I had a comment on on this blog, saying that his trading has been a roller coaster. I know the feeling well. My demon has always been a psychological one. For that person, I want to pass on a piece of advice that has helped me a lot. It has helped my patience a lot.
LET THE MARKET COME TO YOU
The piece of advice was “Let The Market Come to You”. It seems simple, buy when you think about it, it went straight to the core of my problem. That is waiting for the market to present a good trade. My problem of making up trades or getting impatient waiting for a trade lessened. I say lessened because I still do stupid things sometimes but they are getting further and further apart.
What that meant to me was that I should wait for the market to tell me what is going on instead of me trying to project my will onto the market., I would concentrate on what the market was telling me. In short, patience.
This reminds me of a quote. I heard it was attributed to Lawrence Livermore. I am not sure, so I am marking this as unknown.
“I wait until I see a pile of money sitting in the corner, then I walk over and pick it up” – Unknown
The market will always be there. Every day there will usually be opportunities in the market. Even if there is not one today, there will probably be one tomorrow. Be patient and wait to pick up your own pile of money sitting in the corner.
Also, if you know who made this quote, please leave a comment below so I could give credit where credit is due.
Photo by Gemma Bardsley
LARGE VOLUME DAYS
If you have been trading recently, you know that volume and volatility have stepped up in the US markets a lot recently. This is not normal, or has not been the norm for a few years.
If you are trading time based charts, like a 5 minute of 15 minute bar, the chart will look the same. The bars are still 5 minutes apart, they just have more volume. If you are using tick or volume charts however, the story is quite different.
WHAT ARE TICK & VOLUME CHARTS
A tick chart draws price bars in terms of how many trades occur. A 2000 tick chart will plot a bar when 2000 trades have occurred, showing the open, high low and closing price that were reached during the preceding 2000 ticks.
Volume charts are the same, except that they plot a new bar given the amount of contracts that were traded. One 1,000 contract transaction would appear the same as 1,000 single contract transactions.
HOW TO TRADE THEM
The easiest way is to trade them so that the number of bars goes back to approximately what it was before. Mind you, you do have to switch back to your normal chart setting once volume goes back to normal. This is only a temporary solution.
I normally trade the ES on a 2000 tick chart. The last few days however, I have switched to a 40000 tick chart just to keep up. That bars are still coming fast, but they are now manageable.
To sum up, the few times a year that we have a volume explosion, consider doubling or tripling the size of your charts ( in terms of ticks or volume ) and going back to your original setting once the market calms down.
Photo By Fisher Chia
TRADING IS BORING
When I started trading, I loved being in the market. I hated the weekends because the markets were closed. I was always watching Bloomberg TV and CNBC. It was exciting and fun, but not that profitable. Actually, it really was not profitable.
TRADING WELL IS REALLY BORING
Being able to be bored has saved me. Instead of watching the screen all morning I can watch other things ( Gmail, hulu ) and pick my spots.
I watch the market, and I know when news is coming out, but that is about it. I don’t need anything else. Sure, news on days like Fed day matters, but what the market does after that determines how I will trade. Not by watching a talking head on Fast Money.
WHAT AM I DOING
The revelation that everyday there is almost always a trade has taken a lot of the pressure to trade off of my trading. Knowing that there will be another trade is liberating. To watch a trade take off with out me does not bother me. It used to, and then I would make a stupid trade JUST because I had missed one and I was angry. It only worked out enough for me to keep doing it for a while until I lost too much money.
So now I am trading, and I just relax. Most of my trades are in the first two hours of the day. Certain days I may trade longer, but usually nothing until the afternoon if I am still around. I treat trading like fishing. The time you sit in front of the screen is like setting on the dock with a fishing pole waiting for a bite.
( I am not a fisherman, so feel free to correct me on my analogy )
Photo by Strevo
FINDING THE TREND
For an Al Brooks style price action trader, we do draw short term channels during the day. We can draw them off the highs and lows or the closes. Sometimes the chart gets crowded and it is hard to see the forest for the tress.
Using NinjaTrader, we can change the bar type from candlesticks ( the most popular chart type ) to Line on Close. This draws a line between only the closes on a chart.
LINE ON CLOSE
I picked up this trick from Mack at price action trading systems, it is not my idea. By switching the chart type, we can see the above chart rendered in a simpler manner.
Give it a try the next time you are having trouble drawing trend channels.
CONSTANTLY GETTING BETTER
The more I trade, the better I get which is as it should be. When I started trading, I was not seeing that many trades per day. I wanted to be in the market and one of my big problems was seeing trades where there wasn’t a trade. Trading hope , instead of a setup.
As I get more experience trading, I am getting more and more setups every day. This is a good thing, but some of them are lower probability trades. Now, I won’t win every trade, but every trade I lose takes a winning trade or more to make it back. That is just the nature of trading. What I need to focus on is making the best of the opportunities I see in the market everyday, and that means being selective.
MORE SELECTIVE, BETTER WIN RATE
The hardest part of being selective is sitting on your hands. As I get better trading, I also get better at sitting on my hands. So looking at the stats for my trading, my best trades are my second entries and pull back in a trend. They have the greatest profit factor in my trading.
Profit Factor returns a ratio that can be used as a performance measure for your strategy. It gives you an idea of how much money you are making (Gross Profit / Gross Loss). A higher ratio is a good thing.
So this week, I started to heavily prefer Second Entries in my other setups by combining them and pullbacks in a STRONG trend. By doing this, I think I will have a higher win rate, fewer trades and a larger profit ratio. The only bad part is the sitting on my hands part.
Today I am trading the ES. I went short off a double top and got smoked three ticks. Meh, the signal bar was not great and in hindsight, I should have waited. It turned out to be a triple top and I made 4 ticks on the next move down.
The next entry was a first entry pullback to the EMA. I went short and without out even waiting one bar for my trade to work, I moved my target to two ticks and puked out early.
Have you taken a loss? Forget it quickly. Have you taken a profit? Forget it even quicker! Don’t let ego and greed inhibit clear thinking and hard work – Linda Bradford Raschke
CUT MY WINNER SHORT
I CUT MY WINNER SHORT. A classic way not to be profitable. I thought I had gotten over that habit, but I still do it sometimes. Maybe we never truly get over our bad habits. The most important thing is not to let it ( a trade cut short ) affect me and I get more aggressive because I am mad at myself or the market.
I added some new links to some pretty good sites.
Written by two guys, one of which was a former floor trader.
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