New testimonial

This week I received the following testimonial from Stephen, who I have now known for a number of years and has been an active member within our small group of traders:

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.

New testimonial

Craig is an experienced trader based in London who approached me a few months back to assist him with his trading development. He has been kind enough for forward the following testimonial:

Pain and pleasure - The Dickens Pattern for traders

Recently I came across my copy of Awaken the Giant Within, by Tony Robbins. I originally bought the book 10 years or so ago, but after reading it once, I pretty much forgot about it until I came across by chance, gathering dust.

Over the last few years, I've become greatly interested in the whole self-help/psychology sphere and the impact it can have on a traders' mindset. This can ultimately determine whether a trader will become successful or not in the long run. And, in the meantime, I've read a whole bunch of books related to that topic. Re-reading Robbins' book shows where a lot of these ideas originally came from or became popular.

Learning from past mistakes - and the markets

For those who have not traded through such a period in the markets before, you have been all geared up for an important educational experience over the three months or so. We have seen a big jump in volatility, combined with a sharp move to the downside followed by a 'V' shaped reversal in the general markets. Ideally, when experiencing these changes in the market state you want to keep your tuition fees as low as possible.

Trading or gambling?

Every so often you stumble across a trader who has made a significant amount of money on a single trade, in a short period of time.

But then when you read a bit more, you actually find out that, to generate this profit, they risked an amount equal to the profit - or even more.

Commitment and discipline

When trend following, apart from using a system that has an underlying positive expectancy, you also need to develop a commitment and discipline in following the system signals and your overall strategy. If you can do this, and use good risk management at the same time, then you have a good chance of success.

A trader's development - a case study

Below is a summary of a live case study in the development of an aspiring trend follower, who is one of the traders in my mentoring programme. As you will see, it has been a case of slow but steady development, a few 'A-ha!' moments along the way, combined with a desire and commitment to succeed.

Fiscal cliff and other market unknowns

The buzz words or phrase that everyone is referring to at the moment is 'Fiscal Cliff', and the possible impact it will have on the US economy, as well as the markets.

As it happens, the US indices have performed an abrupt about turn over the last few sessions of the year, and are now on short signals. Perhaps unsurprisingly, the major European indices are showing greater strength, but are also being dragged down in concert.

Acceptance of losses

When people make a profit from their trading activities they like to say "I was right". Yet when the same people lose money, or a position goes against them, they like to say "The market is wrong".

Accepting that you can (and will) make mistakes, or simply be proven wrong when putting money on the line is a critical phase in the development of a trader. Failure to accept you are wrong on a position will end up with small losses growing into bigger losses, and in extreme cases to a significant erosion of your capital, or even blowing up your account.

New testimonial

The beauty of a robust trend following methodology is that it can be applied to any market, in any part of the world. I have spoken to other traders (both new and experienced) in the UK, the US and the Far East, who are now applying it to their own local stock markets, as well as the other main markets around the globe. Tonight I received the following testimonial from a new trader in the Netherlands:

Some recent failed trades

Here are some charts of three trades I've recently taken and which have resulted in two losses and one break-even trade. As a rule, I lose more often than I win (although I try to attain a 50% win rate) but the average size of my winning trades is historically at least double the average size of my losing trades, and which brings about the overall positive expectancy.

Finding the right method - for you

Anyone who has been around trading for a while will know that there are literally thousands of different ways to make money in the markets. Whether it be using trend following, counter-trend trading, scalping, using support and resistance levels, indicator based or any other method, what can be great for one person can be poison for another. Go read a book like Market Wizards and see the wide disparity in the methods employed.

The trading process

The whole 'life' of a trade, and how a trader executes it, can be broken down into the following series of steps:

• Observe the markets, keeping an eye out for potential opportunities;
• Identifying a potential opportunity that matches your entry criteria and risk profile;
• Open the chosen position (including simultaneously placing an appropriate initial stop level to exit the position without significantly damaging your equity);
• Managing the trade throughout its life (converting your initial stop into a trailing stop as the trade progresses);
• Exit the position;
• Review - Evaluate the trade to ensure that all the criteria of your strategy were adhered to.

The long and the short of it - reviewing trading performance

When it comes to reviewing my own trading performance, I try to be as objective as possible, therefore this summary will be in the same vein. When doing this exercise, my main concerns are to ensure that:

• I have obeyed my risk parameters, both in terms of individual trades as well as in terms of my portfolio;
• I have attempted to keep to a bias in my positions that coincide with the direction of the indices;
• The trades on entry satisfied the various criteria I stipulate;
• Stops are placed and updated correctly and observed when price hits them;
• That I have not made any irrational, emotion-driven snap decisions and overridden my system rules in any way.

Recommended blog - newtraderu.com

Successful US trader and author Steve Burns runs the newtraderu.com blog, which I highly recommend to all traders. Steve calls himself a 'trend trader' rather than a trend follower, but the basic principle of identifying and following a trend still applies.

Seeing what you want to see

When a position starts to go against you, it is very tempting to try and 'interpret' a chart in a manner that verifies keeping the trade open.  This is where traders try to use indicators as a 'crux' to justify keeping hold of their position - "I'm long, yet price is going down, but the RSI is saying it's oversold, so I'm okay" - that sort of thing.

Trend following - dead again???

I've noticed in the last few weeks that some articles are springing up stating that trend following is dead (again). Articles such as these appear every so often following a period of poor performance by the CTA community and other traders who utilise such a strategy.

Next webinar

The next webinar is scheduled for Tuesday 04 December at 2000GMT.

These last up to 2 hours or so and cover almost any questions or topics relating to trading from a trend following perspective.

To find out more details and to enrol, please click here.

Going against the market - a couple of profitable short trades

Here are another couple of good examples of short trades that have generated nice profits. Again, the initial entry signals were valid and would have cropped up on the scans that I use. From there it is simply a question of placing the trade and then watching it unfold, and letting the profits run.