Ramblings of a Forex Junkie

I think the challenge is finding a method that suits your psychological disposition.

The way I see it, we are not all created the same. In my day job I train individuals and companies in an NLP (Neuro Linguistic Programming) discipline. I show that how someone sees the world is revealed in the language they use (how they choose to express and phrase things in a certain context).

There are a few traits we use that are clearly evident in different types of traders.

For example – some people are motivated by achieving something – they are goal orientated (we call them ‘toward people’).

Others are motivated by not losing something (we call them ‘away from’ people). Both motivation traits can be equally strong, and neither is right or wrong – they are what they are.

But think about those traders who speak mostly of protecting capital – they are ‘away from’ and they find success in strategies that focus on that. Conversely think of those who are ‘toward’ – they set targets and goals – they want to ‘achieve’.

Don’t not make the mistake of thinking ‘toward’ is positive and ‘away from’ is negative

If you know which one you are you can find a strategy that suits your pattern and you are more likely to be successful with it.

I know of a man who has become a millionaire three times. Each time he got there he sabotaged his business and lost it. Why? I turns out he was an ‘away from’ person. He was motivated by ‘moving away’ from poverty. When he got there and had made a million he lost his motivation, he made subconscious mistakes that put him back into a place of motivation.

There are other patterns I am happy to explain, and how I see they fit with trading psychology if folk are interested, or Chris wants me to.

NB – people have different patterns in different contexts. Just because you are one thing in the context of trading, it doesn’t mean you are the same in the context of family, work, or vacation.

Again I am not saying that "finding a method which match your personality" not being important. Nor I am saying that psychology is not important. Again, you have to find a method with an objective edge first. Right? Given a number of methods without positive expectency, no matter how strong your discipline or how much it suit you psychologically, one is going to lose. Right?

Are you believing that it is so easy to find a method with an objective edge, and so it is not an issue worth talking about? Have you ever been consistently successful in backtesting trading (in which little mental issue involved) with one method suiting you?

Set and forget a buy yesterday low for EU for 20pip.... It is so surprisingly effective to get me to TP...
It went 30+ pip max before coming back ...

There was also accumulation on the longer term tfs in the form of an ascending triangle-like pattern, although I'm not sure it would have changed much.

I am really wondering how quickly liquidity can dry up in fx with the increased participation of HFT (much like with the flash crash in 2010 in ES/SPY).
A while back I used to wonder why hedge funds with around 50 to 100 mill AUM could not day trade fx and return 60-70% yearly with minimal risk. After all that order size is nothing for the majors during peak times. But it does seem that all of the sudden the sudden liquidity can dry up all of the sudden. Getting in is easy, out less so at the size. I just never traded large enough size to get a feel for how bad it can get. If you got a nasty slip for your 1-2 mil orders then I can only imagine what would have happened with 10+ mil.

Tail/black swan risk seems to be almost inextricably linked to liquidity risk as one drags the other into its depths.

No - my experience is that backtesting for me has proved itself futile - I can look back at charts and say what I would of done with the rules, but the reality is I break rules - it's in my profile - I can't help it.

The tendency to 'break rules' is another profile I train, which I can explain more about if anyone is interested. In the link to Dopey's post (http://www.forexfactory.com/showthread.php?t=196702) which rdsl posted, Mike wanted him to take a Myers Briggs' test - why was this important? Because he knew that you needed a certain profile to maximise his method.

The reason SP's approach appreals to me is that it has principles, but requires discretion. This discretion allows me to exercise my need to 'break the rules', I don't need to fight my profile - I can work with it. But, with that I am required to 100% take responsibility for my discretion. I do not blame anyone or anything if it doesn't turn out I was expecting. I am sure that for many the quest for the 'holy grail' is actually a desire for someone or something else to be responsible.

I know this has been covered before - but I am convinced there are many methods that give you more than 50% probability, with a greater than 1:1 RR. That is all you need in a method to be profitable. The rest is all about execution. Many successful traders make it sound simple, because as Chris said 'trading is simple, but it's not easy'.

Having said all that, I am not an expert trader and am still learning. It's just how I see it.

In backtesting, the requirement of discipline is very limited. First, no real money involved. Second, the required patience is very small.
In backtester, you can increase the speed to make move faster, you can pause it for thinking twice as much as you like.
All the typical psychology issue, such as, greed, impatience, fear of failure, etc. should be kept to a minimal, and only rational judgement is important to the execution.

But, you still cannot win in backtesting. So what is the reason?

You explain the failure by the breaking of rules, even the requirement of discipline is so low. Is this explanation reasonable?

You said "I can look back at charts and say what I would of done". Yes this is very true. Everyone has experienced this phenomenon, novice or experienced.

I would contend that the true cause for this phenomenon is hindsight bias - one adjusts his reasoning of rules based on the consequence.

Such a hindsight bias is really a big psychology issue that one has to handle, and it may be the first psychology issue to tackle. Before overcoming such issue, one cannot objectively weigh the edge of executing a trading method (with discretion), and distinguish between the failure of the method itself or the failure of the execution of the method by the user.

TBH - I'm not quite sure whether we are agreeing or not. I will say this though - I have only ever had a true test of a method/strategy when I have used real money of a decent size on a real account. And I have lost more than I have won. It is a hardline approach - but it's the only one I trust myself with.

Agree. True test is when you are trading real money.. Real trading tests not only your (1) rational judgement, but also (2) your emotion mastership.
It is easier to mastering one thing at a time. If you want to master two things at a time it would be more difficult. More importantly, if you cannot win in backtesting, there are two possibilities.

1. It just means you have not master the method technically yet, and so, what is the point to test your emotion capability in using the method?
2. Even worse, you may be using a method with no edge (i.e. it may make you lose in the long run). If you cannot see it working, why would you have the faith in the method, and believing that once you master your discipline you will win with such a method?

[quote=kk007;6671625]{quote} Agree. True test is when you are trading real money.. Real trading tests not only your (1) rational judgement, but also (2) your emotion mastership. It is easier to mastering one thing at a time. If you want to master two things at

Hi KK

Don't tend to post much but do read a couple of threads here at FF & this being one of them ( and a very good one it is ).
However I see in your posts something that I was doing a few years ago. It appears to me that you don't seem to be able to rationalise that something can be simple & that there has to be more to a "Method" than what has been explained. When in fact there are no secrets ! The only fact is there are a small percentage in this game that feed off the remainder. A good way to deal with the endless need to find the SECRET is just to accept that you can't possibly predict what is going to happen next & neither can anyone else ( don't let anyone tell you otherwise ). The best you can hope for is to try and identify areas that you think give a high probability of your trade working out, enter the trade in accordance with your pre-determined money management, job done, nothing more to do. Where this gets difficult is fretting about being wrong and then there is the worry about where to take profit if trade goes your way. This does not become an issue when you accept that you are effectively a risk manager rather than a trader. The profit in a trade is personal and obviously has to be linked to your risk. If trader x achieves R:R of 1:3 and trader y achieves R:R of 1:20, it should not concern you. Be content with what you can achieve and don't be comparing and wishing you could achieve more as this just puts you in a state where you can't manage your own risk effectively. There are lots of entry methods and Seneca has given a few here and they are as good as any you will find. SP has identified what suits him. His way is bespoke to his personality. He has recognised his shortfall ( we all have them ) but has obviously adapted his approach to meet his specific needs. It is impossible to convey the individual nuances of someone else's method when there is an element of discretion involved, just accept that fact. If I may suggest something, dependant upon your personality identify a timescale that you are comfortable with. Identify within that particular timescale an area that you think there is a high probability of your trade working out. It does not matter what it is, could be yearly open, New York Close, Last Week Low I'm sure you get my drift and in time you will see for yourself that some have greater significance than others and what becomes relevant for your timescale. Now enter any way you want Eg. first touch, break through & retest whatever. Just make the risk so small that it will have no impact on your mind whatsoever. If you don't like trades left open overnight for example only check that trade at the end of your day. If you can tolerate weekly then come back and close at end of week if still open. Over a long enough period you will indentify something of a method for yourself, something that you can fashion for yourself and no doubt introduce elements of discretion that are personal to your own personality. You will discover that it is all about probabilities and only your personalized risk management that will keep you on the right track. I trade in a very similar way to S.P. but on a larger time frame but when I have indentified an area significant to me I will zoom right in to negate as much risk associated with my entry as possible. Beyond that there is little more I can do to effect a positive outcome, I will either be stopped out or move into positive territory. If positive I exercise lots of personal discretion in managing the position and this is the area that lots of people have difficulty with. You are the only one who needs to be comfortable with the decisions you make, we all have differing circumstances and requirements from that positive territory, so everybody is correct in that respect. If you have managed to develop a reliable method of entry that you are comfortable with endless reading of crap on FF will not assist you any further. You have to do the hard yards yourself and highly recommended is to do this without the influence of most of the crap at FF. S.P. has done a sterling job in conveying his method and if his timescale suits you run with it, if not, it is scaleable as I have described. Just use FF for entertainment you will learn so much more without the distraction.

Good Luck

The problem is most are unable to think in probabilities. I have a friend who his a professional sports bettor. He will tell you he has no idea who is going to win a game. What he will tell you is that he expects a 3% return on his money over the long term. He is correct about 57% of the time. That is a lot of losing/ being wrong to people who can't think in terms of probabilities.

Has somenone found anything about NY option cuts on 10AM and how to predcit moves after cut. There were talk about this few weeks ago.

I followed EURUSD today and there was option expiries EU at 1.3000, 1.3020, 1.3025

Price tried to go higher from 1.3000 about one hour before the cut, but didn't manage. It was hit down again and again. After cut it however shoot almost immediately about 20 pips lower. Yes, price has been coming down whole day, but that immediate reaction after cut was a bit a suprise at least for me.

Any thoughts?

[quote=Stu Effex;6671955] Excellent post.

You have it in a nutshell. These levels are a part of my overall strategy. Every trade I take in my real accounts is based on these levels. I use them in different ways and at differing times. If I take a breakout it is geared to either take advantage of leaving an area with multiple levels or breaking back to an area of multiple levels. If I trade the levels as laid out here then it is counter trend in nature and when the market is in a running trend you will get hit. I have other trades that use levels to stay in trend. I don't discuss all this because honestly I don't have the time or inclination to answer all the questions and describe how to handle every situation. I had hopes that people would take these levels and go and do their own exploration to dig out how you can profit from them. Instead what has happened is that I am coach and chief cheerleader to only the specific things I have mentioned here.

I have trades like Tokyo express, Wellington wiggle, London express, NY shuffle, and more. I name them funnily to remind myself that they are just a loose gathering of some basic guidelines and not a set of rigid rules. I found all this stuff by staring at charts for thousands of hours. Some of the trades came out of trying to fix problems with other methods that I couldn't get to work. One that I am working on now and Lee is coding for me is the London wiggle. I found this trying to repair a nagging problem with the Wellington wiggle. I had a condition that I experienced two or three times a week that would introduce a lot of question with respect to trading the wiggle. My solution became the London wiggle. This thing is testing out through the roof but I won't put it out here. Why not? I am a nice guy but honestly no person on this thread has sent me one PM describing how they took the information here and ran with it to make it their own. I have gotten plenty of PM's about how this or that specific thing has helped them and how the levels are helping, but never, hey I found this.....

I purposely didn't go into too much specifics other than spelling out levels because I think it is the responsibility of the individual to make trading their own. I think you guys will never be able to take my thing and make it yours. You can take the building blocks and rearrange them to suit you. You can take a concept like fading tops and bottoms and add your own nuances to make it viable for you. I discuss touch trading in the thread. It was probably a mistake to go into so much detail on my own execution. Touch trading is hard and requires a willingness to take hits and keep coming back for more. Yesterday was a great example. If I was a confirmation type trader I would have saved some trouble yesterday. I would have given up many more gains in the past though by trading with "confirmation". I know this is not for everyone but you guys asked and I answered. If you know that you are someone who requires confirmation in your trading and you are still trying to follow my style without making it your own then you will suffer due to lack of confidence. When I have questions in my mind I revert to price action trading. When could that be better expressed than in my news trading method. You have to adapt any style to your own personal beliefs about the market and also shape your trading to the current conditions as well as you can.

I got lots of nice notes about my losses yesterday. Lets put things into perspective. I am down two percent for the week in this model account. I said I would only trade the levels in it and that is what I did. Do not feel bad for me because in my live account I made a little this week. I did take all the trades in it yesterday but I also have other trades for the week that came out just fine. The reason I bring this up is to illustrate a point. Never put all your trading eggs in one basket. You need something for trend, something for chop, something to diversify your efforts, and a little something that you have the utmost confidence in to fall back on in case everything is turning to crap. I shorted EU yesterday at 3095. It was a trade that I do not discuss here and won't but it is based on some of the levels we use here. I am still in it and looking for Bernanke to say something about the possibility of ending QE. If that doesn't happen I am locked in just above the NY close. My stop for this trade was twelve pips and it is right now hovering around 10/1. Trading is what YOU make of it. You can assume it is hard and cannot be cracked and you will make your views come true. You can assume it is simple and can be tamed and that can also become true.

I had difficulty in determining the right thing to do yesterday. It happens. The important lesson for you guys if there is one to be learned is that I took my hits and live to trade another day. I have a very high confidence in my trading ability. Having said that I still trade as if I am new and have no clue. I will take small risks and aim for consistent larger gains. If I lose I lose small and will not damage my account. I protect my capital carefully and methodically. Would I like to make fifty percent gains when I am on a roll? Sure, but at what cost? If I am not on a roll am I willing to lose twenty percent or more? No chance. It is easy for people to come onto a thread and ask why don't you risk bigger and make a killing? My answer is always the same; Trade over one hundred dollars a pip and see for yourself. I built my accounts up over three or four years of blood sweat and tears. I will never give it back. It might grow slowly but I am keeping it.

I am away motivated to speak to Hollowhead's posts. I have goals and aspirations but I am more geared to moving away from things I do not like. I never liked being poor so it was motivation to begin investing in real estate. I bought my first investment home when I was nineteen and didn't even own my own home to live in. I had five rental properties before I ever bought my own home. I purchased, rehabbed, and rented out properties for years. I bought some to fix and sell and I kept some. In 2006 and 2007 when all the shows about flipping houses appeared on TV it was clear the end was near. Every auction I attended to purchase properties was a mob scene. In 1995 I would go to an auction and there would be three or four people there and I knew most of them. In '06 and '07 there would be thirty or forty "investors" at each auction. I sold all my properties in 2007 and early 2008. Why the story? This is trading. A real world example of what takes place in the markets every day. When every one else wants it you should be dumping it. When everyone else is dumping it you should want it. Does this work out every single time, every single day? No, of course not, but you can make something out of it if you are consistent and thoughtful.

That is my rant for today.

Chris

If the overall sentiment is down and the price is artificially held up to maintain price at an option level then the natural thing to happen is for the stops of the trades holding up price to be taken out just after ten. I am still working on how to gauge the true direction to get in on the stop run after the battle.

That makes sense. Maybe I was blinded, that the price hovered above the cut price (1.3005-1.3010/15) before the cut. It would have been easier for me to see if price would have been hovering 5-10 pips below the 1.3000.

A few excellent posts here.

Stu Effex is right. SP has already shared so much, but the secret to trading is to find a way that suits your personality, and something that has positive expectancy. I've been away from FF for a while and only came back coz I found this gem of a thread.

As someone once famously said, insanity is doing the same thing over and over again. Trading is really the hardest thing one has ever done...

This is it. Trading option expiry levels this way when they are in play (shown by PA) has been very good to me. When you are looking at the market as a whole you can get a good idea of where it wants to go, but like anything else it doesn't always hold true. Take for example today. It could have been a false move down to get to that level if that vanilla option was rather large, or was an exotic. If this was the case the market isn't necessarily trending down in a traditional sense. You just have to be aware of the overall market when these are in play. The more information you have about the current market conditions and the options the better. The best for me is when I am already in a move say short E/U and the market moves down to play an option level and I am expecting it to keep going after the expiry, or there is another important trade level (O,H,L,C) nearby.

Regarding stops around them I haven't played into them too much, or I haven't developed a strategy around them yet. I suppose partly due to my focus as I described above, but since the first time SP has brought up the point I have followed closer as it seems he has as well.

These are trade worthy levels if you spend time working with them. Even though I have been profitable around options and feel confident in my approach I also feel there is a lot of information I am lacking in this area.

This thing is testing out through the roof but I won't put it out here. Why not? I am a nice guy but honestly no person on this thread has sent me one PM describing how they took the information here and ran with it to make it their own.

Hey Seneca

Don't want to appear like I'm kissing arse here but don't even consider givin' any more. Most are not content they have had a giant tit to suck on, next they want rusks as well ! Fuck em. Give them a spade only. It's hard work digging but the rewards are there if you work hard enough. Did someone else do your diggin' ? Probably not !

Stu

You still haven't answered me where is the right place to look for real knowledge, and here is a public forum, and perhaps not the right place as you have suggested.

You treat all the lenghty posts as your viewpoint supporters.

I know you have a problem with Xhale but he gave you the answer several posts back.

1) open a chart

2)stare at the chart

3)make observations about the patterns in the chart

4)devise a set of rules around these observations

5)test the rules

6)refine and consolidate those rules into something that has an edge

7)rinse and repeat.