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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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. 

Destructive Emotions will Destroy your trading account. Here’s why.

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I absolutely loved the wisdom in this book. Highly recommended, and applicable to trading

I read this book several years ago. It is quite a deep conversation, but also a highly enlightening insight into destructive emotions that cause a cycle of suffering. Seen below

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Hard to read but very good examples of how it can be applied to trading as well

I have a Masters in Guidance and Counselling, and you probably have no idea what does that have to do with trading. I would say, 90%.

Because when trading, with real money, we are so attached to the value of money, it evokes strong, extreme emotions in us. And, sure enough, “over confidence” has been identified as a destructive emotion.

What is the result of destructive emotions? What is the cause? Well, it starts with having irrational beliefs. In the case of trading, most people think trading is all about getting the market right, predicting the right move, and finding the right guru to tell you where the market will go. It is irrational thinking, because the future cannot be known, hence your belief in the Holy Grail will only result in destructive emotions, such as anger, envy, hatred, which will lead to destructive actions and behaviours, such as revenge trading, doubling down too big, moving your stop loss, and changing your mind when you decided to break even, and when when you see profit, and greed takes over, and decide to add to your profit instead, you lose everything, very quickly.

Irrational beliefs, such as thinking trading can grow a $1000 to a $10000 account in one month consistently, gives you over confidence when it happens once, and then to despair when you get your margin call, and you double down to earn it all back, losing even more, and giving up what could potentially, if you had gone through proper coaching and embraced the rational thinking of trading, lose your dreams of being self employed, enjoying great quality of life, being detached from money, and overall attain happiness you never thought possible.

Which comes back again to my take on being a reflective trader. Do you trade with irrational beliefs? Are these beliefs leading to irrational, destructive actions, which feedback to your irrational beliefs, ending up in a never ending cycle of trading suffering?

Something to think about, and definitely not to be scoffed at. Most real traders will agree with me, that they have learnt more from books on trading psychology than from technical trading books. And that has actually sharpened their edge. At least, that has, for me. Perhaps you can try the same. And start, if you haven’t, read about trading psychology more, than about trading strategy.

Happy trading!

 

There’s a Smart Casual Trader™ in all of us: Lessons from Monsters University

I love Pixar movies. Partly because not many people know that Steve Jobs had a large role to play in changing the animated movies industry not just by helping fund the small company, but through his legendary “reality distortion field”, managed to put Pixar on the map through tough negotiations with Walt Disney. Many of Walt Disney’s animated movie successes would not be possible without Pixar.

I digress.

Pixar movies move both kids and adults. And the script, storyline and characters, are mostly the brainchild of one man: John Lasseter.

I digress again.

Monsters University has a deep meaningful story. A story of Mike, the least scariest monster, gunning his way to pursue his dream to work in Monsters Inc. as a scarer. Despite the odds against him, he uses his strengths, his determination, and resilience, to build a team to top the university’s scaring program.

On the other side, we have Sully, the “sure-win”, overconfident, privileged monster who believed he didn’t need to try hard at all to be the best.

To cut the story short, things didn’t go well for both of them, but they had to team up in order to stay in the program, and group up with other non-scaring monsters in order to win a scaring competition to stay in the program.

To inspire the motley group that they have what it takes to be scarers, Mike brought them secretly into Monsters Inc to see real scarers at work. And the lesson then, was to realize that each monster had their own unique characteristics, using their strengths to their advantage to scare: Each monster had their own edge, there was no one “type” of monster like Sully, who was big, strong, and had a unbeatable roar. In other words, to succeed in scaring, it had little to do with who you are, what you look like, but rather, how you used your special talents, your edge, to be successful. Some of the scarers looked silly, even, but they still worked as top scarers, by leveraging on their edge.

The tagline for Monsters University is : “There’s a monster in all of us.”

And that is so true, for trading, or whatever you want to pursue. Don’t be intimidated by the men and women with the credentials in black suits, equipped with the top equipment, working in the top banks or funds. There is no one archetype of a successful trader. And I believe I’m a living example of such.

Find your edge. And the edge comes from being Smart, Casual.

Forget putting on your black suit and tie and put on your most comfortable T-shirt and shorts.

This is the Smart Casual Trading™ philosophy to be a successful trader, no matter what strategy you use.

Happy trading!