What does it take to be the 5% who profit from the vast majority of 95% of traders? I continually ask myself this question daily and weekly, and how i can reach my goal of trading to financial freedom.
Background
I entered the world of trading over 2 years ago with a lack of the understanding of cutting losses fast and letting winners run, demand-supply, money management and expectancy ratio. I traded many instruments (stocks, forex, options and futures) without following a fixed method. It was of course, a humbling experience, and quite psychologically damaging.
All this while, i pursued my thirst for knowledge and voracious reading of books on trading, particularly technical analysis. Each book will show how a fixed indicator will give you an entry, and viola, within a short period, the trade turns profitable, and how to take profits. Alas, those were static charts, and all the knowledge picked up, could not be turned into profitable trading.
Then i stumbled onto Market Wizards by Jack Schwager, and was fascinated by the stories of these successful traders, some of whom have phenomenal records, that is only surpassed by the Forex signals and software that are hawked out there in the market. Yes, imagine how many newcomers enter Forex with hopes of making 1,000% to 10,000% profits from a small stake. If Bruce Kovner, Michael Marcus, Ed Seykota and Dan Zanger can do it, so can someone else out there, you may counter.
The author concludes that there is no holy grail to trading success, as the methods employed range from purely technical to purely fundamental, but there were many common denominators, such as a a driving desire to become successful traders, and having to overcome significant obstacles to reach their goal. Many of them have blown up accounts before, and for some, it was a fortunate break that made them their first large profit, which launched their trading careers.
Last updated 2010:
Fast forward to today - i've gained a preference for books written by real traders and psychology books. More on that in future.
My equity curve looks like the chart of Nasdaq stocks from their dotcom peak, or financial companies from their peak till now. Beaten down but not dead, and attempting to rise from rock bottom.
While chatting with a trading friend today, i remarked that "an edge is easy to find. The most difficult thing is to follow and execute the edge always, meaning sticking to it in times of losses", and one's "trading methods needs to allow you to hold onto your winners". "Only trade when there is an edge, i.e. when there is a setup, and always ensure your SL and TP are determined beforehand".
Also, the rule of money management is an understated rule, to risk 1-2% max of one's account for each trade. Afterall, profits are a function of Effort + Discipline, multiplied by Capital. With no capital, there is no trading opportunity, hence survival and minimizing losses is key.
Trading Methods
1. Trade reversals and pin bar price action - i've only just embarked on this journey, and hope to learn more from j16 group and those who read price action astutely.
Charts used will be 1 Hr, 4 Hr and Daily, though i may use lower TF for entry. For starters, i will be aiming to take 1 good setup per day.
2. Continue trading a fully mechanical method, which is based on an open range breakout method.
The emphasis will be on how well the trade was executed and managed, and less on the money gained or lost. I will not second-guess the market, and never lower my stops.
Update as of April 2016:
Fast forwarding to April 2016. There have been many changes to my life, and here i am trading a few mechanical methods by Seneca Pilot.
1. GBPUSD London close - take the previous day London close price, and take the first trade off the bounce the next day (beginning from Asian session - Tokyo open onwards). Risk is 20 pips + spread, target is 20 pips.
2. EURUSD opening breakout - take the 12pm-3pm price range (timezone is GMT+8), and draw the high-low window. Wait for the first 1hr candle to CLOSE outside of the window, then put a pending order in the direction of the breakout. Risk:reward is 1:1. From past observation, target is 20-30pips.
3. High-impact news trading - use the 15min newsbar, and trade the first breakout of the newsbar. Or if the next bar is an inside bar, trade the breakout of the inside bar. Risk:reward is 1:1, from past observation, target is 1/2 to 2/3 of the newsbar. Only use this for very high impact news (NFP, ADP, ECB).
Risk per trade is US$70, though in the first week of April i have been using a small risk for some trades.
Rules to follow
1. Always stay with your strategy. Never change your strategy even if the outcome is positive from a case of not following your strategy.
Judge the success of your trades based on whether you followed the strategy, not based on the outcome.
2. Before entering any Trade:
- Always Trade with a Definite Plan
- Ensure there is a clear-defined, rational reason for entering a trade
- Complete the decision-making process before entering a trade (this includes stoploss and target profit)
Inspirational threads:
38 Steps to being a Trader
J16 summary by Jduester - pin bars and price action
TRT on Trading for a Living - excellent post
Inspirational quotes:
Winners don't quit and quitters don't win.
"As soon as you truly commit to making something happen, the "how" will reveal itself." Tony Robbins
A journey of a thousand miles must begin with a single step. - Lao Tzu
There is no such thing as failure. There are only results. - Tony Robbins
There's always a way - if you're committed. - Tony Robbins
"Life is not measured by the number of breaths we take but by the places and moments that take our breath away." - Anonymous
“What separates the 1% from the other 99% is a lot of hard work. It’s perseverance. You have to love to do it.” - Tom Baldwin
If you can't change your fate, change your attitude. - Amy Tan
"Thinking well is wise; planning well, wiser; doing well wisest and best of all." -Persian Proverb
From Muhammad Yunus and Others: if you want to think big, start small
"Success is not final, failure is not fatal: it is the courage to continue that counts." - Winston Churchill
You don't have to see the whole staircase, just take the first step. - Martin Luther King, Jr.
Failure is only the opportunity to begin again more intelligently - Henry Ford
"If you can't face a little failure now, sooner or later you'll face the mother of all failures" - Ed Seykota
"Only those who will risk going too far can possibly find out how far one can go." - T.S. Eliot
"Don't take action with a trade until the market, itself, confirms your opinion. Being a little late in a trade is insurance that your opinion is correct. In other words, don't be an impatient trader." - Jesse Livermore
"Successful traders always follow the line of least resistance. Follow the trend. The trend is your friend." - Jesse Livermore
"A prudent speculator never argues with the tape. Markets are never wrong-- opinions often are." - Jesse Livermore
"The big money is made by the sittin' and the waitin' -- not the thinking. Wait until all the factors are in your favor before making the trade." - Jesse Livermore
"I'm more concerned about controlling the downside. Learn to take the losses. The most important thing about making money is not to let your losses get out of hand." - Marty Schwartz
"The way to build superior long-term returns is through preservation of capital and home runs...When you have tremendous conviction on a trade, you have to go for the jugular. It takes courage to be a pig." - Stanley Druckenmiller
"It's not the mathematical skill that's critical to winning, it's the discipline of being able to stick to the system. There are very few people who can develop the skills to get the edge, and far fewer still who can withstand the losses emotionally and stick with the system. Probably only one in five hundred people has the necessary discipline to be successful."
-------------------------------------------------------------------------------------------
This journal will be a diary of thoughts, ideas, actual trades taken, and possibly trading records.
Background
I entered the world of trading over 2 years ago with a lack of the understanding of cutting losses fast and letting winners run, demand-supply, money management and expectancy ratio. I traded many instruments (stocks, forex, options and futures) without following a fixed method. It was of course, a humbling experience, and quite psychologically damaging.
All this while, i pursued my thirst for knowledge and voracious reading of books on trading, particularly technical analysis. Each book will show how a fixed indicator will give you an entry, and viola, within a short period, the trade turns profitable, and how to take profits. Alas, those were static charts, and all the knowledge picked up, could not be turned into profitable trading.
Then i stumbled onto Market Wizards by Jack Schwager, and was fascinated by the stories of these successful traders, some of whom have phenomenal records, that is only surpassed by the Forex signals and software that are hawked out there in the market. Yes, imagine how many newcomers enter Forex with hopes of making 1,000% to 10,000% profits from a small stake. If Bruce Kovner, Michael Marcus, Ed Seykota and Dan Zanger can do it, so can someone else out there, you may counter.
The author concludes that there is no holy grail to trading success, as the methods employed range from purely technical to purely fundamental, but there were many common denominators, such as a a driving desire to become successful traders, and having to overcome significant obstacles to reach their goal. Many of them have blown up accounts before, and for some, it was a fortunate break that made them their first large profit, which launched their trading careers.
Last updated 2010:
Fast forward to today - i've gained a preference for books written by real traders and psychology books. More on that in future.
My equity curve looks like the chart of Nasdaq stocks from their dotcom peak, or financial companies from their peak till now. Beaten down but not dead, and attempting to rise from rock bottom.
While chatting with a trading friend today, i remarked that "an edge is easy to find. The most difficult thing is to follow and execute the edge always, meaning sticking to it in times of losses", and one's "trading methods needs to allow you to hold onto your winners". "Only trade when there is an edge, i.e. when there is a setup, and always ensure your SL and TP are determined beforehand".
Also, the rule of money management is an understated rule, to risk 1-2% max of one's account for each trade. Afterall, profits are a function of Effort + Discipline, multiplied by Capital. With no capital, there is no trading opportunity, hence survival and minimizing losses is key.
Trading Methods
1. Trade reversals and pin bar price action - i've only just embarked on this journey, and hope to learn more from j16 group and those who read price action astutely.
Charts used will be 1 Hr, 4 Hr and Daily, though i may use lower TF for entry. For starters, i will be aiming to take 1 good setup per day.
2. Continue trading a fully mechanical method, which is based on an open range breakout method.
The emphasis will be on how well the trade was executed and managed, and less on the money gained or lost. I will not second-guess the market, and never lower my stops.
Update as of April 2016:
Fast forwarding to April 2016. There have been many changes to my life, and here i am trading a few mechanical methods by Seneca Pilot.
1. GBPUSD London close - take the previous day London close price, and take the first trade off the bounce the next day (beginning from Asian session - Tokyo open onwards). Risk is 20 pips + spread, target is 20 pips.
2. EURUSD opening breakout - take the 12pm-3pm price range (timezone is GMT+8), and draw the high-low window. Wait for the first 1hr candle to CLOSE outside of the window, then put a pending order in the direction of the breakout. Risk:reward is 1:1. From past observation, target is 20-30pips.
3. High-impact news trading - use the 15min newsbar, and trade the first breakout of the newsbar. Or if the next bar is an inside bar, trade the breakout of the inside bar. Risk:reward is 1:1, from past observation, target is 1/2 to 2/3 of the newsbar. Only use this for very high impact news (NFP, ADP, ECB).
Risk per trade is US$70, though in the first week of April i have been using a small risk for some trades.
Rules to follow
1. Always stay with your strategy. Never change your strategy even if the outcome is positive from a case of not following your strategy.
Judge the success of your trades based on whether you followed the strategy, not based on the outcome.
2. Before entering any Trade:
- Always Trade with a Definite Plan
- Ensure there is a clear-defined, rational reason for entering a trade
- Complete the decision-making process before entering a trade (this includes stoploss and target profit)
Inspirational threads:
38 Steps to being a Trader
J16 summary by Jduester - pin bars and price action
TRT on Trading for a Living - excellent post
Inspirational quotes:
Winners don't quit and quitters don't win.
"As soon as you truly commit to making something happen, the "how" will reveal itself." Tony Robbins
A journey of a thousand miles must begin with a single step. - Lao Tzu
There is no such thing as failure. There are only results. - Tony Robbins
There's always a way - if you're committed. - Tony Robbins
"Life is not measured by the number of breaths we take but by the places and moments that take our breath away." - Anonymous
“What separates the 1% from the other 99% is a lot of hard work. It’s perseverance. You have to love to do it.” - Tom Baldwin
If you can't change your fate, change your attitude. - Amy Tan
"Thinking well is wise; planning well, wiser; doing well wisest and best of all." -Persian Proverb
From Muhammad Yunus and Others: if you want to think big, start small
"Success is not final, failure is not fatal: it is the courage to continue that counts." - Winston Churchill
You don't have to see the whole staircase, just take the first step. - Martin Luther King, Jr.
Failure is only the opportunity to begin again more intelligently - Henry Ford
"If you can't face a little failure now, sooner or later you'll face the mother of all failures" - Ed Seykota
"Only those who will risk going too far can possibly find out how far one can go." - T.S. Eliot
"Don't take action with a trade until the market, itself, confirms your opinion. Being a little late in a trade is insurance that your opinion is correct. In other words, don't be an impatient trader." - Jesse Livermore
"Successful traders always follow the line of least resistance. Follow the trend. The trend is your friend." - Jesse Livermore
"A prudent speculator never argues with the tape. Markets are never wrong-- opinions often are." - Jesse Livermore
"The big money is made by the sittin' and the waitin' -- not the thinking. Wait until all the factors are in your favor before making the trade." - Jesse Livermore
"I'm more concerned about controlling the downside. Learn to take the losses. The most important thing about making money is not to let your losses get out of hand." - Marty Schwartz
"The way to build superior long-term returns is through preservation of capital and home runs...When you have tremendous conviction on a trade, you have to go for the jugular. It takes courage to be a pig." - Stanley Druckenmiller
"It's not the mathematical skill that's critical to winning, it's the discipline of being able to stick to the system. There are very few people who can develop the skills to get the edge, and far fewer still who can withstand the losses emotionally and stick with the system. Probably only one in five hundred people has the necessary discipline to be successful."
-------------------------------------------------------------------------------------------
This journal will be a diary of thoughts, ideas, actual trades taken, and possibly trading records.