Archive for February, 2009
When you have 3 wins out of 10, it’s a lousy strategy. What if you have 10 losses out of 10?
I’m simply amazed by how some days I can get 3 straight wins and how some days I can get 5 straight losses.
When you have a losing trade, what’s the first thing that comes into your mind? That it doesn’t work? Or is your entry too late? Too early?
I have been thinking about this for quite awhile. I used to have this idea that if I had 10 straight losses, I must be doing something right, but just missed out something. I must be putting the right trades, but in the wrong direction?
Have you ever see it this way? If you have 10 straight losses, all you need to do is to trade opposite of yourself and you will have 10 straight wins?
I bet this is how floor traders operate. I remember reading article from Sam Seiden of OTA telling the story of his first days on the floor. He had a mentor back then who was an experienced floor trader. He told Sam to look out for that new guy opposite the pit: if he made a move, let him know. So Sam watched closely and soon enough, that new guy put a buy order. Sam alerted his mentor and he took that trade. Shortly, that new guy was in the red and Sam’s mentor closed him again.
It was how simple money was made in the pits: Just take the opposite side of the novice trader, because he’s the one who will be losing 7 out of 10 times. All you need to do is take his opposite trade.
So whenever you are in a losing streak, tell yourself this: “If I took the opposite of all my trades, wouldn’t I be winning?”
Today is the day that doesn’t make sense. 4/5 trades started in the green, short of 1-3 ticks, then turned and becomes 5/5 losing trades.
Why???
I notices this whenever I don’t start trading at the opening. When I reach home later, I kind of always mis-align my steps with the market’s steps. For example, I can have 1 late trade which could have ended up a winning trade and turn into a losing trade just because I entered too late. This losing trade will cause me to enter late for the next trade too and end up with another losing trade.
I think this is chain-effect which will affect every single trade u take after a losing trade. 1 losing trade will set off a series of losing trade, causing sizable damage to the trading account. This is the result of spotting the entry too late or missing the profit target by a small amount of ticks(1-3).
The 1st way to counter it is to monitor tightly for entry, which requires constantly guarding of the chart. Another way is to adjust the profit target accordingly. The 1st method allows me to relax once the trade is made, the second may allow me to prevent any losses at all, because I can exit on even 2-3 ticks profit, but would be devastated if the trade continues to give a 15-20 ticks return.
I think for now I test out method 1 first for 10 trading days, then see the results.
28/1 – 1 loss
30/1 – 1 loss, 2 wins
2/2 – 1 loss, 1 win
4/2 – 1 loss
5/2 – 4 losses, 2 wins
6/2 – 4 losses, 4 wins
So, 12 losses, 11 wins…this 2 weeks have been a mess. Most of the days, I would classify it as “Untradable”, because my trading setup hasn’t give me the clear opportunity.
Also, I was very distracted – trading while watching TV, doing other stuff, etc. Shit…I have to change.
Other than distractions, I realize that on some days, the TF will go with very clean charts while on some days, it just doesn’t behave right. Whenever there’s an important annoucement like Fed or Non-Farm, it doesn’t behave right.
Some people like to trade those events, but somehow, I just have difficulty trading them, because my setup doesn’t allow that.
However, certain observations that I’ve established in the past 6 months still holds: The trend day & range day.
A trend day simply means a clear, easy, trending day. Any sort of indicators, be it lagging or leading, will be able to work out because the direction is clear.
A range day, which I started practising trading in the beginning, is a day when you can throw away your lagging indicators and some leading indicators, because the price will move based on supply and demand levels.
I made another observation of range days: They are filled with traps. Traps to trick the novice trader.
One example is the breakout. As a novice will know from books, a flag, wedge pattern preceding a breakout is a good entry. In range days, there are plenty of failed breakouts, especially at key levels. That is why, as rule, never assume it’s a breakout until it’s completely “broken out”.
Left: Trend day Right: Range day
Some people can look at these 2 charts and say that they are both very tradable. Yeah right. That’s because once you’ve seen the whole thing in retrospect, you know where all the big moves all and probably justify your entries according to prior the moves, even though there’s no reason why.
I’ll just carry on my current setup till the end of march, and I will see whether it can give me the 6:4 winning percentage that I want.
Check out these books:
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Peak Too Soon Trading Journal 
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