2/2 – Psychology end of day checklist

In line with Applied Crash Course in Trading Psychology I will look at the following questions at the end of each day:

  1. For each completed trade, who was in control? Was it the proficient trader inside me?  Or was it the destructive George?  What picture or image is evolving for both of these traders?
  2. How much of the trading session was spent “trading well”, and how much of the trading session was spent “trading badly”?
  3. How could I have increased the amount of impact that the proficient trader inside of me, had on the trading session?
  4. List and describe specific examples of good and bad trading from the day’s session.
  5. Why did I do the “bad trading”?  What, such as specific events, or patterns of thought, caused it?
  6. What other observations, in the context of Chapter1, can I make?

Feb2 (Monday) trading session – 1W, 2L +0.23R – see here for charts

Key Points: Differentiate between entry and management, Patience, Completion of Candles, Greed and Fear are driving factors, Fear of missing out on price moves

1.  a) Cable – A good portion of the destructive trader was at play in getting into the trade.  The management was good – I stuck to the rules of where I had set the stop (I was really lucky with not getting taken out at 1.50335 quite early on) and in closing the trade ahead of the 1.30pm USD news.  So in terms of management, it sounds like the proficient trader was in control.

b) DAX – Patient in getting into the trade – the proficient trader being in charge – and likewise not having been frustrated after missing out on a big move in DAX already after potentially spotting a bullish 123 setup at the 10700 level.  However in contrast to the Cable trade, the destructive trader had quite some influence on the management of the trade.  T1 around 10720 was driven largely by wanting to get some money off the table, and my experience/gut feel of how far price will go on penetrating a ’00 level from below.  If the proficient trader had been in charge, he might have set a T1 closer to the prior high around 10750 – though leaving the tightened stop in the same place around 10720 (moving it up below the low of the candles)

c) Oil – same as with DAX – proficient trader in charge of the entry – but the destructive trader in control of the management – moving up the stop quite quickly to reduce the chance of incurring more loses and turning the daily result into a loser.  Letting the stop just be would have resulted in a winning trade.  So again the management seemed to have been driven by fear, rather than by chart analysis and sticking with the stops initially set.  Price had not yet gone sufficiently into my favor to justify tightening the stop to that level.

2.  All in all, patiently only entered into three trades – so was quite selective.  That sounds like good trading.  I was also not scared to get into trades – i.e. I took the setups that I saw. The only setup in question was the initial Oil setup (a bearish 123 setup) with which I felt uncomfortable.

However the destructive trader did have a fair amount of influence in either the entry and/or management of the completed trades.

3. I can increase the proficient trader’s amount of influence by exercise patience in waiting for candles to be completed and indicating a clear breakout or completion of a candle pattern. The biggest reason I sometimes get into a trade ahead of time (i.e. whilst the candle is still forming, or whilst a pattern is still being formed) is because I am scared of potentially missing out on a winning trade – so it’s a mixture of greed and fear.  However waiting for this also regularly prevents me from getting into trades that turn out to be losers, and when looking at the chart afterwards, it becomes to difficult to justify an entry – now that the candles are painted on the chart for eternity.  An example of trading prior to breakout (i.e. “bad trading”) was the Cable trade.  Although the candle had closed, price had not broken out of the rectangle pattern.

An example of trading after the breakout was the DAX trade – I waited for a clean breakout of the rectangle pattern on the 5M chart, and only then did I enter the trade.  Yes it meant that I was sacrificing a few pips – but who cares when it really reduces the odds of a losing trade?

Another example of me waiting for a clean break was this morning’s Oil trade – a bullish rectangle – although I gotta say – I am not having too much luck with these Oil trades lately!!!

This morning I was looking at shorting Cable just below 1.5000.  The pattern for this was a descending triangle on both the 15M and 1H timeframes – but not the 5M chart.  I therefore needed to wait for the completion of the 15M and 1H candles.  Neither of the completed candles indicated a short entry – whereas trading on the basis of a “live” candle would have had the destructive George short around 1.4995 and end up with a losing trade as the market-makers seemed to play around with price in a 40 pip range prior to the UK 9.30am news.  So I learned from what i did wrong yesterday.

4. Bad trading – not being patient to wait for completed candles and/or completed chart patterns – I am doing that when I am letting the destructive trader be in control – and he is driven by greed, fear and impatience.

Good trading – waiting for completed candles and/or completed chart patterns – the proficient trader is in control – exercising patience, knowing that he won’t catch all of the winning trades and moves – however he will also miss out on a greater proportion of losing trades – thus overall will be more profitable.  He will on average also have fewer trades and thus spend less time in being exposed in the market.

5. The bad trading was most likely caused by the emotion of fear and greed – the worry/anxiety of missing out on potential moves in the market.

6.  No further comment.  I can’t believe how much I got out of just by looking over my trades with these questions in mind!!

This entry was posted in Psychology, Uncategorized. Bookmark the permalink.

10 Responses to 2/2 – Psychology end of day checklist

  1. Pingback: 3/2 – Chart shots for Feb2 session (3 trades) | George's FX trading blog

  2. do you use limit orders for getting in?

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    • Hey James! No, presently not very often. I use market orders most of the time.

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      • perhaps using limit orders slightly more often in situations where you need confirmation or the close of a candle? i used to use them more for breakouts (or possibly might be useful for 1,2,3 patterns?)
        as an experiment you could do 1/2 your position size using limit order and 1/2 market order and see what happens? as you know im all in favour of live trading…. this is more of a fine tuning element!!!

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      • Could you explain how would using limit orders help for when candle closes are required? I am not sure I get that.

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