What on earth were you thinking?

[Achilles90]

I thought it might be worth it to take some time and try to analyze the world of trading: specifically how I think about it, what my trading plan (vaguely) looks like and try to lay out some arguments and discussion points which both beginners and experienced traders can glean greater understanding from. 

 

As a personal aside:

 

 

 

 

Spoiler

I would like to say that writing on this forum is genuinely the only writing (apart from an email or two) that I have done since high school. I am not a great writer, I was not on the debate team: I apologize and ask for your patience with my wandering, faux-intellectualism. I aim for this not to be cryptic but to be helpful. I, unfortunately, cannot help myself: these are my thoughts, this is what it looks like in here: please excuse the mess.

 

Do you ever wake up in the middle of the night with sudden understanding? Perhaps the opposite: with a burning question you've finally distilled to it's essence? 

 

I cannot help you makes sense of these things or even the things I write. I can only: as clearly as I can, explain eureka moments I have had and hope that it might spark something similar within yourself. It cannot be forced. I have read bookS, plural, about the world of trading. I have read books about books. I have read about traders. I have listened to traders. I have worked 1 on 1 with traders to learn what they do and what they see. It's not black and white. Truly. I do what I do. These are not rules nor is this a religion. How I think seems to work for me and maybe something out of my tool belt will add something to your world. I can only hope. I plan to discuss some "rules" which I run by, explain some formulas, talk about risk management and controlling loss. When I was a kid I remember my dad telling me "Son, if there was a pill you could take to stop being fat: there would be no fat people". A silly joke but an important lesson to learn. If this was easy: everyone would do it. If there was a holy grail: we'd all be rich.

 

I hope this is helpful or at least interesting

 

So first, a story:

 

Quote

Alas, the human mind can't resist the allure of explanations, even if they make no sense. We're so eager to find correlations and causation that, when confronted with an inherently stochastic process - like the DJIA, or a slot machine - we invent factors to fixate on. The end result is a blinkered sort of overconfidence, in which we're convinced we've solved a system that has no solution.

Look, for example, at this elegant little experiment. A rat was put in a T-shaped maze with a few morsels of food placed on either the far right or left side of the enclosure. The placement of the food is randomly determined, but the dice is rigged: over the long run, the food was placed on the left side sixty per cent of the time. How did the rat respond? It quickly realized that the left side was more rewarding. As a result, it always went to the left, which resulted in a sixty percent success rate. The rat didn't strive for perfection. It didn't search for a Unified Theory of the T-shaped maze, or try to decipher the disorder. Instead, it accepted the inherent uncertainty of the reward and learned to settle for the best possible alternative.

The experiment was then repeated with Yale undergraduates. Unlike the rat, their swollen brains stubbornly searched for the elusive pattern that determined the placement of the reward. They made predictions and then tried to learn from their prediction errors. The problem was that there was nothing to predict: the randomness was real. Because the students refused to settle for a 60 percent success rate, they ended up with a 52 percent success rate. Although most of the students were convinced they were making progress towards identifying the underlying algorithm, they were actually being outsmarted by a rat.

 

When planning to add this I felt it would be appropriate to describe this story as "apocryphal" as I really cannot say whether or not it is true. I have told my own variation of the story a few times as it is a tremendous lesson, which is all that really matters. I thought it would be important to share that in writing this I decided to try to find the actual quote. It was surprisingly difficult to find something akin to the origin of the story. This quote seems to be a slight variation of a story from a book called "How We Decide" by Jonah Lehrer. This is most interesting because I simultaneously learned that Jonah Lehrer's career was destroyed when it was revealed that he is an infamous maker-upper. Apparently he fabricates quotes and stories and puts them in his work to support his thesis. As hilariously coincidental as this does seem: to me, it doesn't detract from the moral of the story at all. And seeing as how all of my favorite stories are made up anyways: who cares? What can we learn from this?

 

Paul Tudor Jones is one of the most famously successful traders of all time and the last time I heard him say it he says he only aims to be right about 10% of the time... How is this even possible? A hilarious finance meme page I followed was recently asked "How to perfect my entry strategy" his response was gold: "Don't focus on being perfect. MAKE MONEY" $s are the only thing that matters.

 

To be continued...

[Achilles90]

“Compound interest is the 8th wonder of the world.  He who understands it, earns it; he who doesn’t, pays it.” - Einstein

 

As we roll into the new week, I'll mention last week:

 

Style:

I trade very passively. Some people use big money and big risk. Some people trade big accounts and risk a lot of money. Other traders I know trade small accounts very aggressively because the money risked is not very much money to them. I don't. If I fall asleep and price goes 100 points+ against me. It wont matter. Risk management is the name of the game. Some quotes I think of on the subject: 

 

"You can only control your losses"

 

"1. Big loss

2. Small loss

3. Big win

4. Small win

Just avoid #1"

 

I am not looking for a pip-perfect entry. I am not looking for a 3.25 point stoploss. 

 

position size = risk / stoploss

 

All portions of that formula are flexible.

 

My risk is predetermined, sub 1% of my account balance per "trade" with "trade" being defined as a hypothesis which is tested and proven either successful or unsuccessful. A trade may consist of multiple entries and exits but all testing the same theory within the same frame of risk.

 

I come up with an idea. Maybe I flip a coin or read a cool article or one squiggle crossed another squiggle in confluence with something horizontal or diagonal and I click trade. I apply a formula to control my risk and I test my idea. We make a general observation and test it. This isn't rocket surgery.

 

My rule about drawing on my charts is not to. If I see something and walk away for a couple hours and don't just see it again. I should question it entirely. This is my logic, I'm not saying you should change anything you do.

 

So sometime monday or last weekend I was flipping through my longer-term charts and thought I saw something. Maybe you see it too? If you read charts regularly you've already noticed my mistake in editing this and you know how this story ends  

 

I do my math, I click trade. I go to bed. I think it was work in this case. As stated in another thread: I check forexfactory so I know my timeline of disruptive news events and check on my trade accordingly. I try to check at least every 2 hours and watch when the news strikes. 

 

I have my own issues I'm still working out but all in all it wasn't bad.

 

Between my entry on monday and friday price moved close to 150 points.

 

I took two stabs at this trade as that's all the screen time my week really allowed for and I got out wednesday at some point after the fomc meeting. Nice big move. I took about 50 points from the market for a pretty clean 1% gain. Not at all what I was looking for and without manipulating my leverage as I want but once again: passive. 

 

 

The markups are approximations because some things are important that I remember. The purple (thistle) box is the "stoploss" for my amalgamated position + risk which is constantly adjusted, moved, and redrawn. 

 

You can imagine my disappointment in how the rest of the week went without me 

 

The expression used in my trading circle is "building your rocketship" which is not something I got around to doing before it took off. This would have been a very easy 5%+ by my math. Even without my aimed third entry. A very nice week that would have been. Oh well, we can all, always, do better. Next time.

 

Tools:

All my charting is done with mt4. I use no indicators. I really draw nothing. 

I trade with my broker's (ally) proprietary software. It's kinda trash. but the execution speed is so much faster than mt4. I use an oanda demo for charting currently but watch other broker's feeds. Watching multiple brokers gives me a better image of what the charts look like since everyone's is different and I feel I have more clarity during market moves because I can see which feeds lag and lead during which times. 

 

Everyone is different, these are some of the things I am thinking about day to day. Only the market tells us who is right and wrong.

 

Let's see what this week brings.

 

Good luck everyone

On 9/21/2019 at 5:35 PM, daredevil said:

We all are awaiting on it, whenever you get chance  

I was called...

[daredevil]

I have seen many traders trading on EW for Forex? Do you follow EW theory for it? 

[Achilles90]

14 hours ago, daredevil said:

I have seen many traders trading on EW for Forex? Do you follow EW theory for it? 

 

No. I studied Elliot Wave a little many years ago and didn't find anything particularly clarifying about it. I found that it fit nicely into that category of the story about rats. As much as the explanations of crowd psychology seems to fit quite nicely I didn't find the wave patterns and semaphors (as some wave pattern indicators call them) particularly useful in anyway. I'm not saying don't do it. But I don't.

 

I have tried 100's of indicators. Maybe more than one thousand. I don't use any. Indicators are only derived from data already in the chart. When you watch price action for long enough you begin to get a feel for when the stochastic is gonna flip. Or worse. When that stochastic reversal is a fake out that then redraws the axis within the stochastic indicator. 

 

As I was lying awake in bed last night it did occur to me that I never mentioned that the "something" I saw in that aussie chart above was price hitting a pretty (clearly) solid resistance level and pretty closely in confluence with a downward aimed horizontal channel. 

 

I want to be clear though. I believe charts are charts. I do not believe that any trading vehicle is any different than any other one. A long time ago I chose forex because I believe the intraday volume traded gives me the best/worst chance of making money. Personally, I find reading about global markets and the politics driving them to be the most interesting. I don't like corporate culture, ceos, and reading balance sheets. I find that quite boring so I steer clear of equities. Just my religious views but I have traded equities and futures and cryptos. I just like what I like.

 

I have lost an indicator many years ago which I am trying to hunt back down. It was a custom candle indicator which let you make things like 2 day charts and 3 hour candles but I haven't found a replacement for it that I am happy with. All the latest versions are poorly coded. When I find a good one I will upload it here for everyone to try. Provided you use MT4. That being said, why would I need it? All the data is already in the chart anyways

 

Please don't mistake me for bashing indicators though. There are a few fascinating ones out there which I would love to discuss at length. Most of them simply become a tool I learn to see though and don't need cluttering up my screen.

 

There has been a few studies that suggest, quite convincingly, that if you were to just flip a coin and buy or sell based on the result, applying very solid money management: you would find a surprising amount of success. For some reason I think the book "A Random Walk Down Wall Street" might allege the same thing.