TraderGav.com

Gav's trading blog - Perseverance, Consistency, Confidence

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What do you really need to learn about trading

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Lately, I have been spending my time working on my ATS (automated trading system), developing strategies and risk management models. I visited few forums, reading some brilliant ideas, and of course, unavoidable, some junks.

While reading the postings by some new/struggling traders, I have some thoughts.

What do you really need to learn about trading?

Technical analysis? Fundamental analysis? Risk management? trading psychology? Well, yes, yes, yes, I hear you. These are important. Very important. But, the essential skill one should really learn is the skill of learning. Learning the market condition.

Market is constantly changing. Or should I say market behaviour is consistently inconsistent. Your holy grail setup that works today might, or most likely, will fail later. Getting back to text books, forums trying to find new setups is just not the most effective route.

Learning to adjust your mindset, to accept the change, to really understand your battle field, with these, start to enhance or alter your strategies.

This is when your skills (technical analysis, fundamental analysis, etc) come into picture.

But bear in mind the fact: Technical analysis is a lagging tool, as it is based on what happened in the past, and forecast what is likely to happen in the future.

Fundamental analysis is a product of idealism. Ideally, the market should move according to its fundamentals. But, more often than not, the reality negates this. During bull markets, the high will get higher, regardless of how much the stock really worth. During the bear market like now, cheap can always get cheaper.

If you were to live trading the market, start developing a sense of market. Developing the ability to Know where you are, what you are facing, are far more valuable than watching MACD uptick and go Long(go wrong)… 🙂

Just another piece of rant from Trader Gav.

Coffee thought of the day….Patience is part of trading?

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I was in a trading chat room.  Most of the participants were waiting for trading call from a signal provider. While I don’t trade on these calls, it is really interesting to see how new or struggling traders or so-called busy trader-wanna-be  waiting for calls desperately. Well,  it is absolutely OK with subscribing to trading signal service . I am not arguing that.

Here is a short conversation I have found it to be interesting.

[ABC] Any one has any idea about trade alert today?
[123] apparently not
[DEF] no one????
[456] are you asking us to speculate on what will happen?
[ABC] guess we’ll just need to think for ourselves…
[Master] Patience its part of trading

Ah…”Patience is part of trading! “..Well said. But, to disappoint you, waiting for trading calls is not trading… face the fact, you are not trading if you are still spending your time waiting for the signal service provider to feed you with something…uhmm..something..

I am out for my morning coffee now…

Thoughts from trading strategy development

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One of my regular trading related work is constantly researching and creating trading strategies for my trading tool box. It is an interesting job. The programming, testing, and debugging are  painful and sometimes, mind wrecking :-). But, it is still considered as mechanical effort, since we have the strategy, rules, the work is just translating it into codes.

The most interesting and tricky part that I have found is the process of developing the strategy.
There are always similar questions like,
“Why did the strategy did not catch this sell off?”
“Is the criteria too strict and missing out opportunities?”
“What should I do to avoid this loss due to choppy condition?”

So on….

Seriously, there is no absolute answer for these questions. The end result of trying to answer them will be nothing but curve fitting.

If there is one thing we must learn before developing a trading strategy is to accept the non-perfectness of it. Face it, no strategy or system is perfect. One should never try to “fine tune” or expect his system/strategy to fit all market conditions. You will have losses. You will have draw down. You might not agree with me, but that’s true. I hope this statement is hard enough to make you quit trading or at least quit developing your own system. 😆

The key point is to first understand the nature of your strategy. Be it a trend following, a range bound top/bottom picking or contrarian strategies, whatever. Understand it, accept the fact that losses will be there. There will be situation that your strategy does not work. And , also, the strategy should be developed in line with your own personality, ok, I am not going into it, but you got the point.

A simple rule I am using when developing a strategy or a system is to have positive expectancy with acceptable accuracy (winning rate). OK, I hear some people shouting about accuracy is not important as long as we have good positive expectancy. Well, it depends. Weak hearted small traders, are you really able to take the 70% failure of your system though you know it is having a positive expectancy in long run? You might be killed mentally. For more about this topic, read about my old post here .

Alright, that’s all . Just another piece of my random rant. I am going back to fix my program bug now….

And , yeah, once you’ve done, start live trading with extremely small position. You will be surprised. 🙂

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.