Thursday, 21 February 2019

What Happens When You Hit a Tough Month - Student Experience





Reading Time - 5 Minutes


Hello Traders.

In this blog post I want to go over something that is normal for a trader, but can seem like a huge problem the first time it is experienced - almost like hitting a brick wall.

Instead of simply explaining it, I am going to use a student's experience and will include the email he sent to me initially. We will simply call him 'D'. D has been profitable for 7 months now. He has been doing very well. His particular approach and what suits his trading personality is that he stops trading each month after he hits 6% growth. For the past 7 months he has been doing just that. And on quite a few of those months, I have been surprised by how quickly he reaches his target!

D follows his plan and is very disciplined in what he looks for and how he then executes the trade. He does a lot of work mentally as well as physically to make sure he is in the right place for trading each day he sits at the charts.

And then came this month - February. His trading environment has been more unforgiving and he has found his results to be more choppy. And a couple of days ago he had his first 'emotional trade' in 7 months, where he deviated from his plan and was rewarded with a loss.

Now for D, when that happened, it seemed like the world was coming down around him. It was a glimpse of the old trader who was learning and making silly mistakes regularily. He even questioned his approach to trading.

So what is this blog post really about?

It is to let you know that no matter how well you do at trading and how spectacular your results are, you are going to hit tough periods. It is part of the game of trading and unavoidable. There are times when the most professional traders slip and make a stupid mistake. It is normal.

I always like to say to people that anyone can take winning trades. But a trader is made during the tough periods when the month is tough and you just can't seem to string together your run of winners. That is when people start making mistakes and it all falls apart.

However, D only made one small mistake. A lapse in judgment which he instantly caught and didn't let snowball. His month has been a tough one in that he is down by 2 full position losses. At the time, when you are going through a tough month, it can seem like everything is collapsing around you. But it is vital to get some distance and realise that it is a very small 'blip' on the radar.

Making no money for trading a long period of time is very tough to take. It weighs on your mind and makes you doubt yourself. But it is normal and you are going to experience it as a trader. The most important point is that you don't allow it to pull you down into the depths of making repeated mistakes, changing your plan, your profit targets and just about everything else you can think of.

A good way to do that is to look at it as a whole. So, referring back to D, we would look at seven months of 6% growth in a row. That is 42% in only seven months! And in reality it is more because of compounding.

Then, when the tough month comes, you don't think - I have lost 2% so far this month! You think, OK, I've made way over 42% here and it is time to give some back to the market. This would be me paying my rent and staff wages if I was running a 'normal' business. Or this would be my quiter period if I owned a store.

The danger as a trader is to start thinking you can just have clear skies ahead and ride off into the sunset. When that happens, tough periods can have a much bigger impact. Just follow your plan and maintain your discipline. If there is a mistake, realise that you are only human and it is normal. The key thing is to pounce on the mistake and stop it from becoming a bout of emotional trading.

So, before beating yourself up too much as you run through a tough trading period, instead step back and have a look at what you have achieved and what the tough period actually means in the bigger picture. A trading mistake is not the end of the world and happens to us all. Catch it and don't let it spiral out of control. Tough months happen. You don't have to look very far to see traders out there who have regular 20% and even 30% drawdowns. Now, I could never deal with that and continue forward. But that is my weakness. However a 2% drawdown after 7 months of consistent gains is nothing.

I have copied the email below. Realise if any of you are struggling that it happens to everyone. No trader is perfect. The ones who show you nothing but gain gain gain and say it is easy for them are, quite frankly, full of shit.

I hope you're all having a good trading month.

James Orr



Thursday, 10 January 2019

Stick to Your Grind in 2019!



Hello Traders.

I hope you all had a great Christmas and New Year.

We are on the 10th of January already. And I know that so many of you entered this year with the best of intentions. You pumped yourself up and you determined that THIS year was going to be different. Your goals wouldn't be things you planned out in December and then abandoned as soon as you hit a few roadblocks.

Well, this year can be that year. It can the the 365 days where you pull yourself toward whatever it is you want to achieve. But it isn't going to be easy. It never is.

I don't care if you want to learn how to crochet. If you are determined to start a new business. If you are desperate to learn how to trade. Whatever it may be, 365 days is a LONG time to stick to something and continue to put in your grind day after day after day.

What normally happens? We smash into January and we power through the first couple of weeks. Then we get into the latter half of the month. February starts to rear its head. You're busy and you're tired and you are finding out that working toward your goal is a lot more work than you expected. It's so much more difficult than you could have imagined.

And what comes next? You take your goal and you slide it under your bed. You shove it back far enough that no light can get to it. You leave it there to gather dust, until it is coated so thickly that you can't even see it any more. You forget about it, forcing yourself to do it.

But it doesn't ever really die, does it? If you are honest with yourself. It's always there, a gentle whisper in your head. You still want to do it, you just don't know if you CAN. Because it isn't easy. So, it's better to decide that you can't be bothered, rather than finding out for sure that you just weren't able to do it.

2019 doesn't have to be like that, though. This can be your year. It can be the time when you don't shove your goals aside and instead continue on in your routine as if you're trapped in some hideous version of Groundhog Day. You just have to make sure, absolutely certain, that you keep making progress, day after day, even when all you want to do is curl up and forget about the whole thing.

How do you do it?

You start by making a deal with yourself. Right now. You tell yourself that this year is different. You tell yourself that no matter how hard it gets, you are going to continue on until at least the end of the year. And if you get there and you still want to give up, well then that's just fine. But you'll get there exhausted and knowing that you gave it your all.

And do you know what will happen when you get there? Most likely you won't want to give up at all. Because you'll sit back and you'll say to yourself 'look how far I've come!' And you'll learn something else - it was only difficult when you stopped to allow yourself to think about it. The rest of the time you were too busy to let it bother you at all.

Make the deal with yourself. Superglue the goal to yourself by going one step further. Speak to someone close to you - Mum, Dad, sibling, brother, sister, boyfriend, girlfriend, whatever it may be. Tell them what you intend to do and here's the important part: ask them to ask you for regular progress updates. Once per week. And whever you feel like quitting, ask them to tell you that you promised yourself that this year would be different.

Get to the end of the year and just don't feel like carrying on? Fine. But at least you'll know that you did it, that you stuck to your grind and you proved to yourself that you can keep going when everyone around you is shoving their goal back under the bed for another year.

I hope you are all having a great trading week!

James Orr


Thursday, 1 November 2018

Mistakes Happen to Us All When Trading








Reading Time - 4 Minutes


Into November we march. Where exactly did the year go? Seriously, it seems two minutes ago I was writing my Christmas list to Santa and here we are again.

As we move into a new month, traders will either have made some nice progress in October, or else they will be coming off the back of a difficult one. Perhaps a normal drawdown, but maybe something worse, a scalper’s swing at your trading account from emotional trading and mistakes that has done so much damage that it is difficult to get yourself out of bed and down to the computer in the morning to carry on.

The reason I was thinking about this today is simple – I made a mistake yesterday. I can hear the intake of breath as you read this. A mistake? Professional traders don’t make mistakes!

Well, yes, we do. A lot of ‘traders’ don’t admit to it, because they are offering up an over polished veneer in an attempt to part you with your hard earned so that they can continue to live out the ‘trader lifestyle’ on the back of your hard earned.

We make mistakes. There is no superpowered trader who works flawlessly. And yesterday, I made one. It was one of those where you stare at it afterward and wonder what in the hell you were doing. The trade entry was perfect, exactly what I was looking for. But I aimed for a poor profit target, ignoring a red flag and being rewarded with a nice loss.

But that got me thinking about one of the most important differences between a successful trader and one who is spinning their wheels and making mistakes that lead to serious account damage. And the difference is fairy simple, but plays a huge part in progressing as a trader.

A professional trader is able to take each trade completely on its own merit.

That’s it.

Simple, right?

But what does it mean?

Well, for a lot of people, when they have a mistake like that, they go through the frustration and annoyance, which is normal. But, and it is a big but – they then allow that mistake to influence their future actions, and not in a good way!

Maybe they will force a trade, desperate for a quick fix to the loss. They want to make the money back and ‘reset’ themselves, because that loss wasn’t fair!

Or, perhaps they DO practice patience and wait for a solid setup. But when in that trade, instead of trading it how they should trade it, they decide to hold onto it until it clears the loss from the previous trade. It doesn’t matter that their plan tells them to exit earlier, they will just change the rules this one little time.

Worst case? Those who turn into a wrecking ball after the mistake and set about destroying their account, all that they have worked so hard for, in a desperate attempt to make amends for the simple mistake.

I think a lot of the problem is the aforementioned ‘squeaky clean’ traders who shovel up piles of horse manure and offer it forward to you as their experience of trading. But that is not where all of the blame lies. Unfortunately, a lot of it comes right back to you.

So, you need to understand that mistakes happen, to all of us. It is not possible to do everything perfectly. Look at sport stars who are on hundreds of thousands per week… they make mistakes all the time. You are human and you are flawed, and that is all part of trading.

Your focus must be on reducing the number of mistakes first and foremost. As you progress, they should become less frequent. And then, your next step should be to learn to fully accept them. Mark it down as part of your normal trading losses. You can even have a little section in your trading diary called ‘one of my cock ups.’ Just don’t carry the mistake with you into future trades. That is a recipe for disaster and it is something that happens all too frequently.

It is a new month. Whatever happened last month, put it behind you. Clear your head and get ready for November. Understand that you will, for certain, make a mistake this month and in most cases, it will cost you money. Accept that it is all part of the process. Realise that it happens to us all. Even the ‘Twitter Gurus’ who post success after success after success are only human. It is OK to make mistakes.

I am hoping that you all have a great November, mistakes and all.

James Orr

Thursday, 27 September 2018

Stop Hiding From Your Trading Problems (Or ANY Problems)




Reading Time - 3 Minutes



So, you want to be a trader. You want to be successful. You can picture it in your mind - working from home. Sitting in your jogging trousers and sipping a latte as your trading platform spits out fistfuls of money.

Well, I hate to break it to you. But that is what every other person who sits down at their computer and opens the charts wants.

So, what separates you from them?

'I really want it!'

Yup, so does everyone else. Any time you see someone successful, there are a thousand people who want what they have. They may even buy books and go on seminars to learn how to do just that.

But most of them will fail. At online businesses, trading, whatever it may be.

I want you to separate yourself from them. I want you to look around and realise that most likely, you have allowed yourself to find a space in the comfort of the herd. You 'think' you want something and you tell yourself that you are working toward it, but you're putting in minimal effort. You avoid the hard choices and self-reflection.

Trading is a competition. So is any business venture. And in competition, there is ALWAYS someone trying to take what you have. In the trading world, that can happen very quickly. And even worse, with trading it can be all your own fault.

You want to improve and you want to succeed? Then you absolutely must start facing your problems head on. It won't be too difficult to find them. You most likely already know exactly what they are, but you turn away from them and ignore them.

I want you to take a minute. An entire sixty seconds out of your busy day. Set a timer on your phone if it helps. And then I want you to be absolutely honest with yourself. Identify exactly what it is that is causing you to fail as a trader.

It might be:

Fear causing you to miss trades.

Anger causing you to take bad trades.

Poor money management causing you to blow accounts.

Chasing fast money and instead suffering fast losses.

It was easy, right.

And now the hard part. Answer to yourself as honestly as possible, what exactly you are doing to correct those problems.

For most people, the answer is exactly zero. Or, it is a half-assed attempt at addressing them.

'I WON'T revenge trade again.'

And that's it. A statement you tell yourself over and over again. A statement you revisit monthly, because you continue to participate in the behaviours that are holding you back.

Here is the hard truth of it - If you want to be successful, you are going to have to face your problems head on. You are going to need to shine a torch on them and figure out ways to fix them. Hearing the noise your car is making and turning up the radio so you can easier ignore it isn't going to work here. Because eventually, the car will break down.

The practical steps you can take are limitless. It can be something as simple as recording your results and highlighting the revenge trading so at the end of each month you can see exactly what is going on and how much damage you are doing to yourself.

Now, the temptation is there to shine the torch on the problems and then after a few weeks slip back into the same damaging behaviours. That is when you have to decide. You can go back into the comfort of the herd, or you can start finding your own way.

I hope you've all had a great trading week.

James Orr

Thursday, 3 May 2018

Today is Your Most Important Trading Day



Reading Time - 4 Minutes



Had a bad run of trades?

You sat down at the computer last week with your cup of coffee and your favourite pair of lucky slippers on, just another trading day. You were making good progress, and there was a little whisper from way back in your head saying, 'I think we can do this. We're getting there...'

And then you went into self-destruct mode. Trade after trade of emotional trading, the monster coming out of nowhere and taking control, firing off orders like a stereotypical office-manager flipping notes at the pole-dancer after one too many drinks.

It hurts. Hurts like hell.

But tomorrow will be different, right? You sit in the corner of the room after the trading destruction derby and feel awful about yourself. You go for a walk and try and figure this shit out. It needs to change and YOU need to change.

You get revved up and ready. Tomorrow will be different. You're going to change and become more disciplined.

Right?

Except, you've been saying that for six months, a year, longer even.

Until you come to realise that you only ever have TODAY to trade effectively, you are going to continue making excuses and mistakes.

Every day when you wake up and sit at that computer, that is your most important trading day. Not yesterday. Not tomorrow. Today.

You want to be a trader? You need to be willing to focus yourself TODAY. The discipline needs to be there TODAY. The ability to follow your rules ODAY and never mind how long your setup is taking, or the loss you made yesterday that you want to make back.

It sounds like it should be easy, but it isn't. We all have 'off' days. You know the ones where we wake up and it feels like a greyness has settled over the world. We don't want to work, we certainly don't want to do anything difficult.

But guess what? Today is the most important trading day. And when you are feeling like that, you should underline those words on a post-it and stick it to your computer monitor. Because those are the days when the damage tends to be done.

When you feel like that, try this... Just don't trade.

I'll give you a minute to get over that ground-breaking statement. It can be hard to grasp.

Today is your most important trading day. And every day, focus number one is protecting your account. If you feel like rubbish, the best defensive move can be to simply stay away.

Approach every day like it is your only trading day. Don't allow yourself to slip and then assure yourself that tomorrow will be better. In trading, you don't have a guarantee of tomorrow. That damaging behaviour you keep carrying out WILL one day pull your ability to trade from under you. The account will disappear and you will be left with nothing. It won't matter what you tell yourself on your walks or when you're rocking back and forth in the corner of the room. Because you will have allowed yourself to forget that TODAY is your most important trading day, and that will have finally caught up with you.

If you want to succeed, in trading or anything else, you need to come to terms with the fact that all you have is today to make it happen. Your focus and your drive and your determination needs to be there today. Not tomorrow. Not yesterday.

Think of the constant dieter. Always tomorrow. Always next week. And in the interim, they continue on with the destructive behaviour that continues adding to their problem and making it more difficult to overcome.

Now think of the person who loses all the weight. They decided that TODAY is their most important dieting day. All of their focus and determination went into it and they stuck with it on every today.

If you want it, whatever it is, go get it TODAY.

I hope you've all had a great trading week!

James Orr


Thursday, 19 April 2018

Stop Losses When Trading - Different Types and Considerations




Reading Time - 5 Minutes



Stops. Every trader needs them, and if you don’t have one in place, you are asking for trouble. The market will eventually reach out from the computer screen and give you a less than friendly slap, and the stinging wont only be in your face, but your trading account. A stop takes you out for an acceptable loss when the trade moves against you and at a point where you have decided that it is best to walk away and lick your proverbial wounds.

But what is in a stop? Every trader knows they should use one, but very few actually consider the type that will suit them.

I am going to cover three in this blog –

- A small fixed number stop
- A stop that adjusts to recent market volatility
- A structure-based stop


Small Fixed Number Stop

This stop tends to be placed above or below the signal candle by a certain number of pips. It will vary depending on the market you are trading and also the timeframe, however for this example we will say you use a 5 pip stop above or below your signal candle.

You use the same stop for every position you take, and the overall stop size comes down to the size of your signal candle. This stop does take into account the market volatility somewhat, since it is based around the signal candle, however it does not give a lot of room for market movements once in the trade.


Benefits

- Your stop is easy to work out. You can do it quickly before entering a trade. There is no uncertainty, since you know exactly what size the stop will be.

- This type of stop tends to be better for risk reward ratios. The smaller the stop, the less the market must move for you to get to a good level or risk reward.

Drawbacks

- Because the stop is relatively tight to the candle, you will suffer a higher portion of losses than say using a structure stop.

- It does not give the market a lot of room for normal price movements before it hits your stop. You will find that on certain trades, you are stopped out and then the market moves to your intended target.

Stop That Adjusts to Recent Market Volatility

This type of stop takes into account recent price movements. It means your stop will expand as the market gains in volatility and reduce as the market quietens down. There are a number of ways to set this stop, however one of the easiest is to use the Average True Range. You simply add the Average True Range to your chart and set it to what you consider a range that will summarise the recent price action – I suggest 5 to 10 periods.

When using the ATR stop, it is also wise to ‘step-up’ timeframes to take the reading. If you are trading on the 1-hour timeframe, a reading of 5 hours isn’t really giving you a good view of what the market has been doing recently. But if you are on the 4-hour timeframe or daily, a 5-period reading takes into account a much larger market sample.

You then decide on your stop level from the reading. It may be 50% ATR, 30% ATR, 75% ATR or any percentage, depending on the type of trading you are doing.


Benefits

- As we mentioned, this takes into account the recent volatility of the market. This means that your stop will get larger as the market becomes more volatile, and smaller as it quietens down.

- You have a set stop size to use each day. It will also suit each market since the reading is taken off of that market.

- Less losses than a small number stop since it uses the market to determine size.

Drawbacks

- It is still an arbitrary number. Why a 30% stop instead of a 50% stop? Why not a 25% stop?

- If the market quietens down and then moves into a sudden period of high activity, your stop will not adjust quickly. Similarly, if the market has been very volatile and then quietens, your stop will still be large in relation to the market movements until the ATR catches up.

Structure Based Stop

I would say that this is the most common type of stop used by beginner traders. It is promoted on most forums and blogs as the only type of stop to use.

With this stop, you place the stop level above or below a recent level of structure, or ‘swing’. The idea being that if you are trading in a downtrend, you want to allow the market to chop around and it is only if it starts breaking above the previous swing-high that you want to exit the trade. If in an uptrend, you only want to be taken out if the market starts to break previous lows (hinting at the end of the downtrend). For reversals, you just pick a recent level of structure and place your stop above or below it.


Benefits

- You give the market much more room to move whilst in a trade.

- Less losses.

- You are using market structure to determine the stop loss level.

Drawbacks

- This stop tends to be a lot larger than the others. Because of this, gaining a good risk reward is harder and requires much larger price movements.

- It is very subjective. One ‘key’ piece of structure to one trader may not be the same to the next trader. Because of this, it can become difficult to determine where to put the stop.


So, there we have three different style of stop. You will notice that they all have benefits and drawbacks. The truth is, with trading, it comes down to the individual trader and their trading plan. I never advise that you just pick a random stop and stick with it. You should test lots of different style stops and also sizes of stops. Let’s say you use a structure stop and need a 1:3 risk reward ratio to become profitable with your trading plan, but your trading plan only produces on average 1:2 risk reward trades using the structure stop. It won’t work and it doesn’t matter how ‘well’ you are trading.

Now let’s say you test your methods again and this time you use a much tighter fixed number stop. You realise that using this stop you suffer more losses, but now you can get lots of trades at 1:4 and 1:5 risk reward. Suddenly your trading becomes profitable.

Most people do not like putting in the work, especially when it comes to testing and refining their trading plan. They settle on something they stumble across and then wonder why they are doing so badly. You MUST be willing to try things that may not at first strike you as beneficial.

Do what others aren’t willing to do so you can achieve what others will never achieve.

I hope you’ve all had a great trading week!

James Orr