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It’s not often I recommend a USD 1.30 Kindle. This one is one of the rare exceptions.  Great value for the investment.  Apply its ideas and you won’t need to another course or read another book.

A brief synopsis:

  • The intro lays down five core principles for goal setting.
  • Part one identifies the main mistakes when setting goals and outlines how to avoid them.
  • Part two covers ten of the most popular goal-setting strategies – reviewing their strengths and weaknesses.
  • Part three reveals the PRIMER method. This alone is worth the price of the book.
  • Part four shows you what to do when you fail to attain your objective. An excellent, practical process.

If you aren’t attaining your trading goals, pick up a copy, apply it. Then let me know how you went I’d love to hear from you.

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How To Deal With A Loss In Discipline

Here’s a great article from tradingcomposure.

Its take on dealing with loss of discipline is similar to mine: we all lose discipline from time to time. The trick is to ensure that the lapse results if dollar losses of decreasing magnitude.

In my early years as a trader, loss of discipline usually meant a blown account; nowadays, it tends to mean a 2% loss.

P.S. Click on the pic or link to read the article.

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I’ve created a video for today’s blog. Click on the picture to play

Ray Barros : 16-July-2018 Looking for a short - YouTube

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How to become a consciously competent trader?

One answer is to apply Ericson’s Deliberative Process:

  1. Identify a goal.
  2. Break the goal down into a series of steps
  3. Execute each step, one step at a time.
  4. After execution, observe the results
  5. Change what is not working, i.e. take a different step but maintain the same goal
  6. Loop 4 & 5 until the results lead to the main goal
  7. Take the next step
  8. Repeat the process until the goal is achieved.

The process is a mouthful but relatively simple. Why then aren’t more traders competent?

The answer lies in the way non-improvers frame ‘losses’.

No one likes losing money. But, improvers frame them differently to non-improvers. The latter see losses as ‘failures’ – as if somehow the losses pass judgement on our worth as human beings. Perhaps ‘failure’ raised the self-limiting beliefs ingrained at childhood.

Improvers see losses as perhaps painful but also as the means to improving. Losses are part of the game. As traders, we accept the truth of the statement. Our job is to eliminate the large losses. To paraphrase Ned Davis

“We are in the business of (losing money)’. The only difference between the winners and the losers is the winners make small (losses), while the losers make big (losses)”.

So my questions to you:

  1. Do you keep an equity and psych journal? (The source for our learning)
  2. Do you religiously schedule a review of your trades – both the losing and the winning?
  3. Do you change what you are doing to find ways to reduce the average$loss and increase the average$win?

The answers to those questions will tell you whether:

  • you are committed to succeeding as a trader – you are willing to do whatever it takes – OR
  • merely wishing to succeed – doing only what is within your comfort zone.
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The kerfuffle with Scott Harris drove home why ‘unrealistic expectations’ are one of the main drivers for failure among retail traders.

Scott took issue with my disagreement that you needed to be ‘the best’ to be a successful trader. That seems to be a driving force among many of those I have met.  The key question: is the belief useful in our quest for trading success?

One of the meanings of ‘best’ is:

“of the most excellent”

Renaissance Medallion is probably the best of our hedge funds. I say probably because it is a private fund, so its track record is difficult to assess accurately. From the net, we get this picture:

  1. From 1989 to 2017, 35% pa ROI
  2. It’s best years 1994 to 2014, 71.8% pa ROI

Now, does that mean if you can’t measure up to those results, you are a trading failure?

I don’t think so.

The average (successful) fund returns 11% to 23% p.a.

  • A starting capital of, say $10K, at 11% p.a., over 15 years will amount to $47,846. That’s a 478% increase! And
  • If you can manage an average 23%, the $10k will grow to $223,140, a staggering 2231% increase!

That’s not what I call ‘failure’.

That’s why I said in “Day Trading A Waste of Time“, focus on becoming competent and you will attain success. Those who fail at trading, do so because they don’t build a solid foundation by acquiring proficiency in the basics. That’s the key to success.

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Picture through the courtesy of http://franklinhr.co.nz/problem-resolution/

The US Indices appeared to put on a strong showing last night. Figures 1-4 show the progress of each index I follow.

Let’s review the bullish factors:

The main bullish factor is: after the previous day’s trend day, we saw bullish-conviction bar. 

Pete Steidlmayer taught that I should not look for a continuation after a trend day unless its the start of a new directional move. 

In the bear camp, we have:

  • Increased Volume but a decreased true range. And,
  • The volume has remained below normal volume.
  • Both factors suggest the rally is more a case of short covering than new buying. 

For me: the test will be the Primary Sell Zone and how the indices react to the Zone. This is especially the case if we a see a retest of the highs on cycle high dates. MarketTiming highlights two date zones:

  • Minor: July 12/13
  • Major: July 25-27
FIGURE 1: Russell 2000, Daily, Chart through the courtesy of MarketVolume FIGURE 2: NASDAQ, Daily Chart through the courtesy of MarketVolume FIGURE 3: S&P, Daily Chart through the courtesy of MarketVolume FIGURE 4: DJIA, Daily Chart through the courtesy of MarketVolume
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Cartoon through the courtesy of http://www.alaskafishradio.com

So whose reaction is right, the US Indices or USD?

The first chart shows the four indices; the second shows the USD against the four majors.

US Indices, Daily, Chart through the courtesy of Oanda USD Makors, Daily, Chart through the courtesy of MarketAnalyst

The indices either ignored the tariff wars or thought it was good for the US economy; the USD saw the wars as having an adverse impact.

Whose right?

As a technical swing trader, the answer is: it doesn’t matter. I happen to think the USD response forecasts more accurately the US economy’s direction. Even a cursory examination of economic history shows that trade wars have a detrimental effect on the participants. But, that view won’t affect my trading decisions.

The NASDAQ has given a clear signal that it will challenge the 7310 to 7266 (basis cash).  I’ll need to see what the index does when it gets there.

  • Acceptance below 6963 will constitute a downside breakout. The breakout, if confirmed, will suggest that the 13-week Change in Trend pattern was valid.
  • Confirmation will take the form of acceptance below the maximum extension at 6894.
  • On the upside acceptance above 7380 will constitute confirmation of an upside breakout.

I took the H&S buy signal mentioned in “Cant-believe-i-missed-it!“.  I took out 50% of the position on the close. I’m bringing the stop to under Friday’s low. Yes, I am managing the position more aggressively than normal.

That’s because the volume is showing non-confirmation:

NASDAQ, Daily, Chart through the courtesy of MarketVolume

Notice that Friday’s volume was below normal. Together with Thursday’s price action/volume picture, what it tells me is the rally was mainly due to short covering.  The key question is how will the NASDAQ perform when the sellers return?

Let’s see what happens.

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Chart through the courtesy of https://tradingsim.com

A question popped up on Quora today:

“Is day trading a massive waste of time considering the vast majority of day traders never turn a profit?”

One of the answers was:

“Put simply, yes.

The problem is that being good is not enough, you must actually be great.
An average scientist becomes a teacher.
An average doctor works as a general practitioner in a small town.
An average basketball player becomes a coach.
An average trader goes broke.”

I couldn’t disagree more.

You don’t need to be great, you just need to be competent in the basics. Most retail traders want to shortcut their way to success. The only problem is there are no shortcuts when it comes to trading.

What do I mean by that?

Retail traders either never bother to acquire the education needed for success or but fail to apply the basics of what they have learned.  They trade and blow their account, then blame the markets (they’re rigged) or the material (that they don’t apply).

Let me give you an example of what I mean.

What are a couple of critical (to mention only two) must-haves for trading success?

  1. A WRITTEN context – most call this a ‘trading set of rules’ and
  2. Consistently keeping an equity journal (spreadsheet or software). The journal provides the foundation for improving your trading, assuming you have a set of rules and are executing consistently.

{By the way, by ‘rules’ I don’t necessarily mean you are a system’s trader. Even rule-based discretionary traders need a framework}.

Usually, when I run a presentation, I’ll ask along the way, how many have the two. I’ve had responses from 25% to 5%. No wonder the rate of trading success is so dismal among retail traders. As a group, they don’t perform the minimum requirements for success.

If your trading results aren’t what you’d like them to be, then change what you are doing. Then make sure you list what is required. Acquire whatever knowledge you are missing, then apply the knowledge.

Simple but, from what I see, not easy.

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Happy July 4 to my US readers! Have a great hols!

Have you ever stalked a trade, only to miss it? Happens to me, more often than I care to admit. The last occasion was? Yesterday!

I had been stalking the continuation pattern in the NASDAQ in the 5-day swing chart.

NASDAQ, Daily, chart through the courtesy of MarketAnalyst

The plan was: enter on a 15-minute acceptance below the Primary Sell Zone, 7101. This is what the 15-minute looked like.

NASDAQ, 15-min, chart through the courtesy of MarketAnalyst

The big bar down was the trigger bar, closing around 7080.  I was looking for a normal correction and a retracement back to 7103. I placed a sell limit at 7101. Oops, the NASDAQ only got to 1099 and tanked.

Normally, if the R: R is adequate, I’d just sell the break because I was seeing an R2 trend down. In this case, though, I was unwilling to do that because there is a possibility of an H&S bottom: this leg down completes the complex RS.

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

So what to do?

I’ll just have to wait for either:

  • Acceptance below 6931, provided my filters form before the breakout. Or
  • Assuming the RS does complete, acceptance above the H&S Neckline.

The thing is I’m uncomfortable with breakouts especially since the US markets closed today.  To adapt Malcolm Fraser’s (Aussie Prime Minister) famous statement:

“Sometimes trading isn’t meant to be easy”.

Let’s see what happens.

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If you have been around the markets for a year or more, undoubtedly you’d have heard or read the saying: “Cut Losses Short, Let Winners Run”.

The question, of course, is how?

Because there is the other side of the saying: “Never let a winner turn into a loser”.

It seems to me the first step is to define ‘winners’ and ‘losers’. When does a trade in profit turn into a winner? For example, is one pip a profit? How about ten pips? Twenty? You get the idea.

The answer lies in the positive expectancy formula.

(Average Dollar Win x Win Rate) – (Average Dollar Lose x Loss Rate).

The question to ask is: given my win/loss rate what average dollar win must I make to at least break even. For those who like Tharp, the question is what multiple of R need to break even.

Until that amount is reached, we don’t have a winner. The pips in our favour are just noise.  So, there is no profit to protect. We may exit early because market conditions have changed but that is different to saying we are taking action to protect our profits.

Let me give you an example.

NASDAQ, 15-min, chart through the courtesy of MarketAnalyst

Let’s say the NASDAQ give us a buy signal just before the NASDAQ opening at 9:30 am. We enter at 6990. Our initial sell stop we place at 6957.

From the open, the NASDAQ rallies to 7044. This gives a profit of 54 pips, right? Well no, not if we need an R: R of at least 1.8 to break even. If you do the maths, the 44 pips gives us only 1.63. So exiting at 7044 would fall into the category of ‘not letting winners run’.

The NASDAQ starts a retracement. We have assessed that given the Gann Fan Angle and price action ought to see a Market Profile Trend Day. If this scenario is correct, then we ought to see the 45% to 55% levels hold. A pullback to the 78.6% would negate the scenario. So, we’d bring our initial stop to 6979.

Notice we do this because if prices retrace to that point, our reason for the trade is wrong and we exit.

Once prices exceed the R: R of 1.8, we have profits. Now our actions are designed to ensure that the worst result is we don’t lose in the trade. Here’s where I use the Rule of 3. I’d exit the first 1/3 at 7056…etc…..

How do you manage your winning trades? How do you draw the distinction between ‘winners’ and ‘losers’?

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