I wrote about it last year. But it is so important I decided to repeat it today
You ever wondered how Money is created?
Take a seat and watch these videos
I will from time to time post patterns as I see them.
The first one is a momentum pattern in Natural Gas Futures. These futures are fast, usually have iceberg orders in the market, and can spike really lovely.
Take a look at this 10-Tick chart
I highlighted such an iceberg order, which was renewing itself. The market had tested the daily low and failed a few ticks above at 3.704, it went up and someone tried to sell it down again. But there was a lot of buying in the market, which you see in that nice line formed in the chart. The buying relaxed a bit, only to spike through the line in the sand, which is your signal to go long.
NG can run 40 to 60 ticks, still 3.750 was resistance in premarket, so I was wary when I saw the divergent wave pattern. I took the hint and exited with +20.
Here is another example of the same pattern at the above mentioned resistance level
As you can see it first failed, but there was support 10 ticks below and the market continue to try for a break, which eventually happened. Never forget: It's a momentum pattern, so don't hesitate to bail, in case it fails and don't expect home-runs.
I stumbled on an older article Brett Steenbarger posted last year: Second-Guessing: The Should-Have Syndrome
which I found really worth reading, as I missed it last year. And it got me thinking, which lead to this article today.
- I should have taken a stop, even if the trade turned out to be a winner. Last time it cost me a lot!
- I should have taken that trade, because all signals were there. But last time the same setup did not work!
- I should have held that winner longer, it was obvious, it would do the breakout this time, wasn't it?
Should have's ... can help you, as they are another way your inner self is corresponding with you. It's a discussion happening in real time in your head, when you are focused on the markets.
Listen to that voice, don't give in on it, but argue. There are times, when it is worth overriding that voice. If you are proven wrong, next time, it will be harder to override that voice!
At other times it's only prudent to follow that advice. Your trading plan is there for a reason and its rules are to be followed, unless there is real good reason to deviate. One rule may be that round numbers are usually Support / Resistance levels and you get out at them. They may break on the first test and leave you with a feeling of missed profits, but usually S/R holds on the first attempt, so getting out and locking in profits is only prudent as a daytrader.
Not taking a trade, you should have taken is a tricky one! But there is a reason for it. You just can't see it, as you are so frustrated with yourself.
It might be that you have personal issues today. Maybe you have no time for the trade as you have to leave in a short while or you have other things occupying your mind interfering with your trading. Be happy you haven’t taken the trade and get your things in order, so you can concentrate on your trading again.
But it might also be that your subconscious mind is seeing some flaw in your setup, you haven't identified yet and therefore have not integrated in your trading rules. Maybe your setup assumes high volatility and is just not working at its best in ranging markets. Your subconscious mind is extremely good at analyzing the markets and is signaling you just that. Of course, if the setup then works, you are frustrated not having taken it, at the same time ignoring the last 5 trades, where the setup worked just so or actually failed, but you still assumed that being do to the normal P/L% ratio of your system, when in reality it was caused by a market sentiment shift, you haven't acknowledged yet.
Try to deal with your Should have’s .. in a positive way. This will respect the parts of your mind, which are having problems with your current course of action and prevent them with interfering in your trading in the most unexpected way. Eg by flooding you with panic feelings, when a real cool head is actually needed. And it will actually help you in your trading, as it is always a good thing to be able to argue the reasons for your trade at any time.
If Should have’s … pop up in your head while in a trade, look at the position in an objective way, try to see it as a position your best trading buddy just told you about and he/she asked you, what you would do with that position.
After a failed H&S pattern on the daily down to the 240min timelevels the Euro moved into a sideways consolidation pattern holding above the neckline, but below the shoulders of said H&S pattern. We can see some important uptrend lines on the Euro, the first one has been broken a few days ago, the lower one coming into play now, but leaving the Euro still a lot of room.
On that 960min chart you can see where we stand right now. Yesterday we broke down finally, but that reversal we see right now leaves me questioning my decision to go 3/4 into the USD with my account at the 1.39 level. Retaking the 1.40 level will get me back into the Euro in the account. We might see another week or two of holding patterns in the Euro, but then that second uptrend line comes really into play and will decide whether we go higher or not.
It is frustratingly slow, it is a calm way of trading, sometimes I do just one trade a day, sometimes I do none, sometimes I do 3 or 4 trades, I stop when I made my target. I miss a lot of moves, and sometimes I feel I should press on, but then I remind myself, that it doesn't work that way.
Think about it this way: Over time you can fairly well define the win/loss ratio of your personal trade system. Now this win/loss ratio will not tell you, if the next trade will be a winner or loser, and actually even if all trades are independent, that win/loss ratio will be fairly accurate over a bigger number of trades. It will be also fairly accurate over a number of trades within the day.
So does it make a difference to start the day with a winning or loosing trade?
Knowing that each trade is independent, obviously NO.
Knowing that during the day my personal win/loss ratio will kick in, absolutely Yes!
If I start with a winner and make or exceed my daily goal...I stop
If I start with a winner and don't make my daily goal... I continue. If the next trade makes or exceeds my daily goal, I stop.
If I still did not make my daily goal, I consider stopping for the day.
The least I do is take a walk with my dogs and switch contracts. Why: Because my daily goal is quite small and I can make it with one or two trades. So if I don't make it, my approach to the markets is wrong today.
If I start with a loser...I continue
If I have a second loser in a row, I'm out of sync for the day and I stop
I might even stop for another whole day, just watching the markets that day, to get back in sync.
If on the other hand that second trade is a winner...I continue. My personal win/loss ratio based on number of trades (not profits) is 58% winner, 22% breakeven and 20% looser, so the second trade being a winner is consistent with my personal w/l ratio encouraging me to continue.
This approach to the markets gives me a lot of time to do other things...I like it!
And I like the way my account is doing if I follow this approach to the markets.
Yes I miss the fun of trading more frequently during the day. Actually its boring at times.
But I noticed one thing: The personal win/loss ratio shifts during the month, if you follow this approach. I wasn't able to change my personal w/l ratio for 5 years. Taking this approach I have.
If we stay above that rising support line, I expect a real big move up in the next few days or weeks. if not, next support on the downside is 1.3736 and 1.3440.