I’m excited, I’m going to be visiting Aix en Provence tomorrow and on Sunday, a friend, Paul, from https://candid-dreamers.com/ (you know the crazy Irish dude that traded and traveled full-time a while back) is coming to spend the week with yours!
Anyway, let’s dive back into what matters, who cares about wedding photographs when I don’t even have a home base, let alone a serious girlfriend
Trade Update:
AUD/NZD +3R
Always feels good to write +3R, however, the truth is that I missed an additional +7.7R. The trade entry took place at 2AM, which was when I was sleeping, and I hadn’t made the decision to wake up – that’s new from this week. So I just placed an order once I woke up and got triggered into this position which is great
It was a clear counter-zone in my book, an extremely obvious 4hour entry, and it played out to perfection (I’ll be the first to admit I was tempted to manually book the win once we reached the area of supply & the trendline, but I stuck to my trading plan, and it paid off!
For those that wanted to have a look at the scale in that I sadly missed (I placed an order there once I woke up, but price never pulled back to that area)
Yes, you are correct, price pulled back to 1.6pips away from my entry order…
Thinking to future events where I may find myself in a similar situation I may allow myself to take the scale in with the same original stop just trail my entry to the 20BB central line.
I think that makes sense.
It’s the second time this month where I miss a trade by a handful of pips and third trade of the year that I miss. Which is way too many. Hence why my alarm clock at 2am (turning to 3am this week) is going to be more frequent.
FX Watchlist
AUD/JPY
We’ve witnessed a very strong move higher in Aussie prices, expecting a potential reversal, we’re approaching an area of supply, it dates back to 2015, so I’ll be the first to admit, I’m unsure if we’ll see a reaction from it, but worth keeping our eyes on it
AUD/USD
A lot more straight forward I would dare say, I doubt I’ll have an entry that fits my criteria, but it’s worth keeping on watch just in case
GBP/AUD
Quite an old zone, nothing like 2015 tho, but it remains interesting, once again, it probably needs a pullback and I’d be more than happy to execute upon an entry if one were to present itself to me.
USD/CAD
While I’m definitely not a big fan of taking trades that only spiked with a wick into a zone, this one appears to be presenting a potential entry
GOLD (XAU/USD)
Gold is the last “pair” I’ll mention for this week, we’re approaching an area of supply, let’s see what happens!
Scalping update
Damn this is starting to get long. While it’s a phenomenal exercise to write out everything I’m doing in the market, and I hope, may help just one person transition into a consistent trader (please note I did not say full-time trader)
I executed several positions yesterday in order to be able to track the results and their strike rate – I believe only one position warrants a mention here, (the 2 others were losses so I’m not trying to cover my ass, I’m saying it here!)
This was the opportunity on GBP/USD
The daily was still on a 50-50 bullish bias since I expected a move into the 12h/1D/2D supply area as well as a slightly higher high to reach the .5 fib
On the 2hour we remained in a bullish bias since we didn’t break the low
On the 15min we saw clear accumulation, a false breakout (that filled a 2H FVG), a move higher and then a third tap.
In terms of funding programs there’s quite a few out there, I believe the most well known ones are 5ers, FTMO, Trader4Trader and CityTradersImperium.
FTMO offers a 100k account (where you can get 3 accounts up and running) for a total of 300k if you pass three evaluations.
That’s rather nice, a good way to sum it up, the only problem is that to pass the evaluation you need to return 10% without having a 10% downside – you have one month to achieve that.
My trading style is a lot more swing / hybrid – I usually have around 5 trades per month so doing an evaluation over 1 month seems rather stupid. There was also a second downside – when you are trading live money you aren’t allowed to hold over the weekend – something I currently do. If I were to cut my positions before the weekend that would mess up my entire RR model which I prefer not to do.
Traders4Traders have an interesting platform, however they require a 10% profit without having a 4% drawdown which is more than 5ers. The scaling isn’t that important either once you proved yourself to be consistent.
City Traders Imperium is quite interesting I love the scaling offered, the max account size is 2M which is rather nice, there’s a higher profit split the more consistent you prove yourself, they double your account size etc.
The downside of City Traders Imperium is that their office location seems rather strange, at the time I was doing my research, their address was a home in a suburb, which isn’t something that gives me too much confidence.
Now onto 5ers. I decided to join them for the following reasons
1- Their evaluation method asks you to return 6% within 6 months without having a 4% drawdown
2- They offer a clear scaling method – they double your account size up until 1.2M every time you make 10% profits.
3- Their conditions are rather similar to what I apply to myself (no more than 1.5% risk for each position / allowed to hold over weekend and news / long term vision)
They were also rather good at answering my emails which showed their customer support does exist, and also run quite a few live programs / webinar where it’s possible to interact with others
I am so far very happy with my choice and I have no regrets doing it 🙂
Why did I want to get funded?
While getting funded is rather nice, it’s a nice “ego boost” there’s still a drawdown max so you’re actually not really enabled to trade a 40k account once you pass the evaluation.
People have said about these funding programs “You’re not trading a 40k account Max, you’re trading a smaller account with leverage – getting funded is useless.”
Yes I know, but that’s not why I did it.
To make the example based on the evaluation period, you are trading a 10k live account with a max loss of 400$ (4%) I think that’s fair, but basically what that means is that you’ll probably be risking 0.5% per trade or less (or you can go balls deep and risk a full 1.49% per position, you’re allowed to)
By risking 0.5% you’re now risking 50$ per trade. You could open a trading account with the 450$ sign up fee and risk 50$ per trade as well (slightly above 10% risk instead of 0.5%) you won’t have anyone to share profits with etc etc
Basically what I mean here is that you can make the same amount of profits opening a small account and using a lot of risk for the same cost. So why get funded?
Getting funded enables me to get used to trading with numbers that are slightly bigger than what I am used to, instead of only having my personal account I now have a passive income on the side, I don’t have to worry too much about it, I just have to keep executing.
It makes me more comfortable with the idea of getting investors onboard, I’ve had quite a few people asking if they could invest with me over the years, I’ve always said no I prefer to focus on myself and grow my own account first.
Getting 5ers to invest in me is the first step to open up to individuals I meet, it enables me to have more confidence in myself & the future investors will be able to see I passed an evaluation and more.
It enables me to increase my income (every profit I take on 5ers is transferred into my personal account where I do not have a profit split deal), increase my confidence in my trading, reassure investors & a lot more
My “journey” to getting funded
Heck, I started this trial account around the worse time to do it based on my strategy, Q4 was slightly in the red for me, January as well, so all in all it was a bad time to start, My P&L curve was definitely in a nice bearish trend let’s put it that way.
No way I could’ve predicted that my trading strategy would have a bad beat at that time, but it happens all that we have to do is accept it and focus on our risk management.
Since I knew there was a 6month time limit – and a max drawdown of 4% I decided to trade the account with 0.5% risk on every single position I took.
That enabled me to have up to 8 losing trades in a row / on top of BE trades which I thought was a decent amount. Since 2016 we’ve only had a drawdown of 8R twice.
It happens, it already happened, however I was happy using 0.5% since otherwise reaching the profit target (now 12R) would be a lot more challenging.
I was nearly taken out of the evaluation period before the markets decided to switch gears and start respecting my strategy – heck, I was 1 loss away from being taken out of the program.
I’m happy I stuck with my trading plan and executed as I was supposed to, but that was a hard moment. From that low I basically recovered within a month, went from nearly 4% drawdown to the 6% profit.
Now you may have done the calculations, that’s a lot of profit to make in a month using 0.5% risk.
It was my last month on the program, so I increased my risk to 1% which enabled me to get through.
I wouldn’t recommend using 1% risk at the beginning of the trial, but on the last month once I was 2.3% away from the 4% drawdown limit I decided to increase my risk due to the time constraint.
Philosophy / Mindset I’d recommend when passing an evaluation
Seneca had a great philosophy for everything, I’d recommend reading his writings & about stoicism as a whole.
Something I only recently came to realize is that the aim is to avoid being fragile, you don’t want to shatter just because some volatility came across you. Instead you want to remain robust, or ideally become better off thanks to that volatility.
He’s got a deal with L’Oreal for those curls I’m sure!
You want to write off all your possessions that way if you loose them, well, nothing bad happened to you since you already wrote them off. All you do is keep the upside.
You become anti fragile to fate, no more downside, only the upside.
In what way can this be applied to trading / passing a trading evaluation?
Imagine that the 450$ you invested to pass the 5ers trading evaluation is lost, that they’ll never actually pay them back. If you’ve already written it off as a loss and don’t expect it back, there’s no more downside.
Once you have no more downside, once you seen the money you’ve invested as gone you’ve enabled yourself to benefit from the upside but have no downside whatsoever.
If you don’t stress about passing the evaluation to get your money back, or to get the funded account and you no longer have all that energy being directed towards stressors you’re able to redirect your energy into something that will more than likely be able to benefit you.
How can you copy my results?
I’m fed up with this industry.
So many people are doing their best to sell you their trading course (they make more money of their course than from their trading)
So many people are going to be selling you their trade signals (do you really think a guy making 10% p/m will ask for 50$ per month to copy his trades???)
So many people are trying to pump their crypto holdings by telling you to invest in them (strangely they’ll sell as soon as you’re in the position and dump you)
That’s why I wanted to be fully transparent.
I’m sharing my daily watchlist (for free & no sign up requirements) on this blog.
I’ll be updating you daily on what I am looking at, what trades I took the previous day and be transparent with my losses and my wins.
But let’s be honest, you don’t need to copy my trading style
Consistency in your trading profits won’t come from a trading style or another – I was actually profitable trading in three different manners (support / resistance followed by market structure and now I’m trading supply and demand)
Consistency will come in your hard work, in your daily dedication to the chart, to making your watchlist on a daily basis, to actually executing the trades that fit your trading plan, and only those trades that fit your trading plan.
You can do all of this alone. You don’t need me, you don’t need anyone.
Copying someone else strategy and backtesting it will be helpful – you’re able to find a way to enter the market that’s supposedly profitable.
If it is, great, steal their work, say thank you and then put in the work. Backtest it. Tweak it to fit your personality (and test it again). Execute it. Etc.
I’ll be eyeing up Pound Aussie for a potential short set-up. I doubt it will happen today. That being said, better to be on the ball than late.
I’m mentioning this pair even tho it doesn’t have a weekly or monthly stack since I find the set-up interesting. I won’t be executing it, there’s better set-ups across the GBP pairs.
GBP/CAD
Hell yeah, Pound Cad is still on my watch – sorry but now my watch will be exactly the same as yesterday! GBP/CAD is close to an area of supply. Liking how the 4hour price action is shaping up as well.
All in all, if there’s a script entry it will be a good Set-up. There’s several ways of drawing the higher timeframe stack too.
GBP/USD
No big surprises here, I did just say that my watch hasn’t changed from yesterday.
Btw, don’t forget to move today folks! Gotta exercise and get some fresh air!
If we get a short from the supply area, that will be an A+ set-up. I just love the weekly.
NZD/JPY
I did mention Kiwi Yen yesterday right? I had incorrectly drawn the supply area in the past, however after correcting it, I noticed the following – it’s still fresh. Sure, it’s a long time ago, but I’d argue it’s still valid.
USD/JPY
Last but not least, let’s mention US Yen, let’s see what happens, I definitely like the set-up, I’m only slightly hesitant due to the fact that the trend line break wasn’t that impulsive, a news announcement, I believe it was the vaccine, make it break above. There wasn’t any real follow up.
The area of demand remains valid, the monthly stack is also there, all in all, I think it’s a valid set-up.
I hope you guys enjoyed this one!
Daily book
I actually didn’t read much yesterday, well I did but… SuperStock is now showing charts he used and his research before buying stocks and how he exits positions or areas he finds value. Makes sense to me.
So it made me reflect a lot in terms of what I could use within my own trading. I’m not sure as of yet.
One thing for sure is the following: Your exits are more important than your entries. I focus a lot on my entries, for my exits I usually use the 1:3 risk reward ratio, but there could be something more there.
Will need to dig into it.
Daily tweet
One lesson I am very thankful for in my journey as a trader is knowing I have the ability to pick myself after failing. I was broke, depressed & defeated, but I found a way to dig my way out & move forward & remain positive. That’s a lesson that can only be learned, not taught.
In this post I’ll try to answer a few questions: Why do I do my ASR (advance self review) weekly? What do I look for? How do I come up with ideas to check?
First of all, let’s remember, I don’t know what’s going to happen after I take a trade. All I know is that I can always improve.
I don’t know where the price will go after my entries
There’s an edge to our entry, we know that the probability of it going in our favor is X%
There’s one common thing that unites every successful trader I know. We all admit we do not know where the market is going to go after we take a position.
To take an example:
If I take a 4 hour script entry that fits my rules. I can tell you that in 50% of the time it will be a 3% win. The probability of it turning into a break even trade is of 8%. The probability of a loss 42%.
But that’s all I know. Well…
I can also tell you that in 22% of the time, the next two candles will go against my position. in 42% of the time the next two candles will chop around, one will be bullish and the other one bearish. In 36% of the time the two candles will go in my favor.
I can keep going more and more in detail, about every single entry type I have. The average return you can expect from those
However, I still can’t tell you where the price is going.
It’s just a question of probability and risk management.
However, I believe I can still improve my trading. Add new rules or filters. Discover new ways of taking a position. Rules I can remove etc.
That’s where the ASR comes into play.
ASR stands for “Advance Self Review”
You want to learn from what you experience in the market.
Let’s dig into how I do my Advanced Self Review
The first thing I do is go back through the week and look for all positions I could’ve taken, I look for trades I may have missed, trades I took and how the market moved.
At this point I don’t look at my trading journal, I look at the chart as if I was backtesting. I keep track of every single set-up that happened and their results.
I look for reasons why the market made a high there, is there something that could explain it? Is there a way for me to forecast it in the future? Does it bring up similar thoughts I’ve already had while doing my advanced self review?
Listing all the potential trades
Once I have tracked every single trade set-up that fits my rules I look at my execution.
How many trades did I execute that I was supposed to execute? How would I grade myself?
In my 4 hour trading, what I share here, I executed on 4 trades, two on NZD/USD and two on GBP/NZD.
After reviewing the week I can say with confidence that those 4 entries were all valid.
Well there was CAD/JPY, it was a pretty trade set-up – however it didn’t fit all my rules, so I did good to stay out. It wasn’t a script entry, that’s the rule it broken, it didn’t close low enough
There was also GBP/CHF, that one was pretty too, however, it didn’t fit my rules, it wasn’t a script entry. So I stayed out. Why wasn’t it a script entry? Because there was one bearish candle before the candle I’d have entered.
NZD/JPY was another one. Once again it wasn’t a script entry, the price action had been going sideways for 20 hours. It was nearly a script entry. Just the question of the close 3 candles ago. The fact it was so flat cancelled the script signal.
USOIL is another one. Well, I didn’t like the entry candle anyway so I’m happy I didn’t execute and it wasn’t a script entry either
CAD/CHF wasn’t a script entry (I’d have been interested the 10th of Nov. at 11am French time) because it didn’t close low enough. However it was also outside of the area of supply so all in all I’m not sad I didn’t take it.
EUR/CHF provided a script entry. However for me the price action was too slanted and it had spent too much time within the area of supply – so didn’t take it
EUR/GBP didn’t provide a script entry either. A question of the close a few candles ago. So good I didn’t execute
EUR/NZD provided a script entry, however it was below the weekly stack so I didn’t take it. That’s interesting data point, those are rare, so I’m highlighting it for future references. I want to collect more data on those trades. It fits my plan everywhere except for that.
USD/JPY also provided an entry. After a clear double / triple top – I’d have been happy to take it, however to have a weekly stack I’d have needed to use two weekly candles rather than just one. Which is my rule. However, I’ve seen those trade set-ups play out quite a few times. So I’m highlighting this trade to compare it to previous trades that did the exact same. I want to see if the average return is positive
How well did I execute my trading plan? Is there anything I should look into?
Okay now that I’ve mentioned every trade that I could see that worked with my daily zones was there any trades that I should’ve executed?
The answer is no, I executed the 4 trades that presented themselves to me and that fit every single criteria of my trading plan.
However, there were two trades that I didn’t execute because I wasn’t the biggest fan of their weekly stacks.
(Yes that’s my sclaping set-up)
Now I know I want to go back and check previous occasions where the weekly stack required two candles instead of one AND if it’s okay to take trade entries that are just outside the weekly zone?
Time to look back in my data set
Not going to share the results about that analysis to keep my trading plan more or less “private”even tho I’m sure you can reverse engineer it if you spend enough time here.
Sorry 🙂
Now once that is done I try to understand why the market offered so many potential entries? The reason – price had finally been pushed to areas of supply / demand since institutions removed their hedges to cover their asses during the US election.
That was my ASR for the 4 hour strategy. I’ve been using it a lot longer than my script so it’s normal I take less lessons out from it than my script trading.
A shorter version of my ASR for my scalping
Let’s quickly look into my scalping, I promise it’ll be quicker since I won’t go into as much detail. I want to mention it because I discovered something important while doing it.
The fact that last week was the worse week in terms of result of my scalping strategy over the last few months definitely made it interesting.
While doing my ASR, I noticed there had been 21 valid set-ups.
I took 15 of those set-ups.
However that’s because one day there were 8 trades, where I limited myself to 5, I wasn’t feeling too good after 5 trades that resulted in 1 BE and 4 losses. So that’s 3 trades I had identified and could’ve executed. I took Friday off too, there was only one trade that showed up, a BE. So that makes up 4 trades.
So I’d have executed 19 out of 21 valid set-ups.
That’s already pretty good, I’m quite happy about that. Sure I missed two trades.
Focus on your execution of your trading plan, not your results.
Executing a profitable trading plan will pay out in the long run. That’s all you need to do to become a profitable trader.
For a third week of living trading this plan I’m quite happy with that. In university you get an A for an 85% – I’d have scored a 90% here.
Is there any lesson here?
From there I need to understand why this week was so poor compared to previous weeks.
In my previous trading I was able to identify that the market could either be trending or correcting. I figured my scalping – which mainly focuses on short moves works better in a correcting market.
First I discussed it with a trader, a good one, that trades a very similar strategy.
We agreed that we want to avoid trading the market in such condition. Or at least, trade differently.
That made us realize that it was the market type that “caught us”.
If you’re dressed for a summer day in winter you’re going to suffer if you live in Canada. You have to adapt to the conditions. You can’t tweak the external conditions to fit you.
You have to adapt to the condition of the market
Anyway. I then looked and did some research on my side of things into market regimes.
I then added his market regime indicator to my chart, I edited it slightly and changed the time frame.
I then went through every single trade taken in my data set for the last three weeks and figured out what market regime they’d be in:
I don’t know about you but I find that quite interesting, the average return of my strategy in “Neutral” market is over three times higher than in other market conditions.
I kept digging into this. However it’s important to mention two things.
1- To make a change in your trading plan I recommend having a lot of data. Ideally I’d have 100 neutra trades, 100 quiet trades, 100 volatile trades. That would be better,
2- Make sure you are not curve fitting your data. I could correlate my trading returns with the amount of rain a specific region gets if I look deeply enough. You need to be careful with this.
Anyway.
I kept digging and searched for a way to improve the results while having a higher amount of data, so I split those three categories into two.
And the results looked even better.
I hope that helps.
I’m not saying you have to look into the market condition, it could be interesting for you, sure, but that’s not the point of this post.
You have to reflect on why your trading plan stopped you form executing winning trades and what you could add to your trading plan that would enable you to remain “safe” from conditions that do not fit your trading style.
Once you have collected enough data you’ll be able to tweak your trading plan to increase even more your profitability.
Only one more day before the end of the quarter, let’s keep putting the work in to improve our competence as forex traders! It’s all about building the right foundation of competency and then executing on opportunities while exercising self control.
I’d love it if you told me what you thought about the topic!
But now onto the important stuff 🙂
Daily Watchlist
I’ll start off by mentioning that out of the watch from yesterday two pairs reached their respective zones and presented clean entries (GBP/AUD ad CHF/JPY) however, to make my entries as mechanical as possible I use a script to validate (or not) entries, and neither were valid according to my script. Hence I did not take either.
AUD/USD
Aussie / USD is still on watch from last week, we’ll see what happens with it, I do want to see it reach the weekly stack before taking a trade.
As you can see on this screenshot, the zone I’m interested in begins at 0.6995 when we adjust it to the weekly stack.
Now I’m going to add a few words as to how I want the price to reach the zone. I’ve come to notice after my extensive back testing and data analysis that the way the price reaches a zone (and how long it stays within) impacts the probability of the trade being a winner.
Hence I now prefer if it gives us an impulsive move lower, less than 24hours of deceleration before an entry. I am no longer a fan of slanted entries, hence I’m looking for the price to strongly move lower before giving us a potential entry, that would be the ideal scenario in my book. (I also like and accept double bottoms/highs)
Will quickly mention CHF/JPY since I did mention it earlier, it provided an entry to my old trading plan – but not to my new one, hence I didn’t take an entry.
If the price heads back inside the zone with quite a lot of strength I’ll consider taking an entry. Here the problem was on two sides, it did not give me a script entry and the price to the zone was slanted, not impulsive
Euro Aussie remains on my watchlist for today, however we are still quite far from the zone, but EUR/AUD can move quite strongly in a day so I’m keeping it close to me.
What we are seeing is that the price currently moved higher in an impulsive way, it is now correcting back towards the 4h 50EMA, so I wouldn’t be too surprised if the price action went back up soon.
I’m keeping these last three pairs on my watchlist because I think they are quite interesting, GBP/AUD reached the zone and is now moving lower from its supply zone
GBP/JPY and GBP/USD are two pairs I want to see moving lower to reach their demand zones for a potential long. All in all, time will tell, I highly doubt anything will happen today tho.
Book wise…
I’m nearly done with my review of Meditations – by Marcus Aurelius, I’ll probably finish it today and get started on the Lives of Stoics this evening or tomorrow! Looking forward to it.
Once I’ve read that one too I’ll take a break from reading and write down all the notes I have taken, I am now (with a pencil) underlying / checking / boxing content I really enjoy in the book to make a “summary” at the beginning of each book that I really enjoyed, would it be quality of the text or the content
I think it’s Eric Hoffer that said,
Make sure to write down everything interesting you find
Tweet wise…. Here’s my favourite of the day
It’s funny how so much of “finding yourself” in adulthood is simply getting back to who you were and what you liked as a child. The trick is to never lose that sense of wonder and magic we all have inside. Each moment is new. Everyone gets older, but growing up, that’s up to you.
I was planning on doing a tweet about FOREX, but this is something I entirely identify with. Keep asking questions, keep being interested in new things, keep experimenting, keep having an active life, and remain happy!
We all wish trading came naturally to us; after all that
would’ve meant saving countless hours, (a lot of) money, friendships that were
broken after having a shitty day in the market
Oh and these reflect my personal views and experiences, I am
sure you could argue for something different
What are those four pillars?
(Wish their was like a way to drop a curtain or something)
Persistence
Risk Management
Psychology
Trading Edge
Let’s break these four pillars into a section each:
Persistence
Trading is difficult. Like any other skill it will take time
to master, the only way to through the deep water is to preserver, if you haven’t
given up you haven’t failed.
As long as you get back up after being pushed back down
there is still hope.
That being said, having fallen off (many) horses it does
take persistence to get back up on the horse, the same goes with trading, there
will be losses, there will be mistakes, but there is a need to continually get
back up and get ready for another try.
There is also an undeniable need to spend countless hours in
front of charts in order to develop and test an edge and persist until we feel
comfortable with our own strategy
Trading is all about survival, protecting the assets we
have, making them grow, without getting killed. Keep that in mind.
This point is rather straight forward so there’s no real
value spending too much time dealing with it, we are left with
Risk Management
Psychology
Trading Edge
Risk Management
Risk management is probably the first subject new trades
should look into, we can break it down into two topics: protecting the initial
capital and an understanding of probabilities.
Protecting the initial capital
One of the best ways to screw up your psychology and give up
is by taking huge losses that will destroy the size of the trading account
In order to protect the initial capital, it is key for
traders to understand how to size their positions and (ideally) maintain a constant
risk profile.
Why is it so important to avoid large losses?
If a single trade isn’t properly sized, it is possible for a
trading account to be blown – by that I do mean, it is possible with one trade
to lose all the money (and potentially more) you have in the trading account…
Let’s dive into “smaller losses”:
A 10% loss requires you to make 11% back in order to get
back to the starting point, which when we think about it, isn’t that bad, it
could be worse… However, if you take a 50% loss then you will need to double
your account in order to bring it back up to the starting size…
Yep…. Here’s the example:
10,000+10,000*(-0.5) = 5,000
5,000*X=10,000
X= 2
(Mainly wanted to show the benefits of getting a university
degree, I can do maths now 😊)
The key lesson here is:
MAKE SURE YOU DON’T
SCREW UP THE POSITION SIZE
The likelihood of you preserving and not screwing up your
mental game after such a loss is extremely low so… If you want to have a career
in trading, make sure you size your positions correctly.
Understanding probabilities
Now this one may seem a bit more obvious, but over many
discussions I’ve realized it may not be the case
There will be winning trades, but there will also be losing
trades, this is a given, anyone that promises you a 100% strike rate is either into
high frequency trading (and works at a huge fund) or is trying to get your
money, and the likelihood of the second far outweighs the first…
Now it’s let’s dig into why I think it is key to understand
your trading edge and your numbers (more on that afterwards)
If you are a trader you may have a 45% strike rate (it is
possible to be profitable with a lower strike rate, as it is possible to be a consistently
bankrupt trader with a higher strike rate)
As you can see on the following image, you have a 72% likelihood
of taking 6 losses in a row over 50 trades taken, yep a 72% likelihood, that’s
freaking surprising eh
The likelihood of taking 7 losses in a row is at a “more acceptable”
probability of 49% (which is still super high!?)
Knowing the probability of taking 7 losses in a row is close
to 50%, no better than flipping a coin, how much should you risk?
If you risk 5% per trade, you shall be down 30.2% (assuming
you adjust your $ risk after each trade) that means you’ll have to make back 43%
to get to the level you were before this losing strike… A rather big number
if you ask me – however if you only risk 1% then you’re only down 6.8%
Let’s say you’re trading a 100,000$ account, I would highly
prefer being down 6,800$ instead of 30,200$… Can you imagine the impact on
your psychology? I would be devasted with a 30.2% loss
Don’t forget, trading is a survival game, and you can only
survive if you protect your initial capital and risk the right amount… Don’t show
off… Now onto
Psychology
Probably the less fun part of trading for most of us (I’ll
admit, I actually love it!) but you’ve probably heard it from many people
psychology is key for traders, it may even represent 80% of the work you need
to do to become a profitable trader
Now what are common traps we can fall into
Sticking to our bias
Trying to prove we know better
I can’t lose so risking more
I just need to get even
I’m just one trade away from being profitable
this month
I always used to get told off for doing more than five
bullet points but there’s so many other examples!
So how can we have a profitable psychology?
Focus on the process – they do not care about
being right or wrong
Understanding the numbers linked to your trading
strategy
Having strong opinions weekly held and being
willing to flip sides
The most important part of trading is understanding that the
market doesn’t care about you, and you shouldn’t really care about it. Instead
focus on the process, be willing to jump ship and understand nothing is
guaranteed in the market.
Instead, focus on yourself, spend time off the charts,
recharge, meditate, empty your mind, and execute your trading plan
The worst enemy you have is yourself – and sadly you’ll
never really get to beat him to the ground, even the famous Greek philosophers
sometimes had urges (some were also doing the exact opposite from what they
preached…)
Truly believe I can’t make a better point than Yvan:
Confidence is not “I will profit on this trade.” Confidence is “I will be fine if I don’t profit from this trade.”
Yvan Byeajee, The essence of trading psychology in one skill
Try calming your mind, ideally empty your mind from all
greed hesitation and passion, instead remain neutral and in control. The best
way to do that is to meditate, and if you refuse to do that, go for a thirty minutes
walk without your phone, just paying attentions to your thoughts, it should
help you drop all those negative charges.
Tihbo puts it beautifully
Now I could spend an entire day ranting about the importance
of psychology but I believe this is a journey you alone can take since it is
deep inside you and no matter how many quotes I put in front of you the
decision to let go and become present is yours.
Having a trading edge
Yep, this is the last point… Not necessarily because I
believe it’s the less important, but you can make money with so many different
markets and in so many different ways, you can skin the cat yourself.
However, it is extremely important to have identified your
trading edge and be able to prove it exist in the historical market without
having to adjust it, that’s one of the main problems quants are faced with,
they adjust their strategy so it provides great returns in the past but does
not work when the market conditions change
So what do you have to do?
Back test your strategy over several years and several pairs,
forecast possible moves, use your trading plan with a reduced risk for the
first few months in order to make sure the edge is there
Understand that even a profitable strategy will have losses
Here’s an example of my go-to set-ups after having
backtested it over a few pairs for 2019
I have come to realize, that two of my favorite set-ups are not
very profitable for me (the 3rd rejection and the hover) therefore I
will have to adapt, another key point is understanding that my strike rate (without
including BE) is of 34% however as you can see the returns are profitable,
because my average win is a lot bigger than average loss.
Keep on working, keep on testing your strategy and never
become over confident, because that will be your end.
The end 😊
Before I ask you to like this post and share, I would like to thank both Tiho Brkan and Yvan Byeajee I most of the data I used came from their tweets!
What do you think are the key pillars for success in the FX market?
One of the most frequent questions I get is: “How do I get work done while traveling?”, so will try to answer this one.
I feel like I’ve already used this photo
I DON’T DO ANY WORK…
I spend my days at the beach taking photos duh.
Okay, that’s a lie (I hope you knew that!)
The truth is, it’s not because you’re a digital nomad that you won’t be doing a lot of work – the amount of work you need to do is the exact same as if you were living at home.
But it does depend on your work, as a FX trader, I spend
around three hours a day doing work, but that’s a normal amount of work for any
trader? (Do you spend more time on the charts?)
All I need is to forecast, review my past trades, do some
backtesting and watch some content in order to maintain my skill at the same
level.
That being said, there are days where I spend a lot more time, if I am motivated I can very easily get into a backtesting session and spend around eight hours on it, because I love it.
That being said, if you are not self employed and instead
get paid on an hourly basis (which is what I do on the side), you will have to
spend hours doing work in order to go paid and finish the task you were
assigned, and you’d do the exact same workload as if you were home.
But here’s where the “good shit” comes in…
If you’re in a country where your living expenses are half what
you used to spend it’s rather easy to reduce your workload (still recommend
getting more hours done than the bare minimum) – so instead of working 8 hours
you could work 6 hours rather easily?
Where to work?
That’s the interesting/challenging part, I do try to spend
more money on airbnbs where I know I shall be able to get work done in the mornings.
One of the challenges of being a nomad is that you never
really have an office, especially if you change location rather often and there’s
no co-working space close by that offers a “hot desk” membership.
You need decent wifi in order to be able to do your backtesting and watch content, and that’s not a given sadly…
To be entirely fair, “developing” countries (Indonesia,
Poland, Colombia, Lebanon,…) please don’t bully me for putting Poland there… the
wifi is a hell of a lot better than in developed countries when it comes to
working in coffee shops.
So the answer is:
I usually work at home during my “productive” hours – the
first three hours – if there’s a desk, one of my requirements for airbnbs
(highly recommend it),
I like outdoor standing (home made) desks
Then go out and do work at a coffee shop, however the work
done in coffee shops is a lot less productive than at home, but I need the
change of scenery – and it’s easier to keep doing work when you’re not the
single one, otherwise the urge to go out and explore is super strong
Be a tourist for the afternoon, then get more work done in
the evening at home or with a glass of wine!
That being said, if you are spending a month or more in one
location, I highly recommend joining a co-working space, you’ll not only get to
meet other self employed individuals and make friends but you’ll also get into
a habit of working from there, which is great because you have a separation between
home and work, something that’s not really possible when working from home.
Growth as a digital nomad
Now, as I just talked about, it’s rather easy to get work
done as a digital nomad, you just have to say “fuck you” to your excuses and
remember that you are only able to travel because of the work you do, hence,
you need to prioritize the work over being a tourist.
That being said,
I don’t think living as a digital nomad is the best way to grow your business, instead, I would even argue it’s a bad idea
If you are aiming to scale your business, launch a new product, create a new offering, or even increase your returns as a forex trader or even learn an entire new trading style you’d be better off staying in one place
I’m not going to write too much about this, because I think
Iman Gadhzi did a great job explaining it in this video, highly recommend it,
shows the life about being a digital nomad, but after the six minute mark he
talks about the downside of Variation and being a digital nomad.
You want to be repetive, you want to do the same shit, you
want to have your routine, you don’t want to do new stuff every day, have a
schedule, make sure you’re productive.
Anyway, hope you’re well and enjoyed this blog post!
Onwards,
Oh, and, if you’ve enjoyed this blog post, would mean the
world to me if you left a like or a comment 😊
That’s a bloody heavy title… Definitely not going to be able to address it within one blog post, but…
I just listened to an enjoyable podcast with Warren Berger and Shane Parish on Fs.blog and they talk a fair amount about questions…
Here’s a quote from Warren Berger that explains why I believe asking the right questions is key
Now, yes, that can easily be understood for engineers, for entrepreneurs and scientists, but what about traders?
Questions for traders
What is the market?
It helps to think about the entire market, what is the stock market? why does the stock market (on average) go up? Why do currencies exist? Why are there several currencies? Why is the price of a certain currency worth more than another one? How can I forecast that?
Now this won’t improve your trading 10-fold I’ll give you that, but having a larger understanding makes the next steps a lot easier…
Plus, the more you learn the more intrigued you’ll be trust me, I’ve fallen into a dark rabbit hole more times than I wish to admit
Why FX?
You can easily ask yourself, why do I trade FX? Why do I trade this way? Why do I need a trading plan? (I hope by now you know why you need one!!!! Otherwise this blog has failed you I’m sorry! :S ) What are the positives and downsides of having a trading plan? What will I learn from my trading plan?
Knowing the answers will give you the motivation to build one? You can ask yourself the same questions about anything btw, would that be why you want to trade full-time, why you need a routine, why you should eat healthy etc
How do I trade?
How do I build the right foundations to become a full-time trader? What is the process I should follow to achieve my goals? What set-ups am I allowed to trade? Why can I trade those set-ups and not others? Why is limiting the number of trades I take good?
Those questions will probably make you understand that sticking to your plan has way more benefits than downsides, you will understand that the only reason you trade those set-ups is because you are playing out an edge with a positive expected value and you definitely don’t want to start playing around because that will costly…
So many question marks…
What questions to ask?
Now I’m not going to list hundreds (I easily could) questions instead here are a few questions I like to ask myself
Why did I take this trade? Does this trade fit my trading plan? Did I forecast it?
Why will the price go in that direction? What is the structure telling me?
Should I stay out? Why shouldn’t I pull the trigger on this position
What would my mentor say if I took this trade?
Would my mentor take this trade? Does it fit with his previous “behavior?”
Why would this trade turn out to be a loss?
How will I feel after taking this loss?
Am I still happy taking this trade?
Hope those questions help you.
I truly believe that everyone has the answers to the right questions (yes even you!) you just need to ask yourself the right questions…
If you can’t answer a question, then dig into it? Ask yourself what do you need to know in order to answer it?
Ask yourself questions and the following questions
How do you make money trading while traveling?
I trade currencies
How do you I make money trading?
By betting that a currency is going to be worth more than another one
Why are currencies worth something?
Because it’s a store of value
How do we know what value that is?
Ugh… I’m not digging my own hole, I’d need an entire semester to debate this
How can you analyze that one currency is going to be worth more than another?
It’s looking at the historical movement of price and forecasting that it will do something similar in the future
How do you forecast it?….
You get it by now right? I can stop this game?
Please.. Say yes…
Ask yourself the right questions and your trading and life will improve. Sometimes those answers will force you to look up something else to be able to answer it but in the end you’ll be better off
It’s easy to make something sound complicated, the truly hard part is to make something that’s really complicated sound simple
Eheh, didn’t use Einstein for this one!
Once you are able to explain your trading strategy, why you take certain trades and not others you’ll have truly mastered your trading plan, and that’s exactly what successful traders do – it makes executing it a lot easier!
It’s only with the right questions that our lives can improve
Most of the biggest discoveries started with why or how, so get used to those two words and use them!
Anyway, I will definitely fall into a rabbit hole if I keep writing this post, I hope you enjoyed it! If you did, please do leave a like or a comment 🙂
Now, it may sound strange, why would a trader be scared? I mean, it’s not like he’s risking his life (Well, make sure you manage your risk…If you don’t then yep… I guess)
A good FX trader executes his trading plan with no fear.
A losing trader does not execute his trading plan BECAUSE of fear
Have you ever not taken a trade because you were scared? Scared of losing, scared of being wrong, scared of not being good enough, scared of losing money, scared of what other people will think of you etc?
Hell, I have…
The main idea behind this blog post comes form the book “Way of Warrior Trader” in it there’s a great section about fear
I mean I wouldn’t want to be killed by an alligator (well, definitely would be interesting)…
So why are we talking about this?
(Nearly) all fears we are faced with are either anticipatory or reflective in nature
Fear of the future
We are scared of the unknown, the unknown we are all faced with is the future.
We don’t know what will happen today, and even less so in the markets since we don’t control them (kinda wish we could manipulate them for my own benefit…)
Not being an author I’ll quote the book again because he puts it better than I could:
To render repeated attention to issues that are currently outside our perimeter of control is a waste of life force and a distraction away from the situations we do have an element of control over in the present moment.
Instead of being worried about what will potentially happen in the future, focus on what you can control – and that is the execution of your trading plan.
So what are a handful of tips to control your fear when it comes to placing a trade?
1- Forecast every single morning, and only take the trades you forecasted
2- Have a trading plan – and know the strike rates and expected return every set-up has
3- Backtest, that’s the only way to do the first two points, so keep backtesting
4- Focus on your breath – try to breathe deeply into your abdomen, it’s linked with the vegus nerve that will make you more calm (and also reduce heart beat I believe)
5- Meditate (eheh you thought I’d have given up on this one by now) it will make focusing on the present moment and push away all thoughts a lot easier
Scared of success?
Being scared of succcess, may sound like a strange thing, but it happens to a large amount of forex traders and is one of the main reason why traders blow up their accounts
Ed Seykota is a smart dude.
We all get what we want from the market in the long run
The biggest challenge you will face in the FX market is your mental side. Make sure your mindset is in the right place.
Once again, I swear this is (probably) the last time I quote him for this blog post
Nothing can weaken your resolve to follow through with a plan more than the lack of genuine desire to achieve the end result.
Without such a plan, you can be assured that one or more of the four poisons of doubt, fear, confusion and surprise will eventually infect your mind. Effective planning will always help to minimize (if not eliminate) these poisons.
Accept the loss, understand that you don’t know the future and you’re just playing out an edge, take the position and be happy whatever happens next because you executed your plan.
Executing your plan is the goal, ignore the end result.
Cool video by AK Fallible about fear in the market! Love his channel, definitely would reocmmend
Make sure you’re not afraid to take the trade if it fits your trading plan
Yep, a trading plan, backtesting and forecasting is key, what can I say 🙂
By having a trading plan you outsource the trading (to you) so you get to delegate the responsibility! Definitely checkout the last part of that video tho – one of my fav. scenes in Billions hands down ahah
If you think that it’s the mental side that’s holding you back definitely check out the book, I did enjoy it and hit me up with your questions!
I love digging into peoples brains 🙂
Anyway, have a good one, I hope you enjoyed this blog post! Let me know in the comments if you want me to do more post like this!
Forecasting, backtesting and having a trading plan are the three pillars of successful in the FX market.
Do you have a forecasting routine? If so, keep it up! (let me know what it is)
If you want to become a full-time FX trader, you will have to develop a trading plan, backtest it, and forecast potential moves.
That’s (more or less) everything you need.
What is forecasting?
Figured I probably should do a quick explanation of what I mean by forecasting…
It’s basically “guessing” where the market will go next and how…
Sounds rather easy right? It doesn’t even take that much time
Forecast for EUR/CAD on the 11th of September
This is my forecast for EUR/CAD, I just drew on trading-view the potential scenarios that could happen, I know there are many other potential ways the market could evolve during the day, but in my view, this is the most likely.
You could use different drawing colors based on “I’m willing to take this scenario” & “Not willing to take this scenario” (that’s actually a good idea, I should do that)
If it’s this easy what’s the benefit
Let me start this section with: I go a lot more in depth with my forecasting process, just scroll down if you already know the benefits
There’s five key benefits for a trader, but I was lazy while building this infographic so here’s 3 key points...
1- It will increase your confidence, you are able to track whenever or not your forecast actually took place, which in turn will increase your confidence in your ability to be a few steps ahead of the market (which is key to be profitable)
2- You’ll be prepared, doing your forecasting is basically drawing out all the possible/probably scenarios – you’ll be able to decide ahead of time what price action you’ll want to see before taking a trade – all you need to do is execute your plan
3- It’s easier to profit, having done your forecast in the morning you are a less likely going to miss a trade during the day since you are able to place your alerts at all the key areas. Plus, it also increases the likelihood of you sticking to your trading plan
And the bonus two…
4- It will decrease your emotional attachment to potential trades, and trades you are currently holding: by drawing out several possibility you know that there is no guarantee that the price will do exactly what you want it to, it doesn’t care, instead it makes you realize, we are only playing an edge
5- It allows you to switch from analyst to a trader.
It’s really important to be an analyst when it’s the weekend and when doing your forecasting, however, when the markets are live, and there’s a potential trade set-up in the making you need to become a trader, not an analyst. Having done the analysis that morning will help you execute.
Here’s a video explaining it if you don’t like reading…
My forecasting process
Now let’s dig into my process, that’s probably why you’re here (sorry for making you wait)
I recently did a tweak so here’s a breakdown of what I used to do and what I do now, not a huge difference, but really happy so far
I used to draw at least three possible scenarios:
Two potential entries, so how the price gets there and where I’d be interest
One scenario where I wouldn’t be able to take the trade, either the market goes in the opposite direction or just impulses through everything I was eyeing up
That was done first thing in the morning and last thing before going to bed, because that way I would force myself to think about the possible, the probable and admit, the price isn’t necessarily going to go where I want it to
In the morning it was to plan the day ahead, at night it was to have my subconscious think about the market while I was sleeping, and once again, forecast where the price would go over the next seven/eight hours
It was a really cool exercise, but I wasn’t getting the most out of it…
Now I do my forecasting somewhat differently
I use my trading journal to track those morning forecasts (I keep everything in my excel file, from reason to trade, to monthly asr, to journal, to forecasting etc, I like having everything in one place)
Here’s this week example
So to quickly explain, I track the day of the forecast, the pairs I’m interested in, the direction, then three potential scenarios that could play out (out of many), a screenshot of the potential moves + drawings.
Then here’s the addition, I then come back the next morning and figure out which one happened, sometimes it was a fourth option, that happens.
But here, you can see I had forecasted the move 12 times out of 15 – not picture perfect but pretty darn close.
How do you think that makes me feel? How would that make you feel?
More confident in your skill? Yes
Happy because you get to collect more data? Yes
More likely to execute the next time you see a trade set-up? Yes
I highly recommend you to do the same
It takes less than thirty minutes in the morning, yet you have the entire day planned ahead
You know what you want to see before taking a trade – that’s key, it reduces your hesitation to trigger a trade, and avoids you from taking low quality trades
You are also able to be “free” and that’s one of the main reasons people start trading, they want to have free time. If you don’t know what you want to see in order to take a trade you’ll just stay in front of your computer, and basically be a slave to the market.
Don’t be a slave to the FX market: Forecast in the morning
Anyway,
I hope you enjoyed this blog post! If you did, please leave a like or share it? ❤ Would mean the world to me!
Bullish on Coffee - a Forex Trader Blog 