Learn By Doing 2

BarroMetrics Views: Learn By Doing 2

Continuing from Learn by Doing….

The question needs to be asked: what did those who succeeded do, or not do, differently that led to their success?

The answer is they integrated the theory, and applied it in the right manner. What is the right manner? They not only ‘did’ i.e. traded, but they also traded using deliberative practice. (See ‘Deliberative Practice) and (Deliberative  Practice II). That’s not to say that the successful course attendees practised.

That’s not to say that the successful course attendees actually practised.

I saw little evidence of that – despite my exhortations. But, they did apply the principles of Deliberative Practice to their trades. In the process, they learned from their losses and profits.

They also learned, to a larger or lesser extent, to live with the four fears that bedevil all traders, the fear of:

  1. Missing Out
  2. Leaving Money on the Table
  3. Losing Money
  4. Being Wrong

In turn, the four fears are driven by the most basic human responses of Fight, Flight and Freeze that cause impulse trading.

Using the tools of mindfulness, defusion and acceptance, they learned to be comfortable with the fears. That’s not say they have mastered the processes – it’s not even true to say they are competent at them. But, at least they are making an effort to apply the tools, and it shows in their trading results.

So, my questions for you:

  • Where are you on your journey to success?
  • If you’d like to do better, are you keeping, and reviewing, your journals? Are you even keeping them?
  • If you are, are you learning from them so that you manage the ‘3 and 4 Fs.’

Fear – The Trader’s Nemsis

BarroMetrics Views: Fear – The Trader’s Nemesis

An examination of my trading results shows that around 80% of my results are in the ‘win-some, lose-some’ category i.e. they have only a small impact on my annual ROI. It’s the other 20% that make a difference where my profits and losses are larger than expected.

For some time, I have focused on reducing the losses in the 20%. And, as that has improved, so too has my bottom line.

The EURUSD is an example this strategy in action. Given the setup, I had certain expectations for the price action if the trade was to be profitable. When that did not happen, I exited.

All this makes sense, right? Yet, once in a trade, we resist early exit. Why? Because of fear. We are afraid that we exit, only to have the market then move in our favour in a humongous way! Worse still, we are afraid that we’ll sit on the sidelines and miss the move; or enter late and have the market move against us as soon as we enter. And, with the nature of trading, all those things can and do happen.

But, if we examine our results, we’ll see that despite the occasional trades where we do sit out a large move, the early exit produces a much-improved ROI.

So, the question arises: how do I overcome my resistance?

The answer is through preparation. By taking a few moments to visualise our actions if ‘x’ occurs, or does not occur, we are more likely to follow-through.  This strategy has certainly worked for me.

Unrealistic Expectations


BarroMetrics Views: Unrealistic Expectations

In “Asia’s Best-Forming Hedge Funds“, Bloomberg reported that the best funds averaged around 15.5% with two outliers at 30% and 45% ROI. And these are the best funds for Asia.

Compare this with these expectations: “If I didn’t believe I could make at least 5% per month, I’d give away the game!”.

“And, what would you expect your losses to be?” I asked.

“I don’t believe in losses” was the reply.

The above is an accurate restatement of a conversation I had over lunch with some retail traders.

Let’s have an in-depth look at the retail comments:

  • A 5% monthly return is 60% p.a. far better than any of the Asian funds.
  • The best average loss for the funds was about 8% whereas the retail trader did not expect any losses.

Given the unrealistic expectations of newbie traders is it any wonder over 90% fail at the trading game?


Perception of Reality – The Key


BarroMetrics Views:  Perception of Reality – The Key

Before the blog, a comment on my schedule. I thought I’d have more free time this week. Nope! For example, tomorrow I have medical appointments lined up back to back from 8:00 am to 2:30 pm AEST

So, my blog posting will probably be inconsistent until I have recovered from the hip replacement.


Continuing from the last blog…..

One of the differences between successful traders and unsuccessful is the fact that successful traders align their perception with reality. You will recall that my view of the way we humans interact with reality is “out there as seen by the in here”.

There are three ways humans use their perception:

  • Contextual: the Freud approach…we have unconscious responses built upon previous experiences, especially those from our childhood.
  • Reframe: the NLP approach…..we reframe past experiences, so they provide empowering rather than limiting stimuli.
  • Acknowledge and Accept: the ACT approach….through attention and awareness we accept our feelings so as to prevent the 3Fs (flight, fight and fear) from overwhelming our cognitive faculties. By developing value-driven goals, we engage in value driven effective action – effective because the actions lead to goal attainment.

In a recent session of Ultimate III, I saw just how important is ‘attention & awareness’.

We were running through the process which FX pair we’d trade last week. During the review, the reasons why the USD should prove strong, the AUD, NZD, EUR and JPY weak. The rest I’d rate as neutral.

One student traded the AUDCAD because I recommended it – notwithstanding that I specifically said I’d leave the CAD alone because it was neutral.

It’s important to understand that the student believed that I had recommended the CAD as a possible pair. Luckily I video all sessions, so I was able to check.

Now that was a minor issue. More important is the way this approach when trading – we’d continually reinterpret events to suit our analysis. Then we’d wonder why we can’t make money.

Success is dependent in aligning our perception with reality. The tools we use are attention and awareness to our emotions and behaviour.




BarroMetrics Views: 65%…IF

The stats based on 20 or so years of teaching are unequivocal – of those who begin their journey to trading success:

  • 15% will succeed no matter what. They possess the tenacity and skill sets to pursue their dream, overcoming all hurdles.
  • 18% to 20% will drop out no matter what. They lack the necessary commitment to make the grade.
  • Of the remaining, 67% to 65%, the course and instructor can be one determining in their quest.

So what do the 65% have to do to succeed?

Success is predicated on acquiring the necessary knowledge and skill set. Both require a commitment to do whatever it takes. Not what the trader would like to do, but to do whatever is necessary.

Assuming that commitment is present, what bridge does she need to create between knowledge and skill-set, between theory and practice?

One of the essential factors, and one of the most difficult subjects to communicate, is the need for a probability mindset: to understand emotionally and intellectually that on a trade by trade basis, trading results are random. It’s over a large sample size that our edge manifests.

The easiest way to acquire a probability mindset is to under, emotionally and intellectually, that reality is not just the objective reality but a construct of ‘what’s out there as seen by the in here’.

How to use this idea to attain our trading goals, I deal with next week (no blog tomorrow en route to Sydney; and on Wednesday and Thursday, I want to address the US elections).



Boundless 2 – Structure


BarroMetrics Views: Boundless 2 – Structure

Success in any endeavour requires a structure, a repeatable process that over time garners the results we week. In endeavours other than trading, some or all of the structure is externally driven. Trading is the only activity I know of where the structure is solely internally driven.

So what does this structure look like?

The best one I know of, at least at this stage, is the ACT model (Figure 1). Yes, I have written about it on more than one occasion – just search for ACT, and you’ll see the various entries. So, I won’t go into the model here. What I’d like to do is to consider the question: why is it that although we know the model helps us achieve our trading goals, we fail to execute its practices?

Among the participants of UIII, almost all have completed the left-brain aspects – they have completed the value elicitation exercise, they have formulated their SMARTER goals.

Where I see resistance is in the daily revision of their goals, and in the ‘right-brain’ aspects:

  • Daily mindfulness exercises or meditation.
  • Applying tools to ensure conscious awareness of when diffusion is required.
  • Learning to accept (intellectually and emotionally) the realities of the market –
  1. To win, we need to have a probability mindset.
  2. That risk and loss are an integral part of the game.
  3. The degree our trade preparation and trade management are effective is the degree to which we will be successful.
  4. To be aware of and manage our Default Futures
  5. Finally to prevent our hard-wired fight, flight and fear responses from taking control and sabotaging our decision-making process.

It’s important to note that I use words the ‘3Fs’ and not ’emotions’. The distinction is intentional and necessary.

The works of Antonio Damasio and others have clearly established that emotions are necessary for optimal decision-making. It’s not our emotions but the 3Fs that are the enemy.

And the best way to do that? My solution: accepting a state which I call ‘being comfortable with discomfort’ – with the key word being ‘accepting’. We can feel the discomfort, but our actions need not be guided by it.

So, if you feel your results could be better, have you looked into ACT? And if you have read or talked about it, to what extent have you put its ideas into action?






BarroMetrics Views: Boundless

The market’s greatest gift – the reason why I love trading so much – is also its strongest curse: the market offers boundless opportunity for profit and loss. We, and only we, decide whether this trade will be a profit or loss.

Think of it:

  • Who decides when to initiate a trade? We do.
  • Who decides when to end a trade? We do.
  • What do we need to make a profit? We need only buy at a lower price than we sell.

Success is dependent only one person – we or me. And to succeed, we need to design a set of rules.

The first reason we need to create rules is to protect us from the damage we can do to ourselves (Money). The second is we need a set of rules to guide us towards the consistent success we all desire (Method).

Most newbies focus solely on finding the system that generates profits without loss – without realizing that losses are the entry fee to the game of trading profits.

And even if we have a Method that makes money over a large number of trades, human nature is such that we only have to strike a series of losses for us to stop executing consistently.

Now add to that is the knowledge that  our Method may no longer be operational under current market conditions and you have an understanding why 95% of traders fail.

So how do attain the success we seek? More tomorrow……

No Reason 2


BarroMetrics Views: No Reason 2

  • ‘Once the reason for a trade is gone, exit’.
  • What’s the best trade? ‘Being wrong and not losing money.’

These are among my two favourite sayings by Pete Steidlmayer. In today’s blog, we’ll see both principles in action.

Figure 1 shows the USDCAD setup:

  • The Rule of 4: on the 4th attempt at an extreme, the odds favour a successful breakout. If the breakout fails, expect the start of the move to be breached. In this case, the extreme is 1.33650 and the start, 1.3005.
  • The reason for the trade: because of the Rule of 4, I was expecting a valid breakout. For this to be true, we should not see acceptance below the FTP (yellow rectangle) low (1.3318).

The early morning manipulation first saw a breakout. So, now it was time to enter.

I enter on a retest of the FTP zone. I decided to reduce my position size to 50% (because of the pattern I mentioned in ‘No Reason‘). I had my stop below the start of the latest 1-d swing directional move (1.3226).

After entry, the USDCAD broke below and accepted below the FTP low at 1.3325 – the price action negated the assumption behind the valid breakout. For this reason, when the pair rallied, I exited the position at breakeven.

So, what now?

The trade is still on with a slightly lower FTP low (1.3368). My process:

  1. I wait for a valid breakout;
  2. Then I look for a retest of the FTP within
  3. (Usually) 6-16 bars (of the execution timeframe) of the breakout.

Let’s see what happens.







BarroMetrics Views: Hurdles!?

Unsuccessful traders face two major hurdles to their success:

The first I first learned from the late Mark Douglas, the Four Fears:

  1. The Fear of Missing Out.
  2. The Fear of Leaving Money on the Table.
  3. The Fear of Being Wrong, and
  4. The Fear of Losing Money.

Insidiously, the four fears set us up for failure. Imagine this: “We’ve just missed getting long by a tic or two. It then immediately roars up without us. We sit there stunned as the market keeps moving parabolically up – a humongous move and we are not aboard!”

So, the next time, with this memory fresh in our mind, we just jump in ……sure enough, this time, the trade goes against us, and we suffer a larger than normal loss.

In both trades, the market triggered at least one of the four fears. In the first, the fear of losing money and fear of being wrong and in second, the fear of missing out.

The second hurdle:

  • Seeking to control what is beyond our control – usually the outcome of a trade; and
  • Ignoring to manage what is within our control – usually our behaviour.

Successful trading requires a merging of our intellect and emotions – that’s the Holy Grail of trading – the road to profitability. But, newbie traders instead focus on a mythical holy grail method that does away with losses. The claims in my email inbox to the contrary, no such method exists (and if it did, would it be sold to you?).

Consistent profitability comes from producing a win rate x average dollar win greater than a loss rate x average dollar loss. And, we attain this positive expectancy when:

  •  we have a method that possesses a statistical edge,
  • marry the method with a money management approach, and
  • execute it on a consistent basis.

Pete Steidlmayer’s success equation remains as true today as when he penned it:

Market Understanding x ‘YOU” = SUCCESS

So how are you the ladder of success? Are you overcoming the two hurdles? If so, how did you do it? Care to share?

Success: Single Most Important Ingredient!

  • On BarroMetrics Views: Success: Single Most Important Ingredient!

“By the students, the educator is taught.”

Modern research is unequivocal – success comes from developing our ‘inner voice’. And developing that inner voice is to ensure compatibility between a trader’s Method and his MIND.

By that I mean to trade successfully you need to melding your intellect and intuition.

For example, for the discretionary trader, he is constantly drawing a line between being wrong and losing money on the one hand, and on the other, missing out and leaving money on the table.

To resolve the conflicting fears, we need both our intellect and intuition.

The tools we use are:

  • Intellectually: stats – MAE ( Maximum Adverse Excursion), Positive Expectancy Return, etc.
  • Emotionally – learning from our experiences to accept outcomes outside our control, e.g. the result of any individual trade.

The resulting experience provides insights into our behaviour – insights essential to our trading success.

The problem most newbies encounter is this: they are unawareness of the role of the MIND. They tend to jump from method to method, looking for the success that eludes them – not realising that part of the solution is within.

If you aren’t experiencing the success, your skill and knowledge deserve, perhaps you have not developed your Inner Voice?