Trading Results For The Month + Misc Thoughts

I think it wasn't a coincidence that I came across this article yesterday: Why It Is Important To Fail. I remember feeling that it was such a great article and even saved it as a document. How was I to know that it would be an encouragement to me today. You see, I have a goal to achieve 5% profitability on my account every month, and not only did I fail to do so this month, I failed badly.

Statistics For April
Winning %: 9 wins, 5 losses.
% Account Gain: -1%

I actually made a 1% loss this month, and I'm still feeling very down about it. Especially so because I was still up 1% yesterday but a trade I took cost me 2%. It doesn't pay to wallow in self pity so I'm going to do some reflection on what went wrong.

1. I kept changing strategy. Believe it or not, out of the 14 trades I took, only one failed to at least hit a first trouble area for one to take partial profits and move his stop. This means that if I had traded exactly the same way I did last month, my trading statistics would be 13 wins 1 loss and I would definitely have hit my 5% target.  The problem is that I kept varying my trade management method and because of that took full bar losses on 3 trades, something I would never have approved of last month.
2. I lacked knowledge of the big picture. In other words my chart reading abilities are inadequate, and even though I managed to spot setups, I failed to identify the environment and higher time frame story. 
3. I have a tendency to babysit my trades. I will take a trade based on the daily time frame and then watch it on the various lower time frames. I did learn a lot about the fractal nature of the markets by doing so, but it also caused me to make inferior decisions, primarily by getting shaken out of a trade too soon. So I could be short based on the daily, but when a double bottom form on a 5 mins I get nervous and take profits before my original target is met. I came to realize that almost all the time my target would have been met if I had held on.
4. I need to work on my psychology. I'm experiencing a lot of fear, especially in the last week when I was afraid I wouldn't meet my target. Yesterday was so bad I had to go for a walk to calm down. It shouldn't be so, good traders should be collected and emotionless.  

Nevertheless, I'm generally quite happy with my entries. I'm disciplined enough and even though I had losing trades, it wasn't due to poor selection but poor management. Moving forward, I have a feeling things are going to change big time. I do not know how to put this in words, but stumbling upon ReadTheMarkets has drastically changed everything I previously conceived about trading. It is truth, more truth than anything else I've ever come across. James16 is great but to be honest, I think this trumps even James16. I don't even know how to describe it.... Its like, you can throw away all the indicators, trend lines, Fibs etc, the only thing that matters is Supply and Demand. It makes so much sense and is so apparent on the charts that there is no way to refute it, absolutely no way at all. I've stopped reading other trading books and in fact find traditional TA equivalent to babe material. Supply/Demand is what the institutions and professionals are using, it pays to run with them. I might create a separate post to illustrate this.

I have some knowledge, but it is floating everywhere and I need to assimilate it to formulate a system. In fact I know that this distraction affected my trading performance (Imagine entering a trade based on System A but trying to manage it based on System B).  Although I feel sore about my losing month, there is this huge excitement and anticipation of what is to come. I've learned so much in the past month, both from RTM and from my personal trades and chart time. Seeing certain patterns occur time after time reinforced my confidence of them.

This is going to sound unrealistic but I've just refined my long targets. I used to think that traders who can make 10+% a month are considered the cream of the crop. I'm no longer going to target just that, I want to believe that I can make 20+% monthly in a few years time, I want to strive to be a really good trader. How do I know it is possible? Check out what one of the top traders (Doctor) of ReadTheMarket said: 

"If anyone can understand the how and where to trade and fund an account with sub 10k, within 5 years they should be very well off. Common investment funds believe 16% gain on an account in a year is a good performance. I would consider 16% on a Forex account in a week a poor return"

I was totally shocked when I read that... I'm still trying to figure out if he was exaggerating. 16% a week compounded means you literally double your account in 5 weeks, it means you turn a 10k account into 1 mil in 8 months! It seems like bullshit, but when I look at the trades these guys take, it does seem possible... Because they're so precise with their entries/exits that they're able to enter a move right at the start, their risk is very low and reward is very high. 3-5R a trade is not uncommon for them because they scalp on time frames as low as 1 min but ride a trade to where they think it should go based on the higher time frames. So imagine 3R for one trade, 5 such trades a week would be 15R. 15R x 2% = 30% in one week. I highly doubt James16ers will be able to achieve that because they only trade on higher TFs and that severely reduces the number of opportunities and profit margin (Making 3-5R even on a 4H chart would likely require months). Of course that kind of returns belong only to the very best.

I know it still sounds very inconceivable, but screw it I'm going to aim for the sky, I know that the human mind has a mysterious way of creating ideas and ways to achieve a target once you've set one for it. I also know that it is not a mechanical method or some secret that allowed these guys to trade so damn well, it is years and thousands of hours of chart time and experience. All I can do is to try to pick as much as I can from their experience and hope that it'll accelerate my learning curve, there is no substitute or easy way to success.

Price Action VS News

I suddenly had this idea of checking out some of the turns in a few pairs which I previously attributed to news and observing where on the charts the turns happened. The result was shocking. First of all you must understand the concept of demand/supply zones (check out ReadTheMarket or Sam Seiden).

EURGBP

EURGBP 4H

This was in fact a trade I took based on the bearish false breakout pin bar. I was up almost 1R in profit but I wanted to try for a bigger run and ended up getting stopped out at breakeven. At that point there was a Draghi speech and I blamed him for saying something that caused price to bounce back. In hindsight, price bounced because it hit a demand zone.

EURUSD

EURUSD Daily

Look at the two huge candles under the blue arrow. Prices first surged up but amazingly gave up all the gains the next day. Well, news justified it by saying that the ECB dropped hints of a EUR rate cut. Hmmm... is it just coincidence that prices dropped back down because it hit a supply zone?

NZDUSD

NZDUSD Weekly

This is a weekly chart. NZDUSD was roaring upwards, breaking out of many prior swing highs and looking bullish as can be. In fact the upward move looked almost vertical on a daily chart. Within two days it gave up all of the prior gains. Wow what the heck happened??!! Oh..... gold tanked big time, and because New Zealand is a huge exporter of gold, it was badly affected too... Again, is it coincidence that prices hit a supply zone on the weekly chart?

These are just three examples, there are many more. Doing an exercise like this convinces me that there is absolutely no need to follow news. In fact I know of so many professional traders who don't have a clue about upcoming news at all. Of course it is alright to know when the news events are and how each news will affect the respective currencies. As a trader, it doesn't hurt to have knowledge on that. However, one should never base trading decisions on news. After sitting in front of the screen the entire day for the past few months, I've realized that many market moves occur contrary to how it normally should based on the news. The media justifications will then come out later. Well, by the time the explanation is out, a news trader would have been caught on the wrong side.

I'm seeing so much potential in combining this knowledge with James16, I already have some ideas but it needs to be demoed first. In fact I'm experiencing an inertia to trade live because there is so much I do not know and I really want to spend my time deep diving into the material first. I'm officially totally convinced that price action is king.

Humbled, Just Humbled....

Seriously the more I know the more I realize how much I don't know. Reading this forum thread by The Doctor (ReadTheMarket's senior) just makes me feel like I know nothing. It irks me, I take ages to read and digest his posts and even so I know that a lot of it came from years of experience which I can only gain through thousands of hours of chart time.

If anything, I'm consoled by the fact that such level of proficiency is actually possible. It is possible to catch tops and bottoms on a minute chart, it is able to ride an entire trend from beginning to the end. 99% of books and people out there say it is not possible and that this is bullshit. Well, they think it is not possible because they don't know how. Check out the journals of RTM's members. From what I see so far the seniors are absolutely killing it. I still don't understand a lot of it, but I'm trying, and I must persevere. This stuff is difficult,  but I love it! It is about order flow, about stop hunting, about fake buying/selling, about crowd psychology, all the things I love! And damn who wouldn't want to be the trader who enters a move right at its extreme, sometimes to the pip? That is freaking cool right? While trading the break of a pin bar works, wouldn't you want to be the guy right at the tip of the pin bar while it is forming? Can you even begin to see how low the risk is and how immensely profitable this can be? 3 to 5R per trade is not uncommon on the lower time frames, it almost seem too good to be true. So far I've only tried it once on demo but yep I managed to catch the top of a move and short it down for a small scalper's profit, and damn did it feel good. I really hope that I'll be able to grasp the concepts and apply it with consistency soon.

Babe In Price Action

I've been spending a lot of time studying ReadTheMarket's material as well as watching Sam Seiden's webinars. Can I just say that I'm blown away? I'm always hungry for more price action knowledge, and the incredible amount of details and explanation in these material is just amazing. It doesn't contradict James16, in fact it complements it. In the past few days I've already been shocked by how prices react at the levels I expect them to, even on the minute chart.

Majority of people claim that it is impossible to catch tops and bottoms and that attempting to do so is naive and stupid. Well, the people at RTM and Ace Gazette are doing that day in and day out, so that should put any doubts to silence.

I feel like I've been reduced to a babe in Price Action once again, there is just so much to learn. The material mentioned above are among the best PA stuff I've come across (it is FREE!), and the best part is that it is not easy to apply. I like that because majority of people will catch the brief idea, try it, fail, and discard it as another hoax. This is probably why the method is not popular, it is definitely not beginner friendly. The meat and treasure lies in all the little nuances, and only the truly passionate and persevering will be able to uncover it.

Sam Seiden mentioned something in one of his webinars which I feel is very good food for thought.

"Suppose you are a trader and you can choose one of two options. Option A is that you'll know the result of every single economic data 10 minutes before it comes out. Option B is that you know where all the buy and sell orders are on the book. Which option would you choose?" (paraphrased)

Isn't that incredible? Who cares what the economic results will be if you do not know how the markets will react to them? So the obvious choice is Option B right? Well good news, you are able to know where all the buy and sell orders are! Wow how??!! The answer is in all the sites mentioned above ;)

Fooled By Randomness

Fooled By Randomness is a book I'm reading now. To be honest it is a very very difficult read, and I'm on the verge of giving up. But here is what I've learned from the book so far: Randomness is everywhere in our lives but people don't realize it and stupidly try to make sense out of it. Very often fools that got lucky are applauded as geniuses and mightily successful people.

You see, take 10000 total new traders and let them trade for one month, a few of them are bound to end up with outstanding results. Why so? Are they really prodigies and geniuses? NO!!! It is simply a result of statistics and randomness!!! Lets take it further... Lets gather 10000 monkeys and place two pieces of paper for them to draw for every trade over a month. One piece to go long and the other to go short. Again some monkeys will produce outstanding results simply because of randomness!! See what I'm getting at?

So why am I talking about this? Well, if one is able to grasp the concept of randomness, he is a level above most people and in fact is able to live life without the naivety that plagues most of us. Back to my example above... Do you realize this is how CNBC gurus and several "top" traders are created? The 2-3 traders who managed to perform outstandingly as a result of randomness are elevated to media publicity and lauded as gurus. But are they? Trader A managed to call the top and bottom of the S&P 5 times in a row, CNBC pounces on this and splashes his articles on their site, promoting him as an uncanny forecaster. Well, give me 10000 monkeys and I bet at least one of them will be able to call the same tops and bottoms.

People have an insatiable need to justify everything. A figure of a horse appears in the sky and some tribe will take it as a sign from the heavenlies and start worshiping horses. A man who finally manages to ace an interview after 10 tries realizes that he was wearing a different tie and starts believing it is a lucky tie. George Soros who took a big bet and became a legend overnight because he broke the Bank Of England.

Alright I'm not saying Soros isn't an expert in his field, I've no doubt about that, I just needed an example to illustrate my point :P Was he a 100% sure when he made that bet? Is anyone ever a 100% sure when it comes to the markets? Lets assign a probability to his being right, lets say there was a 90% chance that he'll be right. Now lets assume there are parallel universes where 10 different Soros made the same bet. Well, the result is that Soros will become a legend in 9 of them and a darn fool who broke his fund in the remaining one. Of course, I'm totally speculating and perhaps he did practice risk management which would have left his firm intact.

The same logic goes for traders who draw trend lines all over the chart, connecting multiple points across multiple years. They don't realize that a trend line drawn from two points and projected is very likely to hit another swing point somewhere in the future due to randomness! So we have traders who swear by trend lines and draw dozens of them all over the chart with every permutation of lines across the various swing points. Again I'm not saying trend lines do not work, but you have to identify the really obvious ones which can only be drawn in one way, not those that happen to connect two points 10 years ago and have been ignored since then. And yes I have seen such ridiculous charts before.

The concept of randomness has changed the way I view a lot of things, I'm determined not to be a naive person who chases after lucky fools. I'll smile when I come across heavily leveraged traders who boast about their portfolio multiplication and insane ability to call the markets, knowing that without risk management they'll be reduced to obscure fools sooner or later.

Is Trend Following Really That Simple?

Man I'm in the mood for blogging recently, and many thoughts keep popping into my mind so I love to pen them down to remember them better. This post is about trend following, and I hope to keep it short. Lets start with a chart of AUDUSD.

AUDUSD Daily

Books and course providers love to promote their systems by showing charts like this. Buy on the arrows, ride the trend to the top, sell and pocket 500 pips of profit! Take a closer look at the chart, there is something subtle that isn't easily noticed unless you've been in a similar situation. Suppose for whatever reason you went long on the three arrows, notice that for each of them prices came back down a few days later and would have put you in draw down before taking off again? Now it is easy to say trail your stop under each swing low or under the ATR 20 and you'll be fine, but try putting yourself in the shoes of a trader holding such a position. You see your position taking a few days to climb 100 pips only to painstakingly watch it drop back down and put you in the red again. And this repeatedly happens. I don't know about you but I HATE THAT FEELING, it makes me a nervous wreck! And know what? 60-70% of the time price will proceed to stop you out in the end because markets chop most of the time and smooth trends are rare.

That is the nature of trend following, you need wide stops to ride trends, you will watch profits turn into losses most of the time, and your win rate will be 30-50%. I'm not against trend following, but the question we have to ask ourselves is: Am I suited for trend following? Is my psychology strong enough to lose more often than I win? Can I tolerate watching 100 pips profit turn into losses most of the time? If not, then probably trend following is not for you.

Stop Hunting From An Order Flow Perspective

I'm so excited! I want to write about something I learned recently which is freaking golden in my opinion. Now you don't find this in textbooks but it makes complete sense and is definitely something that will be in my trading arsenal. I'm going to use two charts as an example.

GBPUSD Daily

CADCHF 4H

This idea is this: There are instances where we get a reversal setup like a pin at a double top/bottom. Countertrend traders get excited over this and jump in. To their horror price takes them out and goes on a little further before moving in their original intended direction. Why does this happen? Look at the charts above, the first arrow is where many people will enter. On GBPUSD they would have interpreted the first arrowed bar as a bullish pin with double bottom. On CADCHF they would have seen a false breakout pin bar. Sounds legit? What went wrong then? The answer lies beyond. Look at the rectangled areas at prior swing highs/lows which also coincides with a round number. Beyond these points are huge pockets of stops. We know this FOR SURE because they are very distinct major swing highs/lows and are round numbers. Now imagine you're a market maker. If you're bullish on GBPUSD and bearish on CADCHF, why on earth would you not target these stops since they're so near? They provide HUGE amount of liquidity for you to fill your orders! See the beauty of this?

So the conclusion is this: When we get a setup, zoom out a little, add the round numbers, and imagine yourself as a market maker. Would you be satisfied to move price where it is or target further obvious zones of stops? If the answer is the latter, DO NOT take the setup. In fact, very often the initial setup is sub optimal to begin with. This sub optimal setup will in turn suck in less experienced traders and provide even more liquidity for the market makers when they get stopped out too. In the case of GBPUSD, we have a weak pin which did not hunt any stops and lacks confluence. Somebody who just learned about pins would have jumped in here and get trapped. I know because I've been there so many times.

Seriously the above knowledge is super golden, I'm so glad I chanced upon it and I know it'll protect me from many failed setups as well as help me take many other A+ setups.

Thoughts About The Week

I need to rant, I have just had one of the most emotional trading moments. The chart below explains why. And of course it is included in my Missed Setups Journal.

CADCHF 4H

Long story short, I liked the setup, there was a topping pattern and a breakout retest with a pin at the 0.93 round number. All the pairs were confirming what I expected would happen - Dollar to tank, Eur to rally. It was picture perfect. I had my order placed, but I pulled it half an hour before NFP because I didn't want my order to get gunned by market makers during the low liquidity period before the news release. The plan was to reenter my order around 8:29pm. BIG MISTAKE. This is the kind of runner I'm waiting for, it could have been the trade of the month with around 3R profits.

I got so shocked I actually felt faint, went to lie down on my bed, and couldn't even bear to look at the charts. Till now I'm still feeling so sore I have to blog to rant. I really really feel very awful. If I were in prop, this trade alone could have been my monthly income and more. If any consolation, I learned a very important lesson: Price can still move quite abit even before major news, leave the order on if many pairs are showing confluence of direction. I've also learned that very often price will drop hints on the direction it'll take after the news, this was the case for the NFP and for yesterday's BOJ monetary policies. I shouldn't be afraid to take setups before major news, in fact the news can act as a major profit propellant. Note though that this is different from trading equities before earnings. With FX if the news goes against you, you will lose 1R with slippage at most. With equities, overnight gaps due to earnings can literally wipe out multiple Rs and skew the equity curve.

This week has been really bittersweet. I'm up 1R in the first week so I should be happy (my target is 2.5R per month), but believe it or not, I could have been up about 8R. 8 freaking R!!!! Of course this is hindsight amateurish talk and I missed out on a lot of profits because of the way I managed my trades, but it really doesn't feel good. I missed out probably 4-5R because I was prematurely stopped out of Nikkei and AUDJPY prior to the insane rally. I was up about 0.75R in EURGBP yesterday but prices reversed all the way and took me out at breakeven. Btw that was a major blow too. And now, I missed out around 3R because I pulled my order before NFP.

To be honest I really don't feel too good, it is one thing to suffer one blow, but 3 consecutive blows is quite something. At least it is not due to losses, but missed profits sucks a lot too. I need to spend some time encouraging myself, because I cannot afford to get negative and discouraged. I realized that if I were to trade full time, there will be many such moments. This will not be the last and I need to have a larger mental and emotional capacity. When I make mistakes, I must learn from them, opportunities will always be there, there is no point berating myself over it. These lessons will add to my experience and make me a better trader.  Gonna go do some reading, next week will be a better week!