Coaching Paul

BarroMetrics Views: Coaching Paul

Let’s say you were coaching Paul, what would you say? What would you be your processes?

Well, the first principle, is you would avoid negative judgments. For example, ‘you were lazy’, ‘you lacked discipline’, etc. The reason is a judgment, negative or positive, fails to advance a trader’s goals. Much better is to describe the disempowering behaviour and elicit empowering alternatives. For example, ‘your entry’ timeframe is the hourly, given your lifestyle, is the hourly the best entry timeframe for you?

The next thing is to identify what we know and what we don’t now about the behaviour.

In Paul’s case, we know that he has some sort of trading plan. We know that he failed to execute the hourly entry, We know that he shared that he experienced negative emotions about the entry. That done, we look at what is behaviour is under Paul’s control and what was beyond his control.

The failure to execute the hourly entry was within his control. What the market did after entry was beyond his control.

Finally, we look at the behviour under his control within the overall context of his goals and steps he has undertaken to attain his goals.

Once the diagnosis stage is complete, we turn to the prescription phase.

It’s most important that solutions come from Paul rather than you, the coach.  When coaching ourselves, this is not an issue. What is an issue, is most traders do not follow an effective review process. Hopefully, the series of blogs will have given you some ideas on how to do this. 

Competition Conclusion

BarroMetrics Views: Competition Conclusion

The results of the competition are posted at the conclusion of this blog. Congratulations to the three winners!

But, the competition was more than helping Paul. Its main objective was to help you effect a more effective review process.

Recently, a well-known institution for whom I do some consulting conducted a survey to determine what factors contributed to consistent losing trades. It provided food for thought in that it revealed some lesser known factors leading to losses.

One of the less-known reasons was an ineffective review process.

An effective review process has: 

  1. A well-defined goal. 
  2. Identifies the essential steps to attain the goal. 
  3. Identifies the elements that contribute to success, and identifies what elements are within our control and which are not.
  4. Creates a plan to attain the goal.
  5. Executes the plan.
  6. Reviews the results of the execution.
  7. Changes actions that fail to lead to the goal seeks to improve actions that advance our goal. 

One of the key findings of the survey was successful traders, in their review process, focus on describing the behaviour, They may make a ‘judgment’ entry, but that is always supported by a behavioural comment. For example, Wolfie said: 

”Another lazy habit of his perhaps.’ 

This is a judgment. 

According to modern psychological theory, judgments are not very useful. They may make us experience negative feelings but do little to point the way to effective change. Much better would be to identify specific behaviour. Again taking a comment from Wolfie as an example: 

Although Paul put in extra efforts to wake up earlier hoping to get a better entry price, he did not follow through subsequently. His habit of waking up late and assumption of the market will “wait for him” caused him to lose the opportunity.” 

 Tomorrow, I’ll use the ideas above to critique Paul’s case.   

COMPETITION

Winners: I was looking for two main comments.

  1.  What behaviours (not judgments) contributed to Paul’s lack of success; and
  2. Whether these were or were not in his control. 

Quite a few mentioned (1); one mentioned (2).  I have to say I had a difficult choice to select only three. In the end, I chose:

  •  Sunny
  • Manish and
  • Eng

The email with the prize download link will be sent out once I complete this blog.

Thank you all for participating!

 

Competition So Far

BarroMetrics Views: Competition So Far

Thanks to all who have contributed. If you are planning to take part, do so quickly. I said I’d chose the three I liked best (i.e. came closest to my answer).

A couple of things:

  1. Read the facts I presented. For example, Paul failed to look at the 60-minutes in a timely fashion. Some have suggested he lacks discipline, perhaps and perhaps not (e.g. he may have had an emergency).  One suggested he was lazy – perhaps and perhaps not, (he got up at 4:00 am. Not too many lazy persons would do that), etc.
  2. To win the competition, you need to identify the Cardinal Sin. As traders, at some time in our career, we all commit this sin.

Some really good answers so far – I may have to increase the winner’s podium (G)

Single Most Important Insight

BarroMetrics Views: Single Most Important Insight

Comp time guys and gals. Here are the rules:

  1. I’ll tell you a story with a lesson. 
  2. The first three who write to the BLOG identifying the lesson receive a prize.
  3. Writing into my email will NOT count.

Story time….

Let me introduce John; Paul you have already met. John is a successful trader.

Paul and John met to discuss the NZDUSD on the evening of Nov 22. They agreed that on Nov 23, the pair may gap down, or may give an early sell signal. Both John and Paul use 60-minute charts.

On Nov 23, Paul awakes at 4:00 am and notices that the pair is trading unchanged. Goes back to sleep. John awakes at 6:00 am, washes and changes. At 7:00 am, checks his platform and sees the pair little changed.

At 8:00 am John again checks the platform and again sees little change. Then at 9:00 am, John sees the sell signal and executes his trade at 0.6538. (FIGURE 1)

Paul does not check his platform until 10:30 am. At that point he realizes he’ll have a late entry. With market trading at 0.6523, he decides to wait for the retest. The NZDUSD then trades down to 0.6515. Paul cancels his sell order and bemoans the fact that ‘if enters, the market moves against him; if he waits, he misses the move’.

He then proceeds to enter his journal, noting his bad luck.

Paul and John could not be more different. Paul is committing a cardinal sin of trading – which till remedied will probably mean he will continue to be unsuccessful.

Comp question: what is Paul’s sin?  First correct three answers posted to this blog win a prize.

PS I forgot to mention – the comp closes 9:00 am HK time Friday, Nov 27

You Need to Change! 2

BarroMetrics Views: You Need to Change! 2

In Friday’s blog I said that Paul and Mary had committed the same mistake. I invited readers to reason what the error may be before reading today’s blog.

Here’s the error:

Both traded the markets from their needs, and not what the market was offering.

Mary initially wanted the $10.00 – she fixated on that target. Once the market got to a level that made the profits ‘desirable’, she decided the market would retrace because she wanted it to once she took her profit. There was no consideration of the market was telling her.

Paul did the same. He wanted to ‘breakeven’. So, he continued to hold the position even though it went against him. Remember Paul took the initial trade on a mistake. A mistake he had quickly acknowledged. But, rather than just hitting the offer to square the trade, he decided to hold for a ‘breakeven’ trade.

Tomorrow, I am holding a competition, courtesy of Paul. The prize will be Wyckoff’s original course.  Stay tuned!

You Need to Change!

BarroMetrics Views: You Need to Change!

Bear with me while I tell you a true story – you will find the journey a worthwhile one.

Let me introduce two close friends, ‘Mary’ and ‘Paul’. Mary is self-employed  She works long hours, her day starts at 9:00 and she finishes with her last client usually around 11:00 p.m. She works seven days a week. Paul is employed by an IT company and is high up in its hierarchy.

I mention this, so you know both are driven, and highly intelligent.

And yet……Mary has little trading experience. She received a tip for a penny-ante stock and called me when it was trading around HK$1.48 for advice. The chart showed a classic ‘pump and dump’ and I suggested she at least stave off for a while.

When the stock dropped to $0. 99, I called her to say that at this price it was worth a punt – if she believed the source (he had told her it would run to $10.00 by Jan 1, 2016). She executed at $1.11. Her strategy was to hold the stock until it hit $10.00 or the end of December. She refused to set any contingent strategy in the event there was a reversal before she exited.

Today, the stock hit $1.35. She rang to say that she was going to take the profit and buy it back when it retraced to $1.00. I said asked how she would feel if the stock went to $10.00 without falling back to $1.00. She replied: “Of course it will retrace! I may as well take the $20K profit now rather than lose it when prices fall”.

Paul has more trading experience and is well versed in technical analysis. In an NZDUSD trade, he made an execution error that would, if remedied immediately, cost him two pips by 3M (around US$200.00). Instead, he held the error looking to break even; as a result, the error cost him US$10,000.00.

Both share the same fundamental trading  error. What it is I’ll discuss on Monday.

ACT – Positive example II

BarroMetrics Views:  ACT – Positive example II

So, continuing…..To appreciate the effectiveness of the ACT model, you need to appreciate the context of the E-mini trade. My last trade was one that I had suffered the largest loss for sometime, brought about by allowing my Fight, Flight and Fear to buy the highs and sell the lows of the night (constant stop and reversing). Now, my E-mini trade plan was again asking me to stop and reverse.

The difference of course was that for the E-mini trade,  the stop and reverse had been thought through. Not only that I had followed the ACT model to ensure I had emotionally accepted the previous losses and had completed the exercises to ensure that I would accept the loss should the stop and reverse prove to be an unprofitable strategy for the trade.

I also completed the visualization execution exercises to ensure that I would not deviate from  plan. Just as well because the unexpected poor Non-Farm Payrolls meant I’d have to execute the stop and reverse strategy. Moreover, the ES did not drop to the level where I wanted to take the other 50% of my position. So I had to wear an evening of sideways price action where I had again managed to buy the highs of the trading day.

It would have easy to fall prey to the fears produced by the memory of the NZDUSD trade. The ACT process made it much easier to stay the course. The great news is the long ES trade was liquidated last night and all losses (and more) have been recovered.

ACT – Positive example

BarroMetrics Views:  ACT – Positive example

John Gault wrote:

“Can you give a positive example of ACT’s application”?

Glad you asked John.

In “ACT Final“, I described how I failed to manage the 3Fs and, as a result, suffered the largest loss this year (down 1.7%).  The trade described in this blog follows on from that day.

Figure 1 recaps the zone for the trade I took on Oct 1. On that day, I took a half-size position with the intention of taking another half in Figure 1’s green zone.

Figure 2 shows the entry.

Oct 2 was Non-Farm payrolls. I was looking for (at least) the consensus number with an upward revision to September. If I were correct, that should have seen the USD strengthen, and the NZD weaken.

As is my wont, I mentally prepare for x scenarios

  1. A number within the consensus range. 
  2. A number below  the consensus range, and
  3. A number above the consensus range. 

For each scenario, I have a planned response. I spend time mentally rehearsing my response with the idea that once the number is released, I’ll react to the number in line with the mental rehearsal.

Oct 2, the Non-Farm came out at 143K ((expected 180 to 235) with a downward revision to September.  This was a very bullish number. My plan had called for a stop and reverse on the announcement (half size); the other half I was looking to buy at .6397. (Given my broker’s spread, this meant a bid print at .6395).

Figure 3 shows what happened. I got filled at the highs of the release and missed out on the fill when the market retraced.

That’s the context. Tomorrow let’s look at the ACT applications.  

2015-10-12-nzdusd-290-min.png

FIGURE 1

2015-10-12-nzdusd-15-min.png

FIGURE 2

2015-10-12-nzdusd-15-min-2.png

FIGURE 3

Default Futures II

BarroMetrics Views: Default Futures II

Let’s begin with a clarification. When I say willpower is not enough, I don’t mean you won’t need willpower to solve the problem of our default futures. It’s just that willpower while necessary is, for most of us, insufficient.

So, what is needed?

Firstly,   a modicum of willpower. Secondly, awareness – crystal clarity of our objectives. Once we know that we can take next step – identify the behaviour that blocks our success – the key word here is ‘behaviour’. From this starting point, we take the next steps.

So far the research on overcoming our default futures is in agreement. From this point, they start to diverge. One the one side you have the approach best exemplified by  Joe Dispenza; and on the other, you have an approach best illustrated by Celestine Chua in her course on overcoming procrastination.

Joe’s approach essentially uses ‘inducted hypnosis’ to program the subconscious to overcome our default futures. The idea is by accessing the subconscious directly,  we bypass the barriers raised by the conscious mind.

(One caveat. The guided meditation MP3 files used to be available if you bought ‘Breaking the Habit of Being Yourself’. This is no longer the case. The tapes appear to be available only if you buy his online course USD 497.00).

Celestine’s approach seeks to overcome the barriers consciously. She applies the formula:

Pleasure of Success x Pain of Failure GREATER THAN the Sacrifice of  Success (Pleasure of Failure) x the Fear of Inaction (Pain of Success)

The Pleasure of Success and Pain of Failure are easy enough to understand. The Sacrifice for Success are what we need to give up to attain our goals – e.g. time, effort and money. The Fear of  Inaction refers to the three main fears:

  1. Success
  2. Failure
  3. Follow-through 

Both approached use a daily reminder format to over our Default Futures.

Default Futures

BarroMetrics Views: Default Futures

I am intrigued by the reasons why the percentage of traders failing to make a profit over time is so high. The evidence is that despite advances in trading technology, psychology and trading methodology, successful traders are as rare today as they were in the 1920s.

To this end, I have begun a book on this subject.  My research shows that the concept of ‘default futures’ lies at the heart of the failure.  

‘Default Futures’ is known by many names, ‘repetition compulsion’, ‘fractals’, etc. The idea is simple enough. Our habits are created early in life and are usually brought about by a child’s perception of how to navigate life as painlessly as possible. Let me give you an example:

Ray was born into a low-income family. To make ends meet, his mother takes in sewing jobs that occupy her time from Friday evening to Sunday evening. Since the sewing takes up all of her time and energy, Ray is farmed to his grandmother Friday night who then returns him on Monday morning.

Now from an adult’s perspective, his mother’s actions are reasonable. But, for the child, all he knows he is not wanted by his parents. So, to avoid the pain of ‘being abandoned’, he devises strategies to form strong bonds.

If Ray now interprets losses as ‘abandonment’, one result may be to hold on to losing trades  with the result that he is unable to turn failure into success. The insidious nature of ‘default futures’ is they operate on a subconscious level. And, because the futures have been with us for so long, change is uncomfortable. Moreover, assuming that we do become aware of the unconscious responses, we’ll find that trying to change the ‘default future’ through sheer willpower usually fails.

Now, the thing with ‘default futures’ is you end up doing the same thing over and over again.  And, if you do the same thing over and over again, you will continually attain the same result.

If you accept this reasoning,  then it’s no wonder why so many fail. Firstly, most newbies aren’t even aware of their ‘default futures. Secondly, even if they become aware, their strategies for change doom them to failure – their primary focus is on acquiring knowledge about trading, rather than on changing their ‘default futures’.  As a result, for most traders, the lessons on trading are never integrated, and if integrated, are never implemented.

This lesson was recently brought home to me.

About 2-months ago I held a primer  class on the Barros Swing methodology. Part of the course includes one evening’s instruction on the application of the material learned. To take part, the student needs to prepare his trading plan, submit it, together with an action plan for the evening.

The live session is to take place on Oct 12, and so far, only 10% of the attendees have indicated they will attend.

My question is, why wouldn’t you attend? I’d certainly make every effort: I’d take the view that I’d need to attend to make the transition from theory to skill.  I suspect that the failure to attend lies in the individual ‘default futures.’

But, you may ask, if sheer willpower is not enough, then what can we do to change? More tomorrow.