Monday, May 25, 2009

Trading Video

Thoughts on Trying Hard

I found this excerpt in Mark Douglas' book: Trading in the Zone. I believe these few lines point out something very essential in trading. In life, if you you don't succeed you don`t give up. You do it again and try harder the next time.

When it comes to trades, letting winners run, trying to force winners, it usually doesn`t work. Since a market is a mix of all the unknow participants` opinion of a price at every moment, it`s price action can not be perfectly calculated.

Many times, I did not agree with the price action, I felt impatient etc. My perspective was wrong. And these few lines helped me understand why.

"Traders who are consistently successful are consistent as a natural expression of who they are. They don't have to try to be consistent; they are consistent. This may seem like an abstract distinction, but it is vitally important that you understand the difference. Being consistent is not something you can try to be, because the very act of trying will negate your intent by mentally taking you out of the opportunity flow, making it less likely that you will win and more likely you will lose.
Your very best trades were easy and effortless. You didn't have to try to make them easy; they were easy. There was no struggle. You saw exactly what you needed to see, and you acted on what you saw. You were in the moment, a part of the opportunity flow. When you're in the flow, you don't have to try, because everything you know about the market is available to you. Nothing is being blocked or hidden from your awareness, and your actions seem effortless because there's no struggle or resistance.

On the other hand, having to try indicates that there is some degree of resistance or struggle. Otherwise, you would just be doing it and not have to try to be doing it. It also indicates that you're trying to get what you want from the market. While it seems natural to think this way, it's a perspective fraught with difficulties. The best traders stay in the flow because they don't try to get anything from the market; they simply make themselves available so they can take advantage of whatever the market is offering at any given moment. There's a huge difference between the two perspectives."

My Steps in Learning - Don`t Fight the Market

I had the problem of fighting the market and I believe lots of others do too. I felt that my profitable days occured when I sat down to my desk with the mindset: "I don`t know what is going to happen".

I was like many who read the news, listen to analysts, commentators saying that a correction was overdue and that market can`t really go up further, or the market gapped down and that is bearish etc.
Many times I had a bearish view because of the overnight news or the opening hour looked bearish. I tried to find a good position to get in short and I had to take a sequence of small losses. If I had just accepted that the market was going up, and went with it, I could have saved a lot of frustration, time and money
When somebody asks you what you think about the stock markets, you do have opinions. However in trading it is better to reply: I don`t know, I am not trying to figure it out or understand it. If I see the move I will get in and make myself available. If it goes, it goes, if not than not.

My Steps in Learning - Letting My Winners Run

Now this is a difficult one. It is all about finding the right ratio: "How much am I willing to risk for how much?".

The market is finally going my way, I want to bank my profits. I want to give them a chance to go further, but I definitely want to take a profit on it. The price flow will naturally hit resistance points. It will either break through or not. Since, I am in the trade, I err on the side of caution, I cut my position and see the market taking off and never come back

It is impossible to give a proper answer to this dilemma, I just want to share a little story with you. At the end of one day I was up relatively nicely, but not if we consider my roundtrip commisions. When I asked my mentor he said I had way too many 1 tick winners and that I should really learn how to let my winners run. I asked him, how? So, he sat me down and put on a random trade. He put a stop 5 ticks away and 3 stops the other way for the purpose of taking partial profits. One at 10, one at 15 and one at 20 ticks away. I was told I wasn`t allowed to stand up or click the mouse. I had to watch it and wait until the market went either direction, and all of my lots were taken out. It didn`t happen quickly for sure, but the market hit my first target. After a while it hit the second one. Later it almost hit the last, but the market slowly turned. Then luckily my mentor came over to me and said we have to leave the office now and so we closed the remaining last lot at a minor profit.

As a result of this trade, my P/L that day has doubled. This trade earned me the same amount of profits, that I earned myself during the previous 9 hours, putting on loads of trades, trying hard, fighting hard and generating lots of commissions. Now I think that I could watch the market move feeling stressed, or stand up, get out, have a lunch and come back to see what the market did. The actual result is the same. it is only me and my perception of the market's movement that is different, stressful or hard.

To me it was eye opening. I realized that it is not the market, but me who is limiting my profits. The market gives those opportunities, it is me who doesn`t find them or once found, unable to take advantage of them.

My Steps in Learning - Overtrading

A roundtrip is a trade basically. If I put on 1 trade clipping a 1 lot, then I have just made 1 roundtrip. Every roundtrip generates a certain cost in commission. Very often, I overtrade and even though I end the day up in terms of my P/L, my profits don`t make up for my roundtrip costs.

It usually happens when I overtrade. I either wasn`t patient enough to let my winners run, or I was jumping on too many `opportunities`, that weren`t real and did not give me the chance to run them long.

How I am trying to tackle this issue is by being more selective. There are certain hours, patterns, events, that I know I am good at. I try not to become the smartest person and win all my trades, I just wait for some easy looking ones to come into my way.

My Steps in Learning - Limiting My Downside

Another key lesson in trading for me was to limit my losses. Under no circumstances I am allowed to blow my account. I was told something that I can probably never forget. It sounded very scary and I immiediatly had goosebumps after hearing it. "Do not blow up! If you blow up, game is over. Your day is over, your week is over, maybe your entire career is over."

And true, no trade is worth such risk. Losing is okay, but you always want to keep yourself alive. Survive and live to fight another day. I also set myself a daily limit. If I reach it, then I am out. It usually happens when I struggle a lot and can`t get anywhere.

But now, I dont really feel so bad about those days. The next day I come in and usually make back my losses easily. Just after I started trading, it made no sense stopping. Being on the simulator, I just wanted to learn and trade as much as I could.

My Steps in Learning - Averaging and Cutting Losses 2.

In the beginning, there were times when I was caught offside, I averaged, the market went against me more, I averaged and the market kept going against me more. By that time I had huge losses, I already overcommited myself and I could not do anything anymore. I was paralyzed. I knew I should not have averaged, I should have gotten out, but I couldn`t force myself to do it..

My answer to the adverse move was to add and I could keep doing it till I was maxed out. But the market still kept going the wrong direction, I ran out of my lots and had to make the opposite reaction.

I tried justifying my action and lack of action in myself. The market can not do this. It is not a genuine move, or it is way overextended by now, or okay I was wrong, but I can not panic out at the worst point, I should wait for a retracement and then I will get out.

This feeling and making this mistake is maybe the worst I ever experienced in trading, being overcommited, proven wrong and can not do anything except admitting a painful loss.

Now, if the market goes against my position a certain ticks, I cut it. I dont try to fight it, or worry about why it happened.