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.’

Learn by Doing

BarroMetrics Views: Learn by Doing

Ultimate III jus concluded. The class was evenly split between institutional and retail traders. But, the results could not have been more different.

Today, we’ll look at the retail stats.

Ultimate is a 4-month course whose main focus is to ensure that the attendees can apply the course ideas in their trading. Whether or not they do, depends, of course, entirely on them. But, at least, they can apply the concepts if they wish. It includes a theoretical and practical dimension:

  • Four weeks for theory,
  • Followed by a tw0-day seminar/webinar.
  • Then three months of application.
  • Finally, four weeks of unassisted trading (the exam). Here I am looking to see if the attendees follow the process rather just relying on the results of the trading.

Here are the retail stats:

  • 23% dropped out at the end of theory section. In other words, 67% took the practical.
  • 7% failed to complete practical section.
  • 31% failed the exam. By this I mean, they knew what they had to do but failed to do it.

Here’s a classic example:

John chose to trade mechanically. Given the results of his personality test, I agreed with his election.

September 2016 had unsuitable trading conditions for FX. When that happens, mechanical traders lose money. At this point, John abandoned the system or at least found ‘reasons’ why he would not trade the signals. 

Unfortunately, from the end of October, conditions reverted; and if John had continued to trade the system, he’d have made a tonne of money.  So, what stopped him from returning to the system? The need to prove he was right in stopping its use. 

When you compare John with the 39% who did well in their exam, the main difference is the successful group did the basics well:

  • They followed their position sizing rules.
  • They adhered to the method rules – whether they were mechanical or discretionary rule-based traders.
  • Most important of all, they kept their journals (both equity and psych), AND they reviewed them, so they learned from their mistakes.

More tomorrow

BREAKOUT! 2

In Breakout!, I wrote why I was looking to buy the S&P at the price zone 2278 to 2275 (basis CFDs). Figure 1 shows why I did not enter – the downside momentum was so strong, I never got a setup.

Prices did stop at the next support zone 2258 to 2263. Today. I’ll be a buyer if there is 30-min acceptance above 2281.50 with stops below 2258.

If prices break below 2258, the next support zones are 2248 to 2252 and the spike low zone. 2228 to 2. Acceptance below 2228 would negate my bullish scenario.

 

FIGURE 1: 240-Min S&P (CFD)

 

 

Rule of Law

BarroMetrics Views: Rule of Law

This post has little to do with markets; instead, it’s a comment on my view of Trump’s executive order banning entries to the US from Iran, Libya, Syria, Somalia, Sudan, and Yemen.

So, if you have no interest in this world event, tomorrow’s entry is the blog for you.

I understand why the executive order was made. If we examine where known terrorists have hailed from, we’ll find they were predominantly from the seven countries. And, if we view the European experiences, the ban seems to make sense.

But, there is a world of difference between the US and Europe.

In the US, those being held for deportation are holding legally valid visas – legally obtained; while in Europe, there is a policy of free passage within the EU. With a stroke of his pen, Trump turned valid visas into invalid ones.

It’s no wonder that four judges have suspended the enforcement of the order. But, here’s the worrying thing: according to a news item on Fox, Homeland Security has issued a statement that the executive order is in force despite the rulings.

This is a worrying development. If the US abandons the rule of law for ‘reasons of national security’ we are seeing, possibly, the first steps to a move to a much less free USA. A slide to authoritarianism has always been the danger that Trump would bring to the White House.

Hopefully, the news event was incorrect; or if correct, an erroneous statement.

Conflict Management

BarroMetrics Views:  Conflict Management

In ‘New Era 2?‘ and ‘All Hands on Deck‘, i raised the conflict between the contextual picture and short-term outlook for US Stocks.

In the long-term, the trillion dollar deficit will come home to roost. It caused mal-investment and a widening wealth gap that led to a Trump victory.

Right now there is a disconnect between the US Economy and the Stock Market. The Stock Market is supposed to reflect the prospects of Main Street. Instead, it partially reflects FED created funds looking for a home.  (The bulk of the rest is parked at the St Louis Fed Reserve).  And, we are at a crossroads: Yellen recognises the need to let rates rise – otherwise, the FED will find it difficult to combat the next business cycle downturn

The question I posed in the earlier posts was whether Trump was an ‘unexpected event’ so that business cycle was inverted.  If so, it would mean that a rate increase would go hand-in-hand with a rising stock market.

The jury is still out on that question.

In the meantime, the short-term price action in US stocks is bullish. This week we saw a strong breakout on normal range and volume – the ideal picture.

So, on the one hand, there is a possibility of a meltdown, and on the other, a raging bull run.  So how do resolve the dilemma?

I focus on the short-term price action and trust that it will warn me when the trend has changed. What will be important is not to be sucked in by bull sentiment.

The bull run since 2008 was unaccompanied by public participation. If the public joins in,  we’ll see bubble conditions. Under those circumstances, it will be easy to lose sight of the contextual warnings. It will be important we don’t.

BREAKOUT!

BarroMetrics Views: BREAKOUT!

Home! I got back on Sunday evening, and I am walking well. Tomorrow, I’ll have 20-20 vision; for the moment, the vision is adequate.

When reviewing charts on Tuesday morning, two strong rejection tails (Jan 19 and Jan 23) stood out (Figure 1). In each case, there was an early sell-off that was rejected by day’s end. This pattern usually suggests ‘in the know buying’ when seen near the boundaries of congestion, especially when the Steidlmanyer Development Formula suggests a breakout is imminent.

Tuesday’s (Jan 24) US trading saw the start of a possible upside breakout. (Figure 2). Wednesday’s (Jan 25) trading saw the breakout. (Figure 3)

However, that does not mean I was aboard. I have not traded the S&P since 2008. Under the circumstances, my regime is to first 3-4 days of simulated trading and to acquire the stats I use.

So, what now?

I’ll look to trade the retest (if it occurs). Normally we’ll see a retest in the controlling timeframe within 6-16 days following a breakout. I trade a retest only if I see a pattern I call an FTP.  Figure 4 shows the FTP and the Zone retest, 2278 to 2275. (Note the data here is the CFD data unlike the cash data in Figures 1-3).

What if there is no retest? Then I look for a continuation trade.

Tomorrow, I review the conflict I raised in ‘All Hands on Deck’ and ‘New Era 2?”

FIGURE 1 S&P Weekly

Figure 2 S&P Daily

Figure 3 S&P Daily

Figure 4 S&P 240-Min

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.

Inflection Point – EURUSD (3)

BarroMetrics Views: Inflection Point – EURUSD (3)

Figure 1 shows the entry for my planned short position (1.0593).

One of the key requirements I have before entry is to ask two questions:

  1. “What does the market have to do for me to remain in a trade?”
  2. “What does the market have to do for me to exit immediately?”.

The answer depends on the setup. In this case given the possible negative development setup, the answers are:

  1. I need to see a continuation of the directional move within 3-hourly bars after entry.
  2. A strong directional bar up within 3 bars after entry.

We did not see (2). But, we also did not see (1); so I’ll exited the trade at 1.0607 (yes a loss of 14 pips) (Figure 2).

Tomorrow I’ll look at the rationale behind the stratgey as well as the main barrier to implementing it.

FIGURE 1 290-min EURUSD

FIGURE 1 60-min EURUSD

 

 

Inflection Point – EURUSD (2)

BarroMetrics Views: Inflection Point – EURUSD (2)

Figure 1, the 290-mins EURUSD shows that so far the EURUSD is still in balance.

The green reactangle shows the 1-period swing sideways price action that began on Friday. I am awaiting to see acceptance below 1.0612 or acceptance above 1.6830 before taking a position.

The odds, at present, slighly favour an upside breakout. The pair had a chance to breakdown on Friday in the US session but there were no sellers below 1.605. The same can be said this morning when the pair open-gapped down and then rallied.

Let’s see what happens.

FIGURE 1, 290-min EURUSD

Inflection Point – EURUSD

BarroMetrics Views: Inflection Point – EURUSD

Firstly, a note to say I am going for eye surgery today. If all goes well, my next blog will be Monday.

Turning to the EURUSD -it’s at an inflection point.

  1. Figure 1, a 13-week swing chart (quarterly trend), shows that a bullish-conviction close above 1.0652 will trigger a buy signal.
  2. Figure 1 also shows we are currently seeing a retest of the breakout that the form of a weekly sideways pattern bounded by 1.0652 and 1.0339. Acceptance below 1.0339 will confirm the downside breakout.
  3. If the downside target is confirmed, the first target is 50% of the width of the sideways pattern, 0.9836.
  4. Figure 2 shows a 5-period, 290-min chart (1-day trend) that may have formed an Expanding Terminal. It’s not perfect. I’d prefer to see a move above the ‘ac’ line and then a bearish-conviction close below 1.0612 (290-min bar) without a bullish conviction close above 1.0683.
  5. Note that the 290-min extends the buy trigger to 1.0683 from the 1.0652 suggested by Figure 1.
  6. I would be a buyer only on a daily bullish conviction above 1.0683 that is then confirmed by a weekly bar.

FIGURE 1: 13w EURUSD

FIGURE 2: 290-min, 5-p EURUSD