Soultrader's Clinic :)

Agreed. It comes down to the definition of the coin and the rules of the experiment.

A great trader could flip the coin, go long or short, and if it isn't a good trade, close it for the spread; if good, let it go. But that wouldn't really be flipping a coin, it would be that trader using his system.

I think that's maybe where you were coming from.

Most of us probably went through a stage where we preferred not to have to decide, or be responsible for the trade. Indicators, EA's, signals from elsewhere, or flip a coin, anything but having to decide ourselves what to do and risk being wrong!

http://en.wikipedia.org/wiki/Random_walk_hypothesis

I posted this link on the "Technical Analysis Fallacy" thread a week ago or so... i thought as we are having discussion regarding coin toss and all, this might help us someway.

winlots
Member
Member Since Dec 2005
Posts: 19


http://www.forexfactory.com/images/icons/icon1.gif reply
Hi Soultrader.

Your comments are terrific, absolutely spot on and correct, unfortunately in practice there is just something missing for me in trading. Maybe trying to get rich too soon is my mental failure. I can read up all these psychology and discipline topics and in my head I will say ‘that’s what I missing, I can improve my trading now’ but in real trading, these things just do not happen.

If you see after eight years people still fail, I just wonder whether if I will be one of them as well. I have lost so much, it’s more than just a financial blow but a mental one. I know it’s easy on the outside to say, you must find the golden rule and system, be disciplined………blablabla. Maybe at the end of the day I am missing one criteria and and all rules are failing to be embedded into me as I so desperately want to succeed again.

Dunno Winlots, maybe you are one of those who will never make it - hell 90+ out of 100 are in those. (truth is more than 95% and i have evidence of that but let's not go there)

Then of course you have to define 'make it' - what is failure for you may well mean success for another.

What i can say from my experience is that the biggest cause of failure in this game is undercapitalisation. People come in with a few thousand and expect to make a living. it's just not possible with 5k to make 10k a year in perpetuity, sure you may manage it once, but not consistently.

punters come into this game with 5k thinking they can make a grand a month which is ridiculous. it means they have to take crazy risks and way overleverage.

if you want to make a grand a week on average through the year then in my opinion you need 50 grand to start with. anything less puts you into over leveraged territory. 50k from 50k is do-able for a good trader consistently, but even then is hard work to keep up.

so whatever you want to make for the year, double it and to be fair, triple it and then you know you will get there without stress. Play it at 2;1 max with 1% risks and you won't go far wrong.

Trading should be pain free - you should be trading an amount that seems small enough to be a joke with the account you have. then you can trade properley and weigh up your method over the large numbers.

you know what's sometimes very funny. When people first start trading they usually do well. they come in a make money and that's what hooks them. Then they read about some indicator, try this and try that and then it's over - what seems like a lifetime of chasing systems.

My advice is dead simple. Do what you did to begin with - if it's going up buy it. If it's going down sell it. Hide the price so you can't be influenced by the big numbers that say "oooh, it's just hit 1.9950, it's not a good place to buy" it's always a good place to buy if it's going up. and whatever you do, ditch the low timeframes, anything lower than an hour will frustrate the hell out of you.

now some will say that a method will work on any timeframe and I have to agree, but the lower timeframes require 10 times the discipline and ten times the spread costs by the time you've done. let em breathe on higher timeframes and you will breathe too.

Lower timeframes are for the overleveraged traders that cant stand to lose more than 30 pips on a stop. My smallest stops are 80 pips and i've ran with 500 pip stops before, in fact most of the time I dont have any as we covered earlier in this thread.

ranting now so i'm off, hope you had a good weekend.

There is soooo much truth in that last post.

It takes awhile to come around and face it.

I feel like I've "made it" since, if you can do something for 6 - 8 weeks, then you've got it.

I figure I'll improve some with time, but about 2% per week is what I'm averaging. So 50K would give me 1K per week. Not bad. What other business can you put 50K into that will yield a good income? No overhead, no employees.... however, there's no such thing as easy money, with rare exceptions, and forex is not one of those exceptions.

I turned the corner when I made my list of "golden rules", (I call it "what works"), put in absolute discipline on trade size so that stress and pain are all but gone (and I'm off the nexium now), and, (drum roll, please) I'm doing what I started out doing, after chasing systems for a year or more.

But, the time was not wasted, I had to do that, to get to here. I had to trade to speed up learning, so I actually had to trade when I didn't know how. And it has to be real money, so I had to pay my tuition, IMO, to get there on the shortest route. Having money in the game makes it important, so I watched more closely and remember the lessons better.

That wasn't all it took, though. As I "got it", I changed too. I can read a chart a lot better than before, and I know that if I don't see anything poppiing out at me, I don't trade. That was probably the biggest change that helped me - slowing down and just letting the trades come instead of needing to trade NOW.

All these things are easy to see once you're there, but they can't be put totally into words so that someone who doesn't already understand can understand. And even if you understand, it's hard to control desires and behaviors.

It just takes time and practice to get there.

Reminds me of T.S. Eliot (no, NOT the Elliott wave guy):

We shall never cease from exploration
And the end of all our exploring
Will be to arrive where we started
And know the place for the first time.

I think you put that exceptionally well. It took a while for me to realize that I was suffering from the 'need to trade now', and it comes in part from having some early success when you still don't really know what is going on. As you wrote, you have to trade and burn to learn some of the lessons.

well, finally find myself with 5 minutes to spare

No, seriously though, I just go in and out of this posting malarky - sometimes can't be arsed then just want to do it.

My message still hasn't got through though that indicators are bollocks

anyway, had an PM, might be a bit thin on substance but it was the only one in my mailbox with a question - come on ask!!!

http://www.forexfactory.com/customav...tar57207_1.gif w_z
hand over them pips
Member Since Dec 2007
Posts: 60


http://www.forexfactory.com/images/icons/icon1.gif Hi souldtrader
I just discovered your clinic. It's a great thread. I plan to revisit it often to get rid of my fear of leverage.

Let me introduce myself. My name is Will. I'm 19. I've been fascinated by the financial markets since I was a kid. I started picking stocks when I was around 13. I am, however, relatively new to forex. I started about 14 months ago.

I've been able to achieve a modest return with little leverage (under 5:1). I plan to continue to do this until I can stop playing with my SL's.

I have a question for you. It's not exactly related to psychology.

You mentioned that at one point, you traded 150 lots at a time. I was just wondering which pairs you traded and on which timeframes? I'm asking because I always hear about forex's "infinite" liquidity and I just wanted to know if a position like that would cause a ripple or not.

Regards,

William

Hi William, and apologies for the late reply.

first to pick apart your email a bit. 5:1 is not small leverage - it's about right in my opinion, I trade at 3:1 and sometimes i think that's too much.

I realise it always seems relative to your account size, i mean if you only have $1000 what use is 3:1 right? - well, that's what kills those 97% - underfunding. so stick at the level you are at and the chances are you will last a good while before you've spent it all

Now, onto your question about liquidity.

Infinite liquidity is a myth and does not exist in forex or any other market. it's also like moving sands, sometimes there is lots of liquidity and sometimes next to nothing. to say there is unlimited liquidity is to say that there are an unlimited amount of buyers and sellers - if that were the case then price would never move. Think about it

Yes, I have traded 150 lots, in fact i've got close to 200 before now. they were all in cable and sometimes they moved the market - othertimes they didnt. 200 lots is not big - its just 20 million.

Depending on the pair depends how much liquidity there is and then there is time of day. you would think those times would be obvious and mostly they are, but then ive seen a market swallow 100 million at lunchtime without moving a single pip and other times ive seen 100 lots move it at peak time.

also, if there were unlimited liquidity then there would never be a stop hunt. stop hunts are there not to screw you but to work an order. if you had a very large order to place in the market, say a couple of billion, (not as uncommon as you think) then the order is generally worked by the traders at the brokerage. they use the grapevine to spread rumours, use vast sums to hunt stops so they can get their client the best price they can. they have to work in the order bit by bit. if they want to be long then they cant be buying a rising market so they buy your stops as they are hit etc etc.

also their is a heirachy of liquidity. euro is the number one with regular orders of 50 million to 100 million going in - eyes are raised when figures appear like 200mio on euro. cable sees 10 and 20 million orders regularly and 50 mio starts to get interest from prop traders. going down the food chain to pairs like audchf and the liquidity gets smaller still. Sometimes you can move those markets with 10 lots

anyway, hope this answers your question, thanks for popping in.

any serious traders wanna join in my voice and whiteboard room?

am there every day with some collegues, we dont talk all day but we do discuss things in the world and sometimes even trading lol.

looking for serious professionals only, no offence to newbies but it aint no training room, just a place to hang, tell jokes and trade forex opportunities together. would prefer professional traders and innovative thinkers as we do develop trading methods sometimes also.

got about 5 places available. If interested just drop me a PM and we'll have a chat- just wanna make sure i'm bringing talent into the room is all - it's not a training room so please no begging pm's

no wallflowers please - it is a voice room and not text chat

ta

Fadetobla
Member
Member Since Nov 2007
Posts: 15


http://www.forexfactory.com/images/icons/icon1.gif Soultrader's Clinic - Question
Hi Soultrader,

I've been following this thread actively for quite a while and its like you said - after reading your posts in a 6 months time is totally different compared to when I first red it. I just want to say thank you for your invaluable contributions.

Assuming that I trade on H4 chart, which is zoomed out to cover 2-3 months period, I have three questions:

1). Is my zoomed out (to cover 2 - 3 months) H4 chart sufficient to tell trend direction or should I watch in addition D1 for confirmation? I mean which one is my trend to work with when you have a downtrend on H4 while its an uptrend on D1.

2). For instance, if I'd see an uptrend, is it reasonable also trade the pullbacks, I mean to go short?

3) Which two indicators do you personally use as discipline tools?

Thank you, enlightened one.


In My Opinion ...

Zoomed out one one chart is good enough to show the major trend direction for the timeframe you are trading. Zoomed out on a 4 hour you can see the daily anyway. it's worth looking at the weekly also tho.

personally i dont trade the pullbacks because if the trend is to hold then the pullback will not have enough strength to justify the risk you are taking (unless of course you are shorting say a triple top with very tight stops in which case your risk is low)

as for indicators I no longer use any apart from Price and my eyes. I do occasionally have OSMA on my charts because i've not totally managed to give up indicators yet and I do have zigzag on just to save me drawing my own lines on. But i don't base any trading decision on any of them anymore. Indicators are bollocks

It's worth telling you and others watching this thread that my style has again changed, I'm back on the lower timeframes and trading Intraday. As a trader constant change is the normal state of afffairs and at the moment the 15 minute is what's rocking my boat.

It's funny how your trading and opinions change as you go along isnt it. I used to say that the lower timeframes were just noise but when you think about it all timeframes are noise.

the 1 min is noise from the 5 min, the 5 min is the noise from the 30 min and the 30 min is the noise from the 4 hour. the 4 hour is the noise from the daily and the daily the noise from the monthly.

The choice of timeframe i believe is down to a few factors. firstly how much time you have to spend trading, secondly the size of stops you can comfortably manage which in turn correlates to your account size. other factors are whether you are comfortable leaving trades open overnight and often over the weekend.

Ive traded every timeframe under the sun, from a 1 minute to a weekly chart and i change as the market does. However as of the last couple of months ive been back on a 15 min chart. I was getting very fatigued by having positions open overnight - checking them at 11pm, getting up at 6am to check, constantly thinking of the trades. it's very tiring.

so now i'm on 15 min charts, at the pc for 7:45 am ish and often finished for mid afternoon and at the latest 6pm. The day wins or loses and then I can relax.

the cost of doing business is higher of course because 1 day is probarbly 5 or 6 trades worth of spread as opposed to just 5 or 6 a week on the higher timeframes but it's been a price worth paying.

that's me for now - 15 min charts and price action.

http://www.forexfactory.com/customav...tar36145_1.gif stewartr
I did! I did saw a twend!
Member Since Mar 2007
Posts: 68


http://www.forexfactory.com/images/icons/icon1.gif Your thoughts on scaling out.
Hi SoulTrader.
I think I could improve my trading by letting my profits run further. I am generally happy with my system, so I am wanting to leave the entries and initial stop the same, and just scale out.

Can you see any pros/cons that you want to comment on regarding the following plan.

1. Backtesting has shown that if I was prepared to leave my initial stop in place (2%) and NOT MOVE IT, 70% of the time the price would go in my favour by 1R. (Usually I move my stop immediately that the price moves in favour of the trade - so my losses are usually less than 1R).

2. So I am thinking of closing 60% of my position at 1R and letting the remaining 40% run.

By closing 60% at +1R I need 65% of trades to move 1R just to break even. I then rely on the remaining 40% of the position to take me into decent profits.

Have you ever looked at the pros and cons of scaling out at different ratios? Is closing 60% and letting 40% run, better than closing 50% and letting 50% run? Or 70/30?

I have my opinions - yet I am very interested to hear your thoughts.
Best wishes
StewartR

Interesting question Stewart, thanks for asking me.

I've been enjoying watching your journey on your thread by the way. nice to see someone taking those old steps i remember so well, I hope these answers help you out.

This is an eternal question - people are always quoting 'let your profits run' which is great - but the real question is "how far do i my profits run"

The old arbitrary 'cut your losses short and let your profits run' is another legendary pile of bollocks. Firstly it comes from the stockmarket world in which a tradable instrument has a bias to the upside. Let me explain.

In stocks and shares their is an inherrent bias for the prices to rise. The company issuing the stock wants the price to rise, the shareholders want the price to rise. Your pension funds are often tagged to an index of stocks and shares for steady almost guaruanteed growth. Sayings like this were also part of the 'buy and hold' culture during the middle of the last century where governments and the like needed people to invest and hold the stock to help out the country in times of need. during this time it was considered anti-american to sell short for example.

Forex has no bias. Governments would be mad to want their currency to increase in value exponentially, it would kill the export market of our global marketplace and cause unimagined problems. sure, importers get a better deal when you have a strong currency, but the business of a country is to produce and sell to the world in the same balance that they buy.

Governments want a balanced currency value - sometimes strong, sometimes weaker but always competitive.

So, back to the subject (sorry for the rant!) and addressing your message.

The design of a trading methodology consists of the following.

1. what to buy
2. when to buy
3. how much to buy
4. when to close

i'm sure there is something else but i'm buggared if i can remember right now! i'm sure someone will chirp in.

So, from what i've gathered in your thread you have decided on 1, 2 and 3 and your question pertains to number 4.

I hope you don't mind if before I address that i make some observations on your thread.

Firstly any forward testing to make assumptions should consist of at least 100 trades and not the 20 you are working on. if you are going to do this then allow yourself a large enough sample size to determine an assumption.

secondly if you have a trend following method which is 70% win / loss then i'll get you an allocation of billions. I'm not saying it's not possible but it's highly unlikely. if you can do that for 400 trades in forward trading then you will make billions. Most trend following methods are around 30%-40% effective and the winners pay for the losers and then some. Backtesting a discretionary method is almost impossible so be sure NOT to assume you can keep to 70% winners. when backtesting most people generally forget about the prevailing conditions of the day - was news about to come out etc and in which case would you really take the trade etc.

taking that into account then your question basis could be flawed. but let me get back to addressing the 'letting profits run' debate.

I'm a big believer in letting profits run - it is in my opinion the only way to make money. However the question is how far - a 1 pip profit is a winner at the time as is a ten pip winner a 100 pip one and even a 1000 pip one, ive had winners in the past run to over 1500 pips before ive closed them.

One thing I dont believe in is taking partial profits off the table. If you close half a position and letting the rest run then you are in fact cutting your profits. If the trade needs to close because of your exit reason then the whole trade needs to close. if it needs to run then the whole thing needs to run. studies have shown that in no circumstances ever has taking partial profits resulted in an improved system. see van tharp's work on this.

so this whole thing really boils down to your personality and choices as a trader. all points are valid and it really boils down to this 'cut your cloth to match what you have'

If you want to shoort for say 400 pips with every trade then you can expect to have to ride some severe pullbacks and you can expect to have to have large stops in the market whilst at the same time trading smaller lot sizes. if however you want to take 20 pips a trade then you can ramp up your lot size, squeeze down the stops and still make the same money.

I know of one trader who shoots for 5 pips a trade and then sits and watches as I steadily build a 100 pip intraday trade - but he makes more than me because he's trading 100 lots and i'm on less than 10.

the shorter term trader has to be much more experienced and disciplined (this guy has over 20 yrs in the markets) and both approaches are valid if you can do them.



sorry now Stewart, i'm ranting - let me summarise my advice.

1. Firstly don't rely too much on statistical numbers - "i win 70% of the time and it's a 40% probability etc etc" once you make assumptions like that the market will prove you wrong.

2. dont close partial trades - professional traders dont close partial trades, in fact they add into winners - that's one of the hardest things to do, try it sometime.

3. forget about locking in profit, closing half, is this enough pips, and things like that, you are focussing on the money / pips. Instead focus on the process. you have specific setups for entry based on price movement so why do you not have the same thing for exit?

Professional traders focus on the process - if the process is good then the money will take care of itself. No amount of money management will turn a bad process good.

I dont like Moving averages as you know but if they work for you then what the heck - but can you see what im getting at here? you have defined an entry method based on price action which is great, you're half way there. Now you need to define an exit system based on price action too. your trade might go to the moon and if it does you want to be fully loaded not at 40%.

Many traders in their trading method look to price patterns, indicators or whatever for their entry and generally they design good stuff. That's because generally it's based in some way on price action - where they fall over is designing the exit - they say "oh take half at +20, the rest at 50" or "i'll close at +3% of account" or something else connected to pip value, or money which has nothing whatsoever to do with the market. if you enter based on price then seeing as you nor i have the first clue where price is moving why would you not exit based on price?

Focus on the process.

Hope this helps

I think it is because, it is harder for a novice to understand that +50 may come back to +20 but to get +200 one should be ready to accept -30 pips drawdown. More than often I use to see +100 and close it at +10,+30 something just to watch it head back to +100 then +120 etc... its a darn basic blue collar mentality... earning based on time period instead of earning on asset class.

Most of the traders set daily/weekly/monthly goals. So for a guy who targets 50 pips a day feels like its time to close when he sees +50 or he/she will stop trading after reaching monthly goals. Very few actually trades based on the merit of each trade without being too subjective about it.

A 30 pip stop aint going to be anywhere near enough for getting those 200 pip runs.

I'm also not sure about your statement on ' Most of the traders set daily/weekly/monthly goals.' - is that true? I dont set any goals for targets daily weely or otherwise. I just take what i can out of the market, sometimes its a lot and sometimes i lose some.

But you are right about them setting targets for individual trades - that's the biggest killer in this game - taking profits too early or limiting the profits by cutting the position at some arbitrary figure.

Right, got a PM question from someone so i'll try and do that now.

http://www.forexfactory.com/customav...tar37923_1.gif Ricardo. http://www.forexfactory.com/images/s...ser_online.gif
Member
Member Since Apr 2007
Posts: 136


http://www.forexfactory.com/images/icons/icon1.gif Hi soultrader
Hi soultrader,

Sorry to bother you with a private message, but I was reading one of your posts from the "is the market random or not" thread and there's a particular paragraph I find very interesting:

Quote:
Originally Posted by soultrader http://www.forexfactory.com/images/buttons/viewpost.gif
then in between this carnage there are the bank traders who rotate the market up and down to get clients / companies funds into the market at the best rate they can so they earn their few extra pips that they charge the client to broker the transactions. drive it down a little, get some more in, drive it down again, get some more in - this constant rotation is what causes the eddy of the market in ranges and trends you call em pullbacks and double bottoms / tops - the market is just rotating and putting the client funds in at places the banks agreed with the client or better. but we have no idea how much they have to get in the market through rotation or which way the investment is currently heavy. Even if we did there is nothing to say that some other bank is about to move a lot of money the other way.

How can I learn more about this "market rotation" process and how bank traders operate? I was just wondering if you can point me to any book or website where I can learn more about this kind of things. Right now I'm reading a series of PDF documents from the NY federal reserve bank where they explain how FX works [this is the link http://www.ny.frb.org/education/addpub/usfxm/ ], the information provided in those documents about the market structure seems really good, but I feel I still don't understand exactly how banks pump money into the market causing this "market rotation" process you are talking about.

Any help will be highly appreciated, thanks in advance.

Have a nice weekend.

Good question - i'd like to get my mate trev to answer this if i can, but for now i'll try my best.

the ideal day for a floor trader is a doji day - price goes up then back down or down then back up. The floor trader likes to rotate the market bringing buyers into the market at a lower level and bringing sellers in the market at a higher level.

price rises, he buys, buyers leave the market and sellers come in, he sells. Just like we do. floor traders love ranging markets - they can ride the up and down like a baby all day long.

The advantage that a floor trader has is that he has no spread - he can buy or sell on the same tick. These people are true scalpers and what's more they trade their own money. with no spread imagine the small ranges that you could trade.

Here's something that suprised me - most floor traders are true scalpers taking one tick at a time but they have the advantage of seeing the order book - of course this does not apply to forex but there are still floor traders trading currencies.

I'll ask my mate trevor to come in and give a full explaination of what happens.

There's also the link from the floor trader to the broker - the broker is the middleman - he can't trade but has to ask the trader to get his deals on - the trader will take get the best deal he can for the broker but lets say the broker is given 1.5500 then the trader prob got 1.4999 and the tick is his.

Trev will explain more. - kep em peeled or even Daytrading - he will know.

Marsh
Member
Member Since Feb 2008
Posts: 4


http://www.forexfactory.com/images/icons/icon1.gif Questions for the Clinic
ST,
Ive read this whole thread as well as other posts you’ve done, and I have a couple of questions:

1)You mention you ONLY use S/R on your chart, and have even told a previous poster to remove his TL’s from his chart.

Here is that post: http://forexfactory.com/showpost.php...&postcount=131

My question on this is why no TL’s? Arent they too based on price? Plus you’re a trend trader, so wouldnt “trendline” help define characteristics about the trend?

2) I’ve seen your S/R video on youtube where you mention using a line chart to draw S/R levels. A line chart draws from the close of a bar, which you trade off of, so I can understand its use. However, would this cause conflict since there is a difference in broker candle closing times, esp on the 4hr and Daily? This could then lead to differing levels of a few hours worth of pips.


Now…i can take a guess at your answers, and will do, but please correct me if im wrong.

1)A TL connects points of S/R from previous highs and lows in an upward/downward directions. Therefore, trying to use them as points of reverse would be trying to predict the market since the line would be going up/down into areas of untested levels. These lines would tehn only be considered vailid if they crossed with a S/R level, but then why not just stick to S/R….?

2)Simply that levels of S/R do not need to be TO THE PIP as you wait for the reverse of already be in progress before entering on a trade (ie. Buy strength sell weakness)….?

I hope this makes sense, and thank you for your help.


-Marsh


Hi Marsh, thanks for the Q.

first just let me say that sometimes I do put other stuff on my chart - at the mo for example i'm using the old hilda system cos the market fits the system.

There is a difference though with most traders, they use indicators as prediction tools wheras i just use em for discipline.

next week i'll prob just be back to plain charts - a professional trader changes to what is working constantly and has an arsenal of tools to make that happen.

However your question was about trendlines.

trendlines are just an arbitrary line showing which direction the trend is in. Your trendline will most likely be different to mine which will be different to his etc - they are so arbitrary.

The thing is how people use them - they are expected to bounce to the pip just because youve joined three previous points together on some arbitrary angle.

Some professional traders use trendlines also, but they use them as direction setters and dont expect them to hold to the pip. Marber in his book 'Marber on Markets' talks about a trendline being broken if price breaches by more than 10% on stocks and 5% on currencies (think ive got those numbers right) but he also goes on to state that trendlines are useless on anything below a daily chart.

So if the trendline is still classed as holding at -5% that means a cable trendline isnt broken at minus 99 pips! (according to marber) then you just draw another one.

The S/R video you watched is years old, i suppose it's still relevant but today i just use bar charts or candlesticks but i dont even expect S/R to be held to the pip - an area of S/R is generally a good 20 pips wide and sometimes 50 or 100 depending how you are looking at it.

the most important thing is that untill it has actually acted as support or resistance it just potential support or potential resistance. if you take a trade on these points you are predicting - it's only S/R when it's done it's job

which leads on to your last point - prob the most important - don't ever buy as it hits the line or area you have defined - wait for price to be moving in your direction before initiating a trade. this is often one of the hardest things for a trader to do as he sees price moving in his direction but he is not in the trade. dont predict - follow. The number of times you are right will not outweigh the number you are wrong if you are buying weakness or selling strength.

Broker closing times and S/R:

This makes little difference - below the 4 hour charts there is no dfference, as 1 hour bars happen every hour and on the 4 hour chart and above S/R points do not often turn on a sixpence - they mostly take several bars to form and as such are the same no matter what the broker timeframe is.

Hope this helps.

So true. I'm sure this can only come with time and experience, but any advice about how to manage this would be helpful.

Marsh
Member
Member Since Feb 2008
Posts: 4


http://www.forexfactory.com/images/icons/icon1.gif Clinic Question
You mentioned in your "stages of trading" article that a trader will often read books on psychology of trading. I was in the market for such books and am wondering if you have any suggestions. What books do you recommend not just for psychology, but for trading in general. Thanks.

-Marsh


Hi Marsh, gosh, lots of books to read - some you have to read to find out what NOT to do.

The complete turtle trader by michael covel - great book - to learn what NOT to do. the turtles is this great story, butcovel actually has some warnings in here about leverage and exposure.

Fortunes Formula - really cool book to read. Edward Thorp beat the casino's with card counting - this book tells how he moved into the markets and did the same thing with 'The Kelly Formula'. Highly entertaining AND thought provoking for traders

Marber on Markets - One of the best trading books for those who want to trade Price Action - a little pricey but well worth it.

Inside the House Of Money - Brilliant book that explains exactly how Global hedge funds work - if you want to know how people like Soros make their money this is a must read.

For now i think that's enough to keep you going. Nothing psychological there really but psychology is useless without an understanding of the way the market operates.

Im currently reading Mastering The Trade - looking like a very good book so far, i'll let you know when ive read it if it's any good.

CHFJunkie
Member
Member Since Oct 2007
Posts: 23


http://www.forexfactory.com/images/icons/icon1.gif Information Overload..
SoulTrader,

What do u think about information overload?
I studied a hell load of things in the past six months.

I was doing great till I studied some different approaches, now they are all like spaghetti in my mind
a system that I studied says Buy while another one I also studied says Sell!
I stand paralyzed and really wish I could undo all trhese studies and settle down to simple things.

How can I empty my mind and get rid of everything inside of it?
till now I can't do so , Coz a system generated by one approach , tends to be a loser but a winner of the other one.
I feel like jumping between them although I suppose that I passed this phase in my learning curve.

Any advice?

Regards
T.Joe

Like every trader on this board that's bveen around more than 6 months I know exactly what you mean.


My experience has been that as a trader you need 3 trading methods to utilise (some would call these systems)

you need one for a trending market, you need one for a ranging market and you need one that doesnt lose much but allows you to 'scratch the itch' when you've just got to trade - you know what i mean the latter should be a scalping method with tight stops so you dont lose much before you regain your discipline

so, that didnt help much.

As you progress through your trading career you will try everything under the sun. you kind of go through phases like for maybe two months you'll look seriously at grid trading - then you'll throw that out and look at something else.

In the end when you've looked at enough you will have two things - firstly a method that's kind of mechanical that you trade all the time.

but secondly you'll have learned to read charts. you will develop a kind of intuition with the markets and what you'll find is that all the systems youve tested and tried kind of come together into this intuition.

You quite literally start to feel the market and that's when you'll start to do ok.

When you see two of your methods conflicting - see if you can determine which is strongest and if you can't decide then don't trade it. afterwards, whichever one won see if you can determine why it won over the other one - is there anything that happened that you can learn from.

Concentrate on the winner and not the loser. you'll learn more from winning trades than losing ones - all you learn from losing trades is what not to do. this sets up negatives in your mind and when you are constantly told by your inner voice NOT to do something you generally will find a way to do it anyway. Concentrate on what goes right, not what goes wrong.

The real key in trading is KNOWING that you win more capital than you lose. you have to change your mindset to winning trades and losing ones - they are all just trades, some win some lose but the overall outcome must be that you maximise the winners and make more money than you lose.

salesmen do this when making sales - they know that they will get more 'no thanks' than 'yes please' - but they know that out of say 10 housecalls they will sell 3 times and will make money - they look at the whole picture and dont get hung up with the 'no' results - if they did it would affect their whole performance.

the same thing happens in trading - when the loser loses forget it, close the trade quick, close the chart and go onto another pair for a while and get back to looking for the winner.

One thing is for sure, you will ALWAYS have conflicts, there is no such thing as a sure thing in trading. Get used to it and just look for the winner not the loser.

Hope this helps.

Marsh
Member
Member Since Feb 2008
Posts: 7


http://www.forexfactory.com/images/icons/icon1.gif More for the clinic
Hi Soultrader, thanks for answer my previous questions.
I have now gone through and read almost every post from you on this forum, and have tried to create a basic system from the information you have given out. If you dont mind I would like you to evaluate my system and give me your opinion on where I should be more or less focused (ie. make a more detailed exit plan, or focus less on entering, or have i left anything out....etc)
I guess im just looking for my next step as a trader.

Here is my plan:

Rules:

1. Determine the trend on daily:
   1. If price starts on bottom left and ends on upper right, the trend is long
   2. If price starts on upper right and ends on bottom left, the trend is short

2. Determine the trend on the 4hr
   1. Higher highs/higher lows = long
   2. Lower highs/lower lows = short
   3. Equal highs/equal lows = range

3. Determine Support and Resistance on the daily and 4hr
   1. Use line or candlestick chart
   2. Plot only support in and uptrend
   3. Plot only resistance in a downtrend

4. Only trade in the direction of the daily trend from the 4hr chart
   1. If daily is long, wait for long price action on the 4hr
   2. If daily is short, wait for short price action on the 4hr

5. Buy strength and sell weakness.
   1. Watch for price to “bounce” on support in an uptrend, and then enter a trade only when the price reverses and is moving significantly upwards again. Enter only on the close of an up candle
   2. Watch for price of “bounce” on resistance in a downtrend, and then enter a trade only when the price reverses and is moving significantly downwards again. Enter only on the close of a down candle

6. Let profits run.
   1. Only close long trade on a down candle
   2. Only close short trade on an up candle

7. Cut losses short.
   1. If price moves against the long trade and a new candle opens significantly below the nearest area of support, close the trade and look to reenter per rule 5.
   2. If price moves against the short trade and a new candle opens significantly above the nearest area of resistance, close the trade and look to reenter per rule 5.

Hope this makes sense, and keep in mind things like position sizes are not covered since that will vary depending on account balance etc...

Thank you


-Marsh

Sounds ok Marsh though a little overcomplicated.- some observations.

why have two methods of determining trend? ie on the daily you go left to right but on 4 hour higher high higher low etc - why not both the same?

secondly, i think the biggest flaw in this is that you are taking notice of too much of the past - from my perspective i dont give a toss what happened 3 weeks ago or where the trend was then - im only really interested in the trend NOW. what happened last week might have a bearing on where S/R is but nothing else on my time horizon.

I no longer use multiple timeframes, just one and even then i'm only really interested in what price is doing now rather than what it was doing on the left hand side of the chart.

but then I don't hold positions overnight anymore or chase the swing trades, i'm back intraday and lovin' it.

If i was swing trading again then i'd still just be on a single timeframe - the 4 hour chart - i'd look for swing points and get in with the objective of small stops and running profits.

Trouble is these days is that everyone and his dog is trading pullbacks and everyone and his dog (including the sharks) know this. What this means is that as everyone's doing the pullback then they are starting to fail - as is usual when a lot start doing the same thing. the big players know what you will do with that pullback - they know you'll buy and they know where you'll put your stop. They like stops

One thing you should know about trend following systems - they lose a lot of the time and you need to prepare for that - they make money in the long run - the trends pay for the crap times, but you must accept there are crap times and just keep trading through them - the day you say 'i'll leave this one alone' is the day your trend comes in.

good luck with it and keep us all informed

Hey this is a bit sudden!

If you are looking at any kind of price behaviour it requires looking back a few bars to see what is going on. Since Marsh was/is looking at 4hr charts then a couple of days is an absolute minimum for determining any local trend. It would be reasonable to expect some hint as to how many previous bars constitute 'enough'.


Ok, so you changed your system. I look forward to some more gems on short-time-frame trading in the near future. Welcome back!

Oh, and here's wishing you good trading

Hi matey, thanks for the posts.

just to clarify, i havent 'changed my system' as such - I trade many different ways depending on the market - for example today i have an entry pegged for cad on the daily timeframe, this morning i went long euro for 10 pips on a 15 min timeframe and i'm watching eurjpy on a 30 min timeframe right now. the 'system' as you call it isnt really any different. (i prefer to call it 'method') but i have 3 different methods that I trade. one is trend, one is countertrend and one mechanical.

as for how many bars back - well for me it depends which method i'm using - if i'm countertrend then its probarbly two bars back. If i'm trend trading then it's however many bars it took to make a higher high / higher low and then if im s/r trading then it's however many bars i need to look back to find support. yesterday i was looking for a resistance point on audusd and had to look back to 1982!

sometimes I trade only the current bar and i follow that bar with a stop that moves up every bar

what i'm saying is that when actually placing the trade i'm looking at now - is it going up NOW? what do i want to do NOW the past does not equal the future. yesterday i went long usdjpy at 103.03 on a 4 hour chart - at the time i was only interested in the last two bars and the current bar.

I think too much emphasis is placed on looking back at what the trend is - the current bar and the last bar show you where the trend is right now and that's all that matters. take euro yen right now - looking at a 30 min chart you would say the trend is up - but it's falling as i write so if it's going down why not go short just because it appears the trend is up? (this isnt a call short by the way , just an example)