My personal problems with Trend Trading, the supposed Holy Grail

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I think it is safe for me to say every aspiring trader starts off with trend trading strategies. It’s easy to understand, easy to interpret, and easy to execute. I personally started as a trend trader. With the typical rules starting with:

  1. How to define the trend
  2. Where to place the stop-loss
  3. Let the trade go or take profit at a high Reward: Risk ratio (such as 2-3x your risk)

Then it gets more complicated.

  1. Which timeframe?
  2. Which indicator?
  3. What settings for the indicator?
  4. What is this thing called “drawdown”?

Initially, I think most traders go through the beginner’s luck stage where their first few trend trades work out well.

Then they find they keep getting stopped out, and then give up, and go looking for other magic, holy grails.

The Turtle Traders have finally come out with their full story for a while now, in case you didn’t know. And the Turtle Traders have always been regarded as the de-facto proof that trend trading is the holy grail. The problem is not with the system. The problem lies within ourselves.

And that is why I cannot trade trends. Well, at least unless I can change who I am, and my own personality, my own biases, my own perspective of the market.

Asking me to be a trend trader is like asking an introvert to become an extrovert.

I have had success with trend trading and deep in my heart I always know it is the best, proven, method to trade profitably. So why did I give it up?

I gave up trend trading for a divergence approach for the same reason why you would switch your favourite restaurant to another which is more suitable for you. Perhaps it is nearer your workplace, or home. Perhaps you feel more comfortable there. Even though the quality of food may not be the same, you made the switch, because overall, you have found your new “favourite” and you’re comfortable and happy patronizing the new restaurant. Despite knowing it’s not as good, not as good value for money.

Similarly, I trade divergences and retracements, despite knowing for a fact trend trading reaps (theoretically) much higher rewards per risk over the long term, because I like trading divergences and retracements.

To be honest, while I have tried to compare results between my own trend trading method vs my divergence methods, I just gave up doing it because it was simply awful to test them at the same time. It is probably better if I had a partner to trade one method and I another, and then compare results. Then again, always remember, results tell nothing about the future, but only what happened in the past.

So here’s a short list why I don’t like to trade trends anymore. Please take this as an opinion piece, there will be fans and haters, but here are simply my thoughts on why I don’t like to trade trends:

  1. I don’t like to be stopped out in a whipsaw price movement (which is expected in a trend trading strategy)
  2. I don’t like to let profits run. I like to set profit targets. And trend trading requires you to set high profit targets, or let it run, which can be very infuriating. (Requires the amount of zen as the ocean in my perspective)
  3. Trends are best seen on hindsight, and this is one of my biggest problems with trend trading.  As Elder nicely put it, you can’t trade in the middle of the chart. You are only faced with the “hard right wall” which is where the price is now. And there is no way you can know if the trend will end, whipsaw, fakeout, or be your friend.

And that’s why I don’t like to trade trends. Sure, for every point above, trend traders, breakout trend traders will have their counter points. And that further reinforces my point: The choice lies within yourself.

Happy trading, may you find your edge in your own trading strategy.

 

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Tribute to Chester Bennington

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the frontman of Linkin Park, whom many of us in my generation grew up with

I woke up to he news of Mr Chester having passed away due to suicide.

Linkin Park’s music, fronted by Chester with his distinctive style and expressions through his screams and yet fluid vocals, gave solace to many who can relate to the songs the band wrote.

I am one of those who found solace in their music during the worst times of my life. It may sound crazy, but it is known as a fact that when feeling low, listening to music that express your feelings can be therapeutic, instead of you expressing it yourself through self-hurt.

Suicide is not something to be taken lightly and the irrationality of it is well understood by those who are lucky, privileged, perhaps, to have never experienced going through depression, anxiety, or other mental illnesses that create thought loops that lead to one conclusion, as one of their song titles aptly put: In the End  (it doesn’t even matter)

I won’t be adding contrived statements on how this is related to trading. I have already discussed about mental issues affecting trading in a previous post.

Dedicated to those who are pushed to the edge. There is always the choice to be made. TO jump, or to step back, and pick yourself up again. Fail, pick yourself up, and carry on away from the edge towards infinite possibilities that you never knew were there.

Dreams are meant for you to happen. Ending it all ends everything, including your chance at making dreams come true.

Trade Smart, Trade Casual, and seek help if you find you’re pushed to the edge.

Going steady vs dating vs hanging out vs friendzones. What’s it got to do with trading?

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just get a room and get it done with

Recently I read a post about Singaporean couples dating yet not taking it seriously.

So apparently dating is supposed to lead to marriage, and if you’re not dating, you can’t get married, and if you’re dating, you need to marry. Well, that’s my interpretation.

It’s about expectations. And a good, ethical coach/trainer with integrity will place managing expectations above all else when people engage their services.

Couples can date, sure, it is like a casual relationship that’s fun, and it’s ok to leave it as that. But if the couple is not honest about expectations, that perhaps one of them is expecting marriage while the other isn’t, then there will be unmet expectations and disappointments.

Similarly, aspiring traders who engage a coach or trainer must be honest with the expectations, and the trainer as well, lest there be disappointments and a breakdown of a coaching relationship.

Both parties will have to lay down expectations and discuss what the relationship’ s goals are. Is it about earning a fast buck? Is it about revealing a trading secret? Or is it about a long term commitment to learning, self discovery, walking a path peppered with failures and getting up, a path of dedication to mindful trading and developing right mindset about trading? 

Similar to the article about dating couples not being serious about considering marriage, there are aspiring traders who want the fun from trading, earn a quick buck from playing the market, while the coach expects otherwise. Sure, an unethical coach can play along and fool around as well. And the relationship will simply be going nowhere and end up likely toxic.

Trading for a living is a job. It is not a dating game with mind games and petty quarrels. It is a commitment to make it work, just like making the leap into marriage, making vows and promises, til death to you part.

Well. Hopefully wirh the right partner i.e.coach/trainer, you won’t die.

Happy trading!

 

 

 

Smart Casual Trading™ approach to Technical Analysis (TA): Divergence

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Image credit: Babypips.com

There are probably as many strategies to trade forex as there are the stars you can count in the sky. Simply because there is none that works, alone, without having the right perspectives, expectations, and risk, emotional, money management finesse, which can only come from practice, failures, and self reflection. To find out more about my thoughts about Indicators and Trading Strategies, check out my Udemy course, and use this coupon to get a great discount as a celebration of the first Udemy course I’ve launched to help aspiring traders learnt the Smart Casual Trading Method™.

In this brief post, I want to share my favourite “strategy”. It isn’t exactly an indicator. There are many divergence indicators, the most popular being the MACD. Rather, “divergence” is an occurrence when price action is divergent, as the name implies, from an oscillator. And yes, there are many oscillators around as well. But the MACD is probaby the “de facto” indicator that aims to identify divergence specifically.

The picture above shows a great illustration of a divergence signal. When prices are appearing to be in a downtrend, for example, lower prices between two candles, but when compared with an oscillator showing an opposite picture coinciding with the two candles: higher highs instead of being in line with the trend. That’s divergence between price action and an oscillator.

I like to use divergence because in my opinion, and preference, it is a clear signal. That does not mean the price WILL reverse or retrace, but it is a CLEAR signal. One that you can recognize at a simple glance. And the degree of divergence is also very clear, and it makes decision making rather easy.

The oscillator illustrated above is the Stochastics. And honestly, I don’t even know how it is calculated. I don’t know what is the best setting. And I don’t search for the perfect settings. But I use MACD and Stochastics with my own personal settings that I am comfortable with, but always bearing in mind, that indicators don’t predict anything, simply because indicators are based on past prices, and at most, at present price action, but never indicate future prices, because in order to calculate the indicator, you need a price. And the future price is not known. That’s the reality and the fact that many traders don’t quite seem to understand. And hence, they keep searching for the poorly named “indicator”, which indicates nothing except what has happened in the past.

But there are problems with using divergences, as with any strategy. Very simple questions need to be asked:

  1. When do I place an entry?
  2. When do I exit a trade?
  3. Where do I place a stop loss?
  4. Is the divergence a strong one?
  5. Is the trend a strong trend?

Yes, there are many questions to be asked, but with the Smart Casual Trading Method™, the focus is to simply trading as much as possible.

To learn more, check out the link about what I describe to be Smart casual trading, and feel free to contact me.

Happy trading!

Sunday Thoughts: “I want to turn $1000 to $2000 by next week.”

Perspective

Who is right?

It is possible to turn $1000 to $2000 in a single bet in forex, in one day, in one minute, in one week, or one month, or any financial instrument that allows margin. Say for under Singapore regulations, the maximum margin allowed is 1:50. Meaning if you’re trading forex, every dollar you trade is worth $50. Overseas brokers can allow margin up to 500. Imagine your $1 being worth $500. And you have $1000 to trade. You effectively have $500,000 of margin.

With $500,000 of margin, you can do lots with it, just as what you can do with a bank loan. But it’s very, very different from a bank loan.

Simply because if you use all your margin, every little movement of a forex price (pips in common language) is going to be worth alot of money.

So as an example, with using all your margin of $500,000, betting long on the USDCAD on last Friday’s NFP results (which turned out higher than expected, but the USD CAD dropped by 60 pips in 5 mins), each pip is worth about SGD$38. So a 60 pip move against you will lose you $2280.

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HOW CAN I LOSE MORE THAN I HAVE? (learn to read bro)

Ok. So that’s what can happen. So let’s say it moves 60 pips in your favour. Thats $2280. Congratulations, you managed to turn $1000 into $2280 in 5 min.

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Dr Van Tharp in his book Super Trader did a very good experiment on this. And found that when it came to the biggest winners, there were basically 2 types: The one who bet large bets and got lucky, or the one who places small bets and profits little by little.

So who is right? Both are reasonable, and very possible ways of turning $1000 to $2000 although the more patient trader will take a longer time.

It’s all in your risk appetite. If you can’t afford to lose $1000 or even more (don’t be fooled that you’ll be closed out at $1000. Price can move so fast, the broker will just close it at the next possible price, which can make you lose even more than $2280 if there’s no one to take your stop loss. Happened to me once. And once is enough.), but willing to risk it because you have really nothing left to lose and wanna have a chance and doubling your money in 5 minutes, nobody can stop you.

The patient trader has an edge over you though. And it’s survival. Time. And luck only knocks a few times.

Which of the 2 types of big winners do you prefer to be? Rationally thinking, which is the right way to trade?

Both are possible. The only difference is time. And of course, this very important question if you want to be the big bet big winner trader:

What’s your next plan for the next trade?

Happy Sunday.