I don’t know how to begin this blog post.
I know what I want to write about, but just not how to start, so bear with me.
In trading it seems to be widely considered that to be successful a trader requires an ‘edge’ over the other participants in the market. After all trading is not a zero-sum game. When you buy, someone needs to be selling and vice versa. Therefore, it stands to reason that one of you must be the loser and one must be the winner, dependent on your action and what direction the market then takes.
So what is an edge? Well, the first description that comes up in Google is –
‘A trading edge is a technique, observation or approach that creates a cash advantage over other market players.’
For those that have been trading a while and have that all too valuable experience coupled with a good work ethic when it comes to reviewing and learning, finding an edge probably isn’t too difficult. But what if like me you’re new to trading (3 months in), and have only really begun to nail down some of the basic fundamentals like simple candle patterns, what then can your edge possibly be over those who are more experienced? Think about that for a moment especially if you’re new. If I asked you this question face to face what would be your response?
Well?
In the beginning I too had to think long and hard about this and then it hit me. Patience. Simple patience. Now in normal life I am not the most patient person (see my previous post) but in trading I've now found that I can happily sit and watch the market for well over an hour before considering taking a trade. Sure, the amount of fairly big moves I have watched happen without me is numerous to say the least even in my short trading career, but although I think to myself how nice it would be to be in a trade and watching the market surge in my favour, I don’t just jump in like many do, especially if there is no clear signal. I will watch, and I will wait. At least this is what I used to do when I first started.
But recently, upon true reflection and some honest self-assessment I have come to realise the more I’ve learnt about analysis and the more and more of these moves I’ve missed, without me realising it, my membership of the 90% club had been fully paid up and I had become nothing more than a gambler. My patience was nowhere to be seen. I’d lost ‘my’ edge. I was buying on close, selling on close, all because several times before I had seen ‘x’ happen or ‘y’ happen and the market looks just like it did back then so there’s a good chance it can happen here. Sell stop and buy stop orders at weird levels with equally weird stops, just because I was itching to be in a trade and not miss a move. I only really have a 2-hour window in the morning from 8am until 10am in which to trade due to gym and work commitments so whilst this wasn’t an issue before, it now seemed that this added to the pressure of ‘needing’ to take a trade. It had all unravelled and I had become the one thing from the very beginning I knew I did not want to be.
So, what had gone wrong and more importantly, how was I going to fix it?
It was analysis time only it wasn’t a chart or a candlestick pattern, it was me and my actions and my mindset I needed to review. At the core of it I realised I had abandoned my strategy and with it my greatest strength, my edge, my patience. I had a strategy that I used that generated more wins than loses over the sample of back testing that I had done, yet here I was ignoring it. Well, that was easy. Simply go back to my strategy and bingo, I’ll be in the green again and all will be gravy. But wait.
There’s a bigger issue at play here.
Why had I abandoned my strategy in the first place?
This was a tough one to answer. So much so that it took a few days and then dawned on me one morning. I had set myself a goal of points I wanted to make on a daily basis. Innocent enough you’d think. After all, you must have goals in life and in your endeavours because this is how you measure your progress. But it’s the type of goal you set, especially in trading, which in fact can end up hindering your progress rather than helping it. I had veered from the all-important path of simply sticking to and trusting the process with regards to trading my strategy, whilst at the same time using patience and discipline, and I was instead, headed down the slippery slope of ‘results oriented’ trading.
Every morning before I begin trading, I have a routine whereby I open my trade log and at the very top of the page I write –
PATIENCE – FOCUS – DISCIPLINE
I then write a synopsis of the day before, followed by the open/close/ high/ low of that day for the trading day itself (08:00 -16:30 for Dax), and then for the ‘full’ day the broker offers trading (00:00 –21:30 – 21.5 hours) Next, and this is the important part, underneath this I write – TIME/ COUNT/ OPEN PRICE/ STOP/ RESULT. This refers to (in the same order) the time I took the trade/ the count (my strategy)/ the open price of the trade (entry price)/ my stop level/ how much I made or lost.
So what’s wrong with this you might think? Nothing really, except that last word. Result. You see, when I had it written down in front of me that each trade was plus xxx points or minus xxx points, I could see how far ahead or behind I was on my daily goal. This in of itself detracts and distracts from the ‘true’ goal of consistent trading, and that is to follow the process. Nothing more, nothing less. This one innocuous word was the subconscious catalyst for everything that I was doing wrong. It was the reason I had regressed from where I was originally, to my current state and my being a member of the 90% club.
So I removed it. I spent the whole of last week sticking religiously to my strategy, which lead to me exercising my edge (being patient) and this in turn couldn’t fail but to lead to much more disciplined trading, and that is exactly what happened. I was back to my old self. Now, at the END of every session I take stock of where I am with regards to money made or lost, but only when I have ceased trading for the morning, and not after each and every trade in the session.
It was a revelation! My thinking was clearer, I felt so much more relaxed and present, I took way fewer trades, and when added together all of this was reflected in my P&L as I was up 54 points after the first three days. Now, I didn’t keep these gains as you’ll find out in the next blog, but I did finish the week out in profit. However, being in profit is not the important part of this story, because that on its own didn’t teach me anything.
Instead, what I learned about myself, about my trading mindset and about the need for honest self- assessment and reflection is what I am sure will prove to be far more valuable during my trading career than the short lived high of making a profit. It is through this self-awareness that something was wrong and the acknowledgment of the need for change which allowed me to return my focus to the process and not the result and gave me back my patience. My edge.
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