The Wizard of Oz Intuitive trading journal

I have been trading forex for 3 years and 8 months to be precise. The journey has been rather long and frustrating and I have spent countless hours with numerous systems - testing, demo and live. I have also done a few courses, read many books etc. etc. and so it goes on.

After breaking even for a number of years I have learnt some principles that have helped me to begin the transformation between novice trader and professional trader. I am certainly not saying that I have arrived yet but I am making some progress and intend to make some serious headway in the next few months.

The main thing I have going for me is perseverence and belief that I can do this if I apply myself to do it in a professional manner.

You may or may not agree with my approach but that's OK. I am open to the oppinions of others but the fact is I am the only one who is responsible for my trading success. Noone else can do it for me and I can never trade like somebody else.

I will do this my way and I will succeed.

On that note I will begin my journal.

Wiz.

I am beginning this journal in an attempt to document my progress from a breakeven trader to a consistently profitable trader.

I have struggled big time with some personal issues and fears that I am slowly learning to come to grips with. As I mentioned earlier, I have certainly not arrived yet.

One of my fears is a fear of looking stupid, so this journal will be a good place to look stupid and learn to accept it.

OK, so what am I trying to do here?

I have titled this journal my intuitive trading journal because that is exactly what I am trying to do. My trade ideas are nothing more than hunches about what might happen in the future. What more can they be? The future is unknowable and since the market is always right, my job as a trader is to align myself to the market and not try to impose my own beliefs about where the market "should" go. I like to use trendlines and S/R and prettu much leave the charts as naked as possible and trade based on "feel".

I am looking for the low risk, high uncertainty trades. Like I said I will be using my intuition to guide me as I seek these scenarios. By high uncertainty I am referring to trades that are not comfortable. Trading what is comfortable has led to my being breakeven. Now's the time to do something about that. The end result will be that I am comfortable doing the uncomfortable or high uncertainty trades. High uncertainty is the key word here.

The other, and possibly the more significant aspect of my trading is not my analysis of the market (I really could not care less where it goes so long as I am aligned with it most of the time), rather it is what I do with the trade once I am in. This is where strategy really comes into play. As one of my favourite authors has said - it's how we manage trades that really makes the difference (he said something like that anyway).

The main thing I am trying to achieve is to consistently cut my losses and "work" my winners. This is a very active process. I owe the majority of my insight into this area to Chris Shea.

I don't have a clear and concise trading plan as I have no idea what the market will throw at me and what will be the best response until I actively trade it.

This is a work in progress and I have not yet arrived but I will get there.

I know this is all a bit vague and I hope to clarify things as I go.

Wiz.

Dial once mentioned to me that his trading really improved when he understood probabilities (at least that's what I remember him saying).

I have thought a lot about this over the last year. Both Dial and Vegas mention the marble game and the same concept comes up again and again. Trading is nothing more than a numbers game. Most people probably know this but as far as I am concerned I am still learning to grasp the significance of this concept and how it relates to my trading.

Let's assume that over a large sample of trades I have an 50%win and an edge ratio of 2:1. That is, half of my trades will be losers and half will be profits, but my profits on average will be twice as big as my losses. Again I owe a lot of what follows to Chris Shea who really pushed my to think in probabilities.

I have a bag with 100 coloured disks in it. 50% represent profitable trades and the other 50% losers. My stop loss is always 1% so my losses will always equal -1R.

Assuming I am actively working winners and cutting losses I can assume that most of my trades will average 1.5% profit or +1.5R, so there are 45 disks that represent +1.5R. the other 5% of the profitable trades represents +6R. So out of the 100 chips there are 50 @ -1R, 45 @ +1.5R and 5 @ +6R. This gives me a %win of 50% and an edge ratio of 2:1

I reach into the bag and pull out a chip. I can't see in the bag so I do not know which chip I have chosen. I could guess that it's a +1.5R, but that would only be a guess as I have no way of knowing until I look at it, which one it is.

OK, so I check and it's a -1R. Ok, I take a loss. I put this back in the bag and mix it up and take another one. Another -1R. Two losses. Do I quit now? No, because I know that there are many good chips in the bag. I replace the chip and draw again. Another -1R loss. Crap! OK, so now what are my chances of pulling out a winning chip? Still 50%. It will always be 50% even if I have 10 losses in a row. It will never cease to be 50%. Should I throw away the bag after 10 losses? No way, because I know I have an edge and I know that over a large enough sample size I will have a 50% win and 2:1 profit factor.

So I pull chips, accept the result and then what do I do? I pull out another. Simple.

I know most people know this and I feel a bit stupid writing this but it is very important to where I am at.

Every trade is unique and is a seperate moment. It has nothing to do with what has gone before. In addition, I have no way of knowing the outcome of an individual trade until it is closed. I can only assume that I have an edge if my %win and profit factor are high enough.

I can make money with a 50% win. Which means I do not have to be right on every trade in order to be successful. Providing of course that I am active about cutting my losses and working my winners.

I mention this here because it serves as a performance benchmark for my trading. What I want as a bare minimum is a 50% win and 2:1 profit factor.

To see what this would look like for any given random sample of 50 trades I have created the attatched spreadsheet. It's not perfect but does the job - I am no Excel wiz.

What the spreadsheet does is randomly generates 50 trades based on the above figures. Now the thing that hit me about this is that for any given series of 50 trades the results will vary. At 2% risk you could expect a 50% ROI over 50 trades. While this is certainly the case over a large enough sample size. Each 50 trade will be different. I have noticed that sometimes there are losses over a series and sometimes the profits are huge. So my point is that you can still have a great edge and suffer an overall loss even after 50 trades. In the past I would have given up and sought another system, but the fact remains that there are 50 -1R losses, 45 +1.5R profits and 5 +6R profits. Would you be happy with such an edge? I certainly would, and that is what I am trying to achieve.

Wiz.

One major obstacle to my success has been fear. I am talking here about an immobilising adreneline rush that grips me when I consider a "high uncertainty" trade. This has been such a problem that it has kept me from taking the trades that I know I should, with the result that I undertrade and thereby miss many opportunities, both good and bad. The bad trades reinforce the fear and give me a false sense of safety. The more I submit to this fear the longer i fail to get ahead.

Perhaps one way of looking at it, is instead of assuming your trade may or may not be a winner, therefore causing the rush, assume no matter what, that your trade will be a loser when you place it.

Let the market tell you when you are _RIGHT_ instead of letting the market tell you when you are wrong (Because you assume you are already wrong). When the market continues to confirm you are right, add lots (at fib bounce on retracement, etc etc)

This can also help money management, if that is any kind of emotional issue for you. Because when you assume that money is already lost, then the feeling of "loss" when it doesn't work out isn't there.

This is exactly how i configure my MM. Every trade is considered a loser and takes a portion of my equity when I open them. And I also add on fib...what a coincidence

Adding is a very important element of my trade management process.

Fear of loss seems to result from a missbelief about trading. The losses are just as necessary as the profits in the overall big picture. Since I am expecting half of my trades to be losses, the losses become a business expense or the price I pay in order to be available for the good trades.

I see some merit in assuming every chip I take is a -1R. But is that not also a false belief. Though i can see that it could help with our ability to accept losses. My concern would be that instead of being neutral and accepting the unknown for what it is, i am now viewing each trade in a negative light and am expecting to be wrong.

If on the other hand i view losses as equally necessary for a trading edge then the losses become a positive rather than a negative and there is nothing to fear.

If i place a trade and it goes into profit then I now potentially have a +1.5R or a +6R and I have no way of knowing which it will be. it could just as easily turn into a -R. By using a trailing stop I am reducing the impact of the -R trades to a level below -1R, while at the same time adding to my position and opening myself up to a potential +6R (average) trade.

The big trades occur as a direct result of working winners. Adding is an important part of that.

Hopefully i will begin the actual trades today. If i see a good setup.

Wiz.

Exactly, like you, I see it as neither positive or negative per se. I see it as the business expense of finding out the answer.

I agree it's more of a psychological approach then anything else, allowing you to accept losses by establishing a loss as a neutral, rather then negative.

It's not logical, but neither is human emotion

I look forward to seeing your actual trades

That's great hilmy... your approach appears to be the same as mine, and it works extremely well (At least for me) .

GBP/USD long @ 2.0119. Initial stop 2.0090.

Stopped out @ -1R

I will use the following colour scheme for my trade results:

Red = loss (Max -1R)
Blue = a profit <= +3R
Green = a profit > +3R

These will be my coloured chips which I will use to assess my performance.

NB. The initial risk is always -1R which in my case represents 1%. This avoids confusion with pip and dollar amounts - which in this case are irrelevant and only confuse the results.

GBP/USD long @ 0126, initial stop 0080

closed @ 0097
-0.63R

GBP/USD long @ 2.0130, stop 0097

linear added @ 0148

closed @ 0184
+2.72R

I like your attitude and your methodology. Thanks for taking the time to write down your thoughts in detail.

I wish you continued happiness and prosperity.

Thanks mate

Hey Wiz,


Great to see you around some more......I am looking forward to your journal. Looks like someone has been busy reading Van Tharp...


Take Care,
Rsq955

Now for my reasoning for those last trades.

My decision point came when price hit and broke the uptrendline. The downward break of that trendline added to the uncertainty, giving me a low risk, high uncertainty long opportunity. The hardest part was deciding a course of action during the chop.

Once direction was confirmed i added to the position in anticipation of a potential breakout of the short term downtrendline.

I cut my losses as best i could on the first two attempts and the third gave me a reasonable opportunity to work my profit. I could do a lot better with my profit taking but at this stage i just used a trailing stop - though closed it manually in the end.

My most difficult part of this trade was the internal battle to take profit when I was up a bit over +4R near the 0200 mark. perhaps in future i can address this problem without adding unnecessary complexity. My decision making process is really very simple - so simple it seems stupid.

Wiz.

Hi,

Yes, one of my favourites. Most of the probabilities stuff comes from Chris Shea's book "Licenced to Profit" and Mark Douglass' "Trading in the zone". As well as ideas from John Carter's book. In addition to James16 (price action rocks) and Rob Booker, Mike and others. Oh and one individual who asked me a challenging question last year that has bugged me ever since.

Wiz.

Wiz.