Solution to Impulsive Trades? II

BarroMetrics Views: Solution to Impulsive Trades? II

I’m still battling jet lag and now have a touch of the flu. So, today I’ll be brief.

When preparing for your trading, you reduce the chances of impulsive trades by being as specific as possible. For example in the AUDUSD Currency Strength Meter chart in Solution to Impulsive Trades?, the AUD could:

  • Form a bearish conviction bar down – suggesting downside continuation.
  • Form a bullish conviction up – suggesting upside continuation.

The two possibilities form the boundaries of the price action. That’s not to say either will occur; but by setting the boundaries we have anchor points by which to judge the subsequent price action.

For example, Figure 1 shows yesterday’s price action in the AUDUSD. The bar is bullish, but the range us below normal. So, I’d see that as suggesting more upside today that needs to attract buying as evidenced by at least a 75-point range with bullish form.

I’d be wrong if we saw a bearish bar today.  Anything in-between we’d have to assess at the end of the day.

So, how do we use the info? Use is limited only by our imagination. For example, if we went short on Friday, assessing the price action as bullish will allow us to exit before the stop is hit. If we went long on Friday, we could look to tighten out trailing stop and so on.

The point is creating detail specific scenarios inhibits impulsive trading; and the more you do it, the more accurate you become in assessing the day’s bar.

2016-08-23_19-20-09 AUDUSD 01

FIGURE 1 AUDUSD Daily

 

 

 

Solution to Impulsive Trades?

BarroMetrics Views: Solution to Impulsive Trades?

One of the most common refrains from traders is: “I lose money because I take impulsive trades. If only I kept to my plan, I’d make money!”

The implication is ‘I have to fix my psychology’. 

Sometimes this is true – there is a limiting belief that needs to reframing. I have found that most times, however, the solution is far simpler. By that I mean the trader fails to describe precisely:

  • The conditions that will trigger the trade.  And,
  • The conditions that will keep the trader in the trade.

Last week, I set Figure 1 as part of UIII’s preparation for the week.

Here’s the context to the assignment. UIII FX traders are asked to sell the weak currencies and buy the strong ones. Why? Because such pairs produce the biggest bang for the investment dollar. I have found two configurations produce the best results:

  1. At the start of a trending move – the corollary: when congestion has likely ended; and
  2. At the start of a parabolic move.

UIII’s who replied to the assignment took the for either:

  • The attached reply or
  • The AUDUSD is in congestion and accordingly, will look elsewhere for a strong or weak pair.

What do you think? I’ll post my assessment tomorrow.

2016-08-22 CSM AUDUSD

FIGURE 1 AUD CSM

2016-08-22_09-50-22 GB HW

FIGURE 2 Sample Work

Choice Commitment & Consistency

BarroMetrics Views: Choice Commitment & Consistency

We all want to move from non-profitable to profitable, from profitable to even more profitable. To do that we need to acquire the necessary knowledge and then transform that knowledge into a skill.

The problem with trading is that on a trade-by-trade basis, we produce random results. For this reason, newbies often confuse being lucky with being competent. “Hey, if just turned $10k into $100k, how can you tell me that I have just been lucky“?

As a result, most of the 90% who fail at trading don’t even try to acquire the necessary knowledge.

Those that do seek it are met with the challenge that many of the ‘educators’ promise ‘get rich schemes’ that have no chance of long-term success. The courses pander to our human insecurities promising ‘no loss’ trading, ‘instant success’ and so on.

As a result, many an aspiring new trader loses heart or his capital. He’s tried so many courses with little success! 

The remaining hardy bunch continue to pursue their dream They finally find a program (or coach), that their research shows, is genuine. The knowledge is there – all they have to do, to succeed, is learn it, apply it and internalise it.

But, learn, apply and internalise,  is difficult. And here they face the most difficult challenge.

Usually,  for the hardy bunch, learning is not a problem – they do this quite readily. No, learning is not the challenge – making the commitment and choices to act consistently in a way that turns the knowledge into a skill is the challenge.

Let me give you an example of what I mean.

Research shows deliberative practice is the most effective and efficient way to master a skill. For Ultimate III students, a request was made in early August for at least one hour per week of practice. We are meeting in the last week of August – I wonder how many will have put in at least four hours. I suspect not too many (if any at all). I am curious to hear the excuses.

Going into the benefits of deliberative practice is beyond the scope of this blog. But, it’s not hard to figure out. I’ll leave it with you to work it our for yourselves.

Les Meehan

BarroMetrics Views: Les Meehan

I am still struggling with jet lag. I guess it’s a function of age – takes longer to get back to normal.

I’ll be setting up a more structured program for the blog:

  • Monday and Tuesday, I’ll focus on material aimed at assisting traders.
  • Wednesday and Thursday, I’ll focus on market commentary.
  • Friday will be a ‘free-for-all’.

In the spirit of the new format, here is the rego page to the podcast I promised last week (Execute Plan)

We had a few technical difficulties, so there is no video, only sound. Still, there is worthwhile information in the 20-minute interview.

Here is the link:

http://www.barrometrics.com/webinar-keep-me-informed/

You will need to register – we’d like to know who are accessing the podcasts.

Execute Plan

BarroMetrics Views: Execute Plan

John dropped me a line asking: “I have problems entering according to my plan. I pull the trigger either too late or too early!”.

Interestingly, the problem is not an uncommon one. I am seeing it repeated in the current crop of Ultimate students.

My advice:

Firstly, make sure you do have a problem and are not merely falling prey to hindsight bias i.e. ‘too late or too early’ is defined by what the market did after you entered.

Secondly, if you are not executing as planned, take steps to define clearly what has to happen to enter a trade. For example, the statement below would be inadequate. :

I’ll enter at my buy zone when I see a bullish conviction bar

Better would be:

I’ll enter after the market hits my buy zone, 1.3500 to 1.3510 at the close of a     30-minute bullish conviction bar. The maximum price I’ll pay is 1.3520. If the bullish bar closes above 1.3520, I’ll place a limit order at 1.3520.

If the market fails to hold 1.3500, I’ll stand aside for today and review my options for tomorrow. 

Let’s see why the latter statement is better:

  1. It defines the buy zone. So, no action is taken until the zone is hit. It also means you may miss a trade if the market gets to 1.3511 and bounces. Accept that you will miss trades because a market fails to get to your zone.
  2. It defines the entry timeframe.
  3. It provides a plan in the event the market bounces strongly off the buy zone.

The key is we define our entry conditions as clearly as possible. Once that is done, I recommend you spend a few minutes, visualising entering the market – include scenarios, where the market throws you a curve, e.g., hits the zone, closes above 1.3520 and never retraces. It’s important to accept the scenario ahead of time.

The reason we circumvent our plan is usually due to the fear of missing out – the 3Fs (flight, fight or freeze) raise their heads. Speaking of which, on Monday, August 11, we’ll be providing a link to a podcast with Les Meehan, trading psychology coach. Don’t miss listening to the interview (it’s only 15-mins long). Les is providing a special free offer – details Monday.

Also, he is conducting a webinar on Thursday, Aug 11 at 13:30 EST (that’s 1:30 Singapore time, Friday, August 12): Engineering Your Trading Mindset for Success.

Now 1:30 is a wee too early for me (at least normally) living in Hong Kong. But, if you register, you’ll be given access to a recording. Based on past webinars, it would be a worthwhile event.

Here’s the link to register: rightmindtrader.com webinar

The Newbie and The Hero’s Journey

BarroMetrics Views: The Newbie and The Hero’s Journey

Anytime a trader takes on a course like Ultimate III, I liken him to undertaking a ‘Hero’s Journey’.

Why?

Because I have found Chris Volger’s adaptation of Joseph Campbell’s work exceedingly useful – useful in helping traders become consistently profitability.

You may object that a trader seeking profitability is no hero.

I could not disagree more.

Trading is one of the hardest professions in which to acquire competency. Some may even say it is the hardest. By any definition of ‘hero’, anyone who starts in the losing column of the newbie trader and attains competency – thus becoming consistently profitable – is a hero in my book.

FIGURE 1 shows the Hero’s Inner Journey.

Most students fall into one of the first seven stages. Most are at the second and third level – and to succeed, they need to overcome the challenges of those levels.

At the start they are immediately faced with a vexing question:

  1. The increased awareness of the need to change, causes them to register for a course;
  2. The desire/need to remain within their comfort zone (usually because of FEAR of the unknown) causes a reluctance to practise the new ideas.

The conundrum was brought home sharply to me with the current registrants of Ultimate III. As a precursor to starting the course, I ask each attendee to send me a handwritten pledge. It would take all of the 10-minutes to complete the assignment.

Of the thirteen registrants:

  • Three immediately sent in the pledge.
  • Nine did so only after a couple of reminders.
  • One still has to send it in.

I was telling my partner, Peter Ow, of my fears for the success of the group: ‘If they can’t even send in a simple pledge, how will find the will power to send in their course homework?”

Peter told me: ” They’ll be fine with the homework. They have all traded, and all are familiar with the Barros Swing material.

The pledge is scary – it’s something new.”

A useful reminder to connect new ideas with that which is known – to release the stress of unfamiliar territory.

So, how about you? Are there lessons you are avoiding to learn simply because of the discomfort you feel? What would happen if you did change? Perhaps you’d become a more profitable trader?

Heros Journey Inner

FIGURE 1 Hero’s Journey – INNER

 

Why? IV

BarroMetrics Views: Why? IV

Today we take a look at Professor Oettingen’s third motivational strategy: ‘mental contrasting’ where we go back and forth between Indulging and Dwelling. This focus creates a tension that drives us to resolve – thus providing the motivation for action.

The strategy calls for two steps:

  1. A frequent use of the mental contrasting strategy; and
  2. Execution of a plan i.e. taking an action step to move towards our goals.

In Ultimate II, I set as a daily task, step 1: to mentally review the outcome of the trading goals, and to also review the traders barriers to those goals and the steps he was taking to overcome the barriers.

Simple right? The exercise would take no more than 10-minutes per day. And yet……moving the attendees to do this took the patience of Job and the creativity of Jobs (Steve). Eventually, we managed to get everyone on board.

What will be interesting to discover is how many continued once they completed the course. We are looking at some innovative ideas for Ultimate III to encourage maintenance of habits.

Here we complete the series. We started with seeking to understand the reason ‘why’ is a necessary component of trading success, and ended with a process to ensure we maintain the motivation for discipline.

Have a great weekend!

 

Why? III

BarroMetrics Views: Why? III

In yesterday’s blog, we said ‘why’ was an important motivator. The Ericson process is effective and no fun; we need a strategy to keep going. Knowing ‘why’ drives the motivation strategy.

But, just what strategy is successful in the face of hard work and the inevitable temporary failure?

Professor Gabriel Oettingen of the New York University has done some fab work in this area. She found that there are three motivational strategies, of which one is superior.

  1. The ‘Dwelling’ – the strategy of Chamine’s saboteurs: Create a sensory-specific picture of the barriers to success.
  2. The ‘Indulging’ – the strategy favoured by the success crowd: a rich sensory-specific picture of what our future would be like if we attained our goal.

Her research shows that both methods have a scientific basis.

Negative emotions (Dwelling) help drive persistence, commitment and focus; positive emotions (Indulging) lead to mental flexibility and insight (creating new connections). Unfortunately, both strategies have serious drawbacks.

  • Dwelling: Climb into this foxhole and you may have difficulty clambering out. It may lead to a ‘what’s-the-point’ mindset.
  • Indulgence: There is more than enough research to show that visualising the outcome will reduce, not increase, the motivation to succeed because the visualisation process provides the psychological reward of success. As a result, we are less inclined to produce the actual outcome.

There is a third strategy – one that enjoys the benefits of both strategies without their drawbacks: for tomorrow, guys and gals.

Why? II

BarroMetrics Views: Why? II

Ericson’s first step to mastery is to set your goal. But, this presupposes ‘why’ we want to attain the goal. So, for me, the first step to success is to ask: ‘Why this goal?’.

In trading, the answer I am usually given is ‘to make money’.  But, if you think about it, it’s never just about money. Money is a tool of exchange. We can’t sleep with it, we can’t eat it, we don’t derive social pleasure from it, etc. Money is useful for its exchange value.

Bottom line, we trade:

  • For reasons of emotional security,
  • For what we can do for our loved ones,
  • For self-esteem and sometimes
  • Because we achieve a higher purpose – we  are able to make a difference.

If you recognise Maslow’s hierarchy, well done! I believe that Maslow’s model holds the explanation to our behaviour.

The question comes up ‘why do we need to know our why?’.

The answer is Ericson’s process is not easy, and it is certainly not fun. We need a motivator to keep us on track. Knowing our ‘why’ provides the motivation to persevere.

Also, notice that the ‘why’ is value driven. The idea fits nicely with the ACT model where actions are driven by value derived goals.

More tomorrow.

 

Why?

BarroMetrics Views: Why?

‘Why’ what? What’s this ‘why’?

To answer the query, we need first to understand why so traders continue to fail – fail despite the advances in the realms of investing, psychology and learning.

There are only two reasons why traders fail

  1. Ignorance (don’t know what to do) and/or
  2. Ineptitude (don’t do what they know).

Ignorance we cure by acquiring knowledge. In trading, this is the easy part.  I believe the majority of those who fail take this step. The stumbling block is turning that knowledge into a skill (i.e. overcoming ineptitude). Most traders use this format to learn:

  • Acquire some knowledge.
  • Learn to apply that knowledge through repetition until
  • The knowledge becomes second nature.
  • At this point learning (improvement stops).

That is precisely the route to take for failure.

Anders Ericson has made a study of mastery. The route Masters take is very different. Over the next few blogs, we’ll have a look at his route to mastery