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.

2018 Thoughts

update

Long story short, this blog is about supply and demand and in the final quarter of 2017, I struggled to see any areas that I really wanted to exploit. With the obvious exception of bitcoin, to me, it was all a bit boring. But I guess that was to be expected what with all the new highs made throughout the year. I wanted a new idea to get excited about but to paraphrase the coach, "doing nothing is a position", he neglects to mention it can also be very boring.



                                           

2018 themes

• Continued Global Recovery: With global GDP expected to reach 3.8% in 2018, strengthening data from the EU, US and EM (beware of RUS and TUR), central bank balance sheets still expanding (for the time being) and new US fiscal policy (tax cuts) - risks are still lowish. EU and JAP still offer value, US looks overvalued but I wouldn't discount it with the tax cut bump. 
• A Significant Inflation Shock: "Would be just about the worst thing that could happen" says DB. Inflation is certainly picking up in the UK and EU, the ECB has mentioned there's a good chance it won't continue QE after September 2018. While in the US inflation was unsettling absent for 2017 but Trump's tax cut could stoke it. With bond yields already very low, the rise in zombie companies (those unable to service their debt if interest rates rise) and overvalued stocks, this would be the catalyst to disrupt the former theme.
• Slower GDP (update 07/01/18): Read about this in the last FT of 2017. An interesting (contrarian) point made about the potential for slower GDP after 10 years of recovery/growth and economic data being at constant highs. Slower GDP coupled with the potential higher inflation above could create the storm to bring the bull to the end. Admittedly this is not necessarily the most likely outcome for 2018 but still something I|'ll have an eye on.
• Political Uncertainty: If I've learnt anything from 2017 it's that it's hard predicting market reactions to politics, particularly when everytime a politician farts it is deemed as news. Honestly, I think I am going to try and ignore the lion's share of these column inches in 2018.  Italy's general election will take place no later than 23rd May 2018, this will be on my radar. As for "Brenaissance", I'm bullish on the UK but appreciate there's much uncertainty going forward. So I see the current trend of weakish GBP and ergo strong FTSE continuing.  
• Bubbles/Bitcoin: All great bubbles form during periods of easy money, with interest rates low or falling, liquidity in abundance and feature an "asset" that is very difficult to value. They also often predict the future. Tulips - Holland’s flower industry. Britain’s 1840 railway mania - the new transportation technology. Dot-coms - the internet. BTC /Blockchain - digital payments? However, to be early is to be wrong.  It is obvious that most of these ICO enterprises will fail. But equally, others will thrive. A bear market would help - shake out the weak hands and bad businesses - until this happens I am cautious. To me, BTC isn't a currency, it's a digital commodity. 1. price is very volatile 2. payments that can be handled are very low 3. governance problems 4. transaction costs are very high 5. electricity used in the process of mining BTC is staggering. Is it worth $15,550? To me, no. But is there value in it? I would argue, yes. Some argue that blockchain is the real investment here and they're probably right, but I think any investment vehicle that bypasses boarders and offers privacy will have a market too. So for me, cryptos are here to stay. BTC and ETR have gone parabolic but there are many other cryptos out there now, who knows which will survive and be the FAANGS of today?

 

personal goals

• Add Shorter-Term Options - Reinstate EOD trading: Since being employed full time my trading has slipped to just weekend and end of month sessions using primarily the W1 and MN charts. This has had its benefits but I am starting to feel that I would like to be a little more engaged again, even if just for 5 to 10 minutes each evening. So I will make a note of currency pairs that are in MOTR and trending, place them in "Long" and "Short" portfolio's and will review them EOD (around 2145 GMT) for potential trades.
• Add Longer-Term Options- Stocks and Shares ISA: The wife and I keep talking about this, we need to utilize our ISAs. Even if it is just getting diversified via some investment trusts. 
• More Varied Newsfeed -  Reinstate Twitter: For the last third of 2017, I went on an anti-twitter drive. I was fed-up of being constantly glued to my phone. However, unintentionally this has limited some "inspiration" for trade ideas.
• Better Planning of Foreseeable Events - Create Major Event Calendar: Much like an Economic Calendar, a spreadsheet of upcoming political events will help sort the wheat from the chaff.
• Create a News Checklist: Of the few articles that create "that spark", I would like to run them through some kind of checklist to get the most out of them. Something like -  what are the main points, what is the obvious outcome and why, what is the contrarian outcome and why and what is the most likely outcome and why.  
• Get more KPI's - Build my numbers up:  Your numbers will always tell you what you need to do but in order to get them you must execute your trade plan and record your numbers.

Learning to Trade pt3

In part 2 I tried to speak about the importance of trading in your own vision. In this final part, I wanted to talk about ways we can refine our vision and edge.

(Links to part 1 and part 2 if your interested)

play like an amateur; enjoy the game

Ultimately this is a zero-sum game, so you must enjoy the competition! To do this you need to go beyond the one dimension of your own game. Your opponent is always going to have a completely opposing view to yours. They are going to try and run your stops and make you doubt your strategy everywhere they can. They will do this wittingly, purposefully trying to throw you off your game and unwittingly, by simply being true to their beliefs. So you need to...

1. learn your style's strengths and weaknesses
2. understand how and where others will try to implement their style and exploit yours by getting into the habit of seeing every trade from both a bull and a bear's perspective 

Once you start to develop this broader view, you will begin to compete intelligently rather than emotionally. Win or lose, you will build self-respect and confidence, because you're playing the game for what it is. If you lose, you gave them nothing easy, if you win, you took part in making the trade a success. Amateurs understand and enjoy these battles and accept that losing them from time to time is the price of competing. In fact, more than that, they say "well done, I see what you did there"or "tut" at themselves for failing to do something they know they should have. It does not throw them off their game, it only makes them enjoy it more. Because this is the game.

Personally, I believe I am just about at this stage.

the pro: never stops learning 

Now the following is purely conjecture as I am certainly not at this stage but as I understand it; where the Pro differs from the amateur is in their acceptance that they will always be a student of the market.

One thing I would say with a little more certainty is, again, that as I understand it, this where the serious back-testing should commence if you're so inclined. I say this because this is what my coach has always alluded to in his instructions which to paraphrase were: Find a system that you understand, forward test it to see if it suits you and to learn some KPI's, as it's starting to fall into place come and see me again so we can review it  and you can spend some time backtesting to further refine your edge/KPIs.

We can continue our education by.

1. Continuously recording our data and learning our KPIs
2. Continued studying of the world and market events
3. Journalling our trades and thoughts and exploring them
4. Getting independent input and coaching in regards to our strengths and weaknesses
5. Start comprehensive backtesting to further extend our KPI knowledge and insights into our method. My buddy has written a great post on backtesting on his blog
6. Work with other traders to help, test, push and encourage good habits, better practices and fresh ideas. Something I was thinking about in a previous post on building a Trade Team

Learning to Trade pt2

This is part two of my three posts on Learning to Trade. I felt inspired to write them after a couple of conversations with fellow retail traders.

In the first part, I tried to explain how I have found viewing trading as a game a more useful mindset than approaching it as work. I will try and expand on this here...

(Link to part 3 if you wish to continue reading)

l-plates: knowing how to play a game is very different from knowing you can playing the game

Knowing the rules and the processes is the first part of learning anything, and technically, you will be able to "play" but you aren't going to be able to compete. To compete effectively in anything you need to build a healthy self-respect and confidence that you can only gain from truly understanding the game.

To me, after having learnt the processes, most traders, including myself, enter into one of two failure states. The problem as you will see, is that these two states are not based on your beliefs or in reality.

state 1: blind-trading

Blind-traders bastardise a setup up from a book, video or coach that they like and assume because they like it, that they believe in it. They work hard at adapting the setup into a strategy and because they don't want the work to have been in vain the "belief-lie" becomes bigger. They end up with a setup that is good but a system they have no faith in. Because of this lack of faith, they then start a campaign of constant "setup-tweaking". However, this means they are never able to learn their KPIs because the unit of measurement is always changing and so, the blind remain blind.

state 2: the testers

Testers hide behind backtesting, looking for the perfect way to exploit their "edge". But the problem is this trader hasn't spent any significant time trading it in real-time and are in a "reality-lie"; they have no idea if it suits their personality, or whether they can even see their setups when under the pressure of the market. So, when the rubber eventually hits the tarmac, the months of work have been for nothing, they have a "successful" strategy that they are unable to execute.

Personally, I spent about 7 years fucking around between these to states.

your way

In my opinion, it doesn't really matter what style you choose as long as you believe in it. Muhammed Ali believed boxing was a war of attrition, while Mike Tyson saw it as a pistol draw. Neither style was infallible but they worked because they believed completely in their way. And to me this is the first step to truly playing any game; you have to play the game your way.

1. Decide how you believe the market works. Not how a book or your coach says (nb a good coach should make you decide yourself), why do you think markets move? what are you absolutely certain about? This is where you need to build everything from. From your beliefs/faith, not science, backtesting etc.
2. Now you need to find or develop a style that allows you to trade the market in that vision.
3. After finding your style and like my coach says, you then need to forward test it to 1. see if it suits you 2. see if it is practical to execute and 3. learn some early KPIs to make some basic adjustments to better your edge. 

When I did the above roughly 18 months ago my trading transformed, my results went to break-even and slowly eked into profit and most importantly I lost the execution anxiety that had plagued me for years. I was able to enter trades when I saw them, I now have less issues holding through retracements and can manage and close them with far less emotional involvement. It was completely liberating. The irony is I was just doing what my coach had been telling me to do for two years.

I can't emphasise enough how important it is to trade the market in your vision.

Personally, I believe the market moves because of supply and demand (orders), central bank policy (because central banks control the supply of cash and interest payments) and sentiment ("uncertainty" and "stabilised uncertainty" create fear of losing it (FOLI) = supply, or greed, fear of missing out,(FOMO) = demand).

Learning to Trade pt1

Recently I have had a couple of conversations that got me thinking about how we, as retail traders, go about learning to trade and the pitfalls the majority seem to suffer.

Included are few exercises that I have found helpful in developing my trading but really, this more a map of the "retail journey".

The post was getting quite long so I divided it into three posts, this is part one.

(Links to part 2 and part 3)

understand: it's just a game

The TV show Billions is ridiculous, but to me, the mindset its characters encapsulate is correct: trading is just a big game of trying to fuck each other over. If you understand this and still decide to play I believe you are on the road to eventually gaining your opponents respect. While if you don't, your capital will reflect that.

Why is this important? Trading is a zero-sum game; I can only speak for myself but I have found that when I "work" at anything my mind is slow, heavy, often filled with unneeded facts and figure and not very aware of its surroundings. However, when I choose to "play" at something, my mind naturally adopts a clearer, more fluid, happy/playful state. And as such has a far easier time processing what is going on all around.

To clarify, I am not saying you should play at trading, we all know it's serious business. What I'm saying is: when in the act of making and executing trade decisions, I need the most fluid mind possible.

Personally, I find that when I tell my brain that "it's a game", almost a sport, I am far more effective in preempting my opponents actions and making my own more competitive.

I will cover more of this in part 2.

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.

Fear Beats Greed (catalyst)

there's a catalyst(s) in here somewhere

So Wednesday evening we had quite a few events; US monthly budget statement, which came out worse than expected, then, of course, the 3 hour US press conference.

Rex was banging on about Syria...

then Russia...

and finally, Trump came along talked about the USD...

the catalysts

The above events had the effect of killing the USD (it has since recovered much of its loss) but there was quite a lot going on here and felt I needed to revisit them and identify the individual effects and causes.

NB: When trying to identify catalysts what I am looking for is events that that will trigger either weaken (fear) or strengthen (greed) the status quo.

1. US monthly budget statement: worse than expected is "technically" bearish for the USD but this is not a highly watched or volatile event, the numbers weren't drastically off so really was very low impact. Not a catalyst.
2.  Assad/Syria: War uncertainty,  to me this means Gold, Bonds, JPY and USD should appreciate and stocks should suffer. This is definitely a "negative" catalyst, war triggers uncertainty and fear and weakens the status quo.
3. Russia Relations: Uncertainty, even, fear of war. Again to me this means Gold, Bonds, JPY and USD should appreciate and stocks should suffer. This is another "negative" catalyst, uncertainty/fear over the status quo.
4. Trump wanting a weaker USD: This a funny one as there is clearly a winner and loser. This is dovish for the USD and positive for stocks. Ultimately this is best seen as a "positive" catalyst for stocks, as it creates some sort of stability (strengthens the status quo) and hence greed.

fear beats greed

As the title and subtitle state, the rule I use to help digest events is; "fear beats greed".Ultimately most investors in Wall Street and Main Street alike are here to make long-term gains for their pensions, retirements etc. They have worked hard and saved that hard earned money diligently. They (clients and fund managers) will always be scared of losing their initial capital, so when an event hits the market that causes "fear"/ threatens the status quo, they will almost always switch to a capital preservation approach where capital will be less exposed to risk. As such my feeling from the events above is that Gold, Bonds, JPY and USD should appreciate and stocks will probably suffer. 

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.