So today was a good opportunity (once again) to put this into practice.
[I am sharing these details to try to convey how difficult it can be (for me) to be a full-time prop trader in the global financial markets. It may well be the case that it’s harder for me than for the average Joe, though I thought I share my thoughts and feelings nonetheless.]
[Pearls of wisdom from dining with two highly successful buddies last week. They suggested the following:
- The key determinants of success are hard work, people skills and luck
- There are a lot more dumb people that are successful than there are smart people that are successful
- Luck does not always balance out over life – it also makes a big difference whether the luck occurs at the beginning or at the end of one’s life
- Smart people tend to be at a disadvantage because they over-think things]
[All things considered, things could be worse – I could be staring at a $18 billion fine from the US Environmental Protection Agency and lose 36% of my market capitalization in two days]
Let me tell you about my last two days….
Yesterday (Monday) I had bad trading results – even though I took valid setups, and I managed the trades according to my rules, the setups didn’t work out and at the end of the day I was in the red by 2.6R. This made me feel uneasy
This morning, I hesitated to get short in Cable at the 1.55 handle only to watch price plummet into my planned 1.5R target within 10 minutes. This really frustrated me. The reason for not entering was fear – fear of having another losing trade.
Shortly after lunch I got short in the DAX (after watching it trade down all day). With a 30 point stop I watched it go around 10-12 points in my favor and then fluff around a little bit. I couldn’t bear that the trade would go against me, so i moved my stop to entry and the trade was all over within six minutes. Within the next 15 minutes the trade would have played for a 0.7R win (following my trade mgmt tactics).
I missed out on 2.2R from two setups. The reason on both these trades was the fear of encountering losing trades. And generally speaking I am scared of taking setups, even if they are valid and lend themselves to promising trade management options.
I became more and more frustrated. The DAX and Cable continued moving and moving – the DAX losing around 400 points from the opening (partly due to the Volkswagen scandal) and Cable dipped around 150 pips. Meanwhile I sat on the sidelines. Cable did have a couple of other valid setups. DAX had one more decent setups – though it didn’t give any valid setups for me on the 5M as it tanked in the London session.
I have now restricted myself to my supposedly best instruments and i am still losing!!! I am down 1.4R in 24 trades over the last 6-7 sessions. In contrast the previous batch of 24 Dax/Cable trades showed a gain of 10R!!
How do i break the correlation between my trading results and my feelings/mood? More important is whether I am trading well – remember that not every trade is going to be a winner – in fact, with the win rate of K7 it is effectively a coin toss every single time! Possible Answer: Develop confidence by accumulating a large amount of results in testing environment that shows profitability of strategy and normal level of variance in results.
Why do I pay so much attention to my trading results? Why do I allow it to be intense pressure on my shoulders? Is it because I look at the most recent trading results to judge the effectiveness of my trading strategy? Why am I so scared of having losing trades? Possible Answer: It’s likely that every single trade has an unreasonably high degree of emotional impact due to using that trade’s result to determine whether or not the strategy is profitable, and then drawing conclusions as to my trading career, my life etc…. Huge pressure. And every losing trade will therefore create a lot of emotional pain – which my body and brain really fears.
I came across an excellent post on the Trade2Win forum earlier this morning – many thanks to dbphoenix who said I could post a screen-shot of his post here.
Comment: My trading mentor thinks that i most definitely have a winning mindset – and, that during the last two years, he has never considered me to have a losing mindset. He points to my diligence in executing, documenting and reviewing 500 K7 trades as prime indicator of a winning mindset. Interesting perspective. I am not sure whether I agree or not. I am sure he is right but I have difficult convincing myself to believe that.
I have to accept that my K7 strategy will simply not catch all market moves – tough sh*t! (however see points below how I could catch additional price moves)
Why do I not have a winning mindset? How do i develop a winning mindset? Possible Answer: Completed a large amount of testing, which will hopefully show that the strategy has an edge of at least 5% – thus making at least 25R from 500 trades. A reason for why I might not have a winning mindset is that i allow myself to dwell on negative things too much, especially as far as my trading is concerned.
Is the lack of a winning mindset currently my key stumbling block, the obstacle to being consistently profitable? Possible Answer: My office colleagues would say that a winning mindset is critical. So if in fact i don’t have a winning mindset, then this will indeed be a major stumbling block.
How can I effectively test my strategy? Definite Answer: Load the data into FT2, load up the pivot points for Cable, insert the KL’s from a certain point in time, pay attention to the news schedule, and off you go! Well, now that the K7 setup is clarified, and trade management tactics are getting refined, I am in a position where I can undertake DAX testing. Likewise I should be able to test Cable, though I will need to preload pivot levels into FT2 to enable good testing.
How can i introduce reversal trades into the equation? I.e. 123 and double tops (review the detailed work that i did with Paul Wallace, one of my trading mentors, on this) – this would be in addition to K7 – and would sometimes enter me into the market prior to a valid K7 setup occurring. I am keen to do this because it would sometimes allow me to get into a convincing market momentum in the absence of a valid K7 setup. Definite Answer: Reviewed Wallachi documentation. Include reversal setups based on 123’s and DT/DB/TT/TB in the DAX & Cable testing.
How can i introduce 1-minute trading into the equation? I am asking this, as it could also provide an additional opportunity to get into strongly trending markets when there are no valid K7 setups on the 5M timeframe. This morning DAX declined 200-300 points without price ever retracing far enough for me to get in. Possible Answer: Trading from the 1M is a variant of the K7 strategy. For testing purposes, stick with the 5M timeframe. I can think about the 1M timeframe come November time.
When trading results aren’t going my way, then should I step back and be careful? Or should I put it down to natural deviation in results and keep trading as normal? Possible Answer: Once I have returned to live trading, yes, I need to step back if several consecutive trades don’t work. I need to ask myself whether the setups were valid, and whether I managed them the way I should have. Also whether there was something out of the ordinary that distinguishes the trade in question.
Why does my productivity feel so low every day? Why do I feel like I am not getting anything done? Like my progress is limited? Possible Answer: Lack of planning? Low self-confidence?
As additional thought, I could also check for setup potential on the 15M or 30M timeframe in these circumstances. however, should these approaches be considered only if the 5M timeframe seems futile in the odd trading session? If I don’t set this qualification, then things could quickly lead to overtrading. However this also introduces the idea of being a FLUID prop trader. Possible Answer: Again, for now stick to the 5M timeframe and complete the testing on that first. I can become more fluid later!
Bear in mind that if I get to the stage where I can comfortable handle and trade DAX and Cable, then i might be able to add other instruments to the mix.
How can i be better aware of things? Definite Answer: Improve prep – identify fundamentals and key levels eg cable congruence on S1 and KL. Remembering the Volkswagen factor prior to the DAX session (I had managed to complete forget about it).
I need to spot technical patterns as they develop eg desc triangle on cable KL today. Why am I missing that sometimes? Why is my concentration not as good as it could be? Possible Answer: Decent testing will allow me to increase confidence and ultimately allow me to focus and concentrate better because I am not constantly worried about whether my trading operation is progressing or not.
Commence DAX testing in ForexTester2. Comment: This will commence on 28th Sep and go through all of October (same for Cable).
Need to have food available in office to avoid risk of brain going bonkers on me. Also get up from my desk more often to stop digging myself into a hole. Comment: Whole-meal pita wraps from Sainsburys work well for this purpose.
Continue to take valid K7 setups on DAX and Cable, and manage them using my developing tactics and also consider Wallachi type trades on DAX and Cable – but risk only 0.5R on these Wallachi trades. Use the unit of R that has been assigned for this week (£243 per trade). Comment: No, in fact I will stop trading LIVE for October so that I can focus on the testing instead. I know that testing and live trading simultaneously has a detrimental impact on both. Thus live K7 trading is halted until early November.
Review existing blog posts on K7 technical points and update where appropriate (1 hour). And review the key
posts relating to Trading Psychology (1 hour). What outstanding action points are there? Probably tonnes! However i am working on this full time so i should be ok to fit it all in – and there should also be plenty of opportunity for that when I will be trading from the US in a few weeks. Comment: in the process of reviewing both.
Make better plan for the day e.g. (7-11am) Prep, Trading, Review, (12.30-17.00) Prep, Trading Review – add in other tasks through the day and make a specific list of those e.g. testing, documentation etc. Comment: This is more relevant for when live trading (potentially) resumes in early November. In the meantime the days will be spent 1/2 day doing testing only, and the other half monitoring the futures markets for TY and ES.
Think about potential answers to the questions I listed above. Comment: This led to a lot of reflection, thinking and staring into the sky/wall/ceiling over the past 2-3 days and the outcome of it was the blog post detailing why I will stop trading live and demo trade instead.