Think Like A Trader Blog

Monday, 29 February 2016

What It Looks Like on a Cold Scottish Morning at the Decisive Trading Desk


Hello Traders.

The probabilities side of trading is something I often see being misunderstood. Since probabilities are one of the very key foundations of trading, not understanding it can have a severe impact on your trading. It can lead traders to abandon perfectly good trading plans, and it can cause people to risk way too much.

There are no 100% strategies for trading. It doesn’t happen. If there were, then whoever commanded it would rule the market.

So what does that mean? Well, as traders, we want to find a win rate that is as close to 100% as possible without our losing trades becoming unmanageable. What I am talking about here are the systems that use things like a 500 points stop to make 20 points. They may have a 95% win rate, but the losses would easily decimate the account. The problem with these systems is that people can trade them for a year without those losses coming in, all the time believing they are successful traders.

But anyway, back to probabilities.

Let’s say we have a system that has a 70% win rate, and we average 1:1 on our trades over time. This is a profitable system and one you should be happy with.

But what does that 70% win rate mean?

‘’Well, it means that you’ll win 70% of the time.’’ Absolutely correct.

 But out of what sample size?

And this is where traders fall short and make mistakes.

It does NOT mean that for every 10 trades, 7 will be winners. That is not how it works and you need to understand this. Your sample size from back testing should be 100+ trades as a minimum. It should preferably be more. And out of all of those results, you find that you will come out with a 70% win rate.

So what happens in live trading?

One of two things:

1)   Traders get a run of winning trades – lets say 6. They start to think their system has become ‘higher probability’. They don’t click with the fact they are using a miniscule sample size. They increase risk… a string of losses come.
2)   They have a string of losses. They ditch the trading plan or worse, they increase risk, believing that their 4 losses in a row means it’s certain that a run of winning trades is coming.

Having a high win rate does not mean you can predict when the wins and when the losses will come. It does not mean that you can accurately predict how many trades out of ten will be winners. This is why professional traders risk very small amounts of their capital. They understand that the losses can come in extended runs.

I’m going to make a video for the YouTube channel on this subject in the coming weeks because I know it is something people struggle with.

As always, you want to protect your capital. Trading is first and foremost a defensive game. You want to do everything possible to assure you protect your capital.

Always trade as though a string of losses is coming. That way you’re always prepared for it and most importantly – protected from it.

I hope you all have a great trading week!

Friday, 26 February 2016

The Only Way To Get Over A Trading Plateau

Improving at trading is a difficult task. Once you learn the basics and have a good understanding, most people hit a plateau. This is usually as a break-even trader, or a trader losing small amounts. You take lots of good trades, but there are also mistakes that drag you down.

So how do I suggest people improve?

Well, I’m going off of the premise that you already have a good understanding of trading and also a trading plan that you are confident in. If that is the case, then the most effective way to improve is by trading less, and trading smaller.

Sounds like an oxymoron, right? I bet some of you are rolling your eyes. Heck, I bet a lot of you clicked off of the page after the last paragraph! Bon voyage to those traders.

For the rest of you, I’ll tell you why it works:

I can almost guarantee that when you're trading, you're thinking about the money. It’s ok to admit that (it’s what brought us all here in the first place!) but it is not ok to let that continue. It will wreak havoc on your trading results.

Trading needs to be about your trading plan and what the charts are telling you. That’s it, all wrapped up and placed in front of you. The money, when you are thinking about it, is at best a distraction, and at worst a wrecking ball that will swing through your account. You will over trade in an effort never to ‘miss a move’ and you will let yourself break your rules in an attempt to ‘make back losses’.

If you find yourself every doing either of these things, then you need to follow the two steps outlined above:

1)   Trade less
2)   Trade smaller

Trading less forces you to find the perfect trade. If you know you are only allowed one trade per day (and you stick to your rules) do you think you will be more or less likely to jump on trades that don’t fit your rules in case you miss out? It makes you very selective. If you’re going to have one trade and one trade only, then you want it to be a trade with the highest probability of winning – and that is a trade that aligns with your plan.
If you’re getting stressed when you have two or three losses in a row, abandoning your plan and desperately scrambling to make back the money, it is because you are risking too much. Trading is not a sprint; it is a marathon. Trying to make fast money will leave you fast broke. Reduce your risk. If you still find yourself entering the same stressed, angry mind set after losses… reduce it again. And again. And again.

You need to be able to see what is in front of you on the screen, not be thinking about what is in your account. That is the only way to improve as a trader.

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

Monday, 22 February 2016

Brexit Referendum Means Volatility

Good morning traders,

Over the weekend we found out that the EU referendum will be on the 23rd of June. So now we have the suave imbecile Cameron trying to ramp up support to stay 'in', and the bumbling buffoon Johnston pushing for the 'out' vote. So aside from lots of amusing sound bites we are sure to witness over the coming months, it will also have a large impact on trading.

My main market is the FTSE 100, and the FTSE doesn't like uncertainty. We can expect higher volatility as the vote nears, and most likely some wild swings as polls start announcing the likely outcome.

On another note, I have been quiet on the YouTube front of late. I intend to rectify this starting next week. March will see the return of the regular review videos and I'm also working on some training videos for the channel as per requests.

I hope you all have a great trading week!

Thursday, 18 February 2016

Wait For Your Trades

Trading can be frustrating. It can feel like you're banging your head against a wall at times (or your desk!)

You can identify the best reversal area in the market, your alarm can go off and you can come to your desk eager to take a trade. And the market can ignore your zone. It may pause, flirting the with idea, and then crash through. Or even worse, it may reach your zone and reverse but give you no signal whatsoever!

On days like those it can be infuriating. Doesn't the market understand that I'm a trader sitting here looking for trades? Why didn't it give me my pin bar?

Unfortunately it doesn't work like that. The market is its own beast and does what it likes. The signals you identify are merely representations of something happening with price. And hopefully, you have identified trends that repeat when you get these signals. But that doesn't mean you'll get them every time.

I had a zone identified today on the FTSE and I outlined it to my subscribers. It was a very strong zone and I was expecting the reversal to come. But for me, there just wasn't the signal. So I watched the FTSE plummet without me on board. Frustrating, right? But what's worse is abandoning your plan 'just this once'. Even more so when that trade makes you money.

How can it be bad if it made me money?!

Because you have now subconsciously shown yourself that your rules don't need to be followed. So the next time it happens, you'll do it again. And again. You'll start to forget that your rules are there because you KNOW they are what makes you money long term. Making money from one trade is not important. Being able to make money overall from 100+ trades IS important.

Have a plan and stick to it. For now, I'll just keep banging my head against this desk!

I hope you've had a great trading week!

Monday, 15 February 2016

What A Busy Two Weeks

What a couple of weeks!

I had been planning on launching a live trading room for some time, and this happened in February. It seemed like a natural ‘next step’ in trading and my wish to help others benefit from the trading lifestyle. But boy, I wasn’t expecting it to be quite so challenging!

I trade the 5 minute timeframe, as I’m sure you’re well aware if you’re reading this. It takes a lot of discipline, sometimes fast reactions, and very accurate analysis. These are all things that you develop the ability to do with experience and a dedication to learning (rather than making the same mistake over and over again, as per the majority of people learning to trade)

What did the room reveal? Well, the room brought a whole new set of ‘trading psychology’ hurdles I hadn’t been expecting. I felt a sense of duty to the subscribers – a duty to find them trades, and a duty to look after them. This, ironically, caused me to make mistakes, and showed me a whole new level of stress – all things which are counterproductive to trading.

I worked hard on improving the room from the get-go, and spent countless hours trying to refine, and make it work well for the subscribers. But after two weeks, it just wasn’t to be, and there are a myriad of reasons why I decided this:

The first and most important for me, was that I felt like I was learning on the job somewhat, and I wasn’t prepared to do that. I couldn’t in good conscience move forward, knowing that I wasn’t trading professionally, and was not in the state of mind that is oh so important to trading.  I couldn’t shake that sense of responsibility, and it was always on my mind that other people were relying on me to find trades.

The second reason, was that my results had slipped. Over a two week period, this is nothing in trading, but it was a large red flag for me. I received lots of emails from subscribers telling me they were making money, and lots of them for the first time in their trading career, mainly from the trading plans I laid out for them. However, with the room not performing as I expected, I realised that I was in danger of becoming the very thing I detest in trading – someone who makes their money from things like live rooms, rather than trading. I was not willing to allow myself to go down that route. It was because of the room and that sense of ‘responsibility’ I felt, and therefore the only thing I could change was the room itself.

Essentially, my focus was broken. I couldn't concentrate on what I was doing, and that, for me and the way I trade, just doesn't work. 

It is immensely frustrating, but as I outlined to all subscribers, my integrity comes first and I was unwilling to let that slip. On a note in that regard – thank you to everyone who emailed me (over 80% of subscribers) after I announced the closure of the room. The messages were all positive, so I thank you, and I am also very happy to hear that so many of you came out on top!

Tuck tail and run time? Let failure swallow me up?

I’m not that type of person. I closed the room because I was not providing the level of service I expected from myself. That does not mean I have been defeated in my aim to find new ways to help people succeed in trading!

For now, that means moving forward in a different direction. All of those subscribers are currently receiving morning analysis videos as well as detailed trading plans. I will also outline specific market dynamic trades, as and when they occur. And over the coming weeks, I will be working hard to improve this service.

As I truly believe – Know when to walk away from something, but never give up. If a door closes, another one always opens!

As always, I hope you all have a great trading week!

Monday, 8 February 2016

It's All So Quiet

Hello traders,

It has all been so quiet from me of late - cue tumbleweed rolling across the screen (if only I was computer savvy!)

For the first few weeks of the live room I will be focusing solely on the live room. It is a completely new experience for me, and I want to offer subscribers the best service that I possibly can. This means, unfortunately, that the blog/YouTube channel need to take a back seat.

However, as I said, this will only be for a couple of weeks (likely until the end of February). Right now I am concentrating on transferring how I trade to a live room so that people can follow exactly what I do. Who would have thought talking through trades as I take them could be so difficult?

*Insert joke about males being unable to multitask here!*

I hope you all have a great trading week!

Monday, 1 February 2016

And So Begins February

Reading Time - 2 Minutes

Into February we march!

It was windy, wet and dark in Scotland this morning. It's windy, wet and dark in Scotland most mornings, to be honest! But today marks the 1st of February and so, the launch of the Jedi Live Trading Room, so that was something to look forward to.

On Friday the FTSE pushed above and closed above the 6000 level. This is an important psychological level in the market. Above 6000, everything is looking A-ok. Below it, and economists and traders are expecting Armageddon and advising you to dig out your freeze-dried pouches of food and move into the hills with a tent.

So we were out of the Amrageddon scenario, which is a good start for a live room! I didn't want my first piece of advice to be - Panic! The world is ending!

Ok, so I'm joking, but it certainly does seem that way when you listen to the financial news and the markets have dared to sell off. People should buy forever, driving up prices at a steady rate, according to these financial oulets. And woe to you should you dare to sell or view the market as overinflated and withhold your money.

Anyway, it was great to see so many people in the room this morning. We had a nice easy trade and were finished relatively early. Now I'm finished for the day and off out into that windy and wet day - at least it's no longer dark!

I hope you have a great trading week!