place, apparently for the better.

Market Wisdom

2008-08-07T13:13:00.004+10:00

A list of golden sayings and rules I have gleaned from many sources:

Plan your trades, trade your plan.
Trade Quality, Not Quantity.
Keep it simple.
Don't look for a reason to enter the market, look for a reason NOT to enter.
Don't act due to “Newbie Nerves”
Don't make up a trade. If you have to look, it isn't there.
Never play with scared money.
You are not the market.
Buy dips in an uptrend, sell rallies in a downtrend.
Do not try to pick tops and bottoms.
It is only divergence if it came off a retracement – not a sideways market.
Indicators warn, price action confirms.
Divergence is early, cross-overs are late.
You cannot expect your positions to go immediately into the money.
Divergence means a detour, but not necessarily a new trend.
No-one knows what will happen in the markets.
Standing aside is a position.
Subordinate your will to the will of the market.
Large ranges beget small ranges, small ranges beget large ranges.
Once a thing is set in motion, it tends to stay in motion.
Sniper-rifle, not a shotgun.
Cut your losses short, let your profits run.
Only move stops in the direction of your position.
Do not let a winner turn into a loser.
Never add to a losing position.
Forget losses quickly. Forget profits even quicker.
Consistent behavior equals consistent results.

There are probably more, send 'em in...

Rules

2008-08-03T08:13:00.002+10:00

Philip said: "That's the thing about rules, they have to be personalized to guard you against yourself more so than against the market."

Thats true, I have basically written out all the classic rules in my own words; I have my own twist on it. Yet even more importantly they need to be internalized...

The first step is to know the rule, such as the classic "cut your losses short and let your profits run". You need to then observe yourself breaking the rule over and over and over; this teaches you about the rule from the inverse side. It's like repeatedly hitting yourself on the head with a hammer, and then after observing the fact that it results in pain you start to think about not doing this anymore. You know that there exists a rule that states "do not hit yourself on the head with a hammer." - Maybe there is something in it...

By the way, its not because we are all natural born idiots. Its because trading rules are counterintuitive to the way we have been raised - its like trying to train yourself to do the opposite of what you've done all your life. You are trying to control the core primative emotions of fear and greed.

So you then start to try to obey the rule, and positive results follow. All the while, this particular rule is becoming REAL to you - its actually starting to have meaning and not just be a string of words on a page.

Then one day its as if the rule has vanished. Its not something you have to think about anymore or remember. It has been transferred to that part of the mind that allows you to drive a car whilst typing out a text message on your mobile phone.

We call it instinct, but that is not really right. But it has ceased to be purely intellectual.

7 actions

2008-07-31T17:23:00.004+10:00

7 actions I do :

1) Enter a trade that doesn't take off - cut it. I don't care if it takes off after that.

2) Get a gut feeling that I'm on the wrong side of the market - cut it and reverse.

3) Stopped out twice on the same pair - stay flat and don't trade until tomorrow.

4) In a trade that's running well - only look at it towards end of current session and make a decision to stay into the end of the next one or not.

5) Feeling like a stop out is immanent - cut the trade and save a few pips. I don't care if it turns out I was wrong.

6) Missed the start of a run and its well into it, let it go and wait for another day.

7) In a trade and then get a feeling that I don't know whats going on - go flat and stay out until another day.

JULY REVIEW

2008-07-30T16:35:00.004+10:00

This was a great month, different to all previous months. I would not say I was "in the zone" or anything cosmic like that, it just behaved in a different manner.

I was mostly trading news events or else screamingly obvious impending breakouts or breakouts that were just getting started. I would cut my losses swiftly and I let my profits run; several times I cut a loss and reversed to catch a big profit. I guess my win loss ratio was slightly more towards the loss size, but they were insignificant compared to my wins... Sort of 10-50 pip losses, with 100 - 150 pip wins.

I have also begun to lose my attachment to "charting"... In fact for half of my trades I just looked at the news, then I looked at the little chart window on the Oanda main page and decided to take a position or not. I did not fart around in metatrader with trend lines, indicators etc. I seem to have stopped drawing support and resistance as I can just see where it is... The only time I did any charting was really rough fib levels or really rough distant measurements to any key SR levels I saw....

The main thing I guess is that my style was a lot looser... I did not obsessed about exact entry and exit points and all that, it was more like finger painting than precision draftsmanship. I felt more intune and involved with the market this month.

That was July.

The cost of doing business

2008-07-25T09:54:00.008+10:00

Based on another interesting comment from FX, I thought I'd just comment on losses. You have no doubt heard the phase that experienced traders use which is that losses "are the cost of doing business."

What does this actually mean though? To understand losses every inexperienced trader should do the following exercise at least once (I mean do it, don't just read this). Get yourself a coin, and open an excel spread sheet. Flip that coin 100 times, and if its heads put a 50 in, and if its tails put in -35. This simulates a trading system that has a bigger take profit than loss... When you've finished, sum the results and plot them as a graph. I just did it here:

This is my truly random distribution of wins vs losses.

What do you notice - yes its going up. Now before you get all excited and think you've just cracked the forex code, I have some bad news for you - it doesn't work. The forex market has lots of other factors moving it around so if you run off and create an EA with three lines of code that makes random entries with a TP greater than the SL you will be puzzled to find that it loses like a bitch.

The point of the exercise is not that, it is this : IF you had a trading system that performed with a positive expectancy in this way, what fear or anxiety would you have regarding LOSSES??? Of course, NONE. It would be simply the cost of doing business right?

Right. Traders know this, this is how they think. In fact knowing this, what place would there be for emotions at all? Compare this to how you think? Either afraid to pull the trigger in case you lose, or even worse, taking the loss as meaning you are a born loser or a dork, or that the universe is out to get you... See how amateur that is, how childish, see how that is being the dumb money?

Trade the markets money

2008-07-23T06:55:00.004+10:00

FX: But I still feel way to much anxiety at some times. Also I found that there are days when I want to do wrong things and it's hard to recognize them in advance. Like not taking stops or something like that. Other days I feel like in the zone and winning or losing it's all ok.

Yes this is all very familiar. Its like you sit in this trench for an eternity, but all I can say is this will all pass. If feels to me that after spinning my wheels in the mud for years, they seem to be starting to grip the road. There are positive signs...

But another thing your comment made me want to write about was anxiety. If you are anxious that can only really mean one thing I thnk, you are over-geared relative to your comfort level. I think people tend think they aren't when they are, and also even if they recognise that they are its too bad because they've got some large life goals to attain here. They have no time to demo trade or learn.

I bet that if you were trading a tenth of the size you are now there would be no anxiety. This leads me to another subject; in an old post I stated that a new trader makes his first mistake when he signs up for his account. What is it? Simply this : he invests money that he earned by working for it.

This would be fine if he had a positive track record (even then it might throw him), but the crazy thing is he does this AT THE START! Let me tell you, losing money that you pulled from the market hurts about 5% as much as losing money you earned during weeks at your day job. In fact I don't even call it losing I call it "giving back" the money. If I pull a thousand from the market and then lose a thousand, the market took it back. Where as if I put in a thousand I earned at work, then I really lost it. That money I earned in exchange for my labour has disappeared into the market. This hurts.

So the newbie traders begins his trading life already at a massive psychological disadvantage, which is that he is emotionally attached to the money. He might THINK its risk capital, but really it isn't. He worked hard for it, he's attached to it.

Most people say demo trade until you get good at this, but I think thats not the way. I only use demo trading to test automated systems, but for my own intraday trading I trade using real money on micro accounts as Ive said before, applying all the rules of money management. The aim is to build the account and fund according to performance and also test where the boundary of your comfort level is.

It's absurd - we all know it - but we cannot wait until we are good at trading before we fully invest, we have to do it now because we have other pressing life goals to achieve. There is as much skill and self control in required in trading as flying a 747. Newbie traders on mass are like guys who say "skip the pilot training, I need to get to Fiji by 8am tomorrow". They strap themselves into the pilot seat and off they go down the runway...

Question regarding turn around

2008-07-22T19:53:00.005+10:00

Regarding this post, FX said : How and why did that transition came? Is it because of time or experience or some other factor?

I do not wish to suggest at all that I have somehow "arrived", as the process is ongoing. However I would say that it is simply a matter of time, staying power, and trail and error.

The thing is that you have to lose. You have to make every mistake there is so that you get a true understanding of why they are mistakes. You cannot read them in a book. Do not beat yourself up about that, it is the process. The Market will teach you.

What you have to do is observe yourself doing all of the mistakes that you do. The key is to be able to label what they are firstly. So for instance if you always grab profits too quickly, you should be able to say "there I go again, grabbing profits too quickly" - or if you keep picking tops and bottoms, then DO IT and observe yourself doing it. Do it and do it and do it. Observe and say "I did it again. I did it again. I did it again."

This is what does it. This will turn you... Apply this principle to all of the classical mistakes and your own personal quirks.

Divergence over-rated

2008-07-22T11:52:00.003+10:00

Divergence trading seems to be classed as one of the better ways to trade, but in my experience it is over-rated, I almost don't take any notice of it anymore. The age old line regarding MACD for instance is that it is "one of the most powerful signals in technical analysis"... Maybe it was in the 80's...

I have watch MACD and other indicators for divergence now for what must be 2 years, and my conclusion is that to trade them as reversal signals in the forex market is asking for trouble. In fact in my golden rule book I wrote the following.

"Divergence warns of a potential deviation, but not necessarily a change in direction."

This rule has proved more solid. I've noticed many times that powerful divergence even on MACD sometimes played out as nothing more than a brief period of consolidation or minor pullback. A weakening trend does not mean immanent reversal, it could be just coming up for a bit of a breather, but your trusty indicators might still fire off divergence signals.

Hence I tend to just glance at MACD now as a kind of speedo. It either looks health or a bit sickly and that will perhaps make me slightly more on my guard, but nothing more. I most definitely would not start shorting an uptrend due to divergence on an indicator or even be thinking reversal, no way baby. I might be thinking that the trend is looking a little weak, but that still means nothing. It might be weak for a bit, then suddenly become full of strength again.

I guess relating to the last post, this relates to watching what the market is doing and not predicting what it will do.

The reversal in thinking

2008-07-22T11:27:00.010+10:00

I have been having a far easier time of late in the forex market and I have also been taking note of why this is. It appears to me that it is mostly due to the gradual settling in and reversal of my thinking compared to when I started.

It is subtle, but let me try to explain. If I see the market beginning to trend up, I will most likely buy, where as in the old days I would have anxiety that the move has gone too far without me, so I'd wait for a pullback or be looking at indicators and thinking "its overbought, could reverse any second!" - I also used to feel anxiety during pullbacks and think they were reversals, where as now I have criteria that identifies it as one or the other; its a pullback until it is identified as a reversal - innocent until proven guilty. Instead of anxiety during a pullback, I see it as a potential opportunity to get a better price.

If I buy and the market starts to look like it is going into a clear reversal and I am soon to be stopped out, I will cut the position and reverse now, where as in the old days I would wait to get stopped out or keep watching and hope it will return to my direction. If I do this then it reverses back in my direction, I stop trading until another day due to feeling like I'm out of touch with the market, where as in the old days I would jump back in and usually get whipsawed again.

If I enter and the market is trending, I will leave it until I get a signal to get out, where as previously I would exit when I thought the market had gone high enough or was overbought or oversold. I would feel a rising anxiety in my gut until enough was enough and it was time to snatch those profits. My main concern now is cutting losses quick.

If I enter the market and then it goes dead and starts trailing sideways, I will exit the position and wait for another day, where as previously I would leave it on and hope that it eventually goes in my direction.

One more big one is that nowadays I tend to look to see what the market is doing now, but in the old days I used to predict what it will do next.

Do you see how all of these changes constitute a "reversal" in my psychology? I am not saying I have fully changed for the better, but these are some definite differences I notice in my approach. I also seem to feel less anxiety overall...

Take the knocks

2008-07-17T21:32:00.004+10:00

I've identified recently that one of the most important internal abilities a trader needs is a seemingly endless supply of resilience to take daily knocks in the market and get back up. For me this shows up as a "not happening day"...

Some days its happening, but some days its not. As soon as I realize I'm in a not happening day the most important thing to do is quit right now and start again tomorrow completely fresh. Just forget it, start over tomorrow.

Each day in the market has no connection for the trader to the one before, its a clean slate. You need to just bounce back like a ball, fresh as a daisy. The sins of yesterday are completely forgiven, but you will be judged on how you act today.

Strangely I notice that these days also often line up to some degree with market behavior. My not happening days can sometimes be accompanied by a daily print that whipsawed in an ugly confused fashion.

This is not always the case, sometimes the market trends cleanly but I just didn't get what was going on, I was in the wrong state to be doing this. Other days my head is clear but the market is a nervous wreck.

It is a strength though to be able to realize quickly that today its just not happening for what ever reason and to leave it for another day. If I'm in a position and i feel like this, I'll just cut it, start flat tommorow. Usually these are positions that are going nowhere or else going bad anyway.