Experiencing the first big winning trend

When a trader starts adopting a trend following approach, there can be a steep learning curve in terms in truly understanding the ups and downs they will experience - both in terms of open equity and the emotions involved. 

Aspiring trend followers will more often than not go straight into a drawdown on cash equity. This is due to them adopting the basic principles of cutting losses short and letting profits run, combined with the low win rate that is typically achieved. 

My observation is that people quickly develop the need for good risk control and the cutting of losses, but by far the most challenging aspect of a trend following approach is the ability to remain faithful to your exit rules once you get into a profitable trade.

Jack Nicklaus and trading - part 3

A couple of my more popular posts from past years relate to Jack Nicklaus, where I listed a number of quotes from his extensive writings and interviews over the years. 

Below I've pulled out a few more of nuggets of wisdom from The Golden Bear, which again may require some thought on your part, but the underlying message can easily be applied to your trading and mindset:

Learning from the Turtles experiment - what should you learn first?

The ad that started a legend.

An often overlooked aspect of the Turtle Traders experiment was not simply what they got told, but the order in what they got told. We can piece this together from the various writings about the experiment, including that of the Turtles themselves.

"Rich and Bill first taught us the foundations of basic gaming and probability theory. They explained to us the mathematical basis for money management, risk of ruin, and expectation" - Curtis Faith, from Way of The Turtle

It is also known that, while a commodities trader, Richard Dennis preferred not to read economic or crop reports - his preferred reading was Psychology Today. So I think it would be fair to say that (whether it was directly done or not) there was some basic trading psychology covered during the training period.

Volatility issues

Below I have shown a chart of the Dow which highlights the split personality of the markets in recent times.

Up until the end of January, we can see the market clearly in a trending, stable (i.e. low volatility) state. From there, the chart is a mess, and the Volatility Factor and 2ATR measurements clearly show the explosion in volatility.

A trader's development - a case study Part 2

Back in the summer of 2013, I wrote this post about an aspiring trader called Tom (not his real name) who I first met in early 2012, and gave a potted history of how he had developed as a trader over that period of time. Tom was the first trader that I mentored. This post now updates that story...

Discount offer - 3 days left

A quick reminder that the discount offer for 1-2-1 training or mentoring expires in 3 days.

Be part of our team of like-minded traders, and use the timeless principles of successful trend followers and Market Wizards.

Those who do not have the desire to succeed, are not committed to put in the necessary work, or who do not want to learn to think for themselves with a trend followers' mindset need not apply.

My biggest loss in 4 years

So, let's not beat around the bush. This morning I suffered my largest loss on a single trade since the summer of 2013.

As of yesterday's close, the position was +1.13R in profit. Within a few seconds of the market open, I was stopped out for a -1.95R loss.

S*@t happens. Let's look at the chart:

A lesson from Steve Jobs

When traders seek improvement, more often than not they will ADD something to their routine or method of selection, or maybe start putting extra indicators on their charts.

Yet most of the successful traders I've had the good fortune to speak to or correspond with only really hit their straps when they REMOVED the superfluous elements from what they were doing.

They developed an understanding of what were the important elements in achieving profitability. They found simplification and clarification in what they were trying to achieve. They got rid of the extra elements or chart indicators they didn't need.

They used Occam's Razor in their approach to the markets.

Now here's a suggestion. Why don't you take the same approach to your thinking?

Are you a Borg or a McEnroe?

Given that this year's Wimbledon is currently in progress, I have a tennis theme to this post.

Any trader who has been profitable over the long-haul has developed a method and mindset that works for them.

Usually, this means approaching the markets in an unemotional, rational state, rather than an emotional, irrational state.

In my opinion that is the way to be, but that statement is not complete. Behind that, it is quite possible to go through emotional ups and downs on a daily basis and be successful.

Regrets and trading

If your trading is not 100% systematic then there is always the danger or possibility of making an irrational, emotion-driven decision which can cause damage to your trading account, as well as issues with your own mindset.

It is very easy for one such decision to eliminate several months of disciplined trading in one go.

If you are looking at your trading as a long-term endeavour (and NOT as a 'get rich quick' scheme) then you don't want to suffer having any trading 'regrets'.

A positive start to 2017

Markets always go through different market 'states' - either trending or non-trending, stable or volatile.

During the last couple of years it has been difficult (but not impossible) in making money adopting a trend following approach, for me using my preferred timeframe and parameters. That is the nature of the beast. You cannot force the market to march to your beat. You can only take what it is prepared to give you.

Jack Nicklaus and trading - part 2

One of the most popular posts on this blog is 'Jack Nicklaus and trading', where I listed a number of quotes the Golden Bear made over the years. These should have a particular resonance when placed in a trading context, be it your own approach to the market, or the psychology involved.
Below I've pulled out a few more of Jack's quotes, which again may require some thought on your part, but the underlying message can easily be applied to trading.

Improving your emotional control

A few weeks back, a trader friend of mine sent me the following message: "Just had my best ever trade...well, was a full -1R loss in record time!"

When I read this I thought he was being sarcastic, however he went on:

"There were f*** all emotions. Didn't hesitate on the exit, didn't think - just acted".

I've known my trader friend for a few years now. He actually has more experience in the markets than me, and has developed his own method, but he is continually learning and trying to develop himself as a trader. He has also been consistently profitable.

So why did he think this was his best ever trade?

Some thoughts on exploiting your edge

Traders who are successful over the long-term have clearly defined their 'edge' in the market or markets they trade. To me, an edge is basically a method that statistically generates a positive expectancy over a large sample of trades.

In order to capitalise on that edge, the trader needs to develop the ability to use that edge. This basically means that a trading plan which is constructed to exploit that edge is followed as closely as possible.

What you can learn from Mark McCormack

Mark McCormack and Arnold Palmer

Mark H McCormack was a business pioneer. He created the International Management Group in the early 1960's - his first client was Arnold Palmer, closely followed by Jack Nicklaus and Gary Player.

New testimonial from Germany

Julian is trend following trader from Germany who I have worked with over the last couple of years. Here is his testimonial which he kindly forwarded:

An example of how emotions can affect your risk to reward performance

A couple of years back I had a meeting with a trader who wanted to improve. He had taken a break from the markets, and came to me for help in putting together a clear plan in place with good risk management and having the right mindset at the top of his list of priorities.
I've talked in the past about how closely your attitude to risk can affect your level of emotional control, and ultimately your discipline, as a trader.

With this in mind, we talked at length about his previous trading experiences and in particular his most profitable trade, which was this set up on the a UK stock. Here is the chart:

Spinning your wheel(s)

A few weeks back, I spoke to a trend follower who had been experiencing a frustrating period in the market. This particular individual previously worked in the City of London and has a strong regard for good risk control.

The concept of acceptance

A critical part of developing the correct mindset in trading is grasping the concept of acceptance.

I first came across this from reading the books of Bob Rotella, a sports psychologist famous for his work with a lot of top class golfers. His first and best well known book in this area is Golf is Not a Game of Perfect.

Working on yourself

In my previous post, I talked about ensuring you take action, after having a clear plan in place. 

But, for many, this is where any psychological issues start to rear their head, as you start to implement your plan with real money at risk in the market.

Most people solely focus on trying to develop a method that can generate profits from the markets. But, how many market participants do you know who spend just as much time (if not more) working on themselves?