Adapt your Trading as the Market Changes

Well, it’s the last day of August today and a bank holiday here in the UK, so no Ftse 100 trading for me today. The second half of August was extremely volatile, economic news and the devaluation of the Yuan sending the market into first a free fall and then a strong rally. For the Ftse 100, my volatility measure was 80 points before it all started and now it’s sitting at 178!

Bad news in the short term for long term investors – but the key for long term investors is…they look at long term results, not weekly and daily moves. For intraday traders? It makes no difference at all.

It can seem a little daunting when a market becomes very volatile, but in truth it is usually fairly easy times to trade, especially if the volatility is news based. Bad news and all of that volatility is going to drive the market down, good news and it’s likely to go on a Bullish surge.

If you’re risking say 1% of account per trade and on average your stop is 30 points when trading intraday on the Ftse 100, all you’re doing is increasing your stop size and profit targets to take into account volatility. So maybe your stop goes up to 50 or 60 points. Bigger numbers, sure, but your risk should still be 1%. Therefore a loss is still a normal loss and a win is still an average win. The difficulty only arises when people try to trade the exact same way that they always have. I know there will have been countless people who just stuck to their regular position size and took very nasty losses over the second half of August.

 

Trading is not a fixed rule set industry. You need to be willing to adapt and change your parameters along with the market. Just like a Formula One team would change tyres as the weather changes, so you should adapt your methods and tactics as the market changes.

Anyway, a bank holiday gives me the perfect opportunity to work on the Ftse 100 training programme, so I better get back to it!

I hope you have a great trading week!

Don't Fear Missing Trades

One of the biggest problems I faced when I started trading was that I was plagued by a certain amount of fear. This was clearly built on a foundation of lac of knowledge and experience, but there’s more to it than that. A lot of people learning how to trade have an innate fear of ‘missing trades’. They have an expectation that trading should be like everything else they’ve tried in their life in that it should keep them busy and be hard work.

My main problem was that my fear of missing trades resulted in me losing a lot of trades, and this is a common outcome. You take trades where the entry criteria isn’t quite right because the market moves in the direction you expected. Say you wait for a pin bar but instead you get a doji. The market then breaks the low of the doji candle and you enter short into the market, not even realising you’re doing it, just not wanting to miss the move.

The result? Invariably you will have losers. Of course you will. Your trading plan should be designed in a way to give you an edge in the market. So if you change the plan, your edge dissipates. But even worse than the losers, more dangerous, are any winners that you may have whilst doing this. The bigger the winner, the larger the problem!

After a winner achieved whilst disobeying your rules, you begin to accept subconsciously that you can catch moves simply by predicting the market. It makes you more likely to disobey your rules and to chase moves. I found it was even worse if I was having a bad day. So say I was down twenty points on the day and the market reaches my trading zone. I’m waiting for an entry, hopefully one that will clear my losses, but it doesn’t come. It’s not one of my candlestick patterns or it doesn’t line up quite right. But wait, the market is still moving the way I expected, I’ll just jump on this once, I need to clear out these losses. I wont do it again, just this once.

And more often than not…the trade loses.

Always remember that your trading plan gives you the edge, not you. If something doesn’t fit your plan, just skip the trade. Every time you disobey your rules, your results suffer. Don’t think about short term results as in day to day. Think about monthly results. Sure you may be down 20 points today, but over the month you know that with your plan you are likely to make X, Y or Z. But if your system is say 70% success rate, and you take trades outwith your system…your win rate drops accordingly and it becomes much more difficult to come out ahead.

Don’t worry about missing moves. You’re not trying to grab every point from the market, only execute your plan flawlessly. If you can do that, your profits will take care of themselves.

I hope you’ve had a great trading week!

Morning Ftse 100 Review and Subsequent Trade Opportunities 25th August

Wednesday Quote Hour

Thank You

Decisive Trading now has 200 Subscribers to the YouTube channel, and over 150 to the Facebook page. Thank you everyone for the support!

Stocks are falling - Time to panic?

The Ftse 100 was down 200 points when I woke up this morning. That’s an extraordinarily large move for the Ftse, especially considering that it came during the Asian session.

Is the economy collapsing? Armageddon round the corner? Well, if you go onto YouTube, I can guarantee you will find lots of new videos exclaiming just that. The Chinese economic data isn’t as strong as it once was (although the economy is still growing), and the Chinese government have devalued the currency and also set strict rules on the stock market whereby very large investors can’t sell stock.

 

First thought? Glad I’m not an investor in China!

But should you panic? Of course not. People shouting about economic collapse don’t understand economics or the stock market. The Chinese stock market is ferociously volatile, and has been rising at ridiculous rates. It is in a very unique situation, whereby retail investors have a huge influence on the market. This creates volatility and emotional trading. They all piled their money in as the market rose, and now they’re all trying to pull it out as it falls.

Go onto any chart you like – Ftse 100, Dax, Dow Jones, S&P. Or, how about pick a currency pair? Go onto the daily timeframe and look at the overall movements of the market. There are corrections and bear market phases all over the place. Nothing can rise indefinitely, it is impossible. Why would there be the term ‘Bear Market’ if it had never happened before?

I knew the Ftse 100 was going to start falling as far back as April/May, right at the time it was producing new all time highs. The evidence is all there for you to see on the charts. Candlesticks can’t lie. They show you the emotion and sentiment as raw data. And over the last couple of months, the Ftse 100 has been forming into a triangle on the daily timeframe – triangles appear quite often before sharp moves.

Corrections come. Bear markets happen. 

What was my first trade this morning, upon seeing the market had fallen 200 points and everyone was panicking? I bought the open, knowing that no professional investor, no one sitting in a bank, is going to sell the market that low. Result? +50 points.

This is why I love trading the five minute timeframe – the market can be going up, the market can be going down or the market can be ranging sideways and it doesn’t make any difference to me.

I hope you have a great trading week!

21st August Live Ftse 100 Trade

In this trade I show where I would normally close out a portion of my position, before letting profits run. I also go over the psychological aspects of the trade

Don't Stress over Trading Noise

Reading Time – 3 Minutes

There will always be noise when you’re in a trade. It doesn’t matter what timeframe you trade, or what system you use. Trading is a zero sum game. There is always someone on the other end of your trade, expecting the market to move in the opposite direction. For every winner, there is a loser. If there wasn’t, the markets would sit in a state of constant equilibrium and no one would make any money.

It’s important to understand this because I would say, on the five minute timeframe, only perhaps 10% of my trades move exactly as I wanted as soon as I enter. Now these trades are very nice because there’s no doubt or drawdown along the way. But they are very rare.

Trading is literally like a battle. The Bulls versus the Bears. When one side is more powerful, they influence the market. But their influence can be short lived, and it is never an easy ride for them. This is why trading is a game of probabilities. Because every trade is slightly different. No one trade will match another trade. Different emotions, different players, different amounts of capital and beliefs all drive every moment of the markets.

It’s very annoying when the market moves against you. But you must get used to it. Because 90% of the time, it’s going to happen. And on some of those occasions it’s going to happen because your trade is a losing trade.

The key is not to panic when it happens. Have your rules already set. It’s only when you begin to ‘micro manage’ trades that the problems begin. Your system will be successful because of the rules you set, because of the edge in the market that you have found. But if you begin to chop and change each individual trade, taking profits early here, cutting that one as soon as it drops too much, you’re going to be on the losing side of the zero sum game.

The noise is part of the business. No one wants to just admit defeat and lose money. So the markets chop around. When I enter a trade, when it moves against me, yes, I STILL think ‘This is a losing trade. Cut it and walk away. You shouldn’t have taken the entry’. Any trader who tells you they don’t experience this, at least on some level, is lying. It’s human nature and it doesn’t go away.

 

The trade I’m currently in on the Ftse 100 jumped into profit as soon as I entered…and then it stalled, reversed, and fell to -10 points. Not nice. But it happens. The key is, I stuck to my rules, as I always do. Why do I have a predetermined stop level if I’m then going to exit as soon as it moves against me? Guess what, the trades now +13, two points from target. As I’m writing this I’m sure it will complete.

Get used to the noise and learn to follow your plan. Don’t read the market on every tick. Accept that you truly DON’T know what the market is going to do. You have no control over the market. But you do have your trading plan that produces an edge. And that you CAN control.

I hope you’ve had a great trading week!

Morning Ftse 100 Review and Subsequent Trade Opportunities 18th August

Note the expectation of a bounce first thing in the morning because of 'trader belief' and the subsequent opportunities when the market dropped down to my key zone

Wednesday Quote Hour

Training

 

This is just a quick update post. I usually record a video for a Tuesday with the intention to teach something useful about trading. When I started this blog and youtube channel, it was purely with the intention of helping complete beginners learn how to trade successfully. I started it because I know how daunting it can seem when you first get started.

I've had quite a few emails from people asking me if I do specific training programmes or any sort of mentorship since then. So, I currently building a dedicated course for trading the Ftse 100 on the 5 minute timeframe. It will include exactly how I trade, specific entry criteria and also lots of hints and tips. As long as you have a basic understanding of charts you will be able to follow the course (if not, that's what the YouTube videos are for).

For this to happen I need to cut back on the YouTube videos so I have enough time! I'll still do the Ftse 100 review and trade opportunities I post on a Wednesday and also the live trade posted on a Fri, but I will need to cut the Tuesday training video.

I'm hoping I can get the course together by mid September so I will keep everyone updated. Any questions as always email me at decisivetrading@yahoo.co.uk

The course will also have a section on psychology, which I believe is the most important aspect when learning to trade. I'm going to price it as cheaply as possible, simply because I don't believe in people paying extortionate sums of money for training courses.

As for mentorship, this is something I don't currently do. I am however considering a subscription service for early 2016 whereby people can get my trade plan each morning and if possible enter into a trading room with me online for the trading day.

Have a great trading week!

Dark Pools - The Rise of the Machine

Algorithmic trading, or AI Trading, is something I have been curious about since the flash crash of 2010. On that day the Dow Jones plummeted 10% in a matter of minutes, only to rebound again. It’s something I didn’t really understand and I think like a lot of people, was quietly suspicious about.

I read a lot of books, so I may as well review some of the trading books I read on this blog. I recently finished ‘Dark Pools’ by Scott Patterson. Its focus is on ‘The rise of AI trading machines and the looming threat to wall street’.

First of all, it’s a great book if you want to gain an insight into the whole thing. It explains it without PHD Math equations and quantum physics.

It actually left me feeling a bit disgusted with the whole ideology of AI trading. It seems to be based around an intense ‘arms race’ for faster access to the markets and orders. Companies are spending hundreds of millions in an effort to shave the tiniest fractions from seconds in order to gain an ‘edge’ in the markets and over their competitors.

Trading is a zero sum game – when someone wins, someone else loses. This is part of the industry and everyone understands it. However, with AI trading they are effectively jumping their way to the front of trades using insanely fast technology, trading countless times per second and shaving pennies off here and pennies off there.

The main target? Big institutional players and large funds – think pension funds. Their technology seeks out the signs of big players investing money and using blistering speed they then executes orders for whatever shares the funds are trying to buy, pushing up prices in the process and then selling them to said funds for a profit.

What does it mean? It means higher prices for the funds. Small profits for the AI traders, but multiplied over thousands and millions of trades, all processed during the day, it adds up to serious money. Millions.

So yes, I understand it’s a zero sum game. But aiming your sights at things like pension funds, taking the money through speed and algorithms rather than skill seems somehow wrong and deplorable. The book estimated that over the course of someone’s pension, it could cost them 10 to 15 thousand. That’s not a business plan in my humble opinion, it’s cheap shots, attacking people who don’t have access to the technology.

So what happened during the flash crash? Well, it went drastically wrong. The liquidity that the machines provide dried up as the market crashed, amplifying the problem. And it could easily happen again. The book is definitely worth a read, it is actually quite fascinating.

Today's Office

The benefits of being able to work wherever there is wifi

Live Trade 13th August - Beware Engulfing Candles

Learning to Trade Forex and Indices is Like an Apprenticeship

Reading Time - 4 minutes

A lot of people get disheartened when they are learning how to trade. I know I did. There seems to be an expectation that you should just ‘get it’ and be able to drop onto the charts, press a few buttons and make money. Everyone you see online and in all of the books makes it seem so EASY that surely you should be winning every trade and lying on a beach in Hawaii.

Well, first of all, the vast majority of those people online claiming to be trading masters and gurus of all things charts aren’t. They are great at looking at an already formed chart and telling you – this is what you should have done. This is what I WOULD have done. Now buy my course!

I was speaking to one of my subscribers yesterday and she mimicked something that I hear a lot. She was enjoying her journey, she was learning a lot, but she was disheartened because she was still losing more than she was winning. The danger is that it can become something personal – ‘I’m not good enough’, ‘I just can’t do it’, ‘I’m too stupid for this.’

If I can teach you any one thing, please let this article be where you gain that insight. Everyone struggles. Trading is not easy. It is like learning anything new. You don’t pick up a guitar and start blasting out Jimi Hendrix. You don’t grab a tennis racket for the first time and expect to school Andy Murray.

The best way I can put it is to think of learning how to trade as an apprenticeship. It’s a time where you are allowed to make mistakes, because you’re learning, you’re new and inexperienced. It’s expected. A joiner/carpenter can start an apprenticeship, he or she can have all the tools and have done lots of DIY before and put up shelves for their mum, maybe even built a shed in the garden…but they cannot and should not be expected to know how to build a house. That’s what the apprenticeship is for.

There have been a lot of studies done which suggest that to master something – to truly master it on the subconscious level – it takes 10,000 hours of focused practice. Now, that’s not just looking at charts and clicking buy and sell. It’s focused, dedicated practice. Your trading apprenticeship could take anywhere from 2 to 10 years. This is why it is key that you trade small until you are consistently profitable. Because there are no second chances with this apprenticeship. Once you run out of money, the brokers don’t want to know!

 

First and foremost, survive your apprenticeship. Don’t beat yourself up for making mistakes when every person on the planet makes countless mistakes when learning something new. Start a trading diary so you can watch yourself progress and also so you can spot common mistakes. If you start to see several entries where you revenge traded, guess what? That’s what you need to work on. So focus on that area for a while, master it, eradicate the revenge trading.

I hope you have a great rest of your week. 

Morning Ftse 100 Review and Subsequent Trade Opportunities 11th August

Wednesday Quote Hour

How to Use Moving Averages Effectively When Trading

Don't Buy Snake Oil

 

Fear based ‘advice’ built around what is at best, a misguided intention to help and at worst, outright stupidity. There are lots of snake oil investors out there, although I wont name names. They’re usually the ones on YouTube screaming about the next impending disaster, a new video every week about how we’re days away from complete collapse and ruin, but wait, they have advice, they have a recommendation, just buy this and this, the links at the bottom of the video, but no, I don’t benefit from it in any way!

Recently it has been the impending collapse of the dollar. But there have been countless others. They look at American debt and see the enormous number and tell people to buy gold and silver because the world is close to ending. I’ve actually read some of the comments on these videos and it saddens me to see people who have literally cashed in pensions and sold assets on the back of this advice.

The great thing for these snake oil investors is that they only need to be right on one occasion. One time and suddenly they have been proven right. Oh and the little extra sprinkle of salt – they give no exact timeline for the event they say is coming, so it can literally drag on ad infinitum until the ‘prophecy’ fulfils.

If you look into this advice a little deeper you can see it for what it is, which is advice based on emotion, mainly that of fear. And what is the number one thing you want to remove from your trading? Emotion! Because it lies to you, it has you trying to pick tops and bottoms because SURELY the market can’t move any further.

Gold has been falling for years. And the sad part is, people will have bought the highs on the back of this snake oil advice. Always do your own analysis and don’t allow yourself to become influenced by the advice of people on YouTube or in the news. Don’t even listen to me unless your own research/beliefs align with what I’m saying.

The problem with people looking at America and basing their advice off of the debt clock which spirals every higher is that they are treating debt in a way they can relate to it. As though it were their credit card debt or mortgage. But there’s a huge difference. For us mere mortals, we have a life expectancy. Our borrowing costs will increase the older we get because our repayment term will decrease, simply because, as morbid as it is, we are expected to die. And banks want to wring the money out of you before you go! America is not a mortal. It is a country and has no mortal life expectancy. It can borrow, literally, forever, adding debt to the debt. Is this a good idea? Of course not. But it in no way should be your sole reason for investing in gold!

 

And so the dollar rises and gold falls. The YouTube videos keep rolling and people pump money into markets that the smart money is avoiding. And when gold begins to rise again (as it naturally will), the videos will exclaim that they were right, they hope you didn’t invest too early, this is exactly the ‘bottoming out’ they were waiting for!

Have a happy (and sensible) trading week!

Live Trade FTSE 100 7th August

On this trade I go more in depth, explaining how I'm managing the trade and what I'm looking for

The Importance of Drawdown Rules When Trading

Having drawdown rules is one of the most important things I have learned since I began trading. Bad days happen to us all, but allowing a bad day to turn into a disastrous one is the difference between a professional and an amateur. When losses come, they don’t feel good, no matter how seasoned you are. And they do come, because losses are inevitable. It is the price of trading, your dealings with probabilities.

The problems arise when you get emotional about your losses. It can be frustration, anger or fear, it really doesn’t matter, because the outcome is the same – you begin to make mistakes, to take trades which fall outwith your trading rules. You might hear your inner voice speak up and say, well you just went short and it didn’t work, so go long quickly, catch this move and make back that loss. Or it may chirp up and inform you that there’s a perfect rising wedge forming, and yes, you don’t trade rising wedges, but this one’s so obvious and perfect, you can do it once and make back some of your money.

This happens. And at the beginning of your trading journey you will inevitably follow these suggestions, and countless others, and rack up losses. If you’re reading this then you’re at an advantage in that you’re actively seeking to learn how to combat all of the problems with your trading. Most people just keep repeating their errors until they run out of capital.

It doesn’t matter how long you’ve been trading for, if you haven’t built trading discipline, you will not be successful long term. Build yourself a rule set that you adhere to. Your trading system, sure, but more than that. Understand that your emotions can be powerful and can lead you toward disaster when trading. I would advise having drawdown rules.

I have drawdown rules. It’s very simple. If I have two losing trades in a row, I’m done for the day. This very rarely happens for me, but it does on occasion (and it used to happen all the time!). This is because I understand that after two losing trades, my judgment begins to slip. I think about making the money back rather than finding my perfect entry. My internal chatter starts suggesting ‘quick-fix’ trades I could take just this once in order to make the money back.

This is a recipe for disaster, please believe me. So I have rules that suit my personality. Two losses in a row and the computer is turned off and my day is finished. Frustrating when it happens, but necessary. Because I’ve been through the stage of chasing the markets and being sucked into the screen where I don’t even know what I’m doing any more, I’m just trying to catch a move, any move, to make money.

Your rules may be different. It may be one loss and you’re finished. That may suit your personality and your trading system. Mine is two trades purely because I know I have only a very small chance of losing two times in a row. And if I DO lose twice in a row, it is better for my account to walk away and come back the next day.

Here’s a quick example – today is ‘super Thursday’, according to the news. Bank of England Governor Mark Carney is releasing a torrent of reports, all at once, at 12 GMT. This hasn’t happened before and the associated markets are expected to react with a lot of volatility. I adjusted my rule for today. One loss and I’m done, and no trading after 10am. And guess what? I had a loss first thing! Yes, it happens. Now I haven’t had a loss in ten trades, so I was expecting it. However my internal chatter wanted me to keep trading, because I know from experience that two trades in a row is very unlikely. But the key is, I didn’t continue to trade. Because that internal chatter is not my friend, certainly not when trading. And discipline is more important that one losing trade.

I hope this was helpful.

Enjoy the rest of your week!

Morning FTSE 100 Review and Subsequent Trade Results 4th August

Note my expectation of a quick bullish surge which quickly turns bearish and also the use of my trazing zone later in the day. The markets are always giving you clues as to what they are going to do

Wednesday Quote Hour

Why Price Action Trading Works

In this video I outline why price action trading works. I also delve into fundamentals and the importance of having a good understanding of the charts, not simple patterns and candlesticks.

It's not a linear road to success!

Reading Time - 5 Minutes (PS Thanks Owen Fitzpatrick)

The road to success is not a linear one and it is not a short one. Save from winning the lottery (which I in no way consider success), you’re going to need to get your hands dirty. And in truth, the journey is just as fun as the arrival.

 

When you look at successful people, they’re brought to your attention when they are already ‘made’, at the top of their industry and making it look easy. This goes for athletes as well as entrepreneurs. And the main problem with this is that it can create a sense of difference between them and you. It makes them look like they have a special ‘talent’, ‘gift’ or were just lucky.

It isn’t true. Now let’s ignore the idiotic rise of famous people who are famous for being famous. Again, I don’t think of these people as successful. Rich, sure, but lottery winners are also rich. Success is something you earned, something you created. And for successful people, their journey was a difficult one which oftentimes seemed impossible.

Let’s take a few quick examples here:

JK Rowling – Living on state benefits, a single mother who struggled to make a life for her and her child. Was Harry Potter the first book she ever wrote? Of course not! There were countless books before that. And even Harry Potter was rejected numerous times by agents. But she kept going, kept working and believing that she could do it.

Walt Disney – Fired and told he had no creativity or original ideas.

Henry Ford – Declared Bankrupt

Abraham Lincoln – I’m not even going to begin to list the hardship this legend suffered throughout his life. Google him and find out for yourself. It’s a tough read!

Ok so why does this matter to me? To my trading journey? I’m here to get rich trading Forex and scalping points from the Dow Jones, not read biographies!

It’s very important. Because if you understand that no one is successful without hardship and that what got them through was determination and perseverance, then it can make your journey a lot easier. If you understand that you aren’t failing because you’re not good enough or because you just don’t have the ‘talent’, but rather that you’re just climbing the rocky cliff-face that is your route to success, it will encourage you to take that next step.

The successful people are the ones who kept going. Who maybe lost faith once or twice, but continued all the same. Most people face failure and they accept it. They give up. Or worse than that, they put it away on a shelf somewhere and tell themselves that they will get back to it ‘when I have more time’. In reality, they give up but try and make it sound like something different, something more palatable.

So get yourself mentally prepared. Expect to climb and then slip. Climb and then slip. Maybe plummet a few hundred feet, breaking bones and banging against every rock there is on the way down. But lick your wounds, turn over and start to climb again. And guess what happens when you’re almost there, when you can see the summit, almost reach it? Another plummet! I don’t know why this happens, but when you’re almost there, tantalisingly close, you will suffer a setback once more. Perhaps it’s life’s way of messing with you, of testing if you’ve really learned what it takes to be successful. Just keep getting up and climbing. Because what’s the alternative? Roll over and give up?

Everyone fails. But only failures give up.

Have a great trading week!