Thanks! I wish you the best as well! And your contributions on this entire forum are valuable. You may not realise it, but you’re a big help to all of us!
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To be frank being confident in my system and not being able to walk away is a bit contradictory.and I can’t wrap my head around this. Maybe my point of view is highly subjective and perhaps I’m projecting my opinion too strongly.
Isn’t it easy to walk away from trades that don’t meet the rules that define the criteria for your setups? For e.g. your setup has 3-4 rules and one rule is unmet. Would you still have a difficulty walking away from it?
For context and reference look at this guy share and discuss his trading plan on the Ichimoku Kinko Hyo.
If you watch his live trading videos you’ll see how strict he is adhering to those rules. If one rule is invalid he walks away from it.
Disclaimer - I don’t trade the Ichimoku nor am I advocating it. I just wanted to see a trading plan discussed in detail and it being implemented by the same guy.
Edit:: - If certain Ichimoku terms are difficult to follow he also has a 5 part guide on it among his videos, which I found easy to follow and understand.
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I think this is the core difference between a totally mechanical, systematic, trading method and a discretionary trading method. The key point being that a discretionary method has the ultimate factor of “discretion” layered over the mechanical bits.
Personally, I think the relevant issue here is the role of this “discretion” in the decision-making process. I believe that the correct order is that a) the mechanical rules make the initial signal and b) the discretionary element considers other current factors and either accepts or rejects the signal and then sets the appropriate risk parameters.
However, it is also possible to reverse that into what I would suggest is an incorrect approach, where the discretionary element decides what could/would be a good trade and then moulds the signals to fit.
I think the latter is especially prevalent in PA methods where the drawing of trendlines and S/R lines, and the interpretation of patterns and candle formations is often imprecise and subjective - especially when multiple timeframes are involved. E.g. does the hourly signal override a daily or vice versa, if so under what conditions, etc.
There are always grey areas in discretionary trading methods and it is in those grey zones that one can easily take bad trades in spite of a weak signal (or even pre-empting a signal) whenever we are faced with a “mind over matter” situation where the mind just aches to be in some kind of trade and then lowers the exposure risk to a level that “doesn’t matter even if it goes wrong”.
In my opinion, the discretionary element should (almost) always be the prosecutor in judging the signal and not the defense attorney…
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Just thinking and drafting some rules for my strategy.
I’ve been keeping them in my head as they evolved, and this has created grey areas—room for rationalizing.
It’s cliche, but the first step to fixing a problem is simply acknowledging that you have a problem.
If you can identify it, then you know what solutions to start looking for. It doesn’t mean you’ll find the solution right away, or even at all, but it means you’re hot on the trail. You’re chasing down the answer.
So, I’m taking people’s advice and creating a list of conditions for taking trades. No more grey areas and worrying “but what if I’m right and I miss a big move?”
That’s a very strong emotion to let go of, but I’m trusting the more experienced traders that such random uncertainty is detrimental and costly.
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It’s easy once you learn how to do it. Until it’s a habit, it’s a struggle. But worth it, I think.
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That feeling kind of sucks
The “well, what if that’s a big trade?” feeling…
And you walked away from it.
The idea, I guess, isn’t to catch every single move. It’s to catch the moves that fit your strategy, and then you let probability work itself out. If you have a profitable strategy, the money will take care of itself.
When you’re desperate or in a rush, that’s when the process falls apart. And instead of working your way towards regular profits, instead you suffer losses continuously.
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Gave it a bit of thought after @SovoS’ previous post and you may have very valid reasons to override certain rules based on specific situations.
Having said that I still believe there should be a way to quantify it. One way I can think of is by assigning a weight (level of importance) to each of the rules based on your priority and apply it to your journal entries. With this approach you arrive at a grading system you can use to test how:
- effective your system is, and
- disciplined you are in your approach
With this you’re not influenced by any recency/confirmation bias and are able to quantify your decisions.
For e.g Let’s say these are the rules I use to determine an uptrend (simplified). I’d say my ADX value the most important, which is why it carries the most weight.
Add another layer to this perhaps and say that these rules applied to a HTF carry even more weight (e.g. 2-4x more weight). So if all the rules are met in the HTF, then omitting the bollinger band deviation on the LTF is completely valid in that instance given it’s lower significance.
At the end of a week or month when you take stock of your journal entries you are then able to grade both your systems and your discipline, which gives you a very objective outlook to how you’re trading by your own definition of good rules/system.
This is a line of thought I picked up from an Alexander Elder book, The New Trading for a Living.
Yep, this echoes my thought process. It’s to make the most of the high probability setup I see in front of me, which is why I said I was very disappointed when I wasn’t scaling into my good trades.
As for the missed opportunities, I literally tell myself: “Dumb@$$, if you can’t make the most of the easy setups you can identify why are you pining about something you couldn’t spot at the time”. My attempt at trying to clean up all the low hanging fruit first.
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Hi,
This has turned out to be one of those threads that has value at different levels for members at different stages of their individual journeys. Well done for continuing the discussion. About the grey areas you refer to, it may be useful (and organized) if you take any particular grey area and start a new thread - something like “Dushimes Trading journal - rationalise grey area of SL as a function of ATR(x)” as an example.
That way, members can contribute to particular threads without this one getting to a 1,000 post readathon.
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This raises a big issue that every trader has to deal with, even after many years of trading. What you are referring to is looking at the wrong end of the straw…
It is a sad fact that no matter how good your entry criteria is, or how disciplined you are in following your rules, or how many different types of indicators or criteria you apply, you can never know how far a particular move is going to go once it has started. Every move is different and its future duration is an unknown. The only information we have is the current price and the historical prices. We do not know the future prices or the future factors that will drive it further and in which direction.
So what can we do about it?
What we shouldn’t do, when faced with a fistful of straw ends and asked to pick one, is grab the whole bunch in the hope of picking the longest straw. We will surely also pick the shortest straws as well. This is like a trend trader acting on every entry signal in order to catch the big trends but getting whipsawed over and over again while waiting for it (big trends are not that common).
It is relatively easy to design trade entry signals and the world is full of strategies how to do so. But what is not so common, and a million times harder to define, is an optimal exit strategy. There are many techniques for exits including mathematical formulas like Fibs and reversal patterns like trailing stops and MA crossovers, etc. But the facts are that it is impossible to predict future distance, and reversals tend to be faster and more furious than the build up.
So, once again, what can we do about it?
Here, I think, is one of your brain gems. In my opinion, this is not only precisely correct, it is also the only way to optimise gains and minimise losses.
Bearing in mind that we only have historical price data to work with, then we need to make two assumption:
a) price movement is not entirely random, b) a new move will usually see some degree of follow-through as other traders start to recognise the move and enter or build positions.
Based on those two assumptions, we can look at recent price movements to form a judgement of the likelihood (probability) of the possible strength of the follow-through.
@darthdimsky points to one technique which is the ATR, other will use a momentum indicator to add confluence such as RSI. Others (myself included) will use multiple timeframes to form a judgement of whether we are living through a pullback in a main trend or a reversal into a new trend - or just ranging, going nowhere!
I won’t go into details about my own approach but basically I look at the same things on a daily, 4-hour and 1-hour charts. When the signals line up on all three then I anticipate a stronger/longer move. When there is a discrepancy then, depending on my rules, I will trade a fixed pip distance target which is based on the historically typical short term moves that the instrument makes.
As usual, I am writing a “book” about something that could be said in a few lines. But basically, entry criteria alone is not enough to decide trade potential. Afterall, if the price moves even 4 pips in the “right” direction, it is a “correct” signal - but was it worth it? So you need something else to determine the likelihood of a sufficient follow-through to meet your target expectations - as well as setting your target expectations according to the likely follow-through.
As @Mondeoman rightly says, we have covered an enormous amount of material here recently and I am going to step out for a while and give you some peace to turn your thoughts into actions and to see how your trading is improving. Looking forward to seeing some positive posts in October! 
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Just wanted to be clear. The listed indicators and timeframe factors of 2x-4x are arbitrary. The post was meant to outline a method to quantify a discretionary trading system. So someone using price action or the Ichimoku should have no difficulties adopting the same concept.
Useful if I want to modify my existing system or adopt a completely new one.
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I think your post was very clear and articulate.
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I hope to post a margin increase at the end of October.
As for today, I’m taking some time to establish my rules, check my journal, and also modify my spreadsheet of active trades.
I must admit that I procrastinated for about an hour before starting my trading work. I knew what I had to work on: journal, rules, etc.
But, I got to it.
I had written down on some paper what my rules should be. I went to my checklist (which I haven’t used in a while) and everything I wrote down was already there. Oh boy.
I wrote a checklist for each type of trade. I’ll probably just have to take my time and go thru my whole process, which is meant to limit risk and help avoid taking bad trades.
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Thanks! I just didn’t want to create a whole bunch of threads. I don’t mean to turn this into a long read, but I just kinda wanted a place to think my thoughts thru.
Talking outloud, I guess. And it really really helps when people critique, because I’ll get new information and improve myself.
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This morning I didn’t open any new positions. My USD/CAD position got stopped out. I stayed in too long because I was trying to figure out what I was reading in the charts. I moved my SL to BE. No actual loss.
But that pair along with several others are starting to reverse. I missed my opportunity to get in early.
I missed it by just a few days.
I made some adjustments to my checklist to include what I should look for next time.
I saw some breakouts that looked tempting. But I told myself that I’m not trading those anymore.
Maybe I’m wrong for that…I’ll think about it.
My problem now will be waiting for the trends to breakout, trend, then jumping in on the pullback.
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That is a success. In your written trading plan, do you have a maximum time limit after which you will cut and run? It seems that you have a well developed system for trade ENTRY, but it is just as important, if not more important, to have a plan that states what you will do or will not do during the lifecycle of the trade. Entry is one hurdle to overcome. But once those trades are live, they all represent a continuing risk that should either be countered by a “fixed take profit” (I do not prefer), or a “timed review at intervals” where you decide to manually or automatically reset your stop loss, take half profits, move TP, etc, etc. In the past I had “interfered” far too frequently and could not determine how successful or otherwise these interferences had been. That is when I wrote more about lifecycle trade management. Now there are trades that I set an alarm to watch on a daily basis, or a twice weekly basis. Some of them have a preset TP for up to half the risk value, none of them have a fixed “take all” TP.
On the one hand, we seem to be discussing setting down some hard rules to stick by until we have enough trades to analyze, and on the other hand we seem to be saying that we can tinker with rules as we please.
That is where I think forex trading (or stock, or index, or crypto) is an art within a science. To determine whether or not to make a change mid stream (an Agile type of approach) or blindly stick to rules until the requisite number of trades have completed to make a valid analysis (10, 100, 1,000?) is, to my mind, the difference between an experienced trader and a newbie. It helps when you have placed over 1,000 trades because what may seem to be “intuition” is probably more like muscle memory. Stick at it. Great post.
Ok. This I’m getting better at. I’ve seen trades that I think, “well, price could bounce here, or it could keep going and bounce there.”
Those trades I used to take, but now I walk away from.
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I had a few losses, and I’m feeling frustrated.
On Sunday, I placed most of the orders that I wanted to. Even though some of them probably won’t even get triggered.
I was looking at a few charts this morning, and I didn’t really see anything I felt like trading at the moment. Nothing that was giving off entry signals.
I opened one trade because it was breaking out, and I think it was actually more of an impulsive trade.
That’s when I started thinking I need to step back and walk away. I was trading for the sake of trading.
Not good.
I have an appointment this morning, and on my way I was thinking about what’s wrong with my trading.
I pretended I was talking with a mentor and he asked me “what seems to be the problem with your trading?”
I was stuck. My answer was, “I don’t know.”
How can someone help me if I don’t know what my problem is?
I wanted to review my closed trades today.
But I have to look for patterns in the losses.
I thought I would have fixed my problems by now. Not saying to avoid losses, but there’s really no good reason why I shouldn’t be profiting.
My risk management is way better. But that’s only part of the puzzle, as stated in a post above.
There’s profits to taken, and I’m not getting any of it. I had a couple wins, that I planned to hold onto, but then it looked like the market was reversing.
I had a USD/NOK trade that was going well. And now it looks like it could be consolidating before a reversal. It was painful watching my profits get cut in half. I just closed it.
This morning was frustrating and I needed to just walk away for a bit.
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This might sound silly and a waste of time - but it might help to actually journal these and record whether you were right or wrong to have walked away. This will help boost your confidence in trusting your assessment of such situations.
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That’s a good idea. I’ve thought of that.
Lately, I haven’t done any journaling. Not seriously. Just a few trades.
I don’t have much time when I trade. It really really slows me down. I know there are programs for it, but if I am gonna trade, I think I’d prefer to do it myself.
I guess I don’t really have a good excuse for not journaling. It really takes just an extra minute to enter the info. Jeez, it’s not even really entering. It’s just the date, the pair, and copying the purchase price. It doesn’t get any easier.
But when they close, it’s more work…
I guess I just get lazy and don’t want to do it. I seem to keep starting and stopping journaling.
It may be time to slow it down and just do a few trades to get in the habit of journaling as I place orders or open positions.
I’ll have to think of a way to do this better.
I recently lost a trade with USD/CZK. And after looking at the trade again. I can’t make any sense of the price action. I couldn’t even remember what my trend lines were. That’s a bad sign. So, I took a look at the monthly. After reviewing the monthly, My only conclusion for the loss is that it’s really a good pair to trade. There has to be something to make sense of.
But I couldn’t really make sense of it. The price action should be so obvious that if I delete my trend lines, I should be able to draw the same exact lines again. This wasn’t the case. I was expecting price to bounce resistance, but it ended up breaking thru. I ended up jumping back in long.
Drawing the trend lines again makes me feel like I have no idea what price is trying to do or could be doing. There’s nothing to really base my educated guess on. I’ll keep an eye on this pair periodically, but I won’t be trading it until I see something quite obvious.
the monthly:
