Aow Journal

[NickB]

Why is it your final entry?

[4ow4ow]

Ouch, sorry Nick. My poor English. I mean I stopped posting Forex entry, for awhile.

I must re-schedule back my local stock trading portfolio. 3 years in neglection.

I need some times for applying what I learned in Forex for my stock chartings.

Edited: Plus, I had a migraine symptom.

[jude]

Well, I'm happy to hear it's not your last trip here, Aow! Your journal has always given me ideas~

[4ow4ow]

I had my a medium-migraine for these 3 weeks, the symptoms started since February this year. I will stop immediately my scalping session (full hours trading) and focus with bigger retracement.

Don't worry, i'm not leaving forex4noobs. Thanks to Nick and all.

[rogan]

Originally Posted by 4ow4ow

I had my a medium-migraine for these 3 weeks, the symptoms started since February this year. I will stop immediately my scalping session (full hours trading) and focus with bigger retracement.

Don't worry, i'm not leaving forex4noobs. Thanks to Nick and all.

Hope you get better soon

[Fetor]

Originally Posted by 4ow4ow

I had my a medium-migraine for these 3 weeks, the symptoms started since February this year

Good grief. That must be awful and painful. I can hardly stand a regular headache for one day. Hope things get better for you.

[alexb]

Man, it's a great info you've wrote in first 2 posts! really great... thanks and hope your disease will be healed as soon as possible!

[4ow4ow]

Originally Posted by 4ow4ow

1. Learn the price behavior once it arrives to the line. This is the most important part that you must buy with your time to gain the experience. Nick will guide you, he had explained them in "Nick's Trading" section.

This was from AnthonyBaker's thread in FF. The old thread without a single reply in it.

Traders’ remorse

After a support/resistance level has been broken through, it is common for traders to ask themselves about to what extent new prices represent the facts. For example, after a breakout above a resistance level, buyers and sellers may both question the validity of the new price and may decide to sell. This creates a phenomenon that is referred to as "traders’ remorse": prices return to a support/resistance level following a price breakout.

The price action following this remorseful period is crucial. One of two things can happen: either the consensus of expectations will be that the new price is not warranted, in which case prices will move back to their previous level; or investors will accept the new price, in which case prices will continue to move in the direction of the breaking through.

In case number one, following traders’ remorse, the consensus of expectations is that a new higher price is not warranted, a classic "bull trap" (or false breakout) is created. For example, the prices broke through a certain resistance level (luring in a herd of bulls who expected prices to move higher), and then prices dropped back to below the resistance level leaving the bulls holding overpriced stock. Similar sentiment creates a bear trap. Prices drop below a support level long enough to get the bears to sell (or sell short) and then bounce back above the support level leaving the bears out of the market.

The other thing that can happen following traders’ remorse is that investors expectations may change causing the new price to be accepted. In this case, prices will continue to move in the direction of the penetration.
A good way to quantify expectations following a breakout is with the volume associated with the price breakout.

If prices break through the support/resistance level with a large increase in volume and the traders’ remorse period is on relatively low volume, it implies that the new expectations will rule (a minority of investors are remorseful). Conversely, if the breakout is on moderate volume and the "remorseful" period is on increased volume, it implies that very few investor expectations have changed and a return to the original expectations (i.e., original prices) is warranted."

----------------------------

And another old thread in FF, it's from haymus. Same there's no reply in the thread.
I will help you to figure it out, most times I found haymus' words were implicit.

As you start to examine price charts, you will notice that price moves across your charts in waves. Sometimes these waves appear to be moving up; sometimes they appear to be moving down. Other times they just seem to be moving sideways. Whichever way they are moving, you will start to notice that price often likes to bounce between two levels: an upper level and a lower level.
(He mentioned clearly about this one.)

We call the upper level RESISTANCE and the lower level SUPPORT if we are able to beat these two point we shall always smile to the bank -but yet- this is because often in life the right action is the hardest to take.
(he meant for the ranging-price movement / sideways-market for this one, the underline was about "the right timing".)

The same dynamic occurs in trading, for most traders it is extremely difficult to buy tops and sell bottoms because from a very early age we are conditioned to look for value and buy cheap while selling dear.
(he meant for trending market for this one.)

[4ow4ow]

Winners Simply Do What Losers Won’t Do
(This article is excerpted from an archive edition of Market Mastery, written by Chuck Branscomb.)

Adopting the belief that “winners” simply do what the “losers” will not do is very useful in many aspects of life. After all, that is the case in the field of investing and trading. So let’s step into that belief and see what naturally follows.

Here are some winner/loser opposites. If you find yourself disturbed by any of these, you may have stumbled across a clue to an area in which you need to spend some time. Use all the tools you have learned from the Peak Performance Course to investigate ways to step beyond and overcome your limitation.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ~~~~~~~~~~~~~~~~~~~~~~

1. A winner crafts a detailed business plan which includes on-going reviews and sticks to the plan.
2. A loser thinks a business plan is something he’ll get to one day in the future after he has achieved some success trading.

• A winner designs systems with high positive expectancy, sound money management strategies, minimal degrees of freedom to avoid curve fitting, and then puts the system into his business plan for implementation. He lets the market determine the outcome.
• A loser has a continually changing system/methodology based on whether or not the last few trades were winners or losers. He is scared of what "may happen to him" in the markets in the future. His position size is controlled by whims and notions. His exit points vary depending on how fearful he is of giving up open profits or how hopeful he is that a losing trade will turn around.

1. A winner knows that his method will provide the long term return he is after if he implements it correctly.
2. A loser thinks he has to continually be looking for a new indicator to eliminate having to enter trades that lose money.

• A winner knows deep in his heart that he is completely responsible for the outcome of each and every trade.
• A loser assumes responsibility for winning trades while blaming floor brokers, brokerage firms, hedge funds, international news events, or simply "the market" for losing trades.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ~~~~~~~~~~~~~~~~~~~~~~

1. A winner is not trying to prove anything about himself through his trading activities.
2. A loser thinks he’s the master of the market, closing a big winning trade, and then gloats in his outstanding success he had "beating" the market.

• A winner knows he’s a winner even after an expected 12 losses in a row.
• A loser is sure he’s almost worthless as a person after 5 losses in a row.

1. A winner realizes that he produces the emotions he experiences related to trading and assumes responsibility to resolve deep-seated root causes for negative emotions that interfere with his trading business.
2. A loser knows that it’s the market that causes him to feel depressed or angry, and he’s determined to fight this beast.

• A winner gladly shares trading advice to less experienced people.
• A loser thinks that he needs to look cool as a suave trader and talk down to those less experienced than him.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ~~~~~~~~~~~~~~~~~~~~~~

1. A winner is aware that his methods and systems may require modification as time proceeds, and he develops appropriate boundaries of performance which will indicate whether or not he needs to review his system.
2. A loser is sure that all he has to do is find "the right system or method" and then he will forever more be able to sit back and enjoy easy profits. He feels slighted by professional traders since they claim not to have any great secret indicators, and he "knows" they’re lying to him.

• A winner understands the level of capitalization required to successfully implement his trading business plan.
• A loser thinks that his $5,000 account is a great start for trading highly leveraged commodities, and the day he opens the account he feels like he’s really off to the races now.

1. A winner knows that it is up to him to develop the skills necessary to create, test and evaluate sound trading systems and methods.
2. A loser knows he just hasn’t looked hard enough to find that special system someone has created which will bring him all the wealth he’s ever dreamed of ("damn those professional traders - if only they would tell me their secret indicators").

• A winner looks forward to opportunities to give back to the world some of what he has learned along the way to becoming a successful professional trader.
• A loser knows he has to keep everything he learns secret since if anyone finds out where he places his one lot stop orders, then they will try to run the market to his stops to hurt him.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ~~~~~~~~~~~~~~~~~~~~~~

1. A winner who goes long on an upside break-out only to be stopped out at the bottom of the correction of the failed break-out four days later can simply reenter on another upside break-out a few days later.
2. A loser in the same trade gets mad that the market retraced all the way to his stop and then reversed. As prices rally back through to a second break-out he gets even madder since he’s not in the trade he tried to take. Two months later after a tremendous rally, the loser is so angry at the market for what "it’s done to him" that he finally buys (just days from the top of the move).

• A winner runs his trading business wisely—carefully managing his fixed and variable costs of doing business and making capital investments which provide a worthwhile return to his business.
• A loser spends all the money he can afford to buy the latest computer hardware and the hottest (best marketed) trading software he can find—with no understanding of the return expected from his investments.

1. A winner knows he needs to continually work on his feelings and emotions related to his trading business as he grows in success and equity.
2. A loser knows that he only needs to buy additional software and systems and perhaps attend the "latest guru’s" trading method to achieve what he’s after.

• A winner knows what his goals are and he has criteria established to measure his level of achievement.
• A loser’s goal is "being rich", and he’s sure that it’s only a matter of finding the "right" answer for how to trade.

[4ow4ow]

Position Sizing—How much is enough?
by D.R. Barton

Start small
So many traders that are trading a new strategy start by risking the full amount that they plan on using for the long term with that strategy. The most frequent reason given is that they don’t want to “miss out” on that big trade or long winning streak that could be just around the corner.

The problem is that most traders have a much greater chance of losing than they do of winning while they learn the intricacies of trading the new strategy. Therefore, start small (very small) and minimize the “tuition paid” to learn the new strategy. Don’t worry about transactions costs (such as commissions), just worry about learning to trade the strategy and follow the process.

Once you’ve proven that you can consistently and profitably trade the strategy over a meaningful period of time (months, not days), then you can begin to ramp up your position sizing.

Manage losing streaks
Make sure that your position sizing algorithm helps you to reduce the position size when your account equity is dropping. You need to have objective and systematic ways to avoid the “gambler’s fallacy.”

The gambler’s fallacy can be paraphrases like this: after a losing streak, the next bet has a better chance to be a winner. If that is your belief, then you will be tempted to increase your position size when you shouldn’t.

Don’t meet time-based profit goals by increasing your position size
All too often, traders approach the end of the month or the end of the quarter and say, “I promised myself that I would make “X” dollars by the end of this period. The only way I can make my goal is to double (or triple, or worse) my position size. This thought process has led to many huge losses.

Stick to your position sizing plan!

"I have talked to many folks who have blown up their accounts. I don’t think I have heard one person say that he or she took small loss after small loss until the account went down to zero. Without fail, the story of the blown up account involves inappropriately large position size or huge price moves, and sometimes a combination of the two." ~D.R.Barton

Letting Profits Run – What Does It Mean for Your System?
by D.R. Barton, Jr.

The inevitable question came up: If you use a profit target for all or part of your position, isn’t that breaking the “letting your profits run” part of the golden rule of trading?

The answer is not simple. If can be “yes”, “no” or “maybe” depending on one KEY FACTOR. It’s: “What makes my system work in the first place?” To know whether or not your system is letting its profits run, you have to know why your system works. You have to know the beliefs about the market that are reflected by your system.

Let’s look at three different types of systems and see if profit target exits are consistent with “letting your profits run”.

1. Long-term Trend Following
If your system works because it catches long-term trends, then using a profit target is a bad idea. In this type of system, you most likely have a winning percentage below 50 percent. Your system compensates for the lower winning percentage by having really big winners relative to the size of the average loss.

All of the confusion about “letting profits run” can be traced to the days when the classic trend followers ruled the trading world and almost all of the books and articles in the trading world related to trend-following. If you took profits in any other way than trailing a stop, you were not “doing things right”. And if your system’s edge comes from catching the occasional big winner, then you don’t want to use profit targets.

2. Channel and Other Types of Counter- Trend Trading
In this style of trading, you expect prices to stay inside a range. Your system is based on indicators that allow you to buy the bottom of a range and sell the top of that range. In this type of strategy, profit targets are imperative. You expect the price action to retreat when it gets to an extreme, so trailing a stop is not useful or prudent.

In this type of trading, you count on a higher percentage of winners and “letting your profits run” means that your average winner is bigger than your average loser. While this is a different style of letting your profits run, it is an equally valid way to follow the golden rule of trading (=cut your losses and let your profits run).

3. Hybrid Strategies.
There are many useful strategies that merge both worlds. Perhaps you trade half of a pre-established price channel using a profit target and then trail a stop in an effort to capture more of the price movement if it heads in your favor. Trend-followers and breakout players can also take profits on a portion of their position in choppier market conditions and revert to using only a trailing stop when technical analysis indicates that markets have entered a trending phase.

As usual, there is no one “right” way to trade the markets. The most important step you can take is to fully understand your strategy’s core beliefs (why it makes money in the markets) and then make sure all of the individual components of your system -- including the profit-taking exit — are consistent with that set of beliefs.

Swing Trading – The Best of Both Worlds?
by D. R. Barton, Jr

Long-term position trading and intra-day trading each have their own advantages. Many people gravitate to one camp or the other and very few people trade in both of those worlds. But the intermediate time frame, what most folks call “swing trading”, may just be the best of both worlds.

Long-term trading (also called position trading) has several advantages. Once the trade is entered, it can usually be managed with very little time and effort. A check once a week may be all that is required. In addition, people who are effective in long time frames usually get that way by finding really large winners every once in a while. Catching a long-term trend and riding it for a big return is the style of trading that has made many of the best-known traders famous (and wealthy).

The negative aspects of long-term trading usually include a low percentage of winners, long-term market exposure (and the accompanying inherent risk of being in the markets), and the need for a greater starting equity because more capital is required to live through the longer and deeper drawdowns that are typical of this type of trading.

Day traders have several things going for them, as well. Their high frequency of trade typically results in a smoother equity curve with lower drawdowns. Day traders have lower risk levels (because they do not hold trades over night) and are afforded higher leverage as a reward for this reduced risk. Successful day trading systems typically enjoy higher winning percentages than longer-term systems.

Day trading has its disadvantages, of course. Higher leverage combined with greater trading frequency means that negative expectancy systems get punished faster and harder. Day traders rarely catch monster moves, but subsist on smaller more consistent wins. And day trading certainly can be time consuming on a daily basis.

Swing trading fills the gap between these time frames and enjoys the benefits of both of the styles described above. Swing trading is loosely defined as trading to take advantage of the intermediate trend, typically 2 – 10 days.

Swing trading has the benefit of high trade frequency, which can help to smooth equity curves. Many types of swing trading capture a higher percentage of winners than the typical position trading strategy, while keeping the benefit of requiring little to no intra-trade baby sitting. With swing trading, we get the increased frequency with monitoring that can typically be done outside of trading hours.

And while there are few traders who combine position trading and day trading, I know many day traders who also swing trade and find the styles very complimentary. I also know long-term position traders who add a swing trading component to their portfolio so they can smooth out their equity curve, especially in choppy or directionless markets.