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Announcements

This site is currently inactive as I have decided to move away from exclusively trading Forex in 2010 and as such will not be taking on new coaching clients in this area.

 



I have resumed my focus on coaching as a stock market mentor where I run a success guaranteed stock trading mentorship program

 



Additionally, you can now get access to what I consider to be the best stock options trading alert service.

 



Of course I am biased and with a success rate fluctuating between 68.2% and 72.4% it is hard not to be biased.

 



If you do want to follow along with what I am doing every day you can get access to my dail stock market report 

 



Until next time


happy trading 


Mr Phil Newton or on LinkedIn Phil Newton trader

Consistency Based Trading - Mental Challenges

Pipsamundo's picture

To round off my blog on consistency based/driven trading I’d like to discuss some of the mental challenges I’ve had to face along the way and how I’ve dealt with them. 

For me I’ve found the difference between success and failure to be mental, not technical, and, again for me, it boils down to the application of two basic skills: 

  1. Having the discipline to (i) be around and alert when a trade setup occurs, and (ii) to only place trades that conform to my trading strategy.
  2. Having the confidence to place a trade each and every time a price pattern forms that conforms to my analytical strategy.   

One of the most frustrating things I found was that I fully understood the implications of following the above two points, which is: by taking each and every trade that my “edge” defines, and providing each trade is underpinned by my money management strategy, then over the long-haul I’ll make money – simple yes, easy absolutely not!

An analogy I often bring to mind to put the “trading process” into a practical perspective is that of a factory production line, where each worker adds one or more components to a product as it passes along the line.  In training each worker will have been taught when and how to do this, and all they are asked to do is to repeat this process over and over again every time a product, flowing along the production line, reaches them.  If, for example, a worker decided not to add the component, or to add a different component, then the finished product would not be as expected, fail quality control, and the worker would probably be sacked for not following the “rules” of his/her job.  From a trading perspective all that is required is to watch as price flows from left to right along the screen (production line), and when a pattern appears according to the rules take the trade (add our component), and at the end of the day/week/month our edge will have played out and money will be made (the finished product). 

What I took from this analogy was (i) the necessity for a plan (a production worker couldn’t build a car without knowing what to do and when), and (ii) the production worker doesn’t stress or fret about following the rules, so why should I as a trader. 

Some of the things that worked for me with regard to building confidence are as follows: 

  • I observed the effortless way that a professional places a trade – when I listened to Phil in the LTR I rarely if ever detected stress in his voice when a trade setup occurred, if anything a sense of satisfaction was conveyed that a setup conforming to his plan had come up.  This is my long-term aspiration to approach trading in the same controlled manner, and to be completely detached from the outcome. 

 

  • Having a technical plan defining setups and money management for me is imperative – I find it impossible to have confidence in something that is vague or non-existent. 

 

  • I set goals that are nonnumeric, for example my daily goal is to trade each and every setup that occurs when I’m at my trading desk.  The reason I set my goal this way is because it is in my control to make the trades but the outcome of the trades is out of my control.  For example, if my goal was 100 pips per day, and if it was a day I’d placed all my trades perfectly, without hesitation, but the day was a loser I’d be berating myself for failing to achieve a goal that was out of my control. 

 

  • Just as athletes and actors use visualization techniques to picture themselves executing their sport/role perfectly, I use the same technique applied to trading.   In particular, the moment of placing a trade (how calm I am etc.), and also my reaction to losing trades (a shrug of the shoulders and move on). 

 

  • At the moment I place a trade I remind myself that, overall, probability is on my side (from testing), but if it is a loser it doesn’t matter because the outcome of this individual trade, in the grand scheme of things, is irrelevant. 

 

  • I try to ensure the voice in my head talks in a positive way, and I often use Phil’s mantra: “trade the plan the plan is good.” 

 

  • I remind myself several times a day that I trade patterns that equate to past behavior, and I have no way of knowing whether that behavior will be repeated the next time the pattern sets up, so all I can do when the pattern appears is trade it. 

 

  • My trading strategy (analysis and money management) is designed for me, it reflects my thinking and what I am comfortable with so that’s why I use it.  I’ve certainly incorporated ideas and techniques used by others, nothing I use is new, I’ve simply bolted these ideas and techniques together in a way that suits my way of thinking. 

Two “peaches” from Phil that switched on a giant light-bulb in my head were comments he made in the LTR, which were: 

  1. Individual traders, such as me, have to be both an analyst and a trader, whereas in a large bank those roles will often be split. 
  2. The two most important traits a successful trader has are stupidity and arrogance. 

When I thought about these comments they explained a lot of my “placing trade” anguish and gave me another approach to help eliminate this dilemma as follows:  

  • “Dave the Analyst” is arrogant, exceptionally so, he believes 100% that he has the brains to put together a strategy that will enable regular profits to be taken from the FX market – how arrogant is that when you consider the failure rate!  That said he’s backed up his belief with an enormous amount of hard-work, more so than what he put into his Ph.D.  Dave has an alter-ego “Terry the Trader” who’s taken Dave’s strategy to make money with. 

 

  • Terry is blessed with raw stupidity and, to be blunt, he’s as “thick as two short planks,” and is blissfully unaware of it.  Because he’s far from bright, and has little or no memory outside of the present, he has limited capabilities outside of being able to recognize a trade setup and placing a trade.  Recognizing a trade setup is the only information he takes from the charts, and he’s so forgetful he can’t even remember whether the last trade was a winner or loser!

Jokes aside, I do try to act like “Terry the Trader” when I’m about to place a trade, I try to remove any analytical thoughts that try to pop into my head that may momentarily distract me from placing the trade, and also the outcome of the last trade placed.  I then remind myself that all the hard work has been done on the analytics and money management, and I’m now at the zero brainpower stage – all I need to be able to do is a few mouse clicks when a price pattern representing a trade setup occurs. 

Discipline I find easier to handle without too much effort and the application of a few rules.  To overcome discipline related mistakes I use simple techniques, such as: 

  • I avoid and ignore tips, chat room rumour, broker opinions, etc. like the plague, especially during trading hours.  The reason for this is to prevent myself being influenced such that I either don’t take a trade that my strategy says to take, or I take a trade that is outside of my system. 

 

  • I have a daily routine – at the desk by 06:30, I work regular hours, and remind myself I’m a business and the sole employee, and like any business if I only work a couple of days a week for a couple of hours a day I’ll not make money. 

 

  • My routine includes a lunch break and regular tea/coffee breaks, and a finishing time – this keeps me keen and fresh.  If I miss a trade while I’m on a break then, as Phil says, there’s nothing I can do about that, just forget it and move on. 

  • I keep a track of all trades placed and I review my “trade gap” every night in order to keep pushing my performance forward.  This consists of me highlighting all the trades my system says I should have taken against those I did take.  My “perfect” trading day is a “trade gap” of zero, meaning I took all trades that setup whilst I was at my desk, which is in my control to do.  The pip or monetary value of what this equates to is irrelevant because a positive side effect of following the “plan” to the letter is, on average, pips in the bank – how many pips I make on a given day is out of my control, even when I follow my plan perfectly. 

 

  • I avoid wasting time on anything that is not strategic to improving my business – distraction type activities.  For example my computer system works fine and I’m happy with my charting package and broker, so I don’t waste time looking or testing alternatives.  I try to use a business approach, i.e. when there’s a just reason for doing something I’ll define a project that has an objective and associated benefit, then I’ll get on with it.  If I can’t think of a good reason then I’m wasting my time and potentially impacting the performance of my business. 

 

  • I limit my Internet surfing to break times only – linked to point above. 

A big question I often ask myself is “I’m a business, and if a large expensive consultancy were to audit me, what would they conclude?”  This may seem like an abstract question, but if you read in the newspaper of a car manufacturer that had no production plant and wondered why they weren’t doing well, what would you think?  Or, closer home, if a fellow trader told you they had no trading strategy and couldn’t understand why they weren’t making money, and kept blowing big holes in their account?  The first time I honestly answered this question the holes I picked in my “business” were large to say the least, but it was a good thing to do as it made me take stock of what I was trying to achieve and what “all the bits” were that I needed to be successful.  I still put effort into my “business” on a daily basis, of which the placing of trades is only one part (a big part mind), and I believe by constantly reviewing and striving to improve all of the elements that make up my trading system it will enable my business to still be around for many years to come. 

A final point is I’m not perfect and don’t always do as I intend, but I at least have a blueprint of what I should be doing, and so can at least identify where I’ve gone wrong, which at least give me something to work on.  I have taken the attitude that trading is like any other skill worth having, it takes time, effort and diligence to perfect, and as long as I inch along on a daily basis then I will ultimately get where I want to be. 

I hope my blog has been of interest to you and that, perhaps, you have found something of use in it. 

Cheers, thanks for reading, and all the best for your future trading – Dave Search.

P.S. I can be reached on david.j.search@googlemail.com if you want to get in touch.