As I alluded to in my Weekly Update concerning this past week (ending 28th April 2023), Friday was a particularly interesting, challenging, strange, and educational day. It had moments of good trading, and moments of pretty poor trading in equal measure both psychologically and technically. Normally, on an Excel Spreadsheet, I will review my mornings trading that night after work and will add the details of the trades I actually took, their outcomes, but also the trades I 'could've' taken had I followed my strategy exactly, together with their respective outcomes. I'll then compare the two and use any discrepancies to try and educate myself particularly psychologically, and also fine tune my strategy should I come across something I had not seen before, so did not have a 'rule' in place. This blog post takes that process one step further, and details Fridays review, trade by trade, mistake by mistake and lesson by lesson.
To start, a brief introduction of my strategy and some of its 'rules'.
I trade two markets exclusively (DAX and FTSE) and both open at 08:00. I trade almost exclusively on the 5 minute chart. When I first started trading on a demo account I used to try and trade right from the open, but it was so volatile that it very rarely proved to be a winning approach. At that time early in my trading journey I was watching various YouTube videos with regards to trading and had come across Anton Kreil the ex Goldman Sachs trader. At the time I had no idea how divisive he was, and so in my naivety I listened to his videos with great enthusiasm and took his words as somewhat gospel. It was something he said as he was just chatting with the person filming, a throwaway comment, immediately jumped out at me. He was talking about his working day whilst at Goldman Sachs and mentioned that the time from 08:00 until 08:30 would be spent placing their clients trades for that day. This is obviously where a lot of the volatility comes from with other institutions and funds placing huge volume orders at basically the same time in the morning. So I decided as this had proven to not be a profitable time for me, from now on I would not place a single trade until after 08:30. This proved to almost revolutionise my trading immediately. No longer was I getting rapidly stopped out as the markets whipsawed back and forth. This then became the first 'rule' of my strategy -
*Observe the markets from 08:00 until 08:30, and only when the 08:35 candle has closed, look for your first signal*
On the odd occasion though, there will be a very strong momentum move in one direction or another, and if I am 100% honest with myself, on seeing this a little FOMO creeps in. I could enter on the one minute chart with a fairly tight stop and so be in the move earlier than my strategy would allow.
This is what happened on Friday.
Trade 1
The 08:00 5 minute bar in the FTSE sold off well and the next two 5 minute bars were also good solid Bull bars. I decided to look for an entry on the 1 minute chart which I took at 08:17 and a price of 7818 and a stop at 7830. I went against my strategy, but I will at times allow this so long as I can justify why I did. I held this trade until 08:45 where on the 5 minute chart I had my first true signal from my strategy at a price of 7815. As I was already in from 08:17, instead of ignoring this signal, I instead added to my already open trade. This is something the great Tom Hougaard extols if you truly want to make money trading, to add to or press your winners. This was an example of good trading. After I added, I then changed my stake size in the broker ticket to reflect my double position size, so essentially I could close both at once if I decided to with only one click. Again, good presence of mind, and good trading. Now however comes the Yin to that Yang. When I opened the new trade (the add) my strategy suggested a stop at 7825. My 08:17 trade had a stop of 7830. So instead of keeping this and matching the add to it, I amended the stop on my original trade so both now were at the new level of 7825. Part way through the entry (add) candle the market reversed and the very next candle recorded a high of 7826.9 to stop me out of both positions for loss of 16 points. Then, the candle after this one turned back down and the market was once again moving in my now redundant favour, where it proceeded down to 7790 over the next hour or so. Now I would like to point out that my 'exit' rule would've be executed at around 09:15 and I would've closed both at a price of 7808. This would've resulted in a 17 point gain, so overall, a 33 point swing. Not horrific by any means, but frustrating for sure.
*What did I learn? - My strategy now has an additional rule that when I add to a trade, the stop of the add is placed at the same current level as that of the original trade, not the other way around. Just to clarify, if the original trade progresses in my favour and I move my stop, when I then add, the stop of the 'add' would be wherever my original trades stop currently is, not where it was when I first opened it.*
Trade 2
I trade the DAX and the FTSE simultaneously so just before the FTSE add, I had a signal in the DAX to go long at 08:41. I entered at 15844 with a stop at 15818. Although this was against the trend forming that morning, as it is my strategy, and as one of my trading beliefs is that 'I act on my edges without reservation or hesitation' (this is one of 4 beliefs taken from the excellent book 'Trading in the Zone' by Mark Douglas), I took the trade. On the very next candle the market moved against me. Now I am sometimes very good at holding through the discomfort of a trade going against me as I have a stop in place to minimise risk, and I fully accept that losing is an unavoidable part of trading. In fact I embrace the experience of this discomfort as that is what will set me apart from the 90% in the long run and help me to develop my psychological resilience to loss as my trading journey progresses. But, on this occasion I think together with the fact I was back over £600 the day before, and shortly after I opened this trade I added to my FTSE position, there was just a little too much going on and psychologically I was floundering. Now I am not one to be afraid of cementing a loss by closing a trade manually, that is no problem at all if I think it is unlikely to turn back around in my favour. In fact I view that as good trading because why let the market stop you out if you can clearly see that that's very likely to happen, and so in the process save yourself some points? It doesn't make sense to me not to. However, I will also allow a trade room to breathe. But, on this occasion I was a little hasty and closed it too soon. Of course it went back in my favour minutes later on the same candle, and had I been a little more patient I could've closed for break even or at worst, a much smaller loss. But I didn't. This resulted in another 18 point loss.
*What did I learn? - Breathe. When you have multiple trades open and it begins to feel a little overwhelming, take your hand off of the mouse, take a physical step back and just breathe, and observe. Patience is my biggest edge I believe, so in circumstances such as this I should use it to my fullest capability.
Trade 3
The DAX continued to sell off until a pullback at the 0915 candle. At 09:22 I had a signal to Sell and I entered at 15776. As the trade moved in my favour I sat and watched. However, as I had already observed that morning, there were pockets of volatility where a candle would go in one direction, only to suddenly flip and reverse, (it was German Prelim CPI day which according to Forex Factory means that figures come in all through out the day, and as such the market is apt to volatile movement). It kept moving in my favour and I tried to ignore the fact that I was in profit enough to negate my earlier loss but I couldn't. I kept thinking about the previous volatility I'd seen and I even said out loud to myself, "I'm trying to resist the urge to close it, I really am....but I can't!" and suddenly I gave into emotion, and snap closed for a profit of 18 points. Had I used my exit rule, I would've closed the trade much later at 15732 and this would've erased all of the morning's losses, and actually left me 6 points up on the day! Such is trading. If it was easy, everyone would do it ;)
*What did I learn? - Trust my strategy. I have proof it works and will return me profit if I am patient, so why doubt it? The market provides you with information in its movements, nothing more. As Mark Douglas said "Every moment in the market is unique." With this in mind, yes, I've seen other candles flip back in the opposite direction that morning, but that does not mean this one will. My number one goal should always be to move my stop to break even as soon as is reasonably possible. After this, then I can decide how to continue to manage the trade.
Trade 4
At 09:30 I had a sell signal in the FTSE. I took it, I followed my strategy and I closed it for a 3 point gain. Nothing to learn from this one as it was finally a good trade.
Trade 5
The last trade of the morning. At 09:51 the DAX gave me another Sell signal. I could feel at this point that I was not as relaxed as I would like to have been, as I was acutely aware that I was only 13 points down on the day and I had to stop trading soon (I trade between 08:30 and 10:00 as I have to go to the gym, cook, study Spanish and be ready to leave for work around 12:30). But, as I mentioned previously and which I verbally reaffirmed to myself out loud, "I act on my edges without reservation or hesitation." and so I took the trade at 15710 with a stop of 15733. I could feel my heart rate quicken. I watched nervously as it moved slowly in my favour. It suddenly spiked back up above my entry price, but then settled back down and once again I was in unrealised profit. I fought with myself once more to stay in the trade and ignore the profit it was showing. Don't look, just watch the chart. Click. Just like that, subconsciously, my emotion had taken physical control of my body and I had closed the trade. Another 7 points back.
Now this trade doesn't have a 'What did I learn' because I didn't learn anything from it that I hadn't already learnt from the other trades. In fact it was after closing this trade I learned probably one of the most important lessons I will ever learn about trading. An almost epiphanic moment.
At this exact moment in time, at 09:54, I was only 6 points down on my starting balance. At one point I had been 34 points down, had taken 3 losing trades in a row, and was not feeling my most confident. If you have read any of my other posts or weekly reviews, you may recall that Friday seems to be somewhat of a psychological nemesis for me and I usually end up losing small, or worse, sometimes ruining an otherwise profitable week (I know that this is nonsense and I am addressing the psychological nature of this fallacy), but on this occasion, I did something I have not done too many times before. I decided to quit. I acknowledged that as far as I was concerned, 6 points down in the great scheme of things is as good as being breakeven. There's no point in risking a stop of say 25 points 'chasing' just 6 points all so I can get back to actual breakeven. This where so many people fall foul and end up losing way more than they had previously. This is particularly true for those that gamble and particularly true with regards to games such as Poker and Blackjack. Just watch any YouTube videos of poker cash games, or Twitch (well not now) streamers who play slots and then blackjack. They are playing with very large sums of money ($100,000 - $500,000+) and will stage an epic comeback having been stuck, sometimes, to within just a few thousand of their original buy-in, but that's not good enough. They have to get back to actual breakeven. They cannot help themselves. I've seen a similar phenomenon many a time playing live poker. A guy will have say £200 in front of him, lose some, win some, lose a little more and eventually find himself down to £50, but instead of accepting things are not going his way, or he is not playing well and getting up and walking out with that £50 to play another day, he cannot leave until he has lost it all. It's like a compulsion. It's such a weird mindset to me to have, I just don't get it.
So I looked at my account and I thought to myself, how would I feel if I opened a trade trying to chase those 6 points, only to watch it move against me? Would I panic close it locking in further losses? Would I let it run and when it stopped me out sit in quiet, regret filled rage because now I am 26 points down instead of 6?
My ultimate goal in trading is to make a living from it and enjoy the freedom that that life can provide. In order to achieve this goal, I am trying my best to separate myself from the 90% as they are the ones who will never make money trading. Chasing those 6 points is exactly what they would do. It's what a gambler would do, and I am neither. Chasing loss is nothing more than ego mixed with emotion which is not a good combination in any endeavour you undertake, even more so in trading. On reflection, I have learnt some valuable lessons this morning. I have strengthened my emotional control in that I took trades without hesitation, even when I was down. I added to a trade. I acknowledged that I am not psychologically 100% in the right mindset to be trading as I am too conscious of taking further losses. So what is the best option? Well, I made my decision. I closed my broker and I locked in that small loss. I was happy with my morning. Sure, I would've preferred to have returned a profit and I could've done if I had observed my strategy. In fact, when I reviewed that morning after work later that night, had I used my strategy 100%, it would've returned me 40 points profit, but that didn't matter. In fact seeing that merely helped further reinforce the need for me to trust my strategy and resist the temptation to deviate from it, and isn't that the whole point of a review? To learn and to implement what you've learnt the next time the situation arises?
To correctly quote Shakespeare -
‘To die is to be a counterfeit, for he is but the counterfeit of a man who hath not the life of a man; but to counterfeit dying when a man thereby liveth is to be no counterfeit, but the true and perfect image of life indeed. The better part of valor is discretion, in the which better part I have saved my life.’
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