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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Trading Forex through the 5 stages of Grief

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Er. Don’t kill yourself.

I’m trained as a counsellor and a doctor and the 5 stages of grief/loss/acceptance (many ways of calling it) can be applied to many life situations. In this post, I’ll apply it to trading, as an encouragement to those who are stuck or struggling, despite your best efforts.


Stage 1:  Denial

So you decided to embark on the journey of trading forex, and pour yourself into books, webinars, pay thousands for gurus to tell you what’s in the books, pay subscriptions for guru advice, pay streaming services to get “first hand” news, get certified in technical analysis, and now you’re all ready.

Then you trade, and you lose. Over, and over again.

The first stage is Denial, where you refuse to accept that you can lose despite all the work and money you spent on learning to trade. It’s unacceptable! It’s impossible! Not even 1 win? Not even a single cent of profit? Impossible!!!

“It should not be like this!”


Stage 2: Anger

From denial, inevitably anger comes in. And anger has no place in trading. Ever. You revenge trade. You trade the opposite direction. You increase your trade size to “get it all back”. You make mistakes, more mistakes, and get more angry. You are now an emotional wreck, and continue to refuse to accept that with all the knowledge you have, and the resources you paid for, you still have not made profit. You’re angry at the guru for cheating you. You’re angry at the authors who say “it is possible”. You’re angry at the Smart Casual Trader who talks as if it is possible. ALL OF THEM ARE CHEATS!

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Please don’t do this. Your laptop is not at fault. If you’re angry, try out the Fragment Room


Stage 3: Bargaining

For forex traders, bargaining may come in the form of just aiming to get a little profit…some profit…a small win….IF you do something special. Like, telling yourself “I promise I will donate the money to charity.” or “I’ll donate blood” or “I’ll go to CHC more often to get more oil”

This is the stage where traders are most vulnerable to cons. They will try anything and everything to succeed in forex trading. But, the good thing is, at this stage, they stop being angry, and start thinking of alternatives of how to succeed…although most of the time, the alternatives only give false hope.

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Yes. Plug it in. And money will roll right in.


Stage 4: Depression

Well it varies from person to person how badly depressed they become. They may never even reach this stage, and just be forever bargaining or angry or stuck in denial, all of which are unhealthy and unhelpful.

Depression is actually a quiet time. The sadness that comes allows time for reflection. They say things like “It’s hopeless, I can’t do it, it’s too difficult“. And depending on the resilience to failure, the person may either overcome this difficult period, or just finally give up completely. They will be forever sad when talking about forex, and be scarred for life, because of the deep sadness the experiences of denial, anger, and the futility of bargaining have brought upon them.

But, with resilience, they can overcome this stage, with support, and with a strong will, they have a chance to move to the final stage.

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Stage 5: Acceptance

The truth is most retail traders fail. And acceptance of this fact, going through the first 4 stages, will bring peace, and the trader will end up wiser, stronger, and looking for the next big thing towards success. It may not be in forex. It maybe found in your passion in hamsters.

Accepting that forex is not for you, is difficult for those who have invested so much into it. But if it’s not meant to be, then accepting it will release you from all the pain and the chains to self-torture.

But there is another path. An acceptance towards success. And that is the acceptance that losing, failure, are all part of being a successful trader.

Most people, if not all, are brought up in a “fail is bad” society but those in the know, embrace failure as a stepping stone towards their dreams.

A very specific example, related to trading, is that losing is part of trading. Every sound trading strategy will have drawdown. Even the “Holy Grail” strategy of trend following has periods of drawdowns, because the market is never always trending.

It is possible to be overall profitable even if you lose 9 out of 10 times, if you have the mental and emotional resilience (and lots of patience and discipline) to allow your winning trade to hit your target that gives you back 11 times your investment.

This is the acceptance that you need to have, to complete the 5 stages and end up successful. It’s not the end of the story, however. But a beginning of the next chapter, of accepting losses as part of your system, and reflecting on how to still be profitable overall. The next step, is execution, reflection, and focusing on the process.

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Facebook: @smartcasualtrading

 

Weekly Trading Plan June 19th-23rd

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All info credit to DailyFx’s Economic calender and Trading Economics

Week 4 June 19-23

 

No major holidays

 

Monday

NZD milk prices

730am AUD somebody speaks in some panel somewher)e

 

Tuesday

9am CNY somebody speaks somewhere out there

930am AUD June rates minutes released

315pm USD someone speaks

330pm Carney speaks somewhere

445pm CHF another person speaks somewhere

 

Wednesday

236pm Kuroda speaks somewhere

 

Thursday

5am NZD rates (credit https://tradingeconomics.com/new-zealand/interest-rate)

 

  • The trade-weighted exchange rate has fallen by around 5 percent since February, partly in response to global developments and reduced interest rate differentials. This is encouraging and, if sustained, will help to rebalance the growth outlook towards the tradables sector. (But has risen quite strongly since then)
  • Developments since the February Monetary Policy Statement on balance are considered to be neutral for the stance of monetary policy.
  • Monetary policy will remain accommodative for a considerable period. Numerous uncertainties remain and policy may need to adjust accordingly.

 

 

Friday

2am MXN rates expected to raise again!

 

  • Recently raised again to its highest
  • Noted inflation about 6%

 

 

830am CAD CPI

My thoughts

That’s alot of people talking over the next week with only 2 interest rate announcements scheduled: NZD and MXN. Now NZD is interesting.  Ever since its previous statement, the NZD has rallied pretty strongly, which is exactly what the central bank doesn’t like. So where will the so called “smart money” be this week? Shorting the NZD? I don’t know. All I know is, I prefer not to short the NZD as it is expensive to pay the interest.

The great Mexican Peso, which I hardly trade, but is super to go long because of its now expected 7% interest rate. Well, I consider it a risky currency, although some traders I know absolutely love trading it short term. For me, the spreads are bad, and it’s expensive to buy, so even with a 7% interest, I don’t find it value for money. We shall see. Check out my post on how I trade like an “intelligent investor” Ala Warren Buffett to understand what I mean.

Other than that I don’t see anything interesting than people opening their mouths. Now analysts list these as high importance because they are looking for hints to predict stuff. But as a Smart Casual Trader, I know you cannot predict anything. So to me, I don’t really bother. Besides, by the time what they say is published, someone else would have already had an edge against you by having either inside information first, or having it heard first (remember, analysts are paid to listen and analyze such stuff and come to some kind of prediction or analysis to send to their bosses).

What edge do you have against them if you also depend on the same information. No, your edge is that you are not distracted, nor biased, by what you hear, but what you see in the market price action.

Happy trading!