BarroMetrics Views: Developing Jin
A friend sent me some words from “Developing Jin” by P Starr (see Figure 1).
I thought the words appropriate to trading and trading education.
I see trading as both the most rewarding and difficult profession we can engage in. Most rewarding because in what other profession do you have over 90% of your competitors giving you money?
Most difficult because to be successful we need to take action against our hard-wiring.
We are hard-wired to look for certainty and avoid uncertainty, to seek immediate gratification rather than the long-tem prize, and we have been educated to suppress rather than accept our emotions during times of stress.
As Ultimate draws to a close, we see all students (except for the two who dropped out) having made massive strides towards success. But their education is only just beginning. While all have mastered the basics of the first step, analysis, they now have to move towards the basics of trading. At the most fundamental level, trading can be fined down to five questions:
- Where do I enter so that the trade has a high probability of success?
- How do I manage the initial risk?
- What is my position size for this trade?
- Is the reward:risk large enough to warrant taking the trade?
- How do I manage the subsequent risk?
The first four are relatively easy to learn. Managing subsequent risk is what separates the men from the boys. As a trade moves in our favour, we are constantly being asked: has this move ended? Or do can I earn more? In short do I exit now or wear the retracement for the possibility even greater eventual gain?
The problem most newbies grapple is they fail to identify what ‘this move’ means.
In Figure 2, let’s sat you entered at the black arrow, 1.5525.
Where will this move end? To define that, we need to define the trader’s timeframe. Armed with that, we can then define the end of the move as the first higher time swing extreme. For example, if our trader’s timeframe is the 05-day swing (weekly trend), then our long trade would end at the 18-day (monthly) swing high.
By defining the ‘end of the move’, we have an objective way of assessing how effective are our exit techniques.
All of this takes time to learn and learn to apply: ‘there are no silver bullets to be found…..no “quick and easy” training routines that will turn you into a supreme trader before your next birthday. What you will find, however, are trading concepts and routines that will, through seemingly endless and sometimes painful repetition, enable you to dramatically improve your bottom line results. But you must resign yourself to the fact that it is going to take time’. (with apologies to P Starr)
FIGURE 1 Finding Jin
FIGURE 2 GBPUSD 18-day and 5-day Swing