Strat's PASR Long Term, Stress Free Trading

Time frames

Time frames are probably more important than most people give them credit for. First, it is the time frame that determines our “comfort zone” in trading. Second, it is our “workspace” that we base all our trading decisions off.

Many new traders don’t understand the “higher order” of time frames and forever suffer frustration not knowing why. Each time frame is governed or “controlled” by the next higher time frame. Since we trade the Daily, which is our workspace, we will start there.

The Daily is governed or controlled by the Weekly, which I call the BOSS. As long as we only trade from the Daily, then these two are all we really need. We can look at the Monthly for a longer, further out view, but as regards our trading decisions on the Daily, since the Monthly is two time frames higher (and controls the Weekly), we can disregard this.

Each time frame consists of waves or cycles or whatever name you want to give them and WITHIN those waves or cycles are smaller waves or cycles – these are our smaller time frames. So when you look at a BOSS chart you can see the large, major swings. Within those large, major swings are smaller swings – these are our Daily swings. From this, you should now understand that the BOSS controls EVERYTHING the Daily does. (Within the Daily swings are smaller swings which are your H4 swings).

This means that a BOSS swing controls several Daily swings.

If you have understood everything so far, you should realise that the BOSS support and resistance levels are those which the Daily moves up and down against. These then are MY major support and resistance levels. I qualify it as “MY” because they may not be the same as another trader’s major levels.

A BOSS bar consists of 5 Daily bars if the penny has still not dropped.

Hopefully this will help you understand why you cannot use information from a lower time frame to trade the higher time frame. For example, you cannot use support and resistance levels from H4 to trade the Daily since there are 6 H4 bars in a Daily and as many swings meaning that eventually you will be stopped out mid – bar. It is OK to find an entry on a lower time frame AFTER first identifying the opportunity on the Daily, PROVIDING you go back to trading the Daily.

If you want to find really strong, powerful levels of resistance and support, then pull up a Monthly chart and where the Monthly levels coincide with the Weekly levels is where you will find super powerful major, major support and resistance. If you do this, do not draw other lines in as you will end up with more horizontal lines than price bars!

The higher order of time frames also tells us that the higher the time frame, the more reliable, accurate are price action and technical analysis. So, a hammer on a BOSS chart is very meaningful and if you look back on your charts, you will see that many huge moves have come off these bars.

The higher time frames are easier to trade because there is less “noise” and trends are longer BUT you need very large accounts to handle the Stop Loss levels.

The one area which is not black and white (to me) is during a trend change. I struggle all the time with inter – time frame trend changes as I sometimes think the Daily has to change before it’s BOSS does. However, when I look in detail, it can be seen that the BOSS has changed first. The trick is to know what the immediate trend is or the momentum of the last couple of bars.

There is much more to time frames than this but this should be sufficient to help you along your way.

Rock n Roll,
Strat

So now I know that only a very few of you are really reading and learning. How? I keep saying things and adding things to stimulate questions and they are all being ignored. Seems like I have to increase the volume and intensity to arouse your imaginations. Or maybe you guys know it all and I'm just practicing my typing skills?

If you are here to lurk, then lurk away (I was going to write lurk off but then I thought it might upset someone, so didn't write it!) but if you are here to really learn, then learn as if your life depended on it. Do NOT flash read. Read each post and then ask yourself if you understand what was said or if you agree with what was said. If you don't, then ask! Back in my mechanical engineering apprenticeship just a few years ago, we used to have written at the bottom of each drawing "IF IN DOUBT, ASK"

If you don't ask, then how are you supposed to learn? For those that are shy or think they may be asking a stupid or dumb question, then don't worry, I am the King of asking stupid questions. We all have to start and learn somewhere so this is your place.

As I said before, I am also learning from your questions. Things that I take for granted or are hidden in the porridge between my ears are brought out in the open again and then I start thinking about them.

I know there are other threads describing perfect shapes, locations etc., for price reversal bars, especially the hammer and shooting star but if you continue to look for perfection, you will never find it.

In your quest for perfection you will overlook what are reliable price reversal bars. Don't believe me? Look back in your Daily and Weekly charts at the end of trends and you will see them in all shapes and sizes.

So, lets not over analyse what isn't there. If it is a price reversal bar, it will stand out without you even looking for it. Yes it has to be at the end of the trend AND bouncing off support/resistance with maybe confluence of something else thrown in BUT when it looks right, you will find more often than not, that it is right and all these things are there already.

As I quickly glanced at my charts this morning, I saw lots of things including a price reversal bar on USDCAD - I didn't LOOK for it - I just saw it.

I still have not got over the fact that my quick 30 second glance at a chart is more accurate than when I do a full blown analysis.

Never, ever forget that we are dealing in Probabilities. Just because we have identified it as a price reversal bar does not mean it WILL be a price reversal bar - the market is controlled by the emotions of human beings (remember Dr. Joe?) and they sometimes do non logical things.

All we can do is protect ourselves by correct placement of trade entry and SL

Quoting ajhill
Haven't posted for a while, been very busy at the day job....


Tony - trading with only stochastics is NOT trading naked! It is trading with a FLAWED indicator. To use it as an OS and OB indicator is even worse! Have you seen where it is during a trend? Don't get me going on that useless piece of shit!

Also, it sounds like you are trying to follow several people - this is just as bad as trying to follow an indicator. Combining a bit from here and a bit from there will confuse the hell out of you.
I don't care who you choose to follow but pick one, stick with it, learn it and JUST DO IT!

Remember my quest to accurately track momentum? This is a mechanical way to do it.
On each swing, draw your trend line and observe the angle of the line. As momentum changes, so does the angle.
Enough from me, I have pointed you in the right direction so take it, see what you can make of it and how you would use it in your trading.
Tip - don't just look at current charts - go back and look at thousands of charts and don't waste your time on less than the Daily because the noise "hides" and "distorts" what we are looking for.
Also, for those with more fertile and analytical minds who may think to do it for every two or maybe three bars and then program an indicator for it - don't waste your time and energy - I have already done that and it is no better than the momentum crap already out there.

This is also for those who sent PMs asking the same question:
But first, for those who just send me a one line PM or Post asking for my opinion, I thought I had made it perfectly clear what my approach is with this thread. I am NOT a signal service, I will NOT spoon feed. Instead, I will say, do and show things to spark creative, common sense and logical thinking to get YOU to put in the time, effort and work. I do not reply to PMs or Posts just asking for my opinion.
However, if YOU put in the effort as bj has here, I will always provide my opinion as long as you remember I also can be as much wrong as I am right.
Right, bj and the others:
Start with the BIG PICTURE - the Monthly - we should all see that we have a confirmed BOTTOM in place. March is making a HIGHER swing low with a very strong BUOB but now at resistance. This is our LONG goods train where the front end is already on the turntable but because it is so long and heavy it takes time to turn this thing around.
Now the BOSS: She is showing us her nice pair of er,.... well it's a "W" bottom (or head and shoulders) with her right one higher than her left telling us she is looking to complete the formation at 1.4050ish. Those three green bars tell us the immediate trend is up but she is a shorter and lighter goods train with the front end off the turntable pulling the rest of the wagons through.
The DAILY: The Daily is our passenger train but we don't really know yet whether it is just a local train or an express train. Which track she leaves out of from this station she is entering will tell us that. We should have all had a nice little ride after waiting so long in that last station and got off to visit friends.
Let's close in on the Daily: We have an IB at a 61.8% fib and monthly resistance. We have accelerating bullish momentum and the IB is a pause bar telling us that some profit taking is taking place. Volume doesn't help us much with it being a Friday (always a low volume day) but still it's not indicative of sellers jumping in. Monday's bar should give us far more clues.
I'm out until price action shows us the way. If they are worth anything, I have all 4 cycles topping here - they've been right before but unfortunately, they've also been wrong!
This agrees with your conclusion to also wait for further price action.

An earlier post told me that newbie traders were starting out on short time frames because of the adverts out there on Forex. Seeing if this is so, I have been reading many of the Google Forex ads and all I can say is that we desperately need some sort of regulatory body in place to protect people and their money from all the scams and sheisters out there.

It's far worse than I thought. There are those promoting forex as "Get Rich Quick", "EURUSD is EASY to trade", "How I made $129,000 scalping forex in one trade!", "My system generates $5,000 weekly", plus every other ad saying they have the best auto - trading Robot.

Then there are several ads saying Forex is 24/7, trade forex every day all week long etc.

These are all LIES - LIES -LIES and even more LIES!

Forex is NOT 24/7. Every forex trader has 2 days off from trading. Forex is only 24/5. It doesn't matter which city or country you are in. Yes, it is 24 hours when the markets are trading.

Forex CLOSES the week at 5pm EST on Fridays when the New York Exchange closes it's doors. The first market to open on Monday and start the new week is Sydney in Australia at 5pm EST (Sunday) followed by Tokyo at 7pm EST (Sunday) which gives us our "Sunday" bars.

What makes this even worse is that behind some of these ads are BROKERS who are wanting the gullible to put their account with them so that they can either eat it themselves or help you eat it.

This is so wrong!

An observation if I may and it's easy for me to say just coming in 1 hour before NY closes due to my trip.

The next step in learning is how to use the skills we have acquired. This in itself is a skill.

We must be very careful not to over analyse and over think - something for which I am also guilty. I love nothing more but to look at charts and think through every possible scenario, but for what? It doesn't get you anywhere.

One of my fears with teaching my style/method would be that I would pass on my over analyical approach. The last thing we should be doing is bringing a M5, M15, H1 mentality to trading the Daily time frame. The beauty about trading the Daily time frame is that you plan your trade, put the trade on and let it work itself out, in other words trade the plan.

Planning the trade only requires a 2 or 3 minute study of each pair after 5pm NY time each day then placing our stop/limit orders and then - living your life.

You do not need to sit and watch the one eyed monster all day, you do not need to interfere with your plan, you do not need to do anything further until 5pm NY time next day.

The absolute worst thing for anyone trading the Daily to do is watch what happens on a shorter time frame or watch the Daily candle DURING trading hours. We don't care what goes on within that Daily candle - all we are concerned with after 5pm NY time is where the candle closes and where it's been.

This gives us the best of both worlds - financial freedom

Now, instead of thinking what USDCHF should or shoudn't do or why a pair did what it did, just look at what the market is telling you. Use what the market is telling you to your advantage.

Ok, smart ass, I hear you say, "what is the market telling you?" If you have to ask this question then you have really answered it yourself.

The market is not doing anything, it is waiting. What is it waiting for? I have absolutely no idea except I know that when it gets it, it will MOVE.

We must always be aware of what moves this market - it is not us tadpoles - the market is moved by the big players - the banks, the institutions, the trading houses, the Market Makers - when it's quiet like this, they too are waiting for their "bosses" - world banks, government banks who in turn are waiting for decisions from economic and government financial specialists.

We must think LIKE the big boys - don't think against them. We need to let them reveal their intentions and ride on their coat tails. Remember when Dr. Joe visited CME - all he saw was the floor traders just FOLLOWING the market - when it went up, they bought - when it went down, they sold. It really IS that simple despite all today's electronic widgetry and gadgetry.

As an example - look at EURJPY - it's still cranking away as if there were no tomorrow. I can't remember how many posts in the last 3 weeks were asking is it time to short - my answer was always the same - it keeps on going up until it stops going up. Thank you EURJPY (and of course, Dr Joe).

The point I'm trying to make is don't let your new found technical skills stand in the way or blind fold your common sense. A common sense trader will always outperform a technical trader.

We need to look no further than our resident pizza man - he uses what he has learned with a BIG helping of common sense. Dr. Joe realised all his academic qualifications were worthless and ditched them in favour of common sense - doing what the market tells you.

Didn't realise I had got on my soapbox again - sorry

I have listened to so many discussions and arguments about the pros and cons of technicals versus funny mentals that I don't listen anymore. There are many traders who successfully trade on fundamentals and believe they know where the market is going while the technical analysts believe everything is ALREADY factored in.
I renewed my interest in following this as the financial collapse of the US and European banking systems evolved. The first to collapse was the US, so one would have thought that the $ would weaken but instead it strengthened. Then the ECB collapsed and one would have expected the Euro to weaken, but it strengthened. Then, when all hell broke loose, the $ starts strengthening supposedly because everyone is selling stocks and buying bonds. Then each currency moved inverse to their rate adjustment!
This confirmed to my simple, logical 2 + 2 = 4 brain, that I cannot make head nor tail of funny mental economics therefore I ignore it and just trust what I see on my charts.
I do know that trading the Daily time frame keeps us relatively immune from the wild swings that are seen on the lower time frame from news announcements. At the most, a news announcement may cause a "wobble" but after the excitement and everyone calms down it's back to "business as usual".
The only news I stay clear of is NFP on the first Friday of the month.
So the short answer is I ignore it as I believe it is already factored in and whatever happens will be left in the footprints of those who have gone before us.

Quoting AstonDan
[font=Verdana][size=2]Hi Strat,

As I mentioned early on in the thread, I have been trading the daily timeframe for about four weeks now, having found out at a little cost that 15 minute, indicator heavy trading was not for me. Since I’ve moved to the daily, I have had only 3 losing trades – if I keep trading at this level, I’ll be able to buy everyone on the thread a Ford Capri!

[font=Arial]However, while I am planning my trades, I am not trading my plan. I am moving my stop to lock in profit quite quickly...


Bloody hell, Dan, Morris Minor to Ford Anglia to Ford Capri in 4 weeks!
Don't get carried away, lad, there are some huge potholes in the road that will tear the suspension off your Ford Capri before you can trade it in for a Mustang.

It is good to hear that you have found the time frame that works best for you. Many traders under estimate the importance of correct time frame selection (note to myself to get on my soapbox on this).

More important is that you ONLY have 4 WEEKS of this under your belt. This is not the time to bet the farm (as they say here). Baba G responded with seeing where you are after 3 months. For me, it's much longer than that, 1 year at least. You need to go through a full cycle of market tribulations and see how you live through that. If you look at a REAL trader's equity curve (NOT those published by scammers trying to sell stuff), you will see that it is not a straight line and suffers drawdowns (often when you least expect it). You need to feel the pain of that - and how you react to it. Just because you have a high success ratio NOW, does not mean that you can project it into the future.

You will have so much success with your trading that you will feel like "you can walk on water" - this is the MOST dangerous time. Remember the last guy that thought he could walk on water - he got hung on a cross! I've done it a few times and can still see the scars in my hands!

So, just keep doing what you're doing and PROVE to yourself (nobody else), that you can do it CONSISTENTLY over the long haul.

It is disappointing that you do not trade your plan, after doing the hard work of planning the trade, BUT it is good that you are HONEST and own up and realise your limitations. So many wannabe traders LIE and fool themselves with so many things about themselves and don't realise that until they resolve their personality and character traits, they will never be really successful.

Before you go any further Dan, you have not said WHY you do not trade your plan. Step back and ask yourself WHY? Your answers should reveal a great deal about YOU and YOUR plan. Keep asking until you get to the bottom of it and can put your finger on it and truly say "here's the reason why." I could tell you the questions to ask yourself but keep asking WHY? and they will come.

Having found the time frame which is comfortable for you, you now need to FIND what type of trader you want to be, or more important, comfortable, in being.

WHAT is your GOAL? WHEN do you want to achieve it? HOW do you want to achieve it. HOW do you want to spend your day, your life? WHAT makes you happy/sad? WHERE do I want to go in life? HOW do I get there? WHY? Ask all these questions RELATIVE to your trading and you will find your INNER trading self.

When you ask yourself these questions, go and stand in front of the mirror and STARE at yourself in the eyes. You are looking at the Holy Grail. Ask him all these questions; he may try to lie to you to make you go away, but YOU will know when he is lying so keep asking until he gives YOU the TRUTH. You may feel different after your conservations with the Holy Grail - I know I do.

It is always important to make a profit, no matter how or no matter how small - it is our REWARD and makes us feel good about ourselves and is very important for our psychological growth (not to mention the trading account).

When you get down to serious trading, profit doesn't figure anymore, we always make a profit. What is then important is ROI expressed in percentage terms.

After you have asked yourself these questions, you should have a clearer picture about what type of trader you are evolving into.

You may end up being a scalper on the Daily time frame being happy with 50 pips or so per trade but knowing that you are trading 100 GBP/pip contracts or larger.

You may not have the finances or the psychological make up to do this and may instead want to trade smaller contracts on longer trends. Or, you may be sufficiently skilfull to do both.

I'm sure you have already read them, but read those pages again with the posts of the conversation between Jim and Jacko. Keep reading them until you picture yourself as either Jim or Jacko for they both have contrasting styles.

While you are tormenting yourself with this and searching for the answers, you may want to trade 2 contracts (reduce GBP/pip if necessary). Take your profits on the 1st as you are already doing and then trail prices on the second one. Stop placement is key to this but until you find out from the Holy Grail the reasons for not trading your plan, no-one, NO-ONE, can help you.

I'm sorry for being long winded on this, Dan, and that this is not the answer you were hoping for but the true answer is very deep and we need to keep digging to get there

March 23, 2009
http://www.ft.com/cms/s/0/7851925a-1...0779fd2ac.html

Nicola kindly sent me this link about China's request for a new reserve currency.

This could signal far more than what is written here.

My Chinese business partner is very well connected with Government Leaders (equivalent to Cabinet Ministers) and during my visits always takes me with him when he meets them.

They have been talking about replacing the US$ as a reserve currency for the last 2 years that I know about and have even entered into discussions with their European counterparts on it (don't know about US).

So, this is nothing new, except this time, they have put it in black and white which I find very interesting.

No-one should under estimate the Chinese. It is my belief that long after I've been eaten by worms, China will be the next World Power.

Don't believe me? or maybe you have your head up your aspect? Think again, watch, listen, read; it is happening now right before your very eyes while you choose to ignore it.

I have been visiting China now since 1999. In these last 10 years, China has grown faster than at any time the US ever did. Shanghai bj has lived here for 10 years so he will probably know more.

In 1999, my Chinese business partner was a poor, but well educated (degree in Electrical Engineering), mountain boy just starting out his own one man business, having left a safe, secure job in industry. Today, he is a $multi-millionaire, one of China's Nouveau Riche, owning several businesses, factories, and properties in both China and USA.

He got there with a lot of hard work, dedication and perseverance with a lot of luck thrown in but he was also supported, financed and encouraged by the Chinese Government. How many other Governments can you think of that support a "little nobody?".

Even now, as successful as he is, he has, last week, been given, yes GIVEN (and without any strings or ties), not a loan, almost $1million by the Chinese Government for future investment in his companies.

We are using this to invest in people and equipment in both China AND our US operation which, (unfortunately for me), we are going to scale up.

Does this tell you anything? China is investing heavily while the rest of the world is crying in their beer over the financial credit collapse. My wife tells me she saw on CNN that realtors in parts of the US were organising package tours for the thousands of "ordinary" Chinese coming to the US to buy property.

It is no secret either that Chinese students in all the academic institutions are ALWAYS in the top 2%.

I read 2 weeks ago that China's manufacturing Productivity was up over 2% for the first 2 months this year. Read that again: up over 2% - and this while the rest of the world (yes, even India) is on double negative figures.

China has already over taken the US as the world's largest manufacturer of cars. How long before your US GM, CHRYSLER & FORD (if they are still in business) are manufactured in China and then sold throughout the world? Not that far off.

The Chinese Government already owns $trillions of US debt and in theory could bankrupt and buy the US.

Who do you think it was that started the downfall of the Euro in July last year by buying $millions of TBonds?

The Chinese Government, both directly and indirectly, is investing heavily in US and Europe properties, businesses and stocks at super low discount prices.

I could go on....and on.....and on.......Hopefully, you get the picture and REACT to it. Ignore at your peril.

I have not raised this for points of discussion - only to make you aware.

According to the PMs I have received, common sense in trading may be far more important than I first thought. This being the case, let's look at analysis.

We look at our charts and we do our analysis. When do we know our analysis is complete? It is the same question an artist asks himself when painting a picture.

We sometimes get so wrapped up in analysis that it over rides what we use it for in the first place. I used to enjoy the analysis more than I enjoyed the trading UNTIL I realised that it didn't make me any money.

ANALYSIS IS NOT TRADING

Analysis should only be used for decision making. When you have arrived at a decision, your analysis is done. The second you go back and review your analysis, you will question your analysis and any confidence you had in putting on that trade has just flown out of the window.

If you have come from Indicator Land, you know what I mean. I still see systems and methods with indicators up the ying yang saying and wait for this to confirm, while this shows this, while at the same time this is below this, and this is pointing up, and this must have crossed before this has gone below etc., etc. By the time you have done all that, your head is so messed up, you have forgotten your kid's name!

Analysis is not trading. It only gets you to a certain place.

Trading and trade management is where the money is made.

Analysis does not allow you to forecast or predict or filter or reject. It is just statistical theory. Performing additional or extra or more or further analysis does not get you any further than your initial analysis and does NOT increase your chances of a profitable trade. Based on my earlier over analytical work, I can safely say that LESS is MORE!

Probability of profit in trading has NO RELATIONSHIP to the amount of analysis. Quality of analysis, yes, but NOT quantity. Therefore, no profit will ever increase with additional analysis. Conversely, no probability of loss will ever be decreased by performing additional layers of analysis.

Once in a trade, there are only 2 actions you can make to increase your profitability in trading. They are as old as trading itself and you will have read them many times:

CUT YOUR LOSSES

Your plan should identify your SL but just in case you decide to over ride it (are you reading, Dan?) - cut your losses as soon as possible

LET YOUR PROFITS RUN

Governing, dominating and over ruling these 2 actions are EMOTIONS.

We always ignore the training we need in trading psychology in our quest for profits.

I repeat what I posted earlier - profitable trading is 10% method, 90% psychology. Ignore the psychological side and it will tear you up. If you haven't experienced it yet, it is waiting around the corner for you - it is always there, waiting for you, no-one can hide, it WILL find you out!

I won't say anymore on it as Nicola is going to kindly share her experiences with it.

If you have read and understood my posts, you will have read that I said my flash analysis of USDCAD was more accurate than my detailed analytical over kill. You should also have read that Baba G, our Professional trader and Money Manager, makes his decisions and trades just by LOOKING - not a chance of over analysis from him!

What has this to do with common sense - EVERYTHING

Our common sense, "our gut feeling" is the best decision maker we have.

Look at Baba G, common sense told him to pull out of his CADJPY trade and he is a PROFESSIONAL TRADER & MONEY MANAGER.

If it feels right - it is RIGHT


If it feels wrong - it is WRONG

When we are choosing our lifetime partner and soul mate - do we analyse? do we over analyse? Hell NO, we see it, we like it and JUST DO IT!

Trading is no different

TRADING IS SIMPLE - IT IS TRADERS THAT MAKE IT COMPLICATED

LESS IS MORE

Fallen off my soapbox again (my coloured soapbox this time!)

Quoting AstonDan
Brilliant Strat. Thank you for taking the time to pen your response. I'll respond to each of the points you made tonight when i next open my chart feed and see how my Cable is doing (i will not look at work, i will not look at work!).

I am coming to realise that trading is easy, trading psychology is hard.

Thanks again Strat (and Baba)


Trading is easy, trading psychology is hard

Damn it Dan, why didn't I say that!

Joking aside, Dan has hit the nail on the head with a huge sledge hammer!

As I have said a few times, we learn as much as we can about Price Action yet ignore the 90% that CONTROLS our success.

Just got back from dinner to find a couple of interesting PMs

The first is from what I call a Smart Ass Lurker. How do I know he is a Smart Ass Lurker? Because he's never posted on here before and is looking for freebies.

I was tempted to copy his handle on here but that would disclose him, but no, I will not be dragged down to his level.

Instead, I'll just post the body of his PM:

"Funny thread you got going here Why do you post stuff with questions and not give answers whats the point maybe you dont know and hopeing somebody will give you the answers"

I don't normally reply to Lurkers, let alone Smart Ass Lurkers, but this one I could not resist.

Hence my reply:

GO FORTH AND MULTIPLY

The second PM was so way out in left field, I couldn't really get my head into the way he/she was thinking. I initially deleted it and then after, thought about it and thought that I should address it as maybe somebody could explain it for me.

It went something like "why do you post links in your thread to other threads. Isn't there a chance that people might like the other threads and not come back?"

As I write this, I still can't understand it or see the relevance.

I started this thread at the request of others who wanted me to show them how I trade long term time frames. If they don't like what I teach, how I teach or the way I teach, they can piss off and go somewhere else - I don't care, I REALLY don't give a rats ass! I never did this to compete with J16, Jacko or anyone. I did it to help those who wanted my help - read the words under Buddy Holly - "Trader helping Traders".

Now, if it gets to the point that nobody wants my help, then fine, I'll just shut down and find something else to do during the day so that the trouble and strife thinks I'm busy.

I must be simple or thick or something because, as I write this, I STILL do not understand the point he/she is making?????????????

1. https://cdn-assets.forexfactory.net/...tar87492_7.gif elitejets
2. Joined Dec 2008 | Status: Member | 715 Posts

I was going to change the title to "making pips is easy, making money is hard" because that has been my experience thus far.
I know a lot of very knowledgeable people tell you to demo demo demo until you are profitable but I wanted to explain what happened to me and what I think happens to a lot of people. Demo is easy psychologically and real money trading can be very hard!

Most people know I started life as an air traffic controller. I'm pretty good at following rules and I can stare at a wiggly line on a screen all day without losing it and I am pretty good at dividing my attention between a number of trades if needed. Controllers learn in a simulator and you learn quickly mental rules, such as if this gets to this point I need to do this or re-evaluate etc. The switch to live controlling is pretty seamless. Most pilots learn in a simulator too, so that when you need to do that water landing for real you have done it so many times and it is so realistic you can pull it off.

Trading for a lot of people is NOT like that and something happens when you switch to trading real money. I was one of those people who struggled with the switch and I still am ...
I wondered if it was just me but it is something that a professional trader I really respect (who posts on J16 as Wizard) pointed out it happens a lot.

When I started I was the queen of demo, I could make loads of pips and it was not undue risk either, I cared very much about my demo account balance. After a couple of months I funded an account and I thought I would be off on the road to riches. It was a disaster ... I started out in a place of being over-confident and complacent, which is a KILLER, in trading.
Then I lost a few real money trades big and psychologically I crashed ... I could not pull the trigger, I second guessed myself, I put in crappy too-tight stops, I cut winners early and I generally traded like an idiot.
It has been a long road back to confidence for me that I am still working on but I did not go back to demo. Instead I traded real money with very small stakes and I forced myself to deal with it because I knew I would never really make it until I conquered the mind over matter with money.

Another trader I really respect who trades for a hedge fund told me that most traders do not make money the first six months of trading, and it is exceptional if someone does. He told me that if you get to the end of your first year and you break even you will probably make it. Well, that is not the road to riches so many who start think it is, is it? But I am sure it is the truth.

I would say that if you are starting and you can afford to fund a SMALL account and trade VERY SMALL size REAL MONEY then you might do better in the long run because you will have a better chance with the psychology.
The goal is to master trading without blowing all the money you have to trade with when you get there.

I did not post this to discourage newbies, more to say if you are not profitable yet, don't worry, it's normal!
But it is all about the money ... and how you deal with it.

Nicola

Nicola, Thank you so much for this post and your honesty.

If you (not just Nicola, but those reading this), understand the psychology aspect of trading, which I will say again, CONTROLS 90% of your success in trading, then you will understand why I do not want people posting how many pips they have made etc.

I have witnessed it and been told it after the fact, people who post on threads about how many pips they have made, are on a HUGE EGO trip, they are FOOLING THEMSELVES, they NEVER disclose how much they have LOST, which is usually FAR GREATER than they win.

Anyone who, whether in trading or life in general, stands up in front of their peers and ADMITS to their weakness, is well on the road to recovery.

I keep slowly adding it in (because I know it is boring), but when you meet YOUR Holy Grail and face it head on, and ask it questions, you will REALISE how very important the psychology of trading is.

Those of you who are flash reading this and think it doesn't apply to you because you are greater than this then all I can say is "Goodbye, it's been nice knowing you".

I encourage all of you to share your horror experiences because sharing them and bringing them out into the open is all part of the trading psychology healing process.

I will tell you again, I lost over $200K learning to trade and the reason I lost it was because of the Holy Grail. I was constantly in search of it, thought it could never be found, then when I found it, I didn't know what to do with it. It was only when I listened to it that my lights came on, and on they came like Dolly Parton's light bulbs!

Thank you, Nicola, it means a lot to me for you to post this.

Stuart, you are not alone in where you are at right now. If I may, you might want to ask yourself if you really are suited to trading, do you have the personality or character to do it? Not everyone is suited to trading. There are many who think they are and shouldn't be trading.
I've been at the point where you are now, Stuart, thinking the whole world is against my trade. No matter how well thought out the trade is, I put it on and someone grabs it and before you know it I'm in negative pips land. It still happens. The trick is to get out quick when you see it going against you.
If price action tells you to buy and the market does the opposite then something has changed in the conditions between when you put on the trade and when price starts going the other way. This is a sure sign something is wrong and to get out. For some reason, momentum has swung in the opposite direction. It happens to us all.
Sitting on your hands means that, at least, you have recognised your faults and know to stop and to CHANGE the way that you are trading. The majority keep blindly trading away, hoping out of hope, their luck will change instead of recognising that what they're doing is wrong.
The best advice I can give to anyone in your position is watch, listen and observe, then listen to what your gut tells you.

"'i just had a grail moment"'

Let me guess, you looked in the mirror and got the shock of your life!

On Post # 1096, Lance posted about being "right". This hit the old Memory Recall button as I remember being told about "being right or being profitable" a long time ago by an ex - broker turned professional trader. So this evening, I searched my stuff and eventually found it. It was originally a fax. I have formatted it slightly for emphasis.

I just wish I could remember all this stuff!

""Long, long ago, when the world was young and I was a broker, I had to
find trades for clients. I found a great many good trades, yet I
noticed that people would find reasons to get out of them. So I
started asking people when I had a good trade for them, if they would
rather I was right, or whether they would prefer to make money.

Yup, you read that right. And I acquired something of a reputation for
eccentricity. But I have often seen that choice presented to traders
in the subsequent 20 years.

Are you going to trade based on your opinion, interpretations, indicators, or are you going to make money?

The fact is, most traders have so many transactions, they can't keep
track of what they think, much less what their trading plan is.
There's too much pointless activity, and you have to cut down on that
type of time wasting.

But when you do that, and you start defining a trading plan and what you are doing, you're going to find two things:

Number one is that frequently, regardless of your trading method, you are going to have a loss on a specific transaction. And as we all know, you get right out of those trades.
No thinking required, no excuses...right?

Number two is that when you are finally right, you will start thinking you are on a hot streak, cracked the code, can do no wrong....basically, you'll
think you're the greatest thing since walking upright became popular.
There's just one problem. You'll start thinking.

When you have a loss, it makes sense to cut the loss. If you have
acquired any maturity as a trader, then the concept of NEXT kicks in.
Small loss, part of the game, yadda yadda, next trade.


But when you have a profit, there isn't a next right away. You
literally have to make a new decision every time you look at that
trade. Stay in or get out? And the reasons for getting out will
accumulate. You'll keep checking new indicators. You'll talk to people without a position in that market. You will literally keep searching until you have found a reason to get out of that profitable position.


But here's the thing...you never control anything in a market except
your orders. Do you really want to follow a trading plan that relies on you being right?

Saying a trend is going to end and getting out of a
profitable trade is fully as dangerous as saying a trend is going to
start and you'll stay in a losing position until it does...and make
back all your losses with interest or whatever.

Because without large profitable trades, eventually even small losses will break you.

This is what amateurs do. They think about being right. They dream
about it. Professionals think about risk. They dream of new and better
ways to calculate stops, get a higher percentage of profitable trades,
anything that helps to make up for being wrong.

I know of millionaires that will only trade mini contracts. They know how easy it is to be wrong. They know they *will* be wrong. They *count* on being wrong!
But they also try to find ways to make money in spite of being wrong.

A trading plan is *not* about what you think. It's about what will
trigger you into a trade, (selection), how you will avoid losing money,
(cutting losses), and MOST importantly of all, the whole point, the
reason you trade, letting your profits run.

Once you have a trading plan, none of these steps should require further thinking. If they do, you need a new plan. And if you know you need a new one, why trade with the old one?

As you pointed out, staying in a bond or note trade late last
year could have made up for two years of treading water for you. This
is why you undertake risky trading activity. This is what the effort
is for. Not high percentages. Not smaller losses. Huge, profitable,
trades. But you have to let your profits run to get them.

Whew. I'm getting carpal tunnel syndrome.""

There's no substitute for experience.