Institutional Equivalent Education?

... continued from previous post:

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There are many ways to use an Opening Range. You can use it simply as a bias reference point (long above, short below). You can use it to provide trade opportunity, either through an initial opening range breakout, or through subsequent retests.

Or in this case, simply as a tool to help reduce early-session damage to P&L when the market gets stuck in a bull/bear slugfest at the open.

A tool to help survive any opening chop through (a) quick recognition of the market being stuck in the opening range, and (b) limiting engagement until it's broken and holding clear.

Happy trading,

Lance Beggs

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Now the latest email from |Boris Schlossberg (of BKForex), My comments are embeded in it in BLUE

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Dear Ian
Trading to Donuts
https://ecp.yusercontent.com/mail?ur...ks8gS6fIWA--~D
Imagine you have a small forex or futures account. How much money do you think you would need to make to double a $1000 stake in one year?

Twenty dollars per week.
Not twenty dollars an hour.
Not twenty dollars a day.
Per week!

Starting with a $1,000 account unless trading SpotFX micros at $0.10 per pip (or similar) is stacking the odds against yourself. You need to be realistic - 'One and done' is rarely going to pay out. It's much better to employ an multi unit (perhaps multi-level) entry and a multi- unit, multi-level (target?) exit method. This makes it much easier psychologically and also means you can at least do some compounding of your accumulated profits in your account (assuming you are a net winner).

When you break down the numbers trading is far less daunting than it seems. The flip side, however, is that you will probably need to take 1000 trades in that one year to eke out that one thousand dollars with any degree of consistency or skill. Not so thrilling now - is it?

It's much less daunting if you are trading multi-unit so that you can compound your profits:
An extreme example - Say you can consistently make 1% per day (not unheard of) and you start off trading 100 units per trade so that you can compound your daily profit from the start.
Then after 4 weeks you have made 22% instead of 20% without compounding.
After 2 months + 49% instead of +40%.
After 5 months + 170% instead of +100%.
After 1yr (based on trading for 48 weeks or 240 days of that time) + 989% instead of 240%


Sure, the manual drudgery of small scalps can be automated. In fact, it’s utterly impractical to run such a system without a robot. But even if you automate successfully - the whole process sounds repetitive, commoditized and boring AF. It has all the excitement of running a donut shop.
Not much like a donut shop if you are compounding regularly!

And that’s the problem with trading. We want YOLO. We want to break the Bank of England. We want to own Bitcoin at ten bucks or be Ethereum before the world discovers NFTs. We want Vegas baby, when in reality the money is made by running Donut King off the 405.

This is not your fault. All the trading lore ever - from the scammiest fake gurus on YouTube to the “serious” books like Market Wizards is centered around the narrative of the Great Trade. The protagonist is always some schmendrik who keeps losing and losing, and losing until he stumbles across one great idea or one great strategy and POOF in an instant he not only makes all his money back but turns wildly positive and proceeds to become mega rich through a few astute plays in the market. Who doesn’t love that story? Who doesn’t want to BE that story?

But successful trading is just a probability game. It has all the thrill of mindless hours of card counting. In fact, a successful trading plan is simply the card counting strategy applied to the markets. You are looking to play only when the sample set is favorable. (No ten deck shoes in blackjack. No high volatility regimes in the market.) Actually some traders such as myself do better with higher Volatility. Since I had my first successes trading news events I have adapted my style so that medium to high volatility suits me best. In a low volatility market if I get into a trade in the 'wrong' direction: 1. I don't admit it as fast. 2. By the time I accept that I'm 'long and wrong' or 'short and caught' There's unlikely to be enough juice in the move for me to be able to reverse my position and make back my loss. But in a medium to high volatility situation it becomes obvious sooner and usually there is still plenty of room to reverse and still end up with a net profit over the 2 trades.

The worst conditions for me are low volatility small to medium range-bound markets because I need a decent sized trend. Also crazy spiky extreme volatility markets where you can have your Emergency SL hit by just a single candle going against you - but I don't think any retail trader can consistently trade those well!

You play only at certain times (When the deck flips to high value cards. Enter only when your setup materializes in the market). You maintain rigid risk control (Bet small unless the deck value changes. Always honor the stops in your trades)

All of this sounds easy paper, but is of course extremely hard in real life. The markets, just like the casinos will do everything in their power to break your concentration and doubt your strategy. No free drinks from skimpily clad waitresses but a probability structure by its very definition means that even in very favorably skewed strategies bad runs will happen all the time. It’s not at all unusual to suddenly hit 5 losers in a row even in a trading strategy that has a long term win rate of 70%. Most of us however can only tolerate 3 losing trades in a row. It’s just a psychological fact that after three losers most of us will go on tilt as the prospect of additional loses just seems too painful.

I don’t have any great advice on how to deal with that dynamic except by sharing my own truly unorthodox methods that shock me into doing the right thing. (Apologies to hemophiliacs in advance).

The plight of many consecutive stop outs is often analogized as the death by a thousand cuts. But if you think about it for a second, five, ten even twenty little cuts are unlikely to truly hurt you. They will heal in the end. An amputation on the other hand is final. You never get the limb back. When you try to avoid the multiple string of small losses you inevitably create a massive loss by refusing to honor the stops. You in effect “amputate” the account.

I know. It’s disgusting and gruesome and perhaps you have a more civilized way of thinking about this process. But for me this is brutally effective. It’s the only thing that helps me stay in the probability game and let me make more donuts ... er I mean trades.

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If he is not accredited to issue certificates for his course then he can't be institutional grade, but don't get me wrong I don't mean like he don't have quality stuff.

What are you talking about?

A question about what I have learned from my mentor:
Ian, may i ask what is your best thing about Ray that you enjoy using?

My reply:
There is too much to mention it all. But these are the main things from Ray which turned my trading around:
1. Understanding the business model of all the different institutional participants in the markets.
2. Value -A). Value Lines, B). Value for commercials based upon Liquidity and price (volume at price, C). Value in Economic news terms.
3. Volume, Deltas and Limit Order Book

His response:
I see, yes 1 is very important for me too...the retail gurus almost never tell us whats the difference in trading behaviour between market makers and large spec traders.


My follow-up:
The most important things I have learned for my own trading and from my own experiences are:-
1. I'm very suspicious of indicators - I want to see fundamental value. 2. I can't trade like somebody else, no matter how good their method/system appears to be (this includes Ray).
3. I prefer a high risk high reward style. I should have already known this from my stock investment history - it's not that I can't pick good safer stocks (on average) because I do that for my wife's portfolio all the time - its that they don't interest me as much as the higher risk ones that I pick for my own portfolio. Note that my wife's one is more successful.
4. Perhaps because of my high risk style, I find I do best if I don't hang on waiting for a big profit target - I always tend to exit 'too soon' (both partial and full exits).

I know that The MAX (Eusebio) did a webinar live trading the NFP on Friday.
I couldn't attend since I too was live trading the NFP in my own style.

Here is their email about it which includes a link to the recording.
Yes it's a plug for their courses, and the market wasn't at all dynamic on the NFP so the trading is rather boring.
However I feel that for those with enough patience (it's long recording) both the commentary and the answers questions asked provide useful knowledge and background for the majority of retail traders.
Eusesbio covers many things including: Market Participants, Central Banks, cross market correlations, Risk On/Off, guidelines on choosing a Broker, compounding profits in an account, times to avoid trading etc.

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Hi Ian,

It's a familiar story. I got into this great-looking trade and immediately the price reversed. I got stopped out and then saw choppy sideways action for the rest of the day.

That's why we need a trading system that can protect you from weak price action and help you take advantage of whatever the market offers.

Today we encountered poor price action following the NFP news release. Eusebio used the MAX Trading System to pull out a nice profit in less than 2 hours of trading. I have the video replay for you, and it is well worth watching. You'll learn a few things about trading, and you'll see why we love this trading system.

Click Here to see today's trading (i.e. Friday's NFP live trading webinar)

Get enrolled for learning this system today! Classes begin Thursday, and I want to send you the pre-class study materials and video as soon as possible.

Webinar Discount Links for Courses

Click Here for MAX Standard -- Begins Thursday, April 8th

Click Here for MAX Primer -- Begins Thursday, April 8th

If you have questions about the webinars or courses, or you would like to get the complimentary MAX Price Levels, please reply. I read every email, and I guarantee a personal response.

The weekend has arrived! Enjoy it, and stay safe.

Kind regards,
Craig

MAXTradingSystem.com

Latest email from Boris (of BKForex), which contains much that I agree with:
My comment are in Blue
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Dear Ian
You've Got to Make a Lot of Bad Trades in Order to Figure Out the Good Ones
-Yes, because for a start you have to be able to distinguish lucky trades for unlucky trades. Not every winning trade is a good ones and not every losing trade is a bad one!

I had a good trading week on my own account, increasing by 8% which was far above my 2% target. (Don’t get too excited. I am trading a small capital base with intent on trying to double it over a year and full understanding that I may blow it up. If you want to get a more realistic understanding of my returns divide them by 10)
- Gee, my style is much more high risk than that. Partly due to my personality and partly because of boredom.

In any case I did 13 trades this week and hit a 76% win rate. For a guy who regularly used to do 13 trades an hour rather than a week, this came as a shock and made me realize just how far I’ve come in my trading journey on this particular strategy.
-While I'm not a human HFT, my trade frequency is much closer to the 13 per hour rather than 13 per week.

Bruce Lee once said that he feared not the man who has practiced 10,000 kicks once, but the man who has practiced one kick 10,000 times. This is one of my favorite quotes because it shows the importance of practiced learning in life and certainly in trading. But the quote neglects to mention that in order to settle on one kick that we must practice thousands of times we must first explore a thousand other kicks that we will eventually discard as inferior.
- I agree 100%. These are points which are often overlooked.

The process of discovery which is messy, chaotic, psychologically destabilizing and almost always highly frustrating is the precondition for excellence. There is no Platonic ideal from which to start. There is only a vast unknown which we must explore continuously before we can navigate it with any degree of skill. Simply put you’ve got to make a lot of bad trades in order to figure out the good ones.



The process is by no means linear. And it certainly wasn’t with this set up. I spent months discovering and working on the best method for trade entry. Then more months on choosing the right trading style and finally only now have I come up with what I think is an intelligent structure for trade analysis. In short if you believe that all proper trades setups must come from some a priori thesis that is then tested against real market prices, I did everything back-ass backwards. But that’s precisely why my strategy is working. The endless organic tinkering and experimentation helped me to isolate some key behavioral characteristics of price that I could then put together into an intelligent structure.
-Unlike Boris, I absolutely need some 'WHY' behind my trading style(s). I need to know not just that something works, but why it works in order to give me confidence that it will continue to work and to enable me to detect conditions under which it may temporarily cease to work. Which is why Ray is a great mentor for me since he is a fount of all the why's in trading that you could ever ask for.

Now that the strategy appears to be working you would think I would instantly use it on every market instrument possible. No. Bruce Lee was right. Once you settle on a kick you need to practice that kick endlessly to become intimately familiar with all of its nuances before you can move to the next step. So I intend to trade this idea over and over and over again only on the NQ (which is my instrument of choice) before I try it on FX or commodities.

I can’t tell you how psychologically grounding it is to focus on just one idea. It’s like living with someone under the same roof for a long time. You learn their behavioral ticks so well that you can tell if they are happy or sad or annoyed just by the tone of their voice. A trading set-up can be very similar. If you watch the market action of your setup long enough you can begin to sense the moves ahead of time. I often play a game during the trading day where I “virtually” take a position in my head and check to see if I am right a few minutes later. The longer I trade my setup the better I am getting at the game.


In martial arts as in the market success depends on two distinct but complementary skill sets. The observation of your opponent and your ability to strike at the right time. Speculation is simply observation and execution put together, and as Bruce Lee taught us practicing one helps us to refine the other.

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A rather special email from Boris Schlossberg this time:

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Dear Ian
RIP Wells Wilder, the Godfather of Indicators

This month Welles Wilder, a titan of technical analysis, passed away. He was the inventor of RSI, Parabolic SAR and Average Directional Index. There is no trader alive that has ever pulled up a chart and threw a few indicators on it that has not used Mr. Wilder’s inventions at one time in their life.

Mr. Wilder was a trained mechanical engineer and he brought the mathematical discipline of that profession to the field of price analysis and for that the trading community will forever be grateful.

But if you’ve ever used any of Mr. Wilder’s tools for more than a month you will quickly notice something very unusual. Unlike the always consistent measurements of mechanical engineering Mr. Wilder’s indicators will often provide diametrically opposite signals. RSI for example is often used as a proxy for overbought and oversold conditions with 70 suggesting that an asset is in overbought territory and 30 indicating that it is oversold. But sometimes the RSI value of 70 is the perfect place to buy as it signals massive momentum strength and RSI value of 30 is the perfect place to sell as it signals the start of a complete collapse of price.

That’s because price action unlike mechanical engineering does not follow the rules of Newtonian physics, but the undulating waves of human behavior which is always interpretive. This means that every single aspect of technical analysis contains its own binary opposite. Double tops can become a support zone for further breakouts and so could head and shoulders patterns and everything else. In short in technical analysis every conventional buy signal can become a perfect sell set up and vice versa. All of it depends on what type of price regime is dominating trade at the moment.

As I’ve written a million times there are only two types of trades that exist in the markets - continuation and mean reversion. You don’t even need to spend years of pouring over charts to understand this dynamic. Just take a look at stock index futures over a 24 hour cycle as I do every day. During the Asian and early European sessions when liquidity is low and participation is muted prices tend to trade in relatively narrow and well defined ranges. Selling tops and buying bottoms - a classic mean reversion technique - generally works well. From around 0700 NY time when the North American corps comes on line the price movement begins to extend significantly and continuation trades work much better.


Does that mean all technical analysis is useless and that all of Wells Wilder’s work is meaningless? Only if you believe that the function of technical analysis is to provide trade signals. But technical analysis can’t provide signals anymore than fundamental analysis can. Both disciplines simply provide analysis which must then be anchored in the proper market regime. At best technical analysis provides a probabilistic edge, but only if we apply it with skill.

Wilder’s great accomplishment was to tame raw price action by smoothing and ranking the data points so that the trader could quickly understand its meaning. Every evolutionary biologist will tell you that after spending millions of years on the African savannah we humans have developed a very refined sense of patterns. Pattern recognition is all we do. In trading and in life.

Wilder’s great contribution was to design highly intuitive indicators that helped us to identify those patterns. If you’ve ever developed your own indicators as I have then you know just how valuable a truly clean looking indicator can be in helping you assess both opportunities and pitfalls in the market.

For that we should all be grateful.

RIP Mr. Wilder.
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What I suggest is using Technicals to confirm Fundamentals and vice versa, since both have a certain validity.

A more unusual one from Boris Schlossberg of BK Forex:
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Ian
The Most Important Question in Trading
https://ecp.yusercontent.com/mail?ur...xelwbH0yJA--~D
There are, I think, two basic ways that most trades go sideways. The first is something that all of us do, pretty much daily - deviation from our setup. Deviations can be slight (oh look uptrend is setting up but price hasn’t quite made higher lows) to totally random (I am bored, this spike looks overdone, let short it).

Regardless of what version we choose (mild or totally random), almost all of us deviate from our intended setup with predictable consequences. In English there is a common saying - “Don’t let the perfect be the enemy of the good” - which I always thought applied to trading. But the longer I trade the more I realize that this is actually a very dangerous belief. In trading, unless the setup is perfect it’s never good.

That’s because all of our trading setups are basically encapsulations of human behavior and since human behavior has such massive variance the edge assigned to any given setup is razor thin. Deviate just a tiny bit and your accuracy rate is sure to suffer. That’s why staying true to your setup - something that many traders simply call “discipline” is so crucial to long term success. But our discipline is always tested and never tested more than when we actually follow all of our setup rules.

Tell me if this sounds familiar. You are coasting along taking your setup trades making bank and generally having a good day. Another perfect trade is setting up. You take it and boom the market suddenly does the exact opposite of what it is supposed to do. Before you can even glance at your blotter you are stopped out. Okay you say to yourself. That was weird, but I am still up, let's see if I can continue to make money today. You scan the market and a few minutes later another perfect setup signal is forming. You enter, and now the trade simply sits there instead of breaking out as you expected it to. The price begins to trend against you - not violently, just slightly - but as it creeps further and further into drawdown it clips your stop and then quickly reverses in your direction and smoothly moves towards your take profit target without you. Now you are pissed beyond belief. All your morning earnings are gone and your only thought is. Get. The. Money. Back. When the dust settles you are inevitably poorer in your account, dejected and like an inveterate gambler making yet another false promise to never do that again.

The cruel irony of trading is that nothing will tip you into a cycle of revenge trading faster than the very “discipline” of following your perfect setup. That’s because we view the failure of our setup as the act of ultimate betrayal. We were, after all, patient. We passed on many sub-optimal entries. We truly followed the rules to the dot. And what do we get in return? Losses!


I don’t think there is anyone who has traded for any meaningful period of time who hasn’t experienced this cycle of betrayal, anger, revenge and regret. It is the very nature of the game. But there are ways to short circuit this cycle and perhaps the simplest and easiest is to ask one key question.

Almost all of us spend all our waking hours looking for trading patterns that work. We are so monomaniacally focused on extracting just the slightest edge from the market, that when we find it all we want to do is start trading the setup. But our job is only half done. Finding a good setup and executing it perfectly will never make you money unless you ask yourself - how does it fail? If you can familiarize with every way that the setup fails in the past you will eliminate the element of surprise. The setup can never betray you because like a world weary East European you will expect betrayal at one point or another and know its exact form.

Knowing exactly how a setup will fail will not help you to avoid the loss but it will help you deal with the loss more constructively. It may also help you improve your set up as well. Very often the difference between a successful and failed trade is just a matter of expanding volatility and losses could sometimes be turned into profits by doing more than widening both your stops and your targets.

In trading success is dependent on your intimate understanding of failure and although our natural instinct is to always run away from failure, trading forces us to embrace it, which is what makes the whole business both maddening and exciting at the same time.

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Personally, I don't ever remember having felt betrayed by a setup or a market.
Though there have been a few internet scammers - LOL!

Here is a great (first part) of an article about the differences between retail traders and pro traders.
It is by Peter Davis of Jigsaw Trading:
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Retail vs Pro Day Trading 1 - Tunnel Vision
In this series, we'll take a look at the differences between retail and professional trading. In each post, we'll focus on one aspect where we see a major difference between the two groups. In this first one, we'll look at the scope of decisions made to enter trades.
Obviously, there's no 'one size fits all' trader on either the professional or retail side. I've met professional traders that follow the sloth-like queue on ultra-liquid markets. I know retail traders that thrive on the super-fast DAX and others that run from it in fear (and rightfully so).

BUT

There's one fairly big difference that is quite endemic. On the professional side, it's generally accepted that there are many things that can move the markets. At the lowest levels, that could be a stop run of traders offside, or recoil after a stop run. These are among many small "knee-jerks" that occur in the markets because of traders out of position. You can find pretty much universal agreement over these sorts of reactions. They are in some respects the "lowest level" reactions that generate the smallest moves. Now, you can of course use them with a bias to get in on a larger move but I am getting off track.
If you look at the opposite end of the trading spectrum, there's more of a divergence. The biggest one being the use of News. Most retail traders stick to the adage "It's all in the charts" and say many tell me "I don't want to trade the news". This is fine and my standard reply is "So how do you prevent news while you are trading?".

You can break the news into a number of key areas:

1. Scheduled economic releases (like unemployment numbers).
2. One-off scheduled meetings (e.g. EU changing a trade restriction, Fauci talking about COVID restrictions).
3. One-off "out of the blue" news, like an attack on an oil refinery or rumors of interest rate changes
4. Running news - like Covid or Brexit that keeps hitting the markets (usually with a semi-predictable outcome).
5. 'Mouthy' Politicians - OK, I say this because Angela Merkel once said something 'off the cuff' that made a Bund trade slip 23 ticks past my stop. Trump tweets are in the same category.

In other words, some news is planned, some is not. The news can be used in a few ways:

1. To enter a position because of the expected outcome of positive/negative news. In other words to play the sentiment. That can involve going offside if the market initially doesn't have the expected outcome.
2. To play the market's reaction to the news. This is slightly different from the above but both often involve having an expectation of how the market will react to positive or negative news. Then watching and piggy-backing the move.
3. To understand whether the current move is a regular swing in the market or probably because of a recent piece of news. This isn't reacting to the news. It's more of seeing a move and being aware that it may be extended/fast because of recent news.
4. To stay out of the way of news completely - obviously, this is only possible with planned news.

Now, there are arguments for NOT using news. One of them is the "Efficient Market Hypothesis/Theory" (EMH/EMT) which states that the markets reflect all information known. If you believe in this, then consider the following:

1. When employment numbers are really bad - why does it trigger a move that lasts the morning or all day?
2. If a piece of news had someone like Fidelity dumping 100's of millions of shares - would they do it in a single sell market order?

On observation, the markets seem to take time to re-adjust to news. So I think the belief in this isn't borne out in the real world but it does give traders an excuse to ignore a lot of stuff.
The answer to the latter is "no" - they would try to get out without hurting prices too much. There are other times where everybody rushes to the doors (or the roof) because news is catastrophic.
So news creates both moves and a level of urgency. At this point, it all sounds so complicated, doesn't it? I think this is why retail traders ignore it. There is the allure with pure chart trading that once the right combination of factors is on your chart, you can then put your brain into neutral when trading. The thought of anticipating a reaction to news is quite frightening compared to the simplicity of printing money while half asleep.
So the majority of retail traders limit the scope to what is on the charts. Professionals - will use anything that appears to have a cause and effect on the market. A good example is grain traders using weather events.
Retailers WANT trading to be isolated to the charts - and I've seen people get through 20 years of trying to do that and failing. Some will stick with charts because of the "sunk cost fallacy" which means they stick with charts because of the amount of time they spent with them. Most though - they won't start incorporating news because it seems a bit scary and a lot like a huge amount of work. After all - how do you get to the point where you can predict the way the market will react to any news.

The good news is - you don't!

I am going to give a list of suggestions. They are not in any order. The idea is to become proficient at one thing and then add another. You cannot learn the dance between the news and the different asset classes overnight but then you don't have to. Add one at a time:

1. Pick an economic release such as the Thursday Unemployment Claims, Wednesday Oil Inventories and keep a log of the expected numbers, the actual numbers, and the reaction in the related markets. Did it go up or down and by how much? Get a feel for the sort of hit or miss that creates a move.
2. When a long-running story is in the news - Brexit, COVID, US Inflation - scan the news for announcements/press conferences for that day. Take a note of the sentiment of that news (the sky is falling/we are all saved) as well as the reaction to that news.
3. Subscribe to Bloombergs "Five Things To Start Your Day" and for each news item with a time of day - write down which markets you think will react (and how), then as the news plays out, review the actuals. This may seem a bit involved but it's giving you the chance to make a call and have a feedback loop to ensure those calls get better.
4. Keep your ear on the news (with tools like the news feed in Jigsaw's daytradr and Journalytix). When a sudden move occurs, if you missed the cause on the squawk, go back to the news screen to check out the news that probably caused it (if any). This way you get a great understanding of the amount of times news causes moves you can exploit.

None of these represent a lot of work and they all represent ways to start to understand how news impacts markets you trade. It's not as if you have to stop your chart work OR have to go do an economics degree for 4 years. It's just incrementally learning factors external to your charts that may move the markets.
Try it out, get a few wins under your belt. You'll soon be used to accepting there's a whole world of things that can impact markets and chart-tunnel vision isn't in the traders best interest.
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In a world of scammers and B*S* merchants, according to Daniel Kahneman it's actually you who is the biggest B*S*er so far as your trading is concerned!
As per this email from Boris Schlossberg of BKForex:
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Dear Ian
In Trading the Biggest Bull-ter is You

In his new book, “Noise” Danny Kahneman talks about a consulting project he once performed for an insurance company. In insurance the field of underwriting (deciding how much premium to charge) is as much an art as it is a science. For many rudimentary policies like life and auto the statistics are so vast that the numbers almost set themselves but for many special cases for which corporate America requires protection the cost of coverage can vary widely based on the opinion of the underwriter.

Kahneman asked the executives of the insurance company what they thought was the average variance in opinion between the different underwriters. Almost all the executives thought the number was somewhere around 10 percent. The actual number turned out to be 55%. This dynamic of underestimating the true difference in opinions on seemingly “expert” matters turned out to be true in every profession that Kahneman and his colleagues studied. From doctors to judges to accountants the variability of opinion on a given “expert” subject was far larger than we would expect. It turns out that despite all of our education and training we are far more subjective creatures than we like to think.


Kahneman suggests that the first act of any business is to do a “noise audit” to see just how much variability there is in the judgements made in that business, so this past Friday afternoon I decided to take him up on it. I had been trading sloppily all day. I knew I had deviated from my setup but I thought that at the very worst I was basically 50% off my setup (taking about half my trades outside of my rules) Guess what the true number was? I was 89% off my setup. Only 2 out of the 17 trades I took during Friday afternoon were actually on set up. That stat slapped my psyche harder than any pimp could and I sat there staring at the screens for quite a while realizing just how right Kahneman was.

If every trader would do an honest “noise audit” of the variance between the “proper” set up trades and the actual trades the results may not be as horrible as mine but I bet they would be significant nevertheless. Fortunately for all of us trading is the one discipline that provides instant and continuous feedback so that if we really want to improve - we can.


Kahneman shows that in many other fields there is almost no feedback to the participants' actions. Bail judges don’t know if their decisions were too lenient or too strict. Underwriters don’t know if they priced the policy too cheaply or too expensively and so on and so forth. Not so in the market. The market is a never ending feedback loop but most of us choose to blithley ignore its message for a variety of reasons that are too complex to discuss here.

But we really don’t need to dive deeply into all of our psychological flaws and foibles to fix this problem. We just need to create a simple system audit. Kahneman cites the airline industry as the model of this behavior. The best airlines and air traffic control systems assiduously study not only the rare accidents, but also the near misses in collision to see what protocols they can improve. The net result is that despite planes being the most complicated mass transit vehicles ever created, flying is actually the safest form of travel.

Planes and air traffic controllers of course rely on a variety of sensors to help them build an effective feedback loop and Kahneman suggests that we should mimic that process as much as possible in every other facet of our lives. He notes for example that it was only recently that engineers started to put sensors on bridges to provide early warning systems on the amount of stress in the structure at any given time - a move that is likely to save untold lives in the future.

For us as traders we do not need anything more sophisticated than a pen and a notepad. We don’t even need to write any actual words. All we need to do as our first step towards noise reduction is to just demarcate setup/nonsetup with a dash on a two column sheet of paper. The process MUST be manual because as many psychologists will tell you only through physical action can we even begin to come to terms with the truth of our behavior.

This is not trade analysis. This is not deep journaling. All those acts are valid and worthy endeavors that most of us will never do. This is just the most primitive record keeping similar to 5000 year clay tablets constructed by Sumarian barley farmers. And that’s precisely the point. The simple running audit will force you to do two things. Slow down your trading just at the point when speed is the most dangerous course and physically confront you with the fact that you are trading off setup.

The human capacity for self-delusion is limitless. I certainly am a keen practitioner of that “skill”. But the beauty of the markets is that they are an endless feedback loop that can help us discover the truth if we just stop bull-ting ourselves and take true stock of the situation.
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all the videos or mega links in the OP are 404, can you upload them again ?

I second that bro. I would like to see all the videos by Ray. I hope he uploads all videos.

You can find the videos here. These are selected videos available to the public.

https://www.youtube.com/c/CompassForex/videos

I don't know how long this will be up, but here is a video of one of Peter Davies' videos (of Jigsaw Tools).
This one is about being able to tell if a market is trending or its in a range/chop.

https://blog.jigsawtrading.com/trend...eid=e93edf0386

I don't whether his observation on the 'Cotton Candy stick' works for me, since I don't have the Jigsaw DOM and so I would have to work out how to see it with the software I currently use.

Here is another email from Peter Davies (of Jigsaw Tools).
This time it is just of a blog entry in the Jigsaw Trading Blog:

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Hi Ian

We have posted an article on our blog about the "Trading Education Paradox". A set of commonly held beliefs, each of which indicates that real trading education cannot exist. We all know there's a lot of rubbish out there but we also believe that this set of beliefs will derail your progress even with the best education. We'll go through the beliefs, talk about the flip side and hopefully if you are looking for education, you'll be consciously aware about the selection AND you'll stick with it as you hit hurdles.

https://blog.jigsawtrading.com/the-trading-education-paradox?mc_cid=667fd399b3&mc_eid=e93edf0386
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As a follow -on to Peter Davies blog about real trading education, let's go back to the early days of this tread and look at Ray's view/style of trading the News.
It was this which really got my current trading style off to a good start.


Naturally, it is based upon Value, but there are 5 components to it.
In order of easiest to understand they are:

1.Some news has a longer effect on the markets than other news. For example Interest Rate Changes, Employment Changes, Inflation Changes can have an effect that lasts for several day (or even weeks). Where the effect of other news may not even last more than a few minutes.

2. The average (or mean) of the Analysts' forecasts (predictions) for the news release. These can be found on many 'Economic Calendar' web pages such as the one here at Forexfactory or places like Investing.Com, FXStreet.com etc. Note that the websites survey different Analysts and to the forecasts can sometimes disagree slightly. If you have access to them (Bloomberg, Reuters etc), the range of these forecasts from Low to High is also useful to know.

Big Institutions prepare for major news releases by positioning themselves for the Forecasts to be accurate. Thus building longs on a bullish forecast and shorts on a bearish forecast. This is the major reason for markets to drop on a seemingly good economic news release - because that result (or even a more optimistic one) was already traded in the hours since the prior news for that market and so that result has already been 'priced in'.

3. Liquidity is very thin on an economic news release. The Market Makers don't want to be caught on the wrong side of a trade that is n danger of moving a hundreds pips/ticks or more! Once the numbers are out, then if it is bullish there are few people offering to Sell in order for your Buy orders to be filled - this also applies to your Stop Loss Orders. Since a Stop Order becomes a Market Order when touched, you may only get filled at the next liquidity level, which could be a long way away from where you placed your Stop Loss. Thus it is safer to be out of the market until the initial spike is over/receding and Market Makers 'spreads' are back to reasonable values.

3. Is the news release going to provoke profit taking? Big Institutions accumulate huge positions and these can't be bought or sold quickly. So even if they still want to stay in the position they accumulated before the News, there may be some initial profit taking (with possible later re-accumulation).

4. Because all major financial markets are interconnected, Economic News can primarily affect obvious markets, but can indirectly affect several other markets. Thus it's useful to see what news release expectations you can glean from looking at several partially correlated markets. Perhaps Equity traders are pricing in good news (based upon a forecast) yet Bond traders or Currency traders or Gold traders or Oil traders viewpoints (as shown by where they position themselves) are not so sure!
Are Bond traders 'better at reading economic news' than Equity traders - often !

5. Be aware of the economic environment. In a Quantitative Easing environment (= easy money) 'bad' economic news is 'good' for equities because it means probability of more easy money or easy money for longer and thus both Bonds and Equities usually move in the same direction! But in a non- QE/QT environment (what used to be a 'normal' environment before the GFC) Bonds and Equites usually move in opposite directions since money moves out of Bonds in order to move into Equities (and vice versa).

You can trade the pre-news, you can trade the news (once spreads return to near normal), or you can trade the longer term post news.

Here is a video (placed in the CompassFX You Tube Channel ) of Ray talking about trading pre-news and news (a CPI release) which demonstrates how very much he almost always get it right!

Value - do you use any form of Value in your trading?
Of course Ray uses lots of different forms of value, but most retail traders us little/no value concepts and measures.

Here's a video from Peter Davies ( of Jigsaw Tools). He's a man who has traded without value for many years, describing why one form of Value as shown by Market Profile can be of use to retail and smaller professional traders and is not just the preserve of the big commercials.

https://expert.jigsawtrading.com/mar...eid=e93edf0386

The Value, Levels and Measures!

In this video Kathy Lien talks about the sources of Fundamentals she uses for planning which currency pairs to trade.


Obviously DailyFX is no use for trading News reactions. I find that as a news calendar Investing.com is both very comprehensive and faster than most.