Mastery

The current Mastery course is proving to be a gold mine of information.

Participation was only by invitation  – perhaps that accounts for the fact that the commitment to succeed is so high among the attendees. That’s not to say that the commitment is uniform – in any group, there will be those with a higher drive to succeed than the others. But, it is to say, that as a group, the commitment is higher than most.

Perhaps I should take a step back and outline the purpose of the course. Mastery assumes you have integrated the basic knowledge for trading success: you have a method with a positive expectancy, you keep your journals, you apply ACT so as to remain calm enough to allow your neocortex to manage the fight, flight or fear response, you execute your risk management and method rules with a high degree of consistency, etc., etc.

Mastery assumes you have integrated the basic knowledge for trading success:

  • you have a method with a positive expectancy,
  • you keep your journals,
  • you apply ACT so as to remain calm enough to allow your neocortex to manage the fight, flight or fear response,
  • you execute your risk management and method rules with a high degree of consistency, etc., etc.

Its objective is to move to the next level of discretionary rule-based trading: rather than see the chart as a series of individual patterns & processes; traders start to see the whole picture, they start to see what is important, in this instance, and what is not.

Think of the as a course designed to produce chess grandmasters. They scour the board and see the patterns that are developing rather than merely seeing individual tactics.

What I’ve found with my group is while they are competent in seeing trading as a single pattern e.g. they see a Spring Change in Trend Pattern, they aren’t quite there when it comes to seeing the whole picture e.g. why in this case, the pattern is likely to fail.

BUT, the fab thing is I am seeing such rapid improvement that it has made the endeavour well worthwhile. In the process, I’ve been taught what works and what doesn’t. The course has certainly put paid to the idea that you can become a master by attending a tw0-day or three-day seminar.

The course has certainly put paid to the idea that you can become a master by attending a tw0-day or three-day seminar. The attendance is but a start. After the seminar, you need to put in the work – first attain competence, and then to seek Mastery.

So where are you at? Beginner, Competent, Master? And what are you going to do to get to the next level?

“Trading A Fundamental Event”

BarroMetrics Views: “Trading A Fundamental Event.”

Yesterday I posted a video about how to trade a setup I call ‘Trading A Fundamental Event’. The conditions are:

  1. There is a fundamental event capable of moving markets strongly in one direction e.g. Britexit
  2. The trader perceives that the market has mispriced the odds of a variation of the event e.g. the probability of a Britexit.
  3. The mispriced variation occurs.

In the video, I took the view that the polls and betting had mispriced either:

  • A Le Penn victory where she secured at least 40% of the vote, and
  • A Le Penn, Melenchon victory.

As it has turned out, I was wrong. The polls got it right; the May 7 run-off will be between will be between Macron and Le Penn (24%and 22% on votes cast as at 1:13 am BST).

The expected result produced a gap on the EUR and risk-taking currencies of around 200 pips.  A gap because the results started coming out while the FX markets were closed.

As far as my trading is concerned, no gain, no loss. I did not get the scenario I needed to trigger a trade. To round off the series, we’ll be producing another video on May 7. But, you will need to leave your contact details to received the follow-up.

BarroMetrics in Action: The French Election

We created the video for some students. Then we decided to share it with you.

Trading the French Election

The usual disclaimer: The video is for educational purposes only.  All care and no liability so far as we are concerned.

The polls close 2:00 am (HK). We should start seeing some exit polls results by 4:00 am (HK). Official results are due at 11:00 a.m. But, we should have unofficial results by 6:00 am (HK).

The French Elections and You 2

BarroMetrics Views: The French Elections and You 2

What’s the worst that can happen when the election results are in – at least so far as the EC is concerned (as well as the EUR crosses)?

Melenchon and Le Pen being the only contenders for the May 7 run-off.

The second worst?

Le Pen securing a vote in the high 40s against either against Macron or Fillon.

The best?

Outright victory for Macron by his securing over 50% of the vote. 

I doubt if we’ll see any of the above results.

The polls are suggesting a Macron-Le Penn face-off on May 7. But, let me throw in a spanner. The momentum of Melenchon has been so strong, I would not be surprised to see him figure in the results.

It seems to me anything but a strong Macron showing will cause a drop in the EU crosses. And, given the doubt about the turnout and the terrorist attack in Paris on Friday, I rate a strong Le Pen win more likely than a Macron.

So, how to take advantage of this view?

I don’t normally trade the CHF. But, I will on this occasion – mainly because of the Swiss decision on immigration will serve the CHF well.  Moreover, the long-term chart of the EURCHF shows the strong downtrend that lately has seen only dead cat bounces (Figure 1).

Figure 2 shows a clearer 18-day swing picture.  Acceptance below 1.063 will probably see a test of the 1.0305 to 1.0238 zone. That would be my target for this move down – if we see it happen.

FIGURE 1 12-m EURCHF

FIGURE 2 18-d EURCHF

The French Elections and You

BarroMetrics Views: The French Elections and You

To understand the impact of the French elections on the US and thus the other parts of the world, we need only compare US-EU trade relations.

Here’s how European Commission describes the US-EU trade picture:

  • Total US investment in the EU is three times higher than in all of Asia.
    EU investment in the US is around eight times the amount of EU investment in India and China together.
  • EU and US investments are the real drivers of the transatlantic relationship, contributing to growth and jobs on both sides of the Atlantic. It is estimated that a third of the trade across the Atlantic actually consists of intra-company transfers.
  • The transatlantic relationship also defines the shape of the global economy as a whole. Either the EU or the US is the largest trade and investment partner for almost all other countries in the global economy.
  • The EU and the US economies account together for about half the entire world GDP and for nearly a third of world trade flows.

So, any disruption to the US-EU trade would be significant at any time but especially now as both grapple with the effects of barely reviving economies.

With that in mind, let’s have a look at the candidates for April 23 and the process for determining who will go into the second round on May 7. The percentage after the name is the latest poll result from PresoTrack OpinionWay (Margin of error is 2.2%).

  1. Emmanuel Macron 23% (remain in EU)
  2. Marine LePen 22% (exit EU and freeze Immigration)
  3. Francois Fillon 20% (remain EU)
  4. Jean-Luc Melenchon 19% (but has seen a huge surge in past few weeks) (renegotiate EU and if renegotiation is unsuccessful, withdraw EU).

If no candidate wins 50% of the vote, then the two top contenders will run-off on May 7. I have been unable to determine what would happen if two of the contenders tie on Sunday. For example: LePen 25%, Macron 24%, Melenchon 24%.

I give little chance that Fillon will overcome his scandal taint. I believe Melenchon’s recent momentum provides him with an opportunity of challenging Macron and LePen.

The polls suggest that LePen will win the first round and lose the second, irrespective of whoever is her challenger: Macron will win with 64% of the vote and Fillon will win with 58% of the vote. Against Melenchon: “According to the polls, he beats her by a greater margin than François Fillon but a smaller one than Emmanuel Macron.”

The wild card in the mix is voter turnout. It’s expected to be a record low, but from all reports, Le Pen has a motivated base (akin to Trump). If the voters (for all candidates) turn up in the numbers expected, I do see a Le Pen victory.

I’ll finish this tomorrow. Yes, I know it’s Saturday. Still, I’d like to get in my two-cents in before Sunday’s election although we probably won’t know the results until Monday afternoon (HK time).

 

 

Why We Fail 3 – Putting It All Together 2

BarrosMetrics Views:  Why We Fail 3 – Putting It All Together 2

So, we’ve identified the traits we need. The key takeaway from the “Why We Fail 3 – Putting It All Together” is to behave in a manner consistent with the traits.

The next step is a two-fold process:

  1. Formulate a vision of what success means to us. Break the vision down into its component steps and identify what is needed to attain those steps.
  2. Survey our current reality to discover the gap between what is needed and what we have.
  3. Implement a plan of action to fill the gaps.

In implementing the plan of action, we use the skill-sets required to bring our vision into reality. This necessarily includes taking the nature of trading into account – in particular knowing that our focus has to be on the process rather than the outcome of any single trade. The outcome needs to measured over a large sample size else we mistake luck for competence.

Trading success is not easy. We can do all the ‘right’ things and still suffer drawdown periods.. On the flip side, it’s the most rewarding profession in the world. Success or failure is totally within our control, and it’s the only profession where the majority of the competitors are actively contributing to our profits. For me, it’s worth whatever effort it takes to be a success.

 

Why We Fail 3 – Putting It All Together

BarroMetrics Views: Why We Fail – Putting It All Together

In Why We Fail and Why We Fail 2, I outlined why trading creates, more than any other profession, failures and the qualities as well as the skill sets we need to become successful. Here, I’ll draw the strands together to create a model for success.

We start with the need for the commitment to do whatever it takes, add the willingness to move outside our comfort zone, and finally, have the integrity and self-honesty needed. Included in the three is the resilience to bounce back from the inevitable drawdown periods.

Too many start trading without appreciating that without these qualities no amount of knowledge will allow them to succeed. This was recently brought home when I again met John at my recent gig in Singapore.

John had attended one of my courses. His story was a familiar one: trading off his mobile, he bought when the 5-minute chart was up and sold when it was done. In the process, he lost over $100,000. For a while, after completing the course, John would attend all the free presentations I give in Singapore. I used to think that it was his way of supporting me for the extra guidance I had extended.

Perhaps…

I say ‘perhaps’ because it so happened that I also met a mutual acquaintance at the recent Singapore event. It turns out John had long abandoned the lessons of the seminar and had returned to his old way of trading and to his old way of losing tons of money.

He reminds me of another trader I met at an event held (many, many moons ago) by a broker for his most active clients. The gentlemen had been in serious drawdown mode since opening the account (high six figures). In our after event festivities we had this conversation:

“Do you think you can help me make money?” he asked

“What do you think needs changing?” I replied.

“Nothing. I just need my trading to become profitable.”

So I asked: “Let’s see if I have this right.

  • You don’t want to change what you are doing.
  • What you are doing is leading to losses. And
  • You’d like me to change the outcome of your ‘doing’ so it becomes profitable?”

Incredible isn’t it? Yet that’s how many unprofitable seem to think. They are unwilling to move outside their comfort zone and make the changes that may lead to a different result. And, the commitment to keep making the changes they need to make until they achieve success. In the process, they will need to invest time, effort and money. In the process, they kid themselves that they are doing what they need to do to succeed.

The same points are made in Mike Bellafiore‘s “One Good Trade“. Mike’s SMB is one of the premier prop trading houses in the US. He also runs SMBU, a training program for budding intra-day prop traders. I do have an alterior motive for mentioning Mike’s book. I was reading it last night and on page 97, he recommends ten blog sites from which newbie traders can find value. This site was among them.

More tomorrow

 

 

 

Why We Fail 2

BarroMetrics Views: Why We Fail 2

  • and how to succeed!

Without a doubt, failure is a precursor to success. I don’t know anyone who has not failed first before succeeding. But, that does not mean we’ll succeed just because we fail. If that were true, then the success rate would be over 90% rather than the reverse.

To make failure a part of the success process we need to learn from our failures. And this learning or lack of it is the key ingredient that separates the 90% (unprofitable) from the 10% (profitable).

So, what do we need to have to be willing to learn?

Well, there are three values that are critical:

  • The commitment to do whatever it takes – time, effort and money. This value necessarily encompasses
  • The willingness to move outside our comfort zone.
  • Integrity and honesty with ourselves. By integrity, I mean keeping the promises we make with ourselves; by honesty, I mean not consciously faking reality.

We’d also need some skill sets:

Tomorrow I’ll put it all together

 

Why We Fail

BarroMetrics Views: Why We Fail

Ninety percent, perhaps more, of traders fail to produce a consistent profit.

Since I formed a goal to turn this dismal statistic around (well, at least to improve it), ‘why’ it should be so, has fascinated me.

Sure like any profession, law, medicine, architecture, etc., trading success requires an education; then we need to turn that education into a skill-set.

On the other hand, the knowledge required for trading competence is relatively small when compared to other professions. It’d be impossible to acquire the knowledge we need, for example, for law, in less than four years. Acquisition of trading knowledge, on the other hand, is possible within a 6-month window.

So what’s different for trading?

I think part of the problem lies in the nature of trading. More than any other profession, its results, on a trade-by-trade basis, are totally random.

This means ……….

You may not know anything about trading, but, you may still make money – if luck favours you. Indeed, you can make a lot of money if luck favours you, because luck may bestow herself on more than one trade; you may enjoy her blessings on a series of trades!

But, of course, luck eventually leaves. The newbie, misinterpreting luck for competence perseveres and, in the process, returns all the profits and more. I went down the road often enough in my early years to know its truth.

Another part of the problem lies in the educational environment.

Imagine an ad for a law degree that promises to turn you into a Perry Mason instantly. It’s unlikely that it would be very successful.

But ads promising instant success – instantly turning “a few dollars to mega dollars all because of System z” – abound.  I assume they abound because we buy them in enough quantities to encourage continuation of the tripe. Now add to that the fact blurbs, promising hard work in return for success, seem to be less successful in attracting students. The effect of the education is we have newbies trading a method which even if strictly followed, has no chance of making money over a large sample size.

The final problem lies with a lack of appreciation that to succeed traders need to be adequately capitalised. In a sense, this is an issue of knowledge: what capital ought we start with to give us the best chance of success?

Nowadays in my part of the world, the matter is not such a great hurdle.

Capitalization is a function of our trading stats and the volatility of the instrument or asset class we are trading. Since we don’t have the necessary stats when we first start, we make do with ‘volatility’.

One of the better formulas available is the Turtle’s formula:

($ value of % Capital to risk)/($ Value of the 14-period Average True Range).

The formula does not quite eliminate the need for personal stats because the % of Capital to risk is dependent on our results. Still, based on experience, a risk of 1% to 2% per trade would be sound.

With that info in hand, let’s see what capital we’d need to trade one contract in the e-mini:

  • ATR:                                           19
  • Point value:                         $ 250.00
  • 2% risk:                             $ 2375.00
  • Capital required:             $475,00.00 (!!)

I wonder how many trading the e-mini have that sort of capital?

I said ‘adequate capital’ is not such an issue in this part of the world. The reason is we don’t have to trade futures, we can trade CFDs. And, the regulatory environment is such that traders receive as much protection (if not more) as futures traders in the US and UK.

Essentially, what CFDs do is allow traders to trade smaller size.

A survey of CFD brokers shows contract sizes ranging from $1.00 per point to $5.00 per point. At 1.00 per point, we’d need USD 950.00 per contract, at $5.00, we’d need USD 4,500.00 per contract. The amounts are within the purview of the newbie.

(The Turtles Formula would not be the only factor limiting position size, we’d also have to consider the margin dictated by the regulators and the brokerage house).

More tomorrow……..