Friday, July 03, 2009

Shift in sentiment

It's some time I published an article. Not due to lack of trading, but due to a shift in sentiment and approach to the markets. A study of my approach to the markets showed me something very clear:
  • The time I force it, I lose.
  • The time I become confident, I become careless and I lose.
  • The time I take one small step after the other, I win.

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!

Which means:
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.

It might also have to do with my new trading system, I wrote about in my previous articles. So to give you another glimpse at what I'm following now, take a look at this Euro 240min chartGlobetrader_21

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.

3 comments:

Brad said...

Well said. Smallball always seems to work the best because you keep feeling positive and confident while hanging around for those occasional outliers.

David-G said...

Hi Chris,

I entirely agree, based on my own trading, that small steps and fewer trades per day often = a far better outcome than doing many trades each day. And as you say it leaves a lot more time to do other things as well.

Going for an achievable daily target is also highly sensible, at least so I believe.

Another great article Chris, thanks yet again.

Cheers,

David_uk

forex said...

It's true.Very well said that starting a small step can bring you to a higher success. It's a very risky to get involve into a trading process but making sure of this activity even a less trades can give you a better outcome.

a greater achievement,indeed!