Think Like A Trader Blog

Thursday, 27 July 2017

Blog Post 18 by T-Model Trader - The Long Walk

Hello Traders.
T-Model Trader is back with his 18th blog (how did we get to 18 already?!). I hope you all enjoy it and as always, I hope you've had a great trading week!
James Orr

The Long Walk
I had to go for a walk last Saturday morning. Not just a random walk, but one of “Those” types of walks. The one’s where it is so necessary to stay focused on the few meters ahead, because if there is a day where standing in the only doggie doo within a 50 km radius was going to happen, then this was the day. A walk where parents of young children would stare as their offspring burst into tears when gaining proximity to my forlorn hangdog look. Where the elderly would stop and enquire… “Are you alright dear”?
I imagine that it would be like the walk to the gallows.
Okay…..maybe that was a bit melodramatic and I wasn’t anywhere near what that would be like, but I am hoping you get my drift by now. It was tough going.

It all starts at the first indication of awakening from slumber. Even before the eyelids start fluttering, those nasty neurons lurking in the memory band together for a refreshing game of…. “Oh…Mmm…..excuse me Sir, but do you remember the right royal FFFFFFFFF%#@*&%$#*k up from trading last night”, before simultaneously bursting into laughter. It is like living in an echo chamber of torment.
Nothing works. Not even a heavy duty pot of Earl grey tea can shift this one. Yes…I know….it’s serious!
Monday was good. Tuesday was even better. Wednesday was slow, but a nice trade tucked away none the less. Thursday came and so did the points. By this stage I was feeling good contemplating a positive point week.
Then comes Friday.
I could say to myself (as does James in the review videos) that if you had taken this trade and had a loss, well then it was a fine choice and just part of the trading process. I could even try my hand at mimicking his accent within my head to try to make it all the more real. But no. It wasn’t one of those trades. Not even close.
After being so good for so long in regards to my ubiquitous impatience fueled dud trade syndrome, then this happens.
It’s like having busted a valve getting the degree…the masters….the PhD…..2 PhD’s even……only to find after spending some time expressing ones consummate maturity at the job to die for interview, that in their possession they have a picture of you from facebook smashed beyond comprehension with your undies in seriously wrong places. At that moment nothing will save you as it all just goes to shit.
This is the sort of “I have to go for a seriously long stroll and somehow work out what the hell happened last night”.
Yep, that sort of walk. The Long Traders Walk. So, if you don’t see the next blog, then consider it that I’m still wandering somewhere.
I could explain the trade, but I won’t, because it is so seriously embarrassing and I couldn’t stand to have to relive it again. Also, as you would laugh till a rib popped, then I am doing you all a favor by remaining silent (Feel free to leave messages of appreciation on that one)!

So…..from my long contemplative amble along the foreshore I have come to the follow conclusions.
1.     I need to go back a few blogs and recall the insightful words of that great trading patron Saint Confluenza, when he aptly called me a ….Mmm….. “Dickhead” for that previous blunder. Yet again, there is no closer description.
2.     Given that I had read the blog by James about the dangers of trading success breeding slackness only moments before the market opened, then tragically it reinforces the above description more so.
3.     Given that I had actually asked James a question directly about this in the Q&A, then my reading of his latest blog was actually the second time I had this issue highlighted.
4.     Given that I had worked so hard to remedy this issue, to fall foul in such an odorous way makes it more the painful.
5.     Given given given……groan and moan.
As I wandered down to my journal writing cafĂ©, I knew deep down that I really needed to have some sort of punitive action and drive home this blunder with a hard cold slap. Come the following week, I set up the chart as per usual, but with one modification… trading this evening. It was the first time I had banned myself.
Luck would have, that Monday saw a couple of really juicy set-ups that were indeed successful as I sat there and watched the whole thing. It was like having the chocolate bowl go right under the nose before being whisked away and out of reach. Each individual point gained seemed to point a finger at me with a very large grin…. “So sad you are missing out there….next time maybe”.

There is thou, one interesting point of note in this. It was Friday. And being at the bottom end of the planet, it was a Friday evening. It did in turn make me realize that Friday evening trading is where I have experienced the most losses.
I am starting to realize that come Friday evening trading, I have already slipped one foot into the psychological weekend and switched off from the working week. An excuse it is not, for there are none to be had in this regard. But nonetheless, it is worthy of consideration and awareness of hence forth. Four good solid trading days, yet the one trade at the end left the whole week a sour mess.
This trading slip up has really hurt. Hopefully it may be all for the good long term.
Till next time…

Thursday, 20 July 2017

How Trading Success Can Lead to Trading Failure

Hello Traders.

You’ve probably clicked on this blog post just so you can find out how I can possibly spin being successful at trading into something that can be damaging. I know it sounds ridiculous, and it is ridiculous. However, I see it happen over and over again, and it still tries to creep in on me most months. The reason I’m writing this now is because I felt it earlier today. Lucking I am mostly able to recognise it now and discard it before any damage is done. However, for a lot of beginners, they can end up in a lot of trouble before they even know what happened!

So, how can success lead to failure?

It comes down to the natural triggers of the brain that cause such hardship when learning to trade – greed, fear, laziness etc. It may sound crazy, but the truth is that having a run of success can actually make it easier to fall into emotional trading and mistakes.

What happens is that you sit down at your computer each day with your trading plan well laid out. You are determined to succeed, to trade like a professional and make your dream of becoming a professional trader a reality. And look at you, you start doing just that. You trade properly and the winners start racking up. You have a fantastic week. Maybe you even smash it out the park for an entire month.

And then your mind comes along and tries to ruin it all (and often succeeds). That self-destructive aspect of your personality starts fighting for purchase. You’ve spent so long learning about emotional trading and ways to cope with it that you don’t even see it coming. And the reason for that is that you have spent your time looking at only one side of the coin.

Emotional trading can come after losses. It can spiral out from there and cause you to blow entire accounts. However, it can also come after winning trades.

After periods of winning at trading, your discipline starts to weaken. You begin to think things like:

‘This setup isn’t perfect, but I’ve had so many winners that I can afford to take a couple of extra risks.’

‘This isn’t one of my setups, but I know I am much better at reading the market now. I’m doing really well so I can just start to use my instincts alongside my trading plan.’

‘If I can just have another two successful trades this month, then I will make X amount, which would be great!’

The mind is a sneaky little sh**, there’s no doubt about that. These thoughts start digging their way in, like a flanking manoeuvre, understanding that you have defences against ‘normal’ emotional trading, but not this.

And what happens?

You take a poor trade. And if it’s really bad, then you take more than one, wiping your months gains all the way back down to zero (a subscriber actually told me had done just that only recently).

I was looking today for a short on the FTSE 100. The market was sitting in one of my resistance zones and holding tight at 7485. It even produced a couple of nice little pin bars for me. All signs were a go.

Except they weren’t at all. It was only that part of my mind that was trying to blind me and suck me into the trade. Because I have had a good run recently, and am on for a good month. However, the temptation is there to just look for another couple of winners, and turn a good month into a phenomenal one.

Now I knew that the EU rate decision was due less than 15 minutes after I started seeing signals. As a rule, I do not trade around rate decisions due to the possibility of sudden, unexpected wild swings (I got stung badly as a beginner. Never again!). I also had a management point just below where the entry would be, too close for a trade really.

And yet there I was running through my checklist as though I were going to take the trade. I could hear mutterings from the depths of my mind with things like – ‘it looks like s small double top,’ and ‘the rate decision probably won’t do anything, this once will be fine.’

It actually amazes me that there is such a strong drive for self-sabotage within us. Even when we KNOW that acting in a certain way will harm us and our goals, at times we are driven to do exactly that. And the worrying thing is that the temptation is so real and the reasoning so convincing at the time.

So yes, success can lead to failure in trading. And it can happen very quickly.

What can you do to avoid it?

Well first of all, realise that the problem exists in the first place. And by reading this blog, you should now have an understanding of what is going on.

After that, you need to do things to strengthen yourself against those kinds of mistakes. Here are a couple of suggestions and the reasons ‘why’ for each:

1)    Do not keep track of your results after every trade. By doing so, you are keeping a running tally and the mind has a tendency to get ‘locked’ on easy to digest figures. If you’re up three percent, maybe you’ll start thinking that you want to aim for 5. If you’ve made £1,800 for the month, maybe you’ll decide you want to shoot for £2,000.

2)    Cover the portion of your screen that displays your gain or loss when in a trade. By that I mean both in terms of money, and also points. This will take away the similar temptations that arise when in trades that are similar to the points in number 1. The temptation is always there to hold the trade until you get from 8 points to 10. Or you don’t want to exit until it pops back to break even.

3)    Have a checklist. A literal, printed checklist of all the things you need to see before you enter a trade. Maybe it’s a list of 8 things and you need to be able to tick at least 5 before you can enter. Whatever fits your trading plan, make sure you have it right next to where you trade. That way, no matter what you are thinking, you have the sheet to fall back on. If it doesn’t fit, it doesn’t fit.

4)    Take breaks from the computer. Force yourself to take a lunch break. Consider a mid-morning ten minutes away from the charts. Do the same after lunch at around 2pm. The main reason you take imperfect trades, is because you are becoming frustrated and searching for setups. You ‘want’ to be trading, so the longer you sit without trading, the more likely you are to jump into that imperfect setup. Taking a break helps relieve that pent-up frustration.

Just remember, whenever you are trading – this is you doing what you either already consider your career, or what you hope to one day call your career. You need to take this seriously if you want to succeed. The problem with trading is that it is literally just you and the charts. There is no boss over your shoulder telling you what to do. You don’t have other staff members giving you input and advice. It all rests on your shoulders, and that makes it both incredibly tough and also makes it much easier to make mistakes. Your broker will accept your order with open arms, whether it is right or wrong. Your job is to make sure that you only risk when the cards are stacked in your favour.

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

James Orr

Thursday, 13 July 2017

Bad Bias Blues - Blog Post 17 by T-Model Trader

Hello Traders.
 T-Model Trader is back and I have to say this is one of my favourite posts I have read of his. It touches on something I see a lot of in trading - 'Prediction Goons' as I call them. People who rant and rave about what a market is definitely going to do. They're always silent when they are incorrect, but scream from the rooftops when they are correct. Unfortunately, a lot of beginners get suckered in by this. As I always  say, let the market tell you what it is going to do and ride its coattails. Leave the prediction to clairvoyants.
 James Orr

Blog 17 - T-Model Trader

Prior to starting up with Decisive Trading, I had joined up with two other trading businesses. The first one was akin to a snake oil salesman experience, which required the cancelling of credit cards in order to remove myself from the “quit at any time” trading site.
Being philosophical about it all, I chalked it up as experience (with a few quiet grumblings on the side).
The second was an Australian based trader whose methods are based upon longer timeframes, mainly the daily and 4 hour. As my first snake oil learning was like a passing shower, I was still very much in my infancy as I made my way around the lessons, articles and forum postings on the 2nd attempt of the trading learning curve.
My time spent reading and following the postings on the forum was of great interest as everything was just so new and fascinating. The more time has passed, the more I tend to have snippets of memories of comments regarding trades pop into mind.
It was a very active site, with many participating traders posting comments, observations and of course their trades. In reflection, there were two traders that I can now recall more vividly than others. They did in hindsight encapsulate two very different personalities in and around trading that I didn’t really see clearly at the time.
The first guy came to my attention within the first week of being in the forum as his way of writing was hard to miss. All his comments seem to be so “in the know”. I was in retrospect, feeling so inadequate regarding everything to do with trade assessment and trade placement that I hung off these comments as gospel.
This was my first major trading reality check.
Forum Guy 1.
One day he posted a screenshot of a forex pair, with a few squiggles drawn pointing in a southerly direction. It was though the comment that he wrote that is the one that really grabbed my attention.
He had written with the chart….. “This baby is going to sink like a stone”.
In my naivety, I saw these words and attached them visually to the big arrow on the chart that he had drawn. In my imagination, I could only perceive how many pips that arrow was covering and how fast that stone was going to go, putting together a “wooooooo”, this guy is so in the know and about to make a fortune.
Given my general bee line for impatient trading, I am in reflection amazed I didn’t jump on board with his great enthusiasm and place a trade on his knowing. I do recall making sure I follow this currency pair to watch with admiration as this “baby” did its plunging and with this conformation I could then trade along with him into the future and bucket the big ones.
As you may well have guessed, this “baby” actually took off like a missile launch and nothing like the Titanic. Strangely, although I missed the realization at the time, there was no follow up from this guy about that trade. Not a word.
A few weeks went by and then he reappeared with another …..“This sucker is going thru the roof”. Sadly for him, that trade was the stone he wanted in the first one and so this pattern was repeated over and over.
Forum Guy 2.
The first thing about this person that was notable was that he was from Kyrgyzstan, a place that doesn’t come on to my radar screen at all really. His comments thou were the opposite of the first guy. He would post something like…. “Bear pin at structure in line with trend”.  That was basically all he would write. At first I read these and would think…. “Yep….what about it”.
A few days later he would post a comment that would say something like….. “Closed for + 2.5 R/R”. And so, this pattern repeated over and over.
At that point of time in my trading, Guy 1 was so appealing, simply because of the language being used. As I was at the time a trading weakling, it was all bravado and very addictive.
Guy 2 was abstract. I didn’t really understand what he was writing. Were they trade suggestions? Was he merely pointing something out? What was interesting in hindsight is that he wasn’t making any suggestion to what price was going to do and that was highly challenging for me. I so needed to have someone just tell me!
Although Guy 1 was writing in a particular way, it was me who was reading, processing and giving meaning to those words. The reality was that this person wasn’t actually doing anything to me and it was my own personal psychology that was placing a value judgment upon it. When I placed the value of “certainty” as an overlay to his language in the postings, for a brief moment I fell into the belief that these trade suggestions were defying the reality of probabilities.
Even though I was seeing the repeated pattern of trade failures from Guy 1, the notion of fear within me was sufficient enough to fall into the belief that this guy knew and hence would bring safety to my trading.
Likewise, I was watching Guy 2 post these short comments and constantly having wins. He baffled me simply because there was no predictive language.
One day, another person responded to a Guy 1 comment when he posted yet another… “This mother is going to explode”.
The comment was…. “Trade what you see”. That was it.
I clearly remember sitting there and reading that over and over, as thou I was somehow missing the intended meaning, yet simultaneously sensing something quite profound.
Interestingly, Guy 1 was never to post again after that comment whilst I was there.
It was in retrospect, a really significant learning, but one that has taken a long time to truly understand. Guy 2 was just posting what he saw and had no prediction attached. It was short and simple and often successful from a trade placement perspective.
Guy 1, I speculate was infatuated by his own self- belief in knowing the trading future and needed to show off this perceived power of being right.

One of the many challenges I have faced is related to this scenario. I have coined the term “Bias blindness” in order to give me a point of reference in order to tackle this. I have it printed off and pinned up on a notice board in front of me, reminding that it is an issue that I need to be aware of.
It shows up in two ways.
Firstly, when I look at a chart, there is that part within me that is still in the grip of fear of being wrong about a trade entry. As such, my internal mechanisms are always seeking security and subconsciously making assessments to assist in gaining that illusional safety.
I have often (unconsciously) looked at a chart and imprinted a belief of what it is going to do. Like Guy 1, I want to be right and have swallowed a bias without really knowing. Fundamentally from there on, I am not taking in what I am seeing.
The 2nd part of this bias is whilst being in a trade and completely being oblivious to multiple signals that price is showing signs of moving against me. This is why I call it “bias blindness”. I am really not trading what I am seeing and locked into trading what I desire. My desire for the outcome is overwhelming any ability to respond as it unfolds.  I have lost count the number of times I have watched the review videos and gone… “Why did I not see that”?

This all came crashing home from a comment by James in the interviews a while back. He stated about setting alarms on zones and fundamentally detuning from a candle by candle engagement. He said that he knew what he wanted to see at a particular zone and simply waited for that to unfold.
I remember reading that and thinking how uncluttered and peaceful that seemed to be. How free of the constant analysis, anxiety, tension and stress and so on that I seem to have accompanying me in my trading.
It was when I read that, my memories of the two forum guys came back to me. In my understanding, Guy 2 was responding to the reality unfolding in front of him and had such a simple clear approach. I see the same thing when watching the live trade videos that James posts, in that it always seems so uncluttered.  
I have this disturbing feeling within me as I sit here and reflect upon this notion, as I can sense my mind wanting to fight this concept of simplicity, to continually make this way more complex than it need be.
It appears to me that this default within me to complexity within trading is in many ways like Guy1. If it is complex and by extension I am the one who “knows”, then I must be a genius hey! In the meantime whilst this is happening, trade after trade, elegant in their inherent simplicity continue to unfold.

Till next time…

Thursday, 6 July 2017

How Often Are You Trading?

Reading Time - 4 Minutes

Hello Traders.

I hope you’re all having a good week.

I talk a lot about the common misconception that trading is about machine gun firing orders off into the market, looking to blow chunks of profit out of candlesticks like a some kind of Rambo Trader slaying all before you. But I haven’t ever gone into detail about just how INFREQUENTLY you can be trading.

The thing is, when you sit down in front of that computer, your subconscious doesn’t understand the notion of ‘working less to achieve more’. You get that sense of being docile and lazy. You start thinking that you should be doing something, anything productive that will help you toward your trading goals. Because doing nothing doesn’t work. You are taught your whole life that the harder you work, the more successful you will become.

Trading doesn’t work like that. The unfortunate thing is that, even when you begin to realise that less is more when it comes to the market, your brain and internal dialogue just don’t want to listen. It’s like that annoying friend who always seems to egg you on and gets you into trouble… go on, just do it. It’ll be fun (note: if you can’t think who that friend is, then it’s probably you and you’re pretty much doomed).

Joking aside. Allowing the boredom and feeling that you should be working harder and taking more trades to pull you into the market even once can have a very bad impact. It can be the little spark that sets off the chain reaction and wipes out your account in one blissfully ignorant period of firing off orders like Rambo spraying bullets with apparent disregard into the trees, hoping to hit a target.

Now as cool as Rambo is, you want to approach trading more like a sniper. You wait until everything lines up perfectly before you take your shot.

Let’s look at day trading as the example, since that is predominantly what I do:

All the time (on twitter especially) I see people posting up the positions they are taking – long this, short this, buy the dip, sell the rally – over and over, multiple trades every day across numerous markets. It’s enough to make your head spin and I have absolutely no idea how you can be properly analysing a market and waiting for a high probability, quality setup when you’re trading so frequently.

I always go over that if you are averaging over 8% per month (averaging is the key word. Some months will be better, some worse) then you are one of the top traders in the world. If that is your returns over a year, two years, three years etc. then you are doing a very good job. Anything 4% and above per month I would consider professional.

I’m not going to get into the people who claim to be making much more, or who say those returns aren’t enough, in this post. I have made a video and also several posts showing how to identify that they have no idea what they’re talking about and are flat out lying. So that leaves us with some simple math and logic to work this out:
To return 4% per month, risking 1% per trade, you need to be finishing each week up by… 1%. So, you need to be positive by one single, solitary trade.

What about 8% return for the month? Well let’s say that once you become consistent, you decide to increase your risk to 2% per trade, which is still a very safe approach. Again, you would need to finish each week up by one single trade!

And let me tell you something else – that doesn’t mean that you need to take one trade per week. Sometimes you’ll have a whole week where things didn’t just line up perfectly. Or maybe your trades came back and took you out at break even. That is absolutely fine. On occasion, all of your perfect setups will come in your fourth week!

Once you start to think like this, and realise how INFREQUENTLY you can trade and produce professional results, then it takes a lot of the pressure off. It makes much more sense to NOT trade on Monday, Tuesday, Wednesday and Thursday because that perfect setup just didn’t come. Then on Friday, there it appears in front of you, and you take that one perfect trade.

It also means that you can spin your wheels most of the time – a win then a loss. A win then a loss. It can become frustrating and cause you to think you’re doing something wrong. But it is vitally important to reframe your thinking and bring it back to reality. You don’t need to trade often. In fact, in most instances, trading frequently can actually damage your chances of success. That is because in very high likelihood, you are over trading, seeking out trades rather than letting them set up for you.

If you find yourself getting bored or fidgety when sitting at the computer, don’t seek out trades. Find other ways to fill your time. Read a book. Watch films/documentaries. Learn something new. Anything to keep your hand away from the mouse and clicking you into imperfect trades.

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

James Orr