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This will be my last blog. I’ll keep the site open until at least June 2019.

So, I thought, what would be a suitable topic? I came up with:

  • The two most influential factors that have affected my trading, and
  • A suggestion.

    Without a doubt, one of the biggest influences (certainly for at least 20 years) are the works of Brene Brown. Her ideas provide the ‘why’ to the very effective ACT techniques. My key takeaways from her work are how the relationships between Shame, Vulnerability, Story, Empathy and Courage impact traders. Most important, her ideas draw us a roadmap on how to use ACT effectively.

Where to access her works?

If you subscribe Netflix, you can view a 60-minute video “Call to Courage”. She also has Youtube videos. And, finally, you’ll find some at her site.

The three books I would not miss are:

  • I Thought It Was Just Me (2007). The book is written for women but its ideas are applicable to traders.
  • Daring Greatly (2012).
  • Rising Strong (2015)

    The other big influence has been the realisation that

For newbies, relying on either a mechanical or a discretionary rule-based system is not the optimal path. It’s more important to find a hybrid Method

For years I subscribed to this idea:

It was important for his long-term success that a trader find an approach that suited his personality.

Indeed, in my courses, I would recommend that students take a personality test.

(By the way, if you take the test, you will need to read “The Mental Edge in Trading”. Also, note that the categories named by Jason Williams are called by different names in the test. Below, I have attached a reconciliation snapshot).

I know that this is not so for newbies.

The reasons? Well:

  • For mechanical traders, they are unable to bear the sustained consecutive losses; losses that are part and parcel of systematic trading. And
  • For rule-based discretionary traders, the complexity of turning a theory of trading, into a set of rules, seemed beyond most.

    What is needed is a hybrid approach that keeps the simplicity of mechanical trading while eliminating the frequency of consecutive losses. Of course, there is a quid pro quo: using this hybrid approach, the trader will miss some large moves. Still, the beta results showed a far greater trader improvement rate using the hybrid method.

Your job is to find an effective hybrid system that does the job.

Finally a suggestion. One of the critical trading maximums, more honoured by its breach than its adherence, is the need to keep a trading journal.

I’d suggest that keeping one is absolutely necessary if you want to join the winning 10%. Nowadays, there are so many aids to choose from. One of the best is Edgewonk.  Also, I’m currently testing a new kid on the blog, Tradeary. Looks good. Both are relatively inexpensive.

Better equity journals look to incorporate qualitative factors into their analysis. But, for my purposes, I find I need to supplement them with Evernote.  You can search YouTube (“Evernote trading journal”) for a myriad of ideas on how to set it up).

Using Evernote means you will need a screenshot apps. I use Snagit but it’s relatively expensive. A couple of free ones:

  • Greenshot
  • Snipping (comes with Windows)

That’s it, folks. Thank you! A huge thanks to you who have been following this blog. I hope I have been able to assist your quest for success. All the best for your trading in 2019 and beyond!

A special thanks to Chris Jackson and Bazz from Australia.

The post My Last Suggestions for Improving appeared first on Ray Barros' Blog for Trading Success.

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You have reached the half-way stage: the Eureka Moment.

For me, it was a long journey. I didn’t spend too much time at Level 1 (Unconscious Incompetence). My upbringing and training prompted me to move on to Level 2 fairly quickly. But, I did spend an inordinate amount of time at Conscious Incompetence.

I walked both routes of Level 2. I started by looking for the Holy Grail. And, it was not until I encountered Pete Steidlmayer that got on the right track. My mindset turned from seeking to control the outcome of a trade to a probability mindset. I came to understand the importance of risk management and compounding.

What about you? Are you still at Level 2, flitting from freebie to freebie, willing to lose but unwilling to invest in your success? Or are you investing tons but investing in the ‘get-rich-quick’ products? Neither approach will bring you to Eureka.

The good news is there is light at the end of the tunnel. If you can get to the Eureka Moment, you’re on your way to success. The bad news is Level 3 has proven to be, in my experience, the largest stumbling block for many traders.

Time and again I have seen the situation where for a time they put it all together: they have Method, Money, Mind. Then the market throws them a curve. They experience either Ebb or Flow. The effect is the same – they revert to Level 2.

Until Brene Brown, I was never able to figure out why so many failed to recover from the setback. Now I understand what happens: their story for failure reasserts itself. It’s like the person that perpetually goes on a diet, loses weight, and then put it all back on and more.

Level 3 merely means that you know what to do. You now have to take your knowledge and apply it consistently.

That work takes you to Level 4, Conscious Competence.

  • You have reached this level because your Method has a positive expectancy.
  • You have reached this level because you have consistently kept your Psych and Equity Journals.
  • You have also consistently used your journals to improve your trading.
  • You have recovered from your Ebb stages, and you have kept your head during the Flow phases.
  • Your end-of-year results show a positive return attained through knowledge and skill and a little luck. You have learned to be aware of the impact caused by skill and that resulting from good fortune.
  • You have reached this level because you have learned to bounce back from setback.

With practice and improvement, you have made it to Level 5, Unconcious Competence!

Much of what you do now is unconscious – habits and routines form the bulk of your trading actions. You know when you need to apply analysis, you know when you need to stop trading and when you need to press your advantage. Consistent profitability still takes work, but that work takes less of a conscious effort.

So what is Level 6?

It’s a level of Conscious Unconscious Competence. It’s the level where you can explain to others (and to yourself) the unconscious habits and routines, the behaviours and mental models that form the basis for your success. It’s the level that many, for example, Ray Dalio, Pete Steidlmayer, look to share their knowledge.

These are the six steps to becoming a successful trader. Where are you on the ladder?

The post The Eureka Moments – 6 Steps to Successful Trading appeared first on Ray Barros' Blog for Trading Success.

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Wait a minute, Ray! You said “six” steps in the title; but, the picture says “five”. No mistake, there are six steps, but the last one is hidden. You have to read the end of the series to know it.

Let’s have a look at the first step: “unconscious incompetence”.

We all begin here. We have unrealistic expectations of what the market will give us and how easy it will be. If you are unlucky like me, your first trades will happen to hit a flow stage (where everything you do makes money!). My unrealistic expectations confirmed, I sold my legal practice and then proceeded to experience seven years of losses.

Why is it newbies come into this game thinking that they can make a mere 10% per month? Just today, I engaged in a series of WhatsApps with an acquaintance from Thailand.

“I want to set a target for my trading. Something like I want to get 10% a month for my trading in 2019.” He messages me.

“10% per month? I can’t help you. The best hedge fund, Renaissance Medallion, averages about 30% per annum. It’s the best in the world. Most good hedge funds will average 20% to 26% per annum.” I replied.

“30% per annum it’s great for me. Now for me, I cannot find entry for trading. I cannot see how market going on.…”

Amazing, he doesn’t have the basics – clearly does not have any sort of trading methodology and still believes he can emulate the best trader in the world!

Unfortunately, most newbies enter the world of trading with this mindset.

Anton Kreil has a 90-90-90 rule: 90% of newbies will lose 90% of the bank wrong within 90 days. I don’t know how accurate the stats are, but I would not be surprised if the rule turned out to be correct.

At this level, you either learn to move onto the next, or you blow out.

At Level 2, “conscious incompetence”, you realise you need help. You begin to read books and attend courses. Here you take one of two routes:

  1. You hold onto your unrealistic expectations seeking the Holy Grail. You are seeking to invest as little as possible in your education. You want a Harvard degree, but you want the degree at the price of a fourth-rate university.
  2. Alternatively, you dig deep and discover the reality for trading success. You direct your efforts in that direction. Despite your efforts, the probability is, in the beginning, you will focus on Method, and perhaps Money. Mind, you either dismiss or suppress and consider it irrelevant to your quest

Initially, you will continue to lose money. At some point, you will realise that a Harvard degree is unavailable at fourth rate prices. This is not an easy step.

Recently, I was reading a rant in one of the chat rooms. The writer was freely going to distribute the material that cost him USD 3000. To say he felt ripped off is putting it mildly.

Now, I know there are many charlatans in our game. But, we do have avenues for research, for example, the Forex Peace Army. Carry out your due diligence before parting with your hard-earned.

In any event, as I read the exchanges, it seemed like the aggrieved party was complaining that he couldn’t apply the material. It was not the Method did not have a positive expectancy.

Newbies need to know that there are methods out there that might not suit them but still have a positive expectancy. The reason for their inability to apply them is: the method does not suit the personality. Unless the trader comes to this realisation, he will eventually opt out of the game.

The newbie that took the other route, a deep dive into reality, comes out the other side at Level 3, “the Eureka Moment”.

You realise you need Method X Money X Mind.

Your research has lead you to a method that suits your personality. If you are a mechanical trader, you understand that you will suffer periods of consecutive sustained losses. If you are a discretionary rule-based trader, you have overcome the problem of complexity. You have created a set of rules that you can apply to your trading.

You have worked out the answers to the four Money questions:

  • percentage of capital to risk per trade
  • position sizing
  • portfolio risk
  • when to add profits to and deduct losses from your capital.

Finally, you have obtained insight into the probability mindset that is essential to trading success. You maintain both equity and psych journals because you know they are the foundation for your improvement. Yo are primed for success.
(More tomorrow)

The post The 6 Steps to Successful Trading appeared first on Ray Barros' Blog for Trading Success.

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In yesterday’s webinar, I sought to make two points:

The first: the advantage of mechanical systems lies in their simplicity.

The disadvantage lies in the fact that simplicity assumes the structure of the market. If that assumption is incorrect, then the system will sustain consecutive losses. For example, if you use a reversion to mean system in a trending market, then you will experience a drawdown.

The problem for retail traders is that they are unable to continue trading a system through its statistical drawdown. For example, a system may have the probability of ten consecutive losses. The trader experiences four and abandons the system.

The second point: the 4-Phase Framework overcomes the disadvantage. It does this by first identifying the trend of the trader’s timeframe.

I recently took to trades that illustrate these ideas differently.

The chart below is that of the AUDNZD. You’ll see that I managed to short the low of the move. I was anticipating a breakout. The chart also shows the soft stop exit.

AUDNZD, chart through the courtesy of MarketAnalyst

The next chart shows what happened after I close the position. I did not re-short.

AUDNZD, chart through the courtesy of MarketAnalyst

The final chart in the AUDNZD is the current position.

AUDNZD, chart through the courtesy of MarketAnalyst

The next chart is a similar trade in the EURUSD. I again shorted the lows anticipating a breakdown. I took a soft stop exit but in this case, I re-shorted. The chart shows the current position.

EURUSD, chart through the courtesy of MarketAnalyst

So what’s the difference between the two trades. It’s the context. Compare the next two charts.

The first is the AUDNZD. I am trading the weekly trend.

We see that it is that swing monthly resistance (red line). There is a weekly line up (blue line covered by the red line). The weekly line is overbought. The directional move up has paused, and acceptance below 1.0584 would probably see prices retest the 1.03869 area.

I had sold anticipating the break. Without acceptance below 1.0584, I had little interest in being short. Hence after my exit, I chose to remain sidelined.

AUDNZD, chart through the courtesy of MarketAnalyst

The next chart is that of the EURUSD. Again I am trading the weekly trend. But in this case, the monthly trend (red line) shows a clear picture. Unless there is acceptance above 1.1331, we should see a retest of the lows, with a strong possibility of new lows.

So, after I had exited the failed breakdown, I was prepared to re-short when it was clear that the primary sell zone would hold.

EURUSD, chart through the courtesy of MarketAnalyst

The evidence is clear: having a simple approach to trend identification will overcome the disadvantages inherent in a mechanical system. With that in hand, we can then apply the advantages – the simple execution rules for entry, exit, and trade management.

So, what you think? Do I have a point? Or do you think otherwise?

The post A Tale of Two Trades appeared first on Ray Barros' Blog for Trading Success.

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I’ll use the S&P to illustrate the US Indices picture

S&P, Cash, Weekly, chart through the courtesy of MarketAnalyst

The chart above, the 13-week swing (quarterly trend), shows a potential sideways structure in the making. As the S&P, cash, moved into the Primary Sell Zone, the weekly volume has declined.

S&P, Cash, Daily, chart through the courtesy of MarketAnalyst

I have placed a 14-day ATR on the daily chart.  Even more pronounced than the volume decline is the decline in range.

Normally, I’d be looking for a shorting opportunity – we see zone and setup. However, we have the FED and trader sentiment to contend with. We have seen before this pattern of:

  • a grinding uptrend
  • accompanied by declining volume and range

Have a look at an S&P chart for August 2016 to January 2018.

The reason why prices rose without worrying about the bears was due to QE. Can it be that traders will see in a Powell FED the same sort of policies?

I’ll be wanting to see some evidence of a FED forced to raise rates or evidence that bears have re-entered before taking any shorts.

The post US Indices at Crossroads appeared first on Ray Barros' Blog for Trading Success.

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I have been keeping an eye on the St. Louis Adjusted Monetary Base since the financial crisis. Its data shows the funds deposited by banks with the FED. If you are wondering why no inflation despite QE, have a look at the chart below.

St Louis FED, AMB

What it tells me is much of QE entered the FED and has yet to be made available to Main Street. Since the funds aren’t circulating, no inflation.

However, we can also see that since 2014, growth of the deposits has stalled. There was a breakdown in 2017 that produced another rally. Since then, we have meandered into new lows.

The chart below shows a clearer picture of the current situation. The AMB seems to be at crossroads, having formed a small congestion after the break to new lows.  If we see the break continue, especially is the break accelerates, it will mean we’ll probably see inflationary effects three to six months later. Once that starts, history shows that it will be hard to stop.

St Louis FED, AMB

My cycle work shows a topping potential in US stocks in the last quarter of 2019.

I wonder what Powell will do if inflation starts to accelerate. He has shown he is no Volker. Let’s see what happens.

The post An Indicator to Watch appeared first on Ray Barros' Blog for Trading Success.

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Zoe wrote: “Can you show me how you use ACT and Brown’s material in your trading?”

I believe the integration of the ACT and Brown’s processes have a wider application than just for trading. We can use them to lead more worthwhile lives.

Here’s how I view them.

ACT process

In my view, the ACT method is composed of two distinct sections:

  • The left brain (the Commitment and Behaviour Changes in the diagram above) and
  • The right brain (Mindfulness and Acceptance Processes).

The left brain does all the planning. It identifies our values, it creates goals based on those values, and designs the actions, habits and routines that lead to the attainment of our dreams. The right brain is responsible for executing. Fusion and Avoidance are the two main barriers to implementation. Dealing with the Now through the Observer Self are the overriding tools for Acceptance and Defusion.

I have attached a summary of the ACT processes.

Brown’s material provides additional tools and the ‘why’ for non-acceptance and cognitive defusion.

Our hardwiring does not prepare us for success, especially trading success. We seek pleasure of the pain, immediacy over the future, comfort over risk etc. Our experiences define what each of us finds pleasurable, comfortable, safe, painful, uncomfortable and risky.

Brown suggests that early experiences lead to stories. Some continue to serve us. But, many lead to automatic responses that are no longer in our best interests. She outlines four skills (and their sub-skills) that we will need in our quest for success:

  1. Rumbling with Vulnerability,
  2. Living into our values,
  3. BRAVING trust and
  4. Rising strongly.

Together with the ACT processes, Brown’s approach helps traders fulfil their dreams.

Six Principles of Acceptance and Commitment Therapy

The post Fulfill Your Dreams appeared first on Ray Barros' Blog for Trading Success.

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I’ve received enquiries:

  • Is the April 18 event open to those not on my list?
  • Could I send details of what I’ll be covering?

Rather than send out individual replies, my answers:

  1. Yes. Here is the link: https://barrometrics.lpages.co/4-phase/
  2. The page above outlines the content.

Thanks to all who wrote in.

The post 4-Phase Framework Link appeared first on Ray Barros' Blog for Trading Success.

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I received emails about the 4-Phase Framework:

  • Did I not send out invitations for the public presentation?
  • Can you give an example of a “soft stop”?

INVITATION

My apologies for the misunderstanding. The invitations to my list will be going out today and tomorrow. I mentioned in the post “Solution to a Burnt Trading Hand” that I had been running some beta programs. These are the invitation-only programs where I test my content to ensure that it will deliver on my objectives.

EXAMPLE of ‘SOFT STOP’

An opportune request.

Here is a trade that I exited last night. The chart below shows the entry and the two setups I relied on:

  1. The Head and Shoulders, and
  2. The 3-Bar Congestion.

I took the trade on a 60-minute bar and was filled at 1.1278.

EURUSD, 290-min, chart through the courtesy of MarketAnalyst

The “soft stop” for a 3-Bar Congestion is: prices should not return to its price zone. The chart below is a 60-minute. The rectangle marks what I consider the “critical return zone”. My ‘hard stops’ stops were placed below 1.1252.

EURUSD, 60-min, chart through the courtesy of MarketAnalyst

The “soft stop” conditions were elected. The question now was, where would I exit? My hardwiring said at the “entry point”. But, the market doesn’t care where I entered; it will do what it will do. So, the ‘soft’ exit needed to be determined.

Looking at the chart, I decided that, assuming I was not stopped out, there were three possibilities:

  1. The pair was forming a head and shoulders pattern. In that case, I could look to close out at around 1.1273.
  2. The pair would form a congestion pattern between the high and 1.1254. An exit around the Primary Rejection Zone.
  3. The pair would move to new highs.

The most conservative estimate was a return to 1.1273. So, that’s where I decided to exit. The actual price I decided upon was 1.1272.

The chart below shows what happened.

EURUSD, 60-min, chart through the courtesy of MarketAnalyst

That’s an example of a ‘soft stop’. Note that each set up in the 4-Phase Framework has its “soft stops”.

Of course, I was risking the break to new highs. In that event, I’d re-enter the trade. The important factor was rather than losing 30 or more pips, I kept the loss down to 7.

And yes, with the benefit of hindsight, I could have broken even. But imagine how I would have felt if the pair had gone to 1.1272 and then stopped me out?

The chart below shows the price action after the EU rate decision and FOMC minutes. (And no, I did not take part. Finally, yes, the trade is in the Psyquation account).

EURUSD, 60-min, chart through the courtesy of MarketAnalyst

The post 4-Phase Framework Questions appeared first on Ray Barros' Blog for Trading Success.

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We have had quite a few enrollments.  And, following new enrollments, a few emails. This time the thrust of the message was the same: am I happy with the results?

Well, yes and no. Let’s have a look the start since its inception in Jan 2019.

Psyquation is following my Axicorp account. The capital base is USD 200k. I initially deposited USD 100k but then withdrew USD 30K. The stats:

Winning               Losing               Scratch

6 (13%)                 16 (36%)          23 (51%). Scratch trades defined as a result +/- USD 125.00.

  • Avg win: $722.38
  • Avg loss: -$489.14
  • Expectancy return: $270.13

In my terms, I am in Ebb State (my avg win rate is 56%). I have no idea when it will turn. Three months is moving above the second standard deviation for duration. One more month and this Ebb will qualify as an outlier.

So, am I happy?

No, because as a professional trader depending on trading for income, I have gone for three months without a wage. Currently, living on savings put aside for this purpose. Also, I have earned some income from lectures for the CME.

Yes, because the drawdown is only -1.01%. That’s a loss easily recoverable.

I’ve been able to contain the losses thanks to the 4-Phase Framework with its soft and hard stops. If you don’t know what I mean by the terms, please search the Blog.

If you want access to the Psyquation trades, register at

https://barrometrics.lpages.co/psyquation/

My Psyquation page is currently undergoing maintenance. Hopefully, it will be up later today.

The post Psyquation Revisited appeared first on Ray Barros' Blog for Trading Success.

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