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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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!

 

 

 

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.

How to trade the news: understand what is news.

Sumiko Tan is an executive editor of Singapore’s mainstream newspaper the Straits Times. Picture credit: Straits Times July 8th

What is news? These days since Trump has been elected POTUS, there’s been lots of scrutiny on news. “Alternative facts” is endorsed by the White House. “Fake news” is a growing concern even Facebook and Google are thinking of ways of how to sieve out fake news because of the potential damage it causes in light of the explosion of social media.

Thene there’s nonsense news. Like the above. Which is basically a subtle advert to buy a book.

Trading websites like DailyFX, Bloomberg, are becoming more tabloidish than reliable news. And this is no surprise. Because news is a great business. Great business moguls like Rupert Murdoch make billions on selling sensational news.

Selling news is lucrative. Particularly for trading news. If you read through Bloomberg and DailyFX carefully, each article is skilfully engineered to hang a carrot to encourage speculation, feed greed and fear, and the most important point is thid:  news don’t make you money. The market does. A more controversial statement would be that “the market makes the news”. But perhaps we can talk about that over wine for a light hearted debate.

News is important. It gives traders informatiom. But we need to be aware of the many hands news has passed through, editors like Sumiko Tan, who considers it top news that she has a book of her life journey. Add on ingredients to excite and entice, And you’ve got the news you get.
Nobody bothers to read through the boring articles on economic news, or the facts. They want the analysts’ take on it. Shortcuts.  They want trade calls, recommendations. But they forget the fine print. And the fact these writers are paid to write articles. And exciting, ambiguous articles attract attention and stir emotions. And then come the subscriptions for “privileged access”.

By the way. DailyFx was and still is  associated with FXCM. Which was recently involved in a major scandal. It was sold to IG after the major disaster.
So why trade news?

Your choice. But be aware. The news doesn’t really have your interests at heart. Well? At least not anymore. News have more interest in what’s in your pockets.

Disclaimer. I’m not associated with any news maker or brokerages. I don’t want to be anyway. 

June 2017 Monthly Reflection: Lessons Learnt

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Previously I blogged about the importance of reflection in trading. And I  do that alot. I do it weekly, and monthly, and during drawdowns, perhaps every 3 months, but I try to reflect as much as possible. Simply because it is the best way to learn.

June has been a good month so far. And I’m not just talking about the numbers. I’m talking about the lessons.

As a reflective trader, I’m always looking for ways to improve the process. And to try new things. Because there is no such thing as “the only way to trade”. Why do you think prices move? It’s because people are trading thousands of ways giving them thousands of signals on different timeframes. The only one way to trade, is your way.

So coming back to June. I experimented with several things with my trading. One is adding trailing stops once the move has gone about half in my favour, and another is to place breakeven orders when the price is about halfway towards my target price.

I’ve always been experimenting with these two, and through reflection, and looking back at my records, I don’t see clear advantages, for my strategy.

So I started to highlight when these stops actually “save” me, or make me “lose money”.

The other thing I experimenting with is taking profit early, based on current price action, and oscillators, and day of the week. For example, if it is close to the end of the week and my profit hasn’t been hit, I take profit. Another example, is when the profit amount is very attractive, and I say, “why not, just take lah”, and I close the trade.

The other thing I added to June, late June, is actually increasing my risk, to test and push my stomach for drawdown.

So here are my reflections, and findings, specific for my trading style. Just to share with you the outcome of reflective learning. These are specific to my trading style, so please, don’t take these lessons as yours. I’m just sharing you my own reflections, as examples.

  • Break even and trailing stops very seldom “save” me. They make me lose money instead, because of whipsaws hitting those stops, before eventually hitting my target.
  • Taking profit, ironically, makes me lose money. As I shared before, it’s important to have a right perspective. And to get the right perspective, you need to reflect, to discover it. While taking profit early puts money in the pocket, I actually lost money because the trade eventually hit my targets. That’s the right perspective to take. I lost money by taking profit. And this is harsh, because I know, losing money slows down the compounding rate, for every week that passes.
  • Increasing my positions size from 1% to 2% is starting to eat into me and push me to the edge. So now I know I am still not ready for a 2% position sizing, and perhaps, next month, I will try something like 1.5%, or less. Because I know that to speed up compounding, I also need to try to push up the position sizing, to gain a greater percentage growth per month.

 

So you see, hopefully, why reflecting, and keeping records, and making it a habit and having the mentality that trading is a job, is very critical to trading successfully. I have met several interested persons in what I do, and I am very happy to hear them tell me “I’ve never thought of trading in this way before.”

Give reflection a try. Keep good records. And reflect on why you took those trades, how they went, and what were some lessons learnt. And keep them. And go back to them once in a while, and reflect if you have made progress. Focus on process more than the results. The results come from process, not the other way round.

Happy trading!

 

The Smart Casual Trader considers the Dark Side

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There is this bias about doctors going private. And it’s a concern even for the government. The unspoken truth is, beyond the standard “for better quality of life”, “to provide better care”, is about money. Please, correct me if I’m wrong here. It is the “ladder” to climb for doctors. To gain experience and reputation in government hospitals, and then make it on their own. I’m stereotyping. I know. I know of truly sincere, noble doctors who leave the public sector to provide better care for their patients because they now practice on their own terms. And, they have a better quality of life. Sure, the charges are higher because of overheads and costs which come out from their own pockets, but there is no denying the dark side as well: The lure of money.

I’ve seen facebook posts of doctors opening their own clinic, and their friends commenting “huat ah!”

I guess, that’s the reality.

And so it is with what I’m doing with Smart Casual Trading. I’m starting small, trading on my own, and providing services on the side at nominal rates, and more. I’m focusing on my brand, and in time, hopefully, my brand resonates with the average Singaporean who have paid and got burnt by conmen who make more money coaching than doing what they actually coach, and in time, I hope I am able to build a community of followers and believers in what I do.

Then what?

There is the dark side. The dark side is to go “private”. Because I’m been noticing my posts showing my profits and trading performance get the most hits, instead of those “smushy” stuff about empowering yourself to  learn a new skill and to step out of the comfort zone.  People still just want the “Secret Formula”. The “Holy Grail”.

The dark side beckons to me, to leverage on my performance, and on my brand, and go the path of mass marketing, mass coaching, mass lecturing, and of course, mass income that exceeds my trading income.

It is the common sense to do, isn’t it?

I respect the doctors who choose to remain in the public sector, choosing to teach, achieving AP positions, going into research, while their colleagues enter fields that are money cows. I have nothing against either. I just notice this. And I respect both doctors for their own reasons.

What about the Smart Casual Trader?

Only time will tell.

#smartcasualtrading

Contact me if you’re interested to learn more.