Be warned, this post is going to be long, very long. So yesterday was the last day of a three months performance evaluation I set for myself. The purpose of it was to prove to myself that I can be consistently profitable in order to trade full time, either on my own or in prop. My result for May was 15 trades, 11 wins, 4 losses, 1.7% increase on equity. The result for the three months was a 6.7% increase of my initial equity.
Admittedly the result is abysmal, most of the profits came from the first month and the past two months were really bad. Like all humans I'm very tempted to blame it on various stuff like the stupid
broker spike but that wouldn't help me grow as a trader. This is the time to conduct a thorough examination on my trades and think about how to improve moving forward. I cannot even begin to describe what I've experienced and learned the past three months spending 10+ hours a day on this business, but I'll try my best to pen it all down in this post as a form of trading review.
- I learned that trading is really not easy. I'm totally convinced that there is no way a book, course, or black box system can make one a consistently profitable trader. As a person who read books and forums a lot, I know of quite a few excellent traders. But I've never come across one who hasn't spent thousands of hours of chart time, years of heartache and failure, before finally achieving consistent profitability. Even the Market Wizards didn't get it immediately, many took years. The only ones who didn't blow multiple accounts are the ones who're sensible enough to spend months on a demo or small account before going live on a bigger account. That is encouraging because I know that I'm not a flop, I'm simply walking in their footsteps and gaining the necessary experience/knowledge to be successful. Napolean Hill stated that "No one ever is defeated until defeat has been accepted as a reality". As traders, we experience losing trades and failures very often. I tell myself that as long as I learn from every losing trade, there is no way I will not improve.
- I learned that I'm my greatest enemy. It is apparent that I'm sabotaging my own trades because I actually fared a lot better on my demo accounts than on my live! I made almost 10% on one demo account and almost 7% on the other in just the past two weeks alone. The thing is, it is so much easier to just set and forget trades on demo (Only act when they hit specific levels and not otherwise), and this is producing far better results than me babysitting my trades. Being a very logical person, I never did expect that my emotions and psychology would hit me so strong, but it did. I struggle a lot with anxiety, attachment to trades, and I still feel overly sore with losing trades. To a certain extent this affected my performance and is an area I need to work on. I'll probably need to return to the "Trading In The Zone" book to reinforce my trader psychology.
- Looking through the 38 trades I made in the three months, it is obvious what my main problem is. I had only 1 trade that made more than 1R! So even though my win rate is decent, the size of each win is too small and a single 1R loss can wipe out three winning trades. That is absolutely shocking and embarrassing, but it also revealed a component of my trading I definitely need to work on. There are two main reasons why this problem exists.
- I am not good at identifying profit targets. This is really my main focus in the coming months. Without being able to identify targets correctly, I'm prone to premature taking of profits or not taking profits when I should. This is super apparent in most of my trades. ReadTheMarket is going to play an important role in helping me with this because their concept of engulf is revelational. It provides a logical way to identify profit targets. I only started to have a better understanding of it in the past few days and I hope that it will aid my future performance.
- I babysit my trades too much and get shaken out too easily. We all know the common adage "Let your profits run". I got a huge huge problem doing this. In many of my trades, I get scared out whenever a lower time frame setup occurs that is contrary to my position. Now while this has affected my performance quite a bit, I've also learned a great deal from it. I realized how important the higher time frame story is. Opposing signals on the lower time frames will often fail, and when they do work they'll usually only result in a small pullback before the higher time frame story plays out again. Of course a lot of discretion is involved in this. I've also had occasions where the lower time frames clued me in to a major reversal and enabled me to get out early. That is why chart time is so important, there is no way to know what will happen without ample experience in the markets.
- I'm aware that my poor performance in the past two months is also due to analysis paralysis and my attempts to integrate different methodologies. My first month's trading was purely based on James16, I managed to achieve about 6% profitability in that month. In my second month I came across ReadTheMarket and a whole new world of knowledge and possibility opened up. I dived into it and studied all the resources related to it - AceGazette, Sam Seiden, FF's Price Is Everything thread, FF's Romancing The Price thread. It confused me greatly and I spent many frustrating moments trying to make sense out of it all. Supply/Demand is a concept, and there are many ways to trade this concept. Some choose to touch trade S/D zones, some wait for PA bars, some wait for price structures like the Quadsimodo. It is easy for me to list that now but I didn't know that when I first got started and so I was wondering why is everyone taking trades differently, what is the right approach? It bothered me to no end. I was trying to mix and match everything together and my half baked understanding led to poor selection and especially trade management. I soon realized that it is a matter of preference. There is no fixed way of trading the zones. Aggressive traders would prefer to touch trade them (higher RR, lower win rate) while conservative ones would prefer to wait for PA confirmation (lower RR, higher win rate). I had the good fortune of getting to know some guys who clarified a lot of things for me, and Phanti's PDF was like an epiphany moment for me.
- This is going to sound ironic but I really think I learned a lot over the past three months. It is ironic because my first month's performance was the best out of the three, but I dare say I have a much better understanding of market structure now than I did in the first month. And much of this only occurred last week. The market is like a Jigsaw, and I'm slowly beginning to piece it together with occasional epiphany moments. This talk about market randomness is completely bull. I know because I've seen traders who scalp insanely well, pick tops and bottoms pretty often, and could probably double a small account within two months. The markets are not random, they move from zones to zones and news is just a catalyst. Take my EURCAD trade yesterday for example. I knew that there was CAD GDP news coming out at 8:30pm (GMT + 8) and I was already "predicting" that the news would be good. This would lead to CAD rallying and my EURCAD trade to hit its first target. True enough the news was good and it worked out the way I expected it to. It was also interesting to note that it was news of a possible EUR rate cut that led to the formation of the triple top. Coincidence? After realizing how this works, I kinda find it amusing to see traders trying to make sense of news and predict it. There is absolutely no need to follow news at all, the charts say it all. The only exception is probably NFP or speeches which can be so volatile that it might be safer to stay out.
- I also learned a lot about the fractal nature of the markets and managed to sort out a major question that bothered me for some time. This was a pivotal moment and deserves a post of its own so I'll not talk about it here.
So anyway, why did I decide to spend so much time on S/D concepts at the expense of my trading performance? I think a lot about things, and having a perfectionist like personality, I always try to look for the best resources to follow in everything that I do. In trading, I believe the way to determine the validity of a method is the result of its practitioners. One look at the journals of the top S/D traders is thought provoking to say the least. These guys nail multiple Rs trades very often. Just yesterday I saw one trade which yielded 9R. Do you know what 9R is? 2% per R would mean that trade alone yielded a freaking 18% return, three times my current monthly target. Tell me that few months ago and I would have called fake. How can a method be able to consistently yield multiple Rs trades and yet have a 70+% win rate? The books tell us that good trend traders often have a win rate of only 30-40%. I wished I hadn't read those books, they limited my vision and the possibility of what I could achieve. So how do these S/D guys do it? Simple, by scalping lower TFs with an impeccable knowledge of market structure. It is very hard to nail multiple R trades on the higher TFs because that'll take ages, maybe weeks or months. But what if you're able to catch the start of a move on the 5 mins chart with a 10 pip stop? Don't you agree that it isn't hard for the market to move 50 pips (5R in this case) in your favour? Seeing is believing, and I see this happening everyday on the journals of the RTM members. This gives me hope, something to reach out for, something I know is possible if I put in the commitment.
So if it is that good, why isn't everyone trading the RTM way, especially since this well of trading wisdom is completely free? Well, I believe that is because it is very discretionary and damn bloody hard to understand. I spent two months of full time studying and I feel like I'm only just beginning to get it. Of course that could be because I'm not a fast learner. Most people will probably try it for a while, fail, and continue on their search for the Holy Grail. Even the top S/D traders will tell you that there is no way out except thousands of hours of chart time. Their assimilated knowledge can shorten the learning curve but one still has to put in the hard work.
The past three months has been very exciting for me. There were many moments of utter frustration and discouragement, moments where I felt really down, but there were also moments where I literally leaped in joy and hugged my wife because I discovered or understood something. It is amazing but I learned so much about life through trading, particularly about coping with failure. I still feel like I'm falling in love with trading more and more each day, it is just so fun! Next month is going to be exciting because I'm going to practice scalping a lot more using what I already know together with the concept of
Engulf. This concept is truly amazing and I had many OMG mouth gaping moments observing how the RTM members use this concept to nail tops/bottoms on the lower time frames with huge RR trades. Really hope I'll be able to achieve that soon too.
This post has been a good release of the thoughts floating in my mind. I want to end it with this excellent quote from Napolean Hill. Do take some time to think about it, regardless of your profession.
The person who stops studying merely because he has finished school is forever hopelessly doomed to mediocrity - Napolean Hill
