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.


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.



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!