That is something that @steve369 is constantly emphasising to newcomers and it is true. It is one of the foundational principles underlying consistent, long-term, profitability.
I posted a similar thought from Jack Schwager: “Amateurs think about how much money they can make. Professionals think about how much money they could lose.”
But on its own, this is not enough. One has to first make the money that one is trying to protect.
But, in the longer term, like with any business on the planet:
Positive Net Profits (A) = Gross Profits (B) - Gross Costs (C), where B>C
Putting all one’s efforts into (B) whilst ignoring (C) is simply not going to work…
You know what? You’re right!! He is always saying that! Haha
And it’s so true. It’s a problem that I still deal with. I often see some price action that is kind of a signal, but the setup is wrong. I’ll lie to myself that it’s a signal, and jump in. Of course it usually leads to a loss.
I jumped in because I would lie to myself that it’s gonna go up or down. So, I have a 50/50 chance of profiting. But that’s not how it works. Sure, I either win or lose, but I was always jumping in when the PROBABILITY of losing was greater than the probability of winning.
I didn’t think about losing. All I thought about was how much I could win. That’s it. And when you place six trades like that and the next day they all got stopped out…it sucks.
I was just reviewing a backtest trade that the entry was right, and the swing started trending. My long trade was up, profits were looking nice, then it retraced. OK, no big deal, just hold.
Price was caught in a bullish swing and the profits are looking great, then bam! It just bottomed out, and my profits disappeared.
Price passed my entry. And I got stopped out at BE.
The problem is that there was no real exit signal. It turned out that price went bearish a bit more, then took a major bull swing and only offered a decent entry.
I imagined how I would feel watching my trade do so well, then just return to $0 and I can’t do anything about it because there was no signal whatsoever. I could always ratchet my SL and just deal with the consequences.
But rarely has there been a need to in my backtests.
It just sucks that no strategy is perfect. The same strategy that protects your money, is the same strategy that might make you watch your profits drop to $0…(on the rare occasion of course)
Well, I don’t think so…but I am not sure I really undestand what you are describing here!!!
I don’t really understand what is the difference between a signal and a setup - unless you mean the market environment/fundamentals, etc within which a signal pops up.
I always look at the general issues relating to the markets in the morning and already then decide if I am looking for a trade or not (remember that I am a day-trader). After that it is just question of watching the hourly closes and enter when a setup occurs.
But I think we trade very differently in terms of both timeframes and strategies so there is not much to compare.
My strategy is mainly just based on a band of MAs and on which side of it the price is currently moving. I usually place my target at the nearest sensible S/R type level and a stop on the other side of the MA band - and that is it…The rest of the input is just my own discretionary appraisal of the quality of the setup.
My personal thorn in the side, if I let it happen, is to pre-empt the close of an hourly candle that looks like it is going to form a setup - only to see it reverse before it closes on the hour and ends up as a ordinary candle going nowhere significant. But that is rare nowadays as I only look at the market on or after the hourly candle close.
I am fairly convinced that one of the major reasons why traders struggle to achieve consistency is because the market is too visible all the time. It is too accessible and encourages spontaneity and intuitive actions which are not always the right actions.
When I first started trading there was only a dial-in price service on a screen, no charting services. I drew all my charts by hand on graph paper based on daily OHLCs. If I wanted to check the price and place an order I had to telephone my broker on an international call. Naturally, this scenario meant that one was REALLY careful about deciding when to take a position and the number of trades was really quite minimal. But were the results any worse for it? Well, considering over 80% of retail traders still actually lose their money, I can’t say that today’s trading environment is any better at all!!
If you don’t mind me taking up a bit of space on your thread, I would add that I have been thinking about this statistic quite a lot recently.
It was quite a few years back now that ESMA and other regulatory authorities required brokers to state on their web pages the percentage of retail traders that lose money. At that time, all the regulated brokers published their own figures and they were remarkably similar across all brokers, i.e. in the range 70+% - 80+%.
But since that start there has been a continuous and increasing supply of books, Youtubes and other resources relating to trading techniques, risk management, money management, pyschological issues, etc. And the awareness of these has been hugely broadened via forums like Babypips and multiple forms of social media.
So one would anticipate that the losing percentages quoted by these regulated brokers would by now be declining considerably and significantly as a result. And yet that is not the case! Brokers STILL quote losing percentages in the range 70+% - 80+%!!!
So why is this? Does this not indicate that the root cause of failure lies in something entirely outside the normal issues of strategies, risk and money management?
Personally, I suspect it is largely due to the “hare and the tortoise” syndrome. An over-confident and over-exuberant rush to gain overly-ambitious results is usually going to end in failure at some point. The moral of the hare and the tortoise being:
"you can be more successful by doing things slowly and steadily than by acting quickly and carelessly"
Yeah, that’s what I meant to say! haha. You could have a signal, but everything around it seems wrong.
So you jump the gun sometimes? You’re fortunate that only happens rarely. I’m working my way to that level.
It’s interesting to look back at dial-in trading.
It’s funny how the failure rate is the same even though there are countless books, blogs, channels, etc explaining how to trade and how the market works. I never thought of it like that, but it’s true.
I moved this quote to this thread as it is more appropriate here
This is, of course, essential.
I noticed that you started this journal in March 2021. How do you see your progress so far and what major changes have you made along the way? In other words, how different is your current situation from your starting position in terms of success and strategy?
What do you see as the successful improvements you have made?
It would be interesting to read a description of your current strategy and a chart or two of successes/failures. This might help you to focus on the “good” and the “bad” and thereby help avoid the “ugly”!
This is an extremely good exercise and a very powerful self-developing tool. More so for the individual than for the strategy itself.
I also started a similar process some years back. I read it from someone’s post, I don’t remember where or whose now. My trading approach includes a high degree of discretionary input and that included adjusting stoploss and target levels.
Sometimes these adjustments were effective but often they were not. So I started keeping a record of whether these decisions had been correct or not, i.e. would my trade have been stopped out for worse if left and would I have hit my original target and gained more if left.
The results surprised me. Adjusting my stop level when it looked likely to be hit did actually save money and was mostly correct. Only a few times did price go on to reverse direction prior to my original stop level.
But adjusting my target level was a totally different story. In most cases, prices did continue to my original target and I would have gained significantly more over time if I had not prematurely exited so many trades.
This analysis was concrete and undeniable and was thereafter easy to adopt into the discretionary element of my trading.
This was all some years back now, but the benefit is lasting. Although I do still have a tendency to cut winners early especially in slow-moving, unconvincing markets.
I know this is not exactly your issue. My point is only that carrying out a concrete quantitive analysis of the difference between what one did and what one should have done is very revealing and, at the same time, very convincing regarding making changes to one’s overall strategy.
This morning I was working on my diagram, and there’s so much information. I started thinking it’s pointless to try organizing all this info and I should just improvise in each situation.
I didn’t really think that. I just felt that way because I felt overwhelmed. I had no idea how to organize it better. So, I just took it one step at a time. It’s frustrating, but worth it if it can help me further develop my strategy. I thought it might help to consolidate my diagram a bit, so I’m trying to merge and eliminate what I can. Just to simplify things a bit.
Another thing I have to add is fakeout signals. They’re a real thorn in my side.
I haven’t done any trading for a couple days. I’ve just been focusing on my diagram. I’m on my fourth version now.
It feels less redundant now. It still has a tiny bit of repetition, but for good reason. Overall, it’s reduced. I used to have 5 separate sections, but now it’s 4:
1- trading steps (how to assess what the price action conditions are)
2- entry/exit signals
3- consolidation
4- retracement vs reversals
This time I included fakeout candles. Those have been a real hurdle.
I realized something though.
Once I get a good groove with my trades, and I feel my diagram is somewhat complete (at least for a while), I’d like to stop studying so much. I’d like to do something else with my time.
I’m kinda tired of studying. Or perhaps, I’m tired of studying and not getting profits. But I’m learning a lot. I’m glad about that. I’d like to just focus on applying what I’ve learned for a little while.
I just finished trading. I have five positions open. There were several that I wanted to take, but felt forced based on my diagram.
I had to remind myself that just because something is happening in the chart, it doesn’t mean I have to be a part of it. I don’t have to try to catch every single move.
GBP/USD looks like it’s about to go bullish on D1, but there’s no real signal based on my strategy. I went back and forth about it 3 or 4 times. It’s tempting, but I had to pull myself away. It doesn’t feel good. But I told myself that I’m trying to catch the really obvious trades.
Two particular trades that I failed to read correctly. Sure, after the fact, it’s easy to see what I should have done.
But this morning, I seriously had no idea what to do. I didn’t want to sit it out because I wanted to learn how to make a decision.
Or perhaps the best thing to do is to not trade at all if I have that feeling of uncertainty. That’s something worth thinking about.
Anyway, I realized that I overlooked a step that could have made a difference, and it’s my FIRST step: draw support and resistance lines.
I actually didn’t do it. I thought it wouldn’t be necessary, and I was thinking about other ways of trading it that might not make drawing S/R necessary.
But, I guess I was thinking about so many things, I forgot the most basic thing. I messed up.
Instead of sitting it out, I would like to learn what to do. I don’t want to force trades either. I want to look at a set up, make an assessment, and make a decision based on that assessment.
Regarding your fake-outs: here is my take on these situations:
Order flow determines price action movement. When faced with a trading situation, like S&D, and S&R zones Winning traders do not have to close their trades. Pros have the luxury of sitting quiet awaiting for an outcome, while losing traders need to close in case of losing more or get stopped out. Hence large spike candles.
So you get a temporary inbalance between buyers and sellers. In an uptrend when losers bail out, the price moves down until new buyers and existing pros who could add to their positions take the price action back up again.
The key is to aim to identify where losing traders S/L’s will be taken out and/or being ‘forced’ to close to protect their capital. And also whether the winners will be enticed to take profits
In a ranging market, you will see many attempts to test the highs or lows, and patience is the key. Wait for a trend to reveal itself. In the meantime scalp the waves, where you have a built in zonal S/L.
I’m not happy about the losses yesterday, but I’m actually kinda grateful for them. I added them to my diagram, and I’ve seen those tricky price action movements in other charts.
So, lesson learned…and saved.
I also backed up my data on an external drive. So, my data is saved on a micro SD, AND on an external drive. I learned my lesson since my computer crashed before.
Also, backing up on an external is a good idea. There was a thunder storm the other day, and I was worried that somehow if lightning strikes, a power surge could wipeout my computer, and possibly even my SD card. So, it reminded me to back up my data.
I really don’t want to talk about this. I’m not proud of it, but I have to come clean. I had a trade today, that I should have checked my diagram. But I didn’t.
Without consulting my diagram, I ASSUMED I knew what was in the diagram, and I didn’t look. I thought I knew the answer, but I didn’t. I was wrong.
I had a signal, and I treated it as a reversal. I checked my diagram, and it says that I should have traded it as the trend will continue. And I just checked…
I got stopped out. The trend continued, just as my diagram said. I put a sign on my wall in big letters to follow my diagram.
This is bad. But, I’m gonna keep going. Fall down 7 times, get up 8.
A snake can only shed it’s skin against sharp rocks. Let’s go!!!
It is uncanny how it often goes that we define a method that tells us what is worth doing … and yet, when it comes to making the trade, something else within us concludes the opposite - even though we design that method ourselves using the same logic process.
It’s funny you said that. I came back online because I was just thinking the same thing.
I wanted to write about WHY I do this over and over.
I have a hard time slowing down and thinking when my emotions are running. At the moment of the trade, my brain is running and it sometimes doesn’t even cross my mind to check my diagram. I just assume I already memorized it.
And that’s certainly not the case. That’s the reason why I have the diagram–to remove the thinking.
Sometimes, I don’t know which diagram to look at. Suddenly, all details become significant.
It’s already been pointed out here that I seem to not trust my diagram. Perhaps, I just have to keep getting it wrong over and over until my brain learns what to do.
I have to make every mistake until I have enough painful experiences telling me what to do and what NOT to do.
Do it wrong until I do it right. Perhaps this is my way…
