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Coffee thought – Trading the chart?

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Trading the chart?
Trading the Chart?

Just some thoughts when I am having my morning coffee in the rainy Melbourne.

Trading the Chart?

How should a trader use a price chart? This is just another question without an answer. Some traders claim themselves as “chart trader”. Yeah, give him a chart, he can trade his ass up.

Thinking in this way. We trade our view or opinion about the market. Trading, particularly, currency trading in my case, we are speculating. Yup, it is all about speculation. It is speculation, because you, in fact, nobody, know for sure which way the market is moving. Regardless of the time frame, you are trading off, you are trading your own opinion.

So, I know I am speculating. I know the price won’t necessarily reverse when RSI is over 70/30 or the MACD is crossing over some magic lines.  Then what?

coffee_roaster

Forming your opinion. Explaining to yourself why do you think Dollar sucked, and you should short it. 

I am talking about your own opinion, not the one from the talking heads on CNBC/Bloomberg or DailyFX.

Face it, there is really no expert in the trading industry. There are just a bunch of people who know more jargon, reading more news, and writing more craps than you do. Disagree with me? That’s your problem.

Now use the price chart as a roadmap. 

So, you have formed your opinion. Cool. But do you know where you are?  You gotta know your current location before start driving to your next destination.  Here is where the fancy technical analysis comes in. Start confusing yourself with the trendlines, CCI indicators, pivot points, or some chicken indicators.

That’s part of the process. And nothing is wrong with that. As long as you are convinced, and you know where you currently are, and where you are heading, they are all good.

Stop or being stopped at some points is just part of the game.  We evaluate , and decide the next move. Well, at least, that’s how I trade.

Crap, I think I talked too much today. Enjoy your weekend.

Trading routine

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what is your trading routine
What is your trading routine

I always tell my friend about my trading strategy is “wake up in the morning, and collect profit”. Of course, that’s a joke.

The basic idea is, once the order is submitted, executed, with stop loss and profit-taking or exit orders are in place, I normally do not stare at the screen too much.

This is especially important if you are trading from Asia, or a little bit worse, from Australia. Staying up the whole night to watch your profit fluctuates doesn’t really do anything good for your overall trading performance.

H/T to Eyal, who is trading from Thailand. He listed out some points about this “strategy”. Good read.

Trading routine

1. It is easier mentally, I don’t really need to watch what’s happening throughout the day anyway. It serves no real purpose to watch P&L or even price action for my open positions as my trading plan doesn’t have any action steps for the afternoon.

2. Flowing from point 1, it makes it easier to actually follow my trading plan of letting positions play out and not getting tempted to tweak and play around with stops and targets. P&L is better off this way. This became evident using Stocktickr’s backtesting tool.

3. It makes it easier to wake up at a more normal time during the day when other people are awake. This also means I’m in a better mental state to trade the European session.

If you are feeling stressed because of your trading activities, you should be considering tweaking your trading routine.

If you are interested in learning more about trading, check out my Back to Basics of Trading series.

Today’s Coffee thoughts- Finding life solution in trading

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What is the worst psychological problem a trader wannabe can have?

Find a life solution in trading?

When you are trying to find a solution to your life in the business of trading.

How many times you feel unsatisfied in your day job, dislike the unfavoured working environment, having pathetic financial situations, or even poor social life, you then turn your focus into trading? You wanna make your own decision, be your own boss, hope, (yes, you hope), to make fortune from the buy and sell buttons.

Trying to solve your personal life problem in the trading business is another way to disaster. Not only financial but a disaster of your life.

Think….

Gav with coffee

On a side note, if you are interested in learning more about trading, check out my Back to Basics of Trading series.

Show you a trend, ok, my trend

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Here is another trading secret, again!?! 😆 I thought you guys like secrets,don’t you?

The purpose of writing this post is to get my mind organized. I have been working on developing my trading model for the past few days, and my brain is kinda experiencing information-overloaded now. If I can write down something here, that will help me to confirm I am working in the right direction. Remember? I am a detailed trader! 😆 Whatever…

Trend, trend, trend. How many days and nights, how much money has been spent on this topic. People pay hundreds if not thousands of dollars to purchase some strategies/methods/indicators just to tell you, ‘man, this is uptrend..’ Crap.

You can define a trend by calculating the slope of 200-day moving average..WOW!~ What’s that? Leave it to mathematicians. I have no idea how to calculate the slope of MAs… You can define a trend when the short term moving average crosses above long term moving average…WOW!~ this is typical, old generation snake oil salesman’s tricks…

Come on, let’s make our life simpler. An uptrend, according to Gav’s textbook, is nothing but higher highs and higher lows. The same goes for a downtrend. You want to see the waves continue forming. (did I mention wave? don’t mess it up with idiot wave theory…) Market moves in its own style, and pace. Grab a pencil, mark the highs and lows. what do you see? Here is a typical chart showing on my workstation when preparing my trades. What else do you wanna know?

I have no advice to offer here. A chart can show you a lot, and it can show you nothing at the same time. It is up to you whether you wanna trade with the trend or do some counter-trend trading. Identify trends should not take up 80% of your trading preparation time. It should be simple. Once identifying it, we have to drill down to look for entry opportunities and play around with position sizing. At least, that’s what I am doing.

While writing this post, I accidentally play the whipsaw song by Ed Seykota again.

“What do we do when we catch a trend, honey…?”

We ride that trend right to the end..

“What do we do when our risk is right, honey..?”

We make a lot of money and we sleep at night..

Variable Fractional Percent (VFP) method

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Listen, I am going to reveal trading secret again! 🙂

I have been working on position sizing and risk management stuffs recently. I am trying to optimize the return of my trading since I see consistency in my trading recently. So, instead of increase setups or trading opportunities, I am thinking of stick to the old trick but increase position size, etc. However, this is not an easy subject.

I come across Variable Fractional Percent (VFP) from chaffcombe’s site.
He is a full-time currency trader, who is more into automated trading. Here is what I found from his explanation of Variable Fractional Percent (VFP)

Firstly you need to know your daily Net Asset Value (NAV) gain or loss in percent.

Start trading at a conservative 5% FFP (or whatever suits you). But instead of using a Fixed Fractional percent, you use a range say 2%-25%. Move up and down the scale by adding or subtracting half of your last daily NAV percentage.

For example start at 5% FFP

Next day profit on trades = 1.5%
Therefore your next FFP = 5 + (1.5 * 0.5 ) = 5.75%

Say you then lose 3%
Next FFP = 5.75 + (-3 * 0.5) = 4.25%

Obviously use ranges and a daily factor (here 50%) that suits you, but you’ll find this method really rewards good methods, and lightens up very quickly on bad.

The idea that catches my attention is that the method utilizes part of your previous day’s trading profit to determine the position size of your next trade. They put you in the condition that when you are on a roll, you are able to profit as much as possible, while during the drawdown, the system is reducing your position size accordingly.

The prerequisite of this management method is to have a consistent trading system. It doesn’t turn a losing system to a profitable system, but it maximizes the return of a profitable system and reduce the damage from a losing system.

I thought this idea provides some food for thought.