Defining Failure

So my old foe trade avoidance reared his ugly head again, leaving me asking why.  I wanted to be more brutal in terms of honesty as some new and continuing issues are coming to light.

Well I hope it is...

issue 1: defining failure

I noticed I had defined success in my trading truths but hadn't defined failure. This was a major omission, here are my updated truths.

1. Trading is based on probabilities
2. Probabilities produce random results but over time, predictable patterns/KPIs
3. Your patterns/KPIs, be they good or bad, will always tell you how to improve
4. The only way to reveal your patterns/KPIs is to build your numbers up
5. Success: is simply winning more $$$ through your winning trade(s) than you lose through your losing trade(s). Failure: is simply not finding out what your patterns/KPIs are!

issue 2: procrastination

 I have written my SBP (Strategic Business Plan) and TTP (Tactical Trade Plan) but guess what? I haven't been looking at my TTP every morning or my SBP every month and I get up 15 mins late every morning?! What the hell am I doing?

Amazingly in everyday life, even my wife says, I am not a lazy person. I get up more or less on time, I do my prep, I exercise daily, I coach people (fitness), the house is tidy, my accounts are filed, my taxes are paid, my responsibilities are accounted for... So I think it's not unreasonable to assume what I thought was "inherent laziness" in my trading is procrastination / just another example of my FBT.

issue 3: self doubt

The fact is I am now not so worried about the outcome of each individual trade, which is definitely progress. However these worries have merely shifted to the completion of each of 30 trade sample size. I've completed my first sample, now I'm having internal conflict about starting the next.

What happens if it fails? I know the correct answer is "well I try again learning from what my KPIs suggest". But the answer that is always there, niggling at my subconscious is "it failed, it was my work so technically I failed, I've been doing this for ages, am I always going to fail? I have to date, it's possible I've wasted many years of my life pursuing something I might never be able to achieve, what kind of man/husband/son does that make me?"

All pretty depressing stuff. I suppose the good news is I do understand the process, the problem is I don't believe it. With any luck "defining failure" and "taking responsibility" will start to combat my self doubt. 

going forward

When I stand back and look at the big picture the horrible irony is; I'm failing because I'm scared of failing!

Now that I'm older, cynical and grumpier I find that there aren't sexy solutions to problems, they're all boring, mundane and (annoyingly) usually quite obvious. With that in mind...
1. I've update my trading truths with my definition of failure.
2. I've update my TTP with correct time get up.
3. I've set my morning alarm.
4. I've updated my TTP to look at it first thing.

Additionally...

5. I want to be honest about who I am, a FBT and am adding a further truth to my TTP: "I am a FBT: I must take responsibility of unwanted behaviour to take control my actions".
6. A slightly esoteric idea here, I'd like to focus on accepting my outcome bias instead of trying to kill it with execution bias. With failure now reclassified as "not finding out my KPIs" my hope is that my fear of failure will turn into a "productive worry", if that's possible?!

My Trading Truths

a conversation 

A few weekends ago my wife and I were talking about our jobs and how easy it was to over-think them, get bogged down in the detail and completely lose track of our long term goals. Three thoughts have been repeating on me.

1. How is this impacting my present?
2. What power does this hold over my future? 
3. Paul quoting Sun Tzu all the time is starting to make sense.

the present

In regards to trading, and life for that matter, I constantly get distracted by details. Moving averages, candle patterns, economic data, to paying bills, and doing the cleaning. I find it so easy to busy myself in the method of something instead of keeping my focus on the overall strategy. Of course as Sun Tzu says, without one the other could not be achieved, however perhaps the truth I'm missing is; it doesn't really matter what tactics you use.

If you're a trader with a high hit rate and average returns or a low hit rate hitting home runs, to be successful you just need to win more $$$ through your winning trade(s), than you lose through your losing trade(s).

the future

My coach along with quoting Sun Tzu, is always saying to keep things "desperately, desperately simple" and in the past few weeks I'm starting to see how desperately, desperately easy it is to do the alternative.

I've been reading a lot about WW2 recently, the allies got off to a terrible start but ultimately they beat axis to the hydrogen bomb, the rest is history. I can't hand on heart say that I start my trading day thinking about dropping the H-bomb, or even creating it and this is solely because of my propensity for over-thinking tactics.

Going forward one of my main objectives will be putting on my strategic hat more often throughout the week. This will mean a rethink in how I work my day and actually what I believe is important in it.

To start with it feels identifying my trading truths is a good place to start.

my trading truths

I am certain I am paraphrasing some of these from Mark Douglas...

1. Trading is based off probabilities.
2. Probabilities produce random results but over time produce predictable patterns/KPIs.
3. Patterns/KPIs be they good or bad, tell you what strategy you need, no guess work is needed.
4. The only way to reveal your patterns/KPIs is to build your numbers up.
5. Success is simply winning more $$$ through your winning trade(s) than you lose through my losing trade(s).

summary

The lesson from WW2 seems to be, it doesn't matter how many battles you lose as long as you win the war. The lesson for trading may not be identical but it certainly isn't opposed.

There will be many battles and I won't be able to predict the outcomes however over time they will reveal my patterns. It is those patterns that will tell me what to do next, one could say; 

it doesn't matter how many battles you lose as long as you win the war,

the only way you can win the war is if you know you patterns

and the only way to reveal your patterns is to build your numbers

The December Trading Issues post was not off the mark. I suppose today I have simply thought a little deeper on exactly what "just build your numbers up" means.

First 30 Trades

the numbers

£			% (R)
Start Bal	£3,000.00		Start bal %	100.00%
Current Bal	£2,771.47		Current Bal %	91.75%
Gross Profit £	£153.93		Gross Profit %	5.55%
Gross Loss £	£382.46		Gross Loss %	13.80%
Net PL (Diff)	-£228.53		Net PL (Diff)%	-8.25%
Average Win £	£30.79		Average Win%	1.11%
Average Loss £	£15.30		Average Loss %	0.55%
Av net PL£	£15.49		AV net PL %	0.56%
Total Wins	5		Hit Rate	16.7%
Total Losses	25		Hit Rate Diff	83.3%
Total Trades	30		Expectancy	-0.27%
Total Longs	5		Total Longs %	16.67%
Total Shorts	25		Total Shorts %	83.33%

Gross Win MFE	18.00%		Gross Loss MFE	38.10%
Gross Win MAE	1.75%		Gross Loss MAE	21.00%
Average Win MFE	3.60%		Average Loss MFE	1.52%
Average Win MAE	0.35%		Average Loss MAE	0.84%

quick summary

So from this new method we can see I'm down -8.25% / -£228.53,  My hit rate is 16.7% and my expected payout is -0.27%. Certainly nowhere near a business!

However there are some promising numbers. In my MFE (Maximum Favourable Excursion) we can see my trades have been hitting healthy numbers. So what went wrong?

problems

1. I cut my winners short (92% of the time): Collectively these trades had an MFE of +44%, see "Gross Loss MFE" where many of these trades ended up. Many winners simply didn't get out of the gate due to my fear based trading and my desire to trail my stop too quickly to reduce risk! This occurred in three ways 1. trailing to BE too quickly. 2. Trailing a little too tight, not respecting the spread. 3. Taking profit too early.

I appreciate of course that I won't be getting anywhere near the full +44% MFE in reality. However even if I average out all my winners and "potential winners, ruined by George" (+44% / 12 trades = +3.66%), take away the the trades that didn't achieve the average (6) and multiply the remainder by the average (6 trades x 3.66% = +22%) I would easily have got into profit.

2. Taking weak setups (50% of the time): These occurred in three forms too. 1. Candle setups that were sub par, particularly weak IB, MRC and Engulfing patterns not showing reasonable reversal strength. 2. Setups that weren't actually at S/R 3. "Experimenting" with setups that weren't in the plan!

Collectively these trades accounted for -8.5%. Just avoiding these alone would have got me back in the black.

3. Taking STAM 3 or counter trend trades (13% of the time): All failed but the numbers have been accounted for in "weak setups".

observations

Not conclusive but I would say that on the whole, and particularly if these all occurred at the same time, my trades had the biggest runs in my favour when...

• setups experienced deep pull-backs prior to their occurrence
• setups were on what I call polarity change levels, where S becomes R or R becomes S
• setups were on or near the 50SMA
• setup triggers were Pins, MRCs or IBs. 

going forward

Letting Winners Run: 90% of my winners I am closing too early! It's also worth noting that had I not cut the legs off my winners I would be looking at a hit rate in the region of 30%. Ironically it seems this fear based trader needs to expose capital to preserve capital!

Reducing Mistakes: What has flagged up and that has greatly surprised me, is that 50% of the time I'm taking sub-par setups! Be they simply a weak candle pattern, a setup not at S/R or worse not a setup at all, mistakes are happening as often as I am making good decisions! Before I start again I need to make a concerted effort to reduce these if I am going to see an improvement in my numbers.

Going Forward: It is of course blindingly obvious that I need to avoid points 1-3. So firstly I am going to revisit and rework my Tactical Trade Plan with the aim of preventing them and their subcategories. I will then make note of my observations. Finally I need to take time to include what I have learnt from VTP Stage 2 so far. I am going to be vague here as it's not mine to share but I will say it involves building positions.

Once my TTP is updated the plan is to start the next 30 trade sample in a micro real account, which doubtless will create its own issues ;-)

R+2: GU Intraday Short

Happy New Year all here's an intraday trade I took on the GU this morning.

I had noted few things

1. that there was some medium strength UK data out at 0930GMT

2. My STAM work told me I wanted to short the GBP

3. There was a resistance area above GU price action that was chock full of R levels

It was my hope that the reaction to the data might push price up into the zone of supply/level where I thought lots of sell orders were sitting and I would be able to short it. Price did as I hoped, I drilled down to the M15 chart where a nice pin had formed with a large upper wick so I set my sell stop at it's low and a TP at 1:2. Turns out I could have held much longer...

December Trading Issues

So my usual trading issues flared up in December...

• trade avoidance
• a disinterest in trading
• and a little bit of self loathing, for not taking trades that I spotted

 However they all came from one cause, that being...

• not keeping  my current goal in mind.

recently

I recently completed my "strategic business plan", this is a 40 page long-term business plan aimed at creating trading success for myself. Essentially it defines shorter-term goals I need to achieve to get there. My coach Paul emphasises that it's important to ensure these shorter term goals are "relative" rather than "absolute", meaning goals should be relative to where you are currently rather than verging on a pipe dream. So the first relative goal on my journey has simply been to build my numbers up regardless of P/L. I wanted around 30 trades in the bank before I made any major decisions regarding my trade plan.

I got my trades to 26, froze and the trading issues mentioned above flared up. I thought I had fixed this but obviously had not. In the month of November I did well by simply waking each day thinking "all I've got to do is build my numbers up". December came and I got a bit lax/overconfident and just didn't wake with the same clear headedness or mental discipline and my numbers suffered. I doubt there is a cure for a fear based trader but I have proven, albeit for a short time that I can prevent my FBT tendencies sabotaging me if I keep my mind in the present.

going forward

The above is a simple yet important lesson, I've got to have a relative goal fixed in my mind at the beginning every working day to discourage fear based trading. As a fear based trader the thing I most need to battle is trade avoidance. Even after my first 30 trades are completed and I amend my trade plan a little the goal again will be to "build my numbers up".  

I created an anachronism: PPTMRR(R) - Prep. Plan. Trade. Manage. Record. Repeat. (Review) despite this probably being more accurate I don't know if it's as straight forward/ no-nonsense as saying "just build build your numbers up" every morning. Maybe a mix is better?

Just build your numbers up -  Prep, Plan, Trade / Manage , Record , Repeat 

Stocks, Oil, Fed, Lack of Follow Through

Sods law I nearly put a video up about this this morning, I would have looked like a right smart ass, never-mind guess it was 50/50 I could have looked like a plonker.

So just like most people I have been concious of the price of oil, stocks and the Fed lift off, which of course occurred yesterday. I had been on the sidelines for the week not wanting to walk in front of the proverbial bus but the bus didn't come, perhaps it's late?

It was my understanding that the general consensus was that the Fed raising interests rates would be a clear indicator of their confidence in the US economy but the S&P500 only moved 300 odd points, an average-ish bar.  I appreciate there was something like a 90% chance of them lifting and a lot was priced in but this felt a little pathetic. So yesterday my feelings were swaying to either, 1. investors didn't have much confidence in the economy or 2.much confidence in the Fed. Neither of which filled me with joy.

In fairness I am undoubtedly swayed by my own opinion as I don't have much faith in the US economy or the Fed. It's my belief that the huge (stock) rally has been caused by cheap money not demand for products, otherwise we would be seeing inflation which is still anaemic for everything in the US with the exception of commodities (oil excluded of course).

IMO:

• Stock prices inflated due to high demand. Why would you buy bonds when you can buy stocks with cheap money,  huge more upside and practically zero risk thanks to the Fed QEing itself into a coma. 
• But CPI(inflation) is not rising because there is no real increased demand for consumer products.
• While energy prices are rising not due to demand but cost-push inflation as energy becomes more expensive to produce. 

This all makes me a grisly (and grumpy) bear. I guess I'm thinking that there only needs to be a small something to push that rock over the cliff that will crack that ice shelf , that will slip into the sea and cause that tsunami. We thought it might be China but that seems to have cooled at least for the time being but OPEC might just be it. I appreciate they're playing the long game, keeping up production until non-OPEC oil producers slow at which point oil prices will rise on reduced supply and OPEC will be able to profit as demand matches then exceeds supply, you've got to love how they keep things simple. But they may well be playing with fire (convenient pun) . If the world economy crashes again surely demand for commodities will remain lower for much longer.

Is the end nigh, no I'm probably just high from the No-More-Nails I resorted too when putting up the blinds this afternoon. But the day ended in my favour, a big red candle taking out all of yesterday's gains and a bearish engulfing pattern to boot. I might test the water with a short. Technically my method is telling me to sell in the short-term anyway.

S&P500 D1 chart, Note Bearish Engulfing Pattern at Resistance far right.

A New Direction For 2016

In truth I wondered if this blog was dead.

My issue is not that I am no longer trading, although due to external issues my trading has certainly been sporadic this year. The issue has been that I have changed my strategy and this strategy was taught to me by my coach, so it's not mine to share. My quandary as the blog author has been, will I be able to share enough for it to make sense to a potential reader?

It's taken most of the year to come up with the answer, yes. I can't go into the nitty gritty of exactly how we define strength and weakness but I can certainly share my trades as the setups we use are pretty generic, candle setups with the trend at support or resistance, nothing new. While I can of course share my personal thoughts and lessons.

For any of you who are interested, my coach's name is Paul Wallace, you can find links to his websites on the resources tab. Paul's method is ultimately a top down approach that in his own words tries to "buy strength and sell weakness". Conveniently my blog title is along the same lines, otherwise a restart would probably have been in order.

Going forward I hope to even out the amount of blogs vs vlogs, I appreciate I've been vlog heavy this year. I might put some stuff up in the coming days but failing that see you in 2016.