Trades 29 and 30

Here are two trades I closed recently.

trade 29: long copper +1.6R

This is the longest I've ever held a trade and I wonder perhaps if I should have held longer. The full holding time of this trade was 13 months, so more an investment. I bought on a huge MN domino candle that coincided with my thoughts that commodities would boom in late 2016.

• Entry: Copper was in MOTR L1 (strong buying) price had declined heavily, based then printed a MN bullish domino candle that closed above the prior highs and 200 and 20SMA. I bought at the close of this bar.
• Stops: my initial stop was at the lows of the domino bar. I then move my stop to 70% at the close of the first bar. I use a 3 bar time stop, closing the position if it is not in profit after 3 bars. When the position reaches +0.7R paper profit I move my stop to 30%. I didn't use a TSL, although I'm looking at using domino candle lows.
• Exit: The trade hit my PT of 1.6R.
• Notes: I am happy with this trade. throughout the 13 month hold I had plenty of opportunities that encouraged me to sell. MOTR changed a few times and price stalled at certain levels. However, I learnt here that the trade isn't invalidated simply because the vehicle is no longer in a buying environment. If you think about it, it makes sense that as it moves favourably it will leave the ideal buying environment; it would be more worrying if your system was telling you to buy at prices that offered diminishing returns. You have to expect and accept this will happen when you are in a trade you expect to hold. Having "faith" in the underlying trade idea is very helpful (that commodities were in a bull) but crucial is in trade risk management. If you manage a trade correctly there should really always be more upside than downside that you're exposed to.

trade 30: long USDCAD -0.3R

I bought the USDCAD against MOTR because the entry was on the MN chart. I have noticed that good MN candles often overpower the current MOTR and so in this scenario I was trading with my rules which are to always trade in the clearest strongest direction. I bought a decent MN pin bar that coincided with my thoughts at the time that the USD was undervalued.

• Entry: MOTR S1 (strong selling) but bought as MN candles are often stronger than current MOTR. Bought MN pin @ MN Demand and 50SMA.
• Stops: my initial stop was at the lows of the pin bar. I then move my stop to 70% at the close of the first bar. I use a 3 bar time stop, closing the position if it is not in profit after 3 bars. When the position reaches +0.7R paper profit I moved my stop to 30%. 
• Exit: After reaching +0.8R in paper profits price reversed and hit my 30% stop for a -0.3R loss.
• Notes: Despite a small loss I am very happy with this trade and I would have no qualms about taking it again. This shows that if you manage your risk effectively you can expose your capital to slightly riskier opportunities without really taking on any more actual risk than you would ordinarily.

Still Plodding Along

update

I am still actively participating in the markets. I took pretty much the whole of July and August off because I was either on holiday, didn't have any trade signals or couldn't locate my interest in the markets. And I got back to trading "proper" in September.

positions

1. Long Copper: Bought in November 2016 on a monthly bullish domino candle, "Trump/reflation trade" or whatever people are calling now. I'm up about 1R, it's pulling back but I'm not particularly bothered. My stop is more or less at breakeven, I haven't got any signals to sell and personally I think Trump will manage to do something vaguely pro-business, so just going to let it run.

2. Long GBPNZD: Bought this first week of September, it's sitting around +1R. Stop's at breakeven, it's going sideways, again just letting it run. I think the GBP is undervalued, Carney is a moron and the Kiwi economy is boring. I'm probably wrong on all fronts but I'm willing to live with that.

3. Long GBPJPY: Bought this second week of September it's sitting around BE. Stop's at 50%, it's going sideways, again just letting it run. Even if the UK is weak I think the BoE will raise rates slowly ( IMO 80% chance of 0.25% hike and 20% chance of 0.5% hike in November) and the BoJ is committed to buying Japanese bonds for well, ever. If I'm right I'll clean up, If I'm wrong, that's what the stops there for.

potential positions

End of the month and I've got some monthly candles to choose from. The bolded FX  is the direction I would be going.

• AUDCHF: Price action is stuck in a monthly range, so no.
• AUDJPY: Price action quite "step-py" which will likely make reaching PT and holding to PT difficult, so no thanks.
• CADCHF: Price action is stuck in a 3-year tight range, no.
• EURGBP: Not a huge amount of profit potential and I am too emotionally involved in this pair. 
• NZDCAD: The range makes PT pathetic.

• GBPJPY: Monthly bullish domino candle adds conviction to my current long GBPJPY trade, so might, on this rare occasion average down on a PB. 
• USDCAD: I like this one. The USD is oversold, Trump sentiment is so low, even him farting would surprise on the upside. The signals good and there is an easy 1:1.5 there. I'll have a go on this.

• EURCHF: I'm going to short this. 1. The signals good on the MN and W1 charts, 2. there's an easy 1:1.5 and 3. What happened in Catalonia today is fucking disgusting.

Trade Team

Last week I wrote a comment on a friend's blog. Luckily he found it of use and kindly put it up as a blog post of its own, you can read it here if you're interested. On this occasion, I haven't reblogged his post as it felt silly to have three versions of exactly the same thing rattling around the internet. However, the exercise got me thinking about the continuing struggles we all go through when learning to trade and things I'd like to do to combat them.

trader / athlete

I often think of traders as aspiring professional athletes; hours and hours per day training, extremely strict routines, diet, mindset, psychology, studying etc. But the difference between the two professions is the distinct lack of support even professional traders have. Athletes have coaches for technique, coaches for strategy, coaches for routine, dieticians, physios, psychotherapists, training partners and teammates at their disposal every day! Even hedge funds and investment banks don't provide this kind of support to their traders.

I rarely mention it here but I was an amateur boxer for many years and I am now (after quite some time off) training at an MMA gym with an idea to compete at some point in the future. At my gym, I have unlimited lessons, 3 Brazilian Jiu Jitsu coaches, an MMA coach, a Muay Thai coach, a Boxing coach, a Wrestling coach, a Judo coach and a Strength and Conditioning coach. I get one-to-one coaching for an hour a week and I have 200+ training partners and 50+ teammates (those who are looking to pursue fighting). For all this, I pay £230 per month (the private sessions are what drive the cost up). But even so, this is extremely cheap when you think of all the support that is available to me.

Having said all this, what I would say is that in terms of progress, every part is equally important. You, of course, need your coaches to instruct you but you have to have your training partners to drill with and teammates to encourage you. Without them, you wouldn't last long. It's a hard sport that is designed to make you quit, a bit like trading really.

trade team

As traders, I doubt we will ever be able to get the same amount of support that is available to sportsmen and women but like my trading coach has always said, we could be far more effective in the way we utilise each other. I think much of what is lost in trading is the comradeship of a team, too often we fall into a slightly competitive mindset with each other, most likely due to the nature of the game we play. 

When I wrote my comment on my friend's blog I wanted to be his teammate. I wanted him to feel like someone had his back and would go to war with him. This is the feeling you get when you're in a fight team, you train with each other, you sweat together, struggle together and win together. We're honest when someone's doing something wrong, encouraging when they're doing something right and playfully competitive when you're able to be.

Going forward I would like to pursue this idea of building a "trade-team". A band of traders who go to war together. It's great to share victories and commiserate losses, however, I feel often when you need the support is when you're in the trade. In the midst, is often when you most need an objective friend, to either encourage you to continue with the game plan or tell you it is no longer working and to change tactics.

If anyone is interested in this trade team mentality drop me a comment below.

2 Year Plan (2017)

This post is picking up from a broader post I wrote on my private blog so unfortunately, you won't be able to read it. However I will happily share the gist of it here; I was a little low, mainly due to the time of year (family stuff). While over the long-term I was feeling a little uninspired about my future direction. I have since set myself some new goals/systems to follow and feel far more motivated.

The setting of these new personal goals/systems felt most empowering so it seemed like a good idea to repeat the process here in regards to my trading/investing, even if this process just means reaffirming old goals I've neglected or forgotten.

quick update

At the end of 2016, I mentioned that I felt that my actions in the market were now probably better described as Long-Term Trading / Short-Term Investing and this is very much the vein in which I wish to continue.

The act of changing my trading timeframe has been most liberating because it has suddenly freed me from three internal pressures.

1. Time: Trading longer-term you have more time to do your job correctly (plan trades, manage them and record them correctly). 
2. Hope: When trading short-term you forever flirt with the hope that your actions may produce an income. Longer-term you simply can't believe in this lie, so don't have the internal psychological pressure of false hope. 
3. Expectations: Very much linked to "Hope" but deserves its own category.  When trading short term you expect to be making more trades and hence more returns. This is extremely unhelpful because this produces expectations that are very hard to live up to.  Trading once a month the most you can hope for in your wildest dreams is a 2-3% return and that's only if it is traded perfectly and does exactly what your plan predicted on the upside. This is still a big return to live up to but nothing like the 6-trade-per-day day trader who could be looking at 4-5% a day in "hoped for" profits.

the long-term goal/system

I like all those on the trading courses I've attended have my coach's words rattling in my head. To paraphrase he said something like: "if you can make small consistent gains with limited drawdowns and document your progress correctly, I will help find you capital".

Now I don't think for a moment that this will happen for me because he will probably have retired by the time I'm anywhere near achieving his statement.  But the idea is a good one; trading/investing successfully is extremely difficult, so why are we all trying to see how high we can piss up the wall when hitting the toilet bowl is all that is required?

Now to be fair I have been following my plan, but I have noticed a drift in direction and purpose. This is interesting because it links to an article I read the other day. Its premise was: systems are better than goals. It reasoned that a goal for most of the time is in a failure state and that feels pretty bad to most people. And I would agree with this entirely.

So my goal displayed in a very broad system would be: plan my trade, trade my plan, manage my trade, record my trade, build my numbers up and learn my KPIs so they can tell me what I need to work on.

Good quality data is invaluable, data doesn't care about "winners" or "losers" it only cares about accurately recorded numbers.  And because I've recorded my numbers correctly I know that my hit rate is currently 39% and due to some terribly managed trades, due to not letting my profits run, my expectancy is 0.1%, but there's my work! If I'm taking 20 trades a year I should be expecting to make 2% a year.  In a year I want to improve my trade management and hopefully push this to around 4% and I know this is possible because when I average out my gross MFE I'm hitting 1.87%. Hopefully in my second year, I can push a little further, eventually, the dream would be 15%+ PA.

In order to achieve this goal, I will need a daily and weekly system in place but I'll save that for another day. 

Pricing In The Future

the market is a discounting mechanism

To be honest this is something that took me a long time to understand, mainly because the words seemed impenetrable. But I am now starting to utilise this more in my trading and wanted a record of it somewhere.

how I understand it

For me, it was reading Barton Biggs, Wealth, War and Wisdom that hammered home this principle. Using WW2 for numerous examples he showed how good investors consistently priced in the events before they happened, meaning that reactions to the eventual event were often relatively subdued or counter to what Main Street thought would occur.

The reasons for these subdued or counter reactions were due to the Big Money (smart) averaging in and out of the market. They would do this either to disguise the size of their positions or simply as a tactic to manage risk; get in small then add if the position is proved correct. The problem for most small traders is they believe the lie: "Big Money is forced to average in and out of positions". No, Big Money chooses to average in and out of positions because it helps them get a better price and improves their edge by hedging spread, slippage and commission risk.

pricing in the future

My prior post is probably far better at explaining how to price in the future but I will try and explain briefly why the opposite of what is expected often happens.

Big Money is a buyer before a positive/negative event arrives (they preempt it). So when the event comes to fruition Main Street is often left surprised. What they failed to notice is the three-month rally Big Money created leading up to the event.

Not only do positive events cause relatively subdued reactions they can often mark market tops (the same is true of negative events and market bottoms). This, of course, is an illusion: it's not that the good news causes a market to crash, it's that when markets are already as long as they're going to get it will only take slightly less good news for Big Money to start taking profit and begin shorting in anticipation of a market fall.

summary

The only thing that can move the markets is Big Money, so we need to stop pretending to ourselves that we have an edge being small and fast: jumping in and out exposes you to the three constant risks of trading: commission, the spread and slippages. Start doing what Big Money does; get ahead of Main Street,  be aware of what's on the horizon, buy low (demand), sell high (supply) and average in and out of your positions as the market approaches these places.

Interpreting News, Events and Politics

Despite writing about this in the past, with the current "politically motivated" market I wanted to write a short piece for my records on how I am using news and events to plan for trades.

recap

 I like to view markets in one of two states.

1. uncertainty - in this state risk is perceived as unlimited;  causing falls.
2. stabilised uncertainty - in this state most fears are allayed; causing rises.

Each state is caused by a catalyst.

1. a negative catalyst - gives birth / creates "uncertainty".
2. a positive catalyst -  gives birth / creates "stabilised uncertainty".

When dealing with political change it's easy to get personally involved. I can't say "don't" because it's human nature to do so. What I can say is: as a trader you are trying to be a wolf and to be a wolf you need to understand what scares the sheep. If you can figure out what scares and soothes the herd then you can better plan how you're going to eat them.

The things to focus on are the catalysts/events and the run up to them. In the markets, there is always an element of uncertainty but will the upcoming event calm or agitate nerves?

Below I cover the two states and catalysts in more detail with examples.

the negative catalyst (event)

Is an event that threatens the status quo. They can occur at any time.  If they happen to coincide with an uptrend they often mark the top of a market, although the lead up to the catalyst may well mark the extreme.

One might first think Brexit but they would only be half right. Brexit was a complete surprise and the FTSE and GBP fell, but they didn't really fall on "Brexit". Instead, the fall was caused due to the lack of information in regards to how the UK government would deal with it. The only rhetoric from the government prior to Brexit was negative. As such this lack of planning and "project fear" caused the uncertainty and the ensuing drop.

uncertainty (state)

A "catalyst" (event) which the market is finding hard to quantify will cause it to drop. A negative catalyst is the birth of uncertainty. The market will then remain in this "uncertainty" state until a positive catalyst changes how markets perceive risk. 

positive catalyst (event)

a stable base to start again from

Is an event that changes how the market perceives uncertainty. They can occur at any time.  If they happen to coincide with a downtrend they often mark the bottom of a market, although the lead up to the catalyst may well mark the extreme.

Shortly before A50 was invoked, Theresa May set out how the Tory government was planning to deal with Brexit. This in itself did much to allay market fears in regards to Brexit and was a positive catalyst. A50 itself was not a catalyst but the rhetoric coming from both May and EU leaders post A50 were. Both signalled how they were planning to deal with the situation. The thing to remember here is the catalyst doesn't need to be particularly upbeat it just needs to be clear and definable so markets can digest it and adjust risk.

stabilised uncertainty (state)

Any "catalyst" (event) which helps the market quantify risk will cause it to rise. A positive catalyst is the birth of stabilised uncertainty. The market will then remain in this "stabilised uncertainty" state until a negative catalyst changes how markets perceive risk.

note on Trump

Trump was seen by many as deeply risky but markets rose on his win and inauguration, why? The fact is he was quantifiable. Before he won he had clearly stated what he was going to do: cut taxes, start fiscal spending and negotiate better trade deals. So on his win markets rallied because the event was quantifiable. His win was in effect a positive catalyst. An interesting note here is that had Clinton won, her's may have been a negative catalyst. She had a schizophrenic relationship and views on Wall Street and her policies were unclear.