The Vortex Trader

with renewed appreciation for what I am already doing, I begin the process of working on a different setup for the Japan open. Why a new system? Still looking for ways to trade effectively a daily chart. What I am working on comes from a trader I ran accross in one of my online searches for a daily. The trader didn't apply his method to the forex but it got me thinking.

Today, spending the day in a trading class validated the basic premise of what I am thinking about. Now to work on the risk reward parameters and what makes a good entry and so forth. This is so raw that it will take quite a while for me to come to trust what I am working on. Basically though it is a gap open system. Now creating a gap open in the forex is an interesting thought given that it is a 24 hour market.

I only made one small trade today while sitting in the classroom. One that was exactly the opposite of what the instructor was talking about - he he he I loved it. To be sure though, the trade was totally within my parameters and what I look for, Neg divergence at a pivot point. I have to give the instructor his credit - what he talked about a couple of years ago was the basis for what I look for - 80% of the time the market is range bound and forms a daily high or low during the new york session, respect 50's and 00's and look for price action to give you the highest probability trades.

- today is a classic example of what I hate - I get to the charts at my normal time - 7:30 my time - and right off the bat there is a set of mine on 3 currencies - because I haven't gone through my analysis of day high low etc.. - I pass on the trades.

I know if I took the trades I would be uncomfortable and fret and worry and that mental capital is not worth the angst of missing a trade - another one will show up. Still it hurts when they move so much in my favor. So now I have to turn off my charts and start all over or I will try to do a revenge trade or talk myself into a poor trade. Ah the life of a trader.

End of the week for me - when I looked at the charts this morning and saw absolutly no movement overnight - I realized any trades today would be more gambling then trading so I am done for the week.

After taking out the amount of money I promised my wife, I find the equity in my account is lower than last friday by a $20. So is that a successful week or not? I feel hollow with the result.

When I look back over the week, I had several trades that messed up my end results. (1) A couple that did not reach my targets and I had to get out at a loss. That is maturity as a trader and I like the fact that I did. (2) I had a couple of trades that hit my stop loss on the daily gap trade I am working on and one trade that I messed up on. That is the price of developing a new trading system. (3) I lowered my lot amount on a couple of trades where my confidence was shakey. This habit is the most worrisome for me. Right now I see it as a habit. (4) I also spent one day in class instead of trading. Given those events, I had a successful week.

Mostly when I look back over my week, I get a sense of being a very timid trader and anything I say right now is meant to give me a feel good thought. So lets look at my timidity as a trader. The timid trader judgement comes from my habit of lowering lots and taking a trade instead of not taking a trade at all and waiting for a set up I have more confidence in. So is that a bad thing? because I am becoming an unconcious trader it shows me that I still do not fully trust my intuitive thoughts. When I look back over the week, my intuitive thoughts where correct more often than not. I now need to learn to understand the difference between my intuitive thoughts and my thoughts that come from my percieved pain mind.

So I have something to work on this morning. Today I will read the chapter in "Trading in the Zone" by Mark Douglas on this subject and see what I can learn and put into action. Another habit I am going to break next week is reading other threads hoping to find a better system. What I am doing has brought home money ever week for 3 months - and grown my account. That is a great result and one that I can feel good about.

In my last post I talked about listening to the correct voice in my head. Over the weekend I did some work with a friend of mine on that question. What I am beginning to realize is that I have two sources of voices in my head. My wife says I have way more than that but I am working on this two voice distinction for now. I have a voice that comes from the back left deep part of my brain and one that comes from the right frontal lobe. I will call the back deep part of my brain the primative brain and the frontal lobe the new brain. I also read an article this weekend on the value of repetition and how the braind works.

So how does this help me in trading. Trust me - what follows is very rudimentary. What are the basic functions of these parts of the brain. The primative brain is an ancient part of our human development and was aware of immediate danger. Its the part of the brain that knew that in the bushes ahead was a lion waiting for dinner even though the human couldn't see it.
Its the more animal part of our brain and when I am aware of my being from that part of my brain I feel bliss or oneness with the world. I think that most meditation practices work on experiencing the world from this part of the brain.

The frontal lobe is into solving problems seeing the world from a more cognitive process of values, morals etc... Its the busy part of the brain making judgements about its environment. Most judgements are based on beliefs that are made up in this part of the brain.

So in trading the best voice to listen to is the ancient voice - The frontal voice is into pattern recognition so it can discern when to enter a trade but the ancient voice has a better understanding of risk and is more apt to understand the unseen forces affecting the market.

Repetition gives both parts of the brain a reward for doing the same thing over and over. Giving this a sports analogy - pro athletes practice until they can't fail while amature athletes practice not to fail. So we talk a lot about the pro athlete who is in the zone. Michael Jordan and Tiger Woods are great examples. Being in the zone is when your frontal lobe is so trained that it is quiet and your ancient brain just knows what to do.

So to really become a great trader look for one thing to do and just do it over and over and over until your ancient brain takes over and you know. If you read the 5 steps of becoming a trader you can see the frontal lobe at work figuring out the steps with no idea how to actually achieve unconcious competence which actually means not listening to the frontal lobe anymore.

This is why I am struggling as a trader - I am doing to many things at the same time and my ancient brain isn't getting the chance to be listened to. I am spending to much time in the frontal lobe always creating a new better system. Think about it - great traders say trading is easy - it is because it envolves the most basic part of our brain. No cognitive awareness what so ever. Pretty simple.

So back to square one - only do my most productive trade set ups this week.
I have one actually. Determining when price is at a daily high or low during the later part of the new york market. The trade is the retracement back to the first major area of support or resistance and will usually take out the minor areas of support and resistance. Those days when the minor areas become the major areas are the days I close out for a small loss or gain.

When I am in the trading zone, my ancient mind will alert me to the areas of the high or low up to an hour before price actually gets there. Other times it just knows this is the high or low for the day and my frontal lobe will bring in all the judgments why not to take the trade. Then I watch as price does what my ancient brain said it would do.

To become a better trader, listen to the ancient brain while trading and it becomes pretty easy. My frontal lobe just said "no - that is the challenge and say "seems pretty easy." ah the editor is at work just like in trading - the editor is always trying to make it better and then confusions sets in. With that I am done until the market opens and I can go to work.

I have some work to do with my brain. I am starting to become aware of what my brain feels like when it is making a decision. What I am finding is when I my brain gets a lot of thoughts all seemingly at the same time it gets clouded and becomes myoptic in its choice.

My first solution to this is to close down my charts and come back with a clear mind. That is hard for me to do. Why? Because of the perceived risk of loss. When I become myoptic, I feel the pain of perceived loss and then close out my positons to lesson my pain. Based on results - the market more often than not will hit all my targets. So how do I break this habit of closing out early? True better a profit than a loss and I am getting frustrated with this habit of mine.

First step in breaking a habit is to be aware of it and hear the little voice in my head loud and clear. The next step is to override the voice. Third step is to reward the over-ride voice so it becomes stronger. Fourth step is to become grateful for and forgive the habitual voice. It needs to be heard but not acted upon. This will take some consistent effort on my part and repetition.

This morning I am really proud of myself. I planned my trade on the USDCAD then waited for it to hit my entry for a nice retrace trade of 30 pips. I am studying a 10 minute engulfing candle scalping methodology which would have worked as well. I am not as comfortable with the methodology yet so I am doing what I am most comfortable doing. This will be the only trade I do this morning. If I am available I will come back at see if I get a trade during the 2 to 3 est time frame. What I look for is a currency creating a new high or low during this time so I can trade the retrace back to the 23% daily fibo.

My trading mentor asked me to come up with a list of 10 things I need to work on to improve my trading. Here is my list.
Plan for my trades
Be patient
Stop trying to be precise
Walk away from the charts for 5 minutes when I am deviating from my plan
Look at the big picture
Let price hit my targets.
Enter with more lots
Don’t over trade
It’s ok to be in two trades at the same time
Honor my trading routine
Today I was able to do another trade on the USDCAD from 12027 to 12054 - my target though was 12061 so I got out to early again. I also short lotted myself. Hence the need to create this list.

I am done for the week - I have a workshop I am leading over the weekend so I am stopping much earlier than I had wanted to because I am not seeing anything developing that meets my trading criteria. I take that back - I woul go long on a UsdJpy trade if I get an engulfing candle of the 9920. Seems highly unlikely given the lathargic market we have today.

So for the week - I created a list of things to focus on to improve my trading - refined my gap trade, worked on a 10 min chart and kept my normal trade set ups in place.

Results: took out my normal weekly amount and inreased my account equity by 2%. That makes up for last week.

I would love to get one more trade in today before I leave and what I know is that in the end - I would have to baby sit it and then miss out on my other obligation. Some times its better to leave the table then be a pig.

Ok a quick glance at the charts and I have some possibilities. I need to sit down and now plan my trades and then wait to see if my plan happens. I am also exhausted from the weekend - working with teenage boys on a rites of passage weekend takes a lot of energy. So I may just pass on any trade set up. Ok enough - I was about to enter long on the nzdusd without a plan because my mind saw something. since I am deviating from my plan of creating a plan - I am waiting 5 minutes before I do anything. An item on my list of things to work on to become a better trader.

Where was I today - I had a trading class at the open of the new york market - which of course really messes with my head for a couple of days as the new information is assimilated - the borg - I then went to a meeting and finally got back to trading at 10:00. When I turned on my charts I had a great entry on the GbpUsd which I took for 20 pips and then a great set up on the Audjpy which I took for 25 pips. Now I normally don't like to take a trade before I have had a chance to look at the charts in more detail but I had several things going my way - in the class we had identified these levels as areas to get into for a reversal trade - it was 1:00 new york Time so the traders were pushing the market to new highs after lunch - one of their favorite games - and I had my indicator alerts going off so I knew I had a high probability of a successfull trade. I also put in a target on the yen before I would enter and missed it because I was on a phone call.

A great day.

on my quick glance through the charts I didn't see a set up possibility. I quickly turned off the charts for a little while because I have a habit of manufacturing a trade.

I have been reading and will continue looking for information on money management. One of the things I do is to average in my positions at key points. Now for a while I thought I was the lone ranger on this technique because most systems seem to take this all or none approach. Use a stop loss and if it gets hit go to the next trade.

When I used this approach, what happened quite often is that my stop loss was hit and then the market would go in my direction. So I started to put in a limit order to average my position at my stop loss with a hard stop loss further away. Now this method means I use a smaller % of my account on the first trade and look at the overall trade exposure as my position. Since doing this I have watched my account grow.

The concern I have with this method is its easy to keep averaging down until one is in deep dodo. So the discipline is honoring the hard stop. I read where one guy is willing to average down up to 8 times. When I read that I just shook my head. For me that means I was really wrong on my first entry and don't want to admit the mistake. I have an account large enough to do that and the market likes to retrace almost every day so maybe there is some merit in that approach. Hence my desire to do some more research on the subject.

Ever have one of those days when it just doesn't pay to get out of bed. I feel Like I am having one of those mornings today - haven't made a trade and I am not excited about making a trade at the moment - have a double top forming on the gbp at a good reversal number and I am feeling hesitant for some reason - instincts or just not ready to trade this morning - that is the question - actually I am married to an idea of a retrace from 4670 back to 4630. Because I am married to that idea I have no way of seeing anything else. This is one of those times its better to turn off the charts and come back in 5 minutes with fresh eyes and a different mindset.

Well its friday and I am in a trading funk. Like yesterday I am in one of those moods where anything I touch is going to be bad. I was caught by surprise with yesterdays strong momentum and was on the wrong side so I was happy to have a small loss for the day. Doesn't happen often and when it does, I find myself struggling for the next couple of days. I find this is the difficult thing for me - forgetting the previous day and only seeing what I have today to work with. My mind likes to create visions of yesterdays market action and transpose it into today's. I am also struggling with it being Friday and we have bank stress tests coming out and Geitner talking. It just may be better to watch and wait and learn.

I want to get this out of my head before I forget. It is a context that I will expand on later - I have had the wrong context about becoming a better trader - I am a good trader and what I am now working on is "being a trader." I am no longer working on becoming a trader because I am a trader. So from this point forward I work on ways to improve my efficiency as a trader. I have learned how to consistently make money trading so it is time for me to work on increasing the amount of money that I make. This conversation is going to be very carefully worked through because I have learned that the point of view that I have makes a huge difference in the outcome I experience in my actions.

To expand on the previous post - This is a thought process about ownership. I own being a trader. Owning the concept of being a trader is far different than "I am learning to be a trader" or "I am trying trading to see if I can supplement my income" or "I want to become a trader so I can travel around the world and make money while doing it."

Lets take the concept of being a trader who travels around the world. when I break that thought down, I see that I could be more commited to traveling and less to trading. When I begin to see who I am from this filter of true ownership the tasks at hand change. The dreams of trading on a beach in Tahiti or from a hotel in Spain do not change. What changes is the focus of my commitment. Will I trade if I never make it to Tahiti - obsolutely. As a world traveler if I don't make money trading then I will find another way to make money so I can live in Tahiti. A much different mind set.

This week for me is about being more efficient as a trader. Refining my routine is the first part of this efficiency paradigm. Very similar to when I play golf - when I start to go through the motions of my routine or don't take my game serously, my results as a golfer begin to decline. Sure I can get away with this lazyness for a couple of holes before something goes horribly wrong. A shot into the water, out of bounds, a duck hook, a slice, a topper to the lady's tee box, a thin hit, be off in my alignment, etc. and thats just from the tee box. I can also flub a chip, miss hit an approach shot, role a putt to far or not far enough etc... The mistakes become endless and the mental capital lost starts to take its toll. Eventually, I find myself standing on the tee box of a short par three and find I have no desire to hit the ball.

Trading is the same thing - If I go through the motions of looking at a chart instead of really seeing the price action displayed on the chart - my level of confidence begins to wain and my results are not as good. Sure I can get a way with a couple of trades and think everything is fine, then bang - I am in over my head once again and have to swim like hell to get back to shore. The mental capital is huge when this happens. It takes me a couple of days to get back and always in the back of my mind is this fear of making a mistake because I was not being a trader. A professional trader has a routine that they follow every time. Watch professional golfers and every one of them has a routine. The most pronounced is Jim Furyk putting. He has a unique routine and he does it evey time he putts.

This is my week for a true breakthough in being a trader. I look forward to cementing my routine and finding the comfort of confidence that comes with knowing I have prepared myself mentally for the task at hand.

Here is my checklist for making sure I have completed my routine -

Check the economic calendar
Check daily chart for key numbers
Check daily chart for trading range
Check daily chart for momentum over last few days
Mark the beginning of the day at midnight
Establish primary levels of support and resistance
Establish 2nd/3rd levels of support and resistance
Determine if price has retested high/low or is about to
Establish anticipated entry points
Plan your trade
Enter per entry rules
Post Results


This morning - I am going to go through this check list for each currency I trade - This is practicing just my routine. One of the habits I have developed is to not value practice time. So this morning I am going to practice this routine a couple of times. The key word in the first sentence is completed.

This is a difficult day for me - no trades and now I am into trying to manufacture one. That is not a good development. So I am going back to bed and dream of a good set up and let the market take care of itself for a while. The risk is that the perfect trade will be real instead of in my dreams - yet when I am trying to make something happen, like now, I get in trouble - I become anxious and see what is not there and trade the perfect bad trade.

Well it was good to back to bed - I finally got my set up - Short the EurJpy and the Usd and look to pick up about 20 pips on each. This is one of my better trades set ups - a new high/low after 1400 et.

Well I am glad I closed out my positions in the Eurjpy and Eurusd before the open of the Japanese market - price never hit my tp's and was very anemic in the last couple of hours. From Experience, I know when price does this its best to close out my positions for a small gain. Usually, price will retrace during this period of time to the 23% fib level of the daily move. With the bank holiday in Japan there just was not enough volume to move the market in any direction. This is when experience counts more than sticking to a methodology. Some days it just doesn't pay to get out of bed.

This is going to be a painfull day for me. I am trading in front of the FOMC announcement and I am down on my trade for the day. I am hurting inside as I realize how stupid this is. So now My focus is to cut my losses as much as possible between now and then. Which is not a good thing either. At this point it is probably best to take my hit and forgive myself for making such a stupid mistake.

So I am finding that I am gambling instead of trading and that realization hurts as well. Today I am seeing that I trade on emotions and not on a plan that is well thought out before hand. This is evident by the fact that the first item on my check list is to check the economic calendar. I did not do my check list today until it was to late.

I can sit here and say I am going to do this and that and the truth is "My brain is going to kick-in with its built-in facility for decision making in uncertain situations." This is an uncertain situation and I am caught between Fight and Flight. My very first response was to close out my positions now - then my mind stopped that response and said wait and see what happens. Truth is that is totally playing with fire , so now I realize that it is best to be a professional about this and take my hit and plan for the next trade.

This is one of the hardest parts of trading; doing something totally stupid and forgiving myself for the error in decision making. It is so simple to see in hind sight. I actually read the economic calendar last night and said no trades after 9:00 pm my time and in the heat of my emotional make-up, I failed to read the callendar today to remind myself what was happening later today.

I hate being wrong and of course now I am into hope which is absolutely the wrong emotion to have in this situation. A couple of weeks ago I wrote about living through the pain. This is living with the pain and finding a way to focus on the task at hand.

I still don't have a hard plan. So I am still in my emotions and hope. I am going to keep monitoring this so I see what my emotions do and hopefully in the future learn from this experience. My plan is about figuring out a way to escape with minumal damage which is not a very feasable thing to accomplish. Ok I took 1/2 my postion off. But I am still in hope. so I have to come to grips with this emotional stuckness I am feeling. This is a pain.

I have milked this for all its worth - took my hit and hope to make a trade after the announcement. But what is my plan? time to fomulate one - Choose a currency first - AudUSD why? had a big run today - look for resistance on the upside at 7328 - 7250 on the downside - if price breaks 7250 then 7200 is a real number for a target - if breaks 7328 then 7400 is a good target. Finally a Plan comes out of my brain. And the truth it is just an emotional plan so I am done for the day.