Tag: SMP

Here is what happened in the markets this morning.

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C) The Sense of Having a Quota

This is most definitely one of the biggest factors in what causes me to switch from being precise and patient to being a loose cannon. I feel as though I have to pull some pips, often lowering standards for trading habits in hope of getting lucky and getting a few pips. This is by far most noticeable after losses. After I have lost, I feel as though I need to “get my pips back,” which most of the time leads to losing more pips. This is a variation of that sense that there is a quota to be met, or a target that I need to reach.

This “quota mentality” ties in to the “target mentality” that I have been working on lately. It seems that in the same way I can set a pip target while in a trade, and often ride it negative while waiting for price to reach my target, I can also have a pip target for the day, or some idea that there is a number of pips that I should end up with. Such targets or quotas can be dangerous if we treat them as a minimum that we must reach. One thing that helps me be consistently profitable in trades is the idea that the target should be treated more like a maximum. I think this mindset can be applied to the issue of having a daily or momentary quota also, so that I look at my quota for the day as a maximum, with the minimum being dependent on opportunity.

Regarding this issue as it relates to losses, I believe that I need to just learn to be okay with losses. Most of the time this is not an issue, but when I am not closely monitoring my emotions, that sense that I need to get my pips back can creep in, and lead to all sorts of ugly trades. I haven’t thought of a name for this yet, but it is the close relative of the Big Bad FOMO Monster. I need to keep in mind that having some pips and losing them does not mean that I have to get them back, most of the time this ends badly, and leads to out of control desperation trading.

I have noticed these problems at high news events, which often times seem harder to trade, perhaps due to the fact that emotion can quickly take over. I’ve had a couple of bad high news days that have gone something like this: I get in based on FOMO, I get stopped out once or twice, then I get back in because I am frustrated by the fact that I am losing money instead of getting paid like we are all “supposed to” on high news days. Then I make another trade or two, all within a few minutes, trading both ways, with no clear directional bias, or complete disregard for bias if I had actually established one. Then I leave even more frustrated than I already was, with the question, “What just happened?” resounding in my mind. These are the kinds of days that I want to avoid.

 

Some good habits to avoid the quota or target mentality:

  1. Look at any target, quota, or variation thereof as maximum, and not something that must be reached at all costs, and do not disregard risk for the sake of a quota.
  2. Welcome losses as the price of doing business, view them as a piece of the puzzle in my trading career, do not become emotional from losses, they are normal and should be expected. It is my job as a trader to limit them however, which means that I need to be in control and constantly observe my emotions.
  3. Exercise extreme caution during high news events.
  4. Get comfortable with smaller profits in each trade, for each day, and even for the week. Try to take some 10s in each trade, or for the day, and remember that all I need is 35-40 pips per week

 

Conclusion

Most everything in trading ties together, and the product of all of these aspects of my personality, style, and habits defines who I am as a trader. All of these rules or habits to help me stay on course do not work by themselves, so focusing too much on one rule may lead to oversight in other aspects of trading. These good habits have a synergistic effect, producing exponentially better results when combined. I must learn to ingrain all of these habits into my identity as a trader in order to succeed and become a consistent, disciplined and profitable trader. I am confident that with time, and constant introspection I will be able to do this.

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Editor’s Note: Fx365i student Chris Gibson was kind enough to share some excellent insights  from his trading journal.  This is the first in a two part series.

The Issue

Sometimes when I trade, I find myself switching from being very conservative and controlled to being very reckless and out of control. I get desperate for pips and lose sight of the value of conservatism in the number, frequency and style of trades. This typically leads to taking too many trades, taking trades too often, and taking lower probability trades. Trades like this are often based on nothing but emotion. Most of the time the main problem here is that I take too many trades.

Why does this happen?

A) Desperation mindset kicks in

B) Defense is forgotten in the name of offense

C) The feeling that there is a quota to be met for the day

 

Understanding these issues

All of these issues tie together, but to get a better understanding of all of them, I want to focus on them individually.

A) Desperation Mindset

I sometimes become desperate for pips. I become overwhelmed with a desire to get pips, to the point of becoming blind to the fact that there is no room for recklessness in trading. I feel like this is based in ego, and the desire to succeed. It is very important that I keep the consequences of this in the forefront of my mind. There needs to be a clear understanding of cause and effect, of actions and consequences, because the truth is, that the very thing I think I need to do to get pips for the day is going to be the thing that can result in me being down 20-30 for the day (this amount is 50-75% of my weekly goal in the wrong direction!). I must always remember that if I choose to trade in a desperation mindset, it can almost be guaranteed that it will end terribly.

There is much to be said about the need to keep your cool when trading, and not trade based on emotion, the type of trading that desperate trading exemplifies. I think the solution to desperate trading is broad, since the idea is rather nebulous, but some good habits to form would be:

  1. Keep in mind the consequences of foolish trading, and the value of wise trading
  2. Take a break (or better yet stop trading) when I feel myself becoming emotional
  3. Exercise discipline in limiting trades
  4. Value discipline over pips
  5. Remember that there are always more trades
  6. Remember that less is more

 

B) Forgetting Defense In the Name of Offense

One thing that I have found important as I have been learning to trade forex is the value of a good defense. Offense is important of course, because I would get nowhere without it, I would have no pips if I had never made an offensive move to take a trade. Despite this fact, I think that it is more important to focus on defense of pips that I already have than to focus on getting more, and not allow my desire for more pips to leave me with less than I had to begin with.

The whole idea of defense in trading forex is kind of funny because no one is coming out to get you, you are safe behind your screen as long as you are careful with your trades, but as soon as you enter a trade, you have made a very serious decision to expose yourself to the risks of the market. So then, it is not necessarily the market I have to defend against, since I am the one who is clicking the rate indicator. The real fear should be of myself. This is who I need to defend against, this is the enemy. He is the one who takes my pips. The portion of my being who exposes myself, my money, and my emotions to all kinds undesirable things, this is who I need to watch out for. There is an expression: “the best defense is a good offense,” But the opposite is true in trading; the best offense is a good defense, and if I defend against my own tendency to become sloppy and careless in my trading habits, I have a great chance of being consistently profitable in trades.

 

Some good habits to form so that I can keep my defense strong:

  1. Take each trade seriously: Would I take this trade if I were trading $100 pips?
  2. Recognize the risk of each trade.
  3. Remember that my desire for more pips could lead me away from my goals if I’m not careful.
  4. Call it a day at the very first reckless trade, it is too easy to lose and make a couple more reckless trades after the first, especially if I lose a lot of pips early on.
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Goals are like leaders. Everyone knows they can be powerful parts of success, but because the term is used in such broad ways, vagueness can surround the term. Have you ever heard a one word definition of leader? John Maxwell says leadership is simply “influence.” This may not be a sufficient definition for some, but for me it was very clarifying. I’d like to share a similar epiphany I had when I thought deeply about goals.

Let’s start with a few semantics. To become financially free is what many people would consider to be a “goal” in life. It’s not mine. I want to become financially free so that my wife can stay at home with the kids, I can pursue my desire to coach full-time, and we can live a lifestyle that supports health, happiness and peace.  These are huge motivating forces in my life.  They are what get me excited and help me persevere through hard times. But they describe my dream… not my goal.

What is the difference?

I want my goals to be something over which I have complete control. So my one word definition for goals is “steps.” Maybe it’s my competitive nature or my competitive nurture growing up in sports, but I like there to be a winner and a loser…a yes or a no…did I accomplish the goal or didn’t I? I typically ask my teams, “What are your goals for the season?” Many times they’ll say, “To go undefeated.” Then they lose the first game. Does that make them failures? Should they quit improving and stop trying because their goal can’t be realized? Sounds preposterous, but I’ve seen it happen all too often.

So their understanding of goals (or lack of understanding) actually prevented growth. They didn’t have complete control over their goal. They had no idea if the goal was attainable because they  couldn’t control how good their opponents were that season, who was going to get a season ending injury, etc. So why not call it a dream, not a goal, so it still has the purpose of motivation but doesn’t make you a failure if you don’t reach it? And here it is…the “certain aspect” that was so helpful to me in having goals play a meaningful part of success in my life: It is the fact that my goals are process oriented and not outcome oriented. Processes are actions by me that I can control.

The processes may be difficult for me to accomplish, but that is OK because they are completely within my control. Outcomes are not always in my control. For example: My goal is NOT 50 pips a week. That is where I want to be, but right now I don’t have the skill to accomplish it. So my goal for the week is to make all of my entries with a physical risk out. Because I don’t always recognize good entries or exits, because I don’t always measure from the right spot, because I trade emotionally, I don’t have 50 pips a week as my goal. But 50 pips will be an outcome of my behavior.

So if I’m going to improve my outcomes, I must improve my behavior as a trader. I must do things (take actions) that will improve my chances of positive outcomes. A high level trader, Billy Himan, looked at my screenshots and made the recommendation “never take a trade without a physical risk out.” So that has been my goal in the last 4 weeks. My trading has improved vastly. Only one of those weeks did I reach 50 pips, but I felt successful every week because I reached my goal and saw improvement. I am closer to my dream which is a great feeling! An addicting feeling actually.

And it was that simple goal or “step” that caused growth.

If you’re a new student don’t make your goal to get 10 pips this week. That is an outcome that you don’t have complete control over.  You don’t have the skill to do that yet. You may get lucky and get 50 pips, but that doesn’t make you a better trader or get you closer to your dream. Instead, make your goal, “I’m going to ask two questions of the instructor every day this week.” Or, “I’m going to see if I can sit and watch the market for one whole session and NOT make a single trade.” Or, “I’m going to get to the classroom three times this week.” These were all goals for me because even though they were difficult for me as a new student they were completely within my control.

For some of you more experienced traders you know that 50 pips a week is a great goal for you because you know the process you need to follow to get that goal. I would still make the case that you should make other goals that focus on the process itself. My guarantee is not that you will gain more pips this month but that you will learn and grow – so that dream of yours will become a reality much sooner.

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One of the rules I have for entering a trade is, “I understand the set up for the trade that I am about to enter.”  Despite this rule, I realize that I have never taken the time to actually write down exactly what those trade set-ups and entries look like on the SMP platform.  Wow, that’s pretty shocking.  How have I not done this yet?  I should be doing this on an ongoing basis.  So that settles it: my mission over the coming days and weeks is to specifically write, diagram, and (hopefully!) screen-shot successful trades that exemplify exactly what I’m looking for in trades.  My hope and belief is that as I write out more and more of these set-ups, I will recognize them better when I see them, I will stay OUT of trades that don’t fit the criteria, my approach towards each of the trades will be refined, and my overall trading will improve dramatically.  Today I am just going to start with one very simple trade.

Disclaimer: This blog only represents my opinion.  Although my opinions are based on what I have learned at Fx365i, none of this necessarily represents the official views of the institute.

Bounce Off Average Price:

  • Entry:
    • When this trade works out, it can lead to awesome trades.  Very simply, if price has moved significantly away from an accumulation area and then reaches a larger average price line, if it appears to be bouncing cleanly off that average price, I believe you must GET IN QUICKLY!
    • If you wait too long, and the bounce is aggressive, then all of a sudden there are 15 or 20 pips of risk.  To use our bus stop analogy, if you get on quickly, you’re along for the ride.  If you wait too long, you’re either a) going to take a big dumb risk and try and jump on the back bumper of the bus (chase the trade), or b) get left at the bus stop sucking fumes as the bus takes off.
    • One key to entering this trade is keeping up with measuring.  It is not every day that we see a perfect 90 pips between the dot on the hour that price just rotated off and an average price line.  More frequently, we will be somewhere in the 90 pip ballpark.  Maybe we’ve only run about 82-85 from the dot, but if you measure from the high to the average price, it’s 108 pips.
    • As such, I believe that once we’ve run 90’ish pips and are possibly getting an exact bounce off average price, you can’t hesitate to get in.  The worst case scenario is to take a small negative (stop should be no more than roughly a pip off average price).  If you have 5 pips of risk vs a 30 pip profit target, that’s an outstanding 6:1 ratio.  On top of that, a clean bounce off average price can often result in a much larger run, so you may even have better than a 6:1 ratio.  Pretty awesome!
  • Exit:
    • I’m trying to refine my technique for when to exit this trade.  The image above is shows a trade I was in recently where I got solid entry off average price.  I got in 4 pips from the bottom (which was exactly at average price).  My current rule is that if it doesn’t give me a strong initial bounce, then if I see a small positive, I’m getting out.  On that trade, I took a +5 because price did not move much for the first couple of minutes after I entered the trade. Then, on the same 5 minute candle, the trade ran 20+ pips.  After an 11 pip breath to begin the next candle, price pushed up to the point where I could have taken a 40+ pip trade (in less than 10 minutes) based on my entry.
    • One reason I got out quickly on this trade was because we had already tested that same daily average price 1 day earlier.  This made me believe we might be ready to blow through it this time.
  • Refinement:
    • One reason why I’m somewhat willing to get out with these small positives is I’m concerned about the market just taking a minuscule breath and then smashing hard through average price before breathing back.
    • On one hand, I need to realize that if we have run 90 and are now hitting a significant average price, there is a great chance we will see at least a 30 pip breath. As I mentioned earlier, a 6:1 or better reward to risk ratio is incredible.
    • On the flip side, from an overall money management viewpoint, if I end up taking a fair number of +5’s along with a few -5’s – and put those together with the occasional +30 or more, that’s a long-term winning recipe.
    • I have to admit though, it’s really stinks to get out of a trade just to watch it run straight to my profit target 30 or 60 pips away when I hadexcellent entry into the trade.
    • I’m trying to decide whether it’s better to a) play it more conservatively by taking the little +5’s and dealing with the risk that I’m about watch the market run 60 pips in my direction, or b) be more aggressive and let the trades play out while sticking my stop right under the average price so that I KNOW that I was wrong in the trade. I would take more negatives, but I would also see more 20+ pip trades.  I’m really torn on figuring out which way to play this.

Well, “Bounce off Average Price” is the first trade I have mapped out like this.  Hopefully there will be several more to come over the coming weeks.  As always, all traders’ thoughts and comments are tremendously appreciated.  Please feel free to contact me at pipaddict73@gmail.com – I’d love to hear from you.

 

-Cyrus Sidhwa

Fx365i Student

Smart Money Profile Trader

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