If I Would’ve Acted On Emotion, I’d Have Missed Today’s +6.1R $DAX Trade

…thankfully, I didn’t.

Here’s the story, here’s what happened;

This morning, following the open, I was looking at this;

The market was, in my opinion, screaming “get short”. We’d failed to make a new high, we were in a consistent down-trend following yesterday’s huge down-day, we’d retraced slightly overnight which usually signals a continuation, and so on, and so on, and so on.

All the signs, from a ‘guessing’ perspective, from a discretionary perspective, from a ‘trying to read and predict the market’ perspective were shouting “get short”.

…but the problem I had?

My statistically proven $DAX edge triggered a buy signal, when this happened;

At this point, my mechanical rules said “Get long”.

“Wait” I said to myself, anxiously, “I’m buying into this monumental down-move?”. Every ounce of my being was saying; “No, skip this one today, Will. Stand aside. Look at the market for God’s sakes. Do not buy this market, look at it!”.

But my edge –

My statistically proven edge, that’s backed up by rigorous black and white data that proves beyond a shadow of a doubt that this very setup provides wins that’ve been as high as +16.2R

– Said to buy the market.

…and what’s more, the stop-distance given to us was a tiny 7 points, with a target of almost +60 points away.

Again, I thought to myself, am I really buying into a market that yesterday fell by hundreds of points, and is in every single area that I can identify saying get short?

I took a breath…

…and I reminded myself of what’s got me to where I am today, and is the reason I now trade full-time, and that’s this;

I have a statistically proven source of edge, and a set of crystal clear, black and white rules in place that allow me to capitalise on this edge.

All I need to do is follow the rules.

…so that’s exactly what I did. I executed and got long.

What happened next?

We shot to target, banking a monumental +6.1R win in a single hour, growing our account by +6.1%

This is why I trade mechanically.

This is why I remove all of the guessing, the predicting, the worrying and the emotion from trading, because acting on this noise, this nonsense, rarely delivers profits, and hell, it’s even rarer that it delivers trades the size of +6.1R without any ‘work’ whatsoever, not to mention the +7.2R we had just five sessions ago.

We’re now five weeks into the year and are just under +20R up by doing nothing but following a simple set of rules.

My point is this;

No-one can predict the market, and yet this is exactly what the vast majority attempt to do, and they wonder why they consistently lose money.

Why struggle? Why waste the time and the energy that comes with getting caught up in the worrying and the anxiety that attempting to predict without a clear process or framework brings, when a mechanical edge delivers astoundingly better results with literally none of the trouble?

A mechanical edge frees you from the worry, the stress, the anxiety and the panic that trading with discretion forces on you.

I’m sure many traders had losing days today as they tried to ‘read’ and ‘feel’ where the DAX would head. We did none of that.

We waited for our entry signal, executed, and profited.

…and that’s all that we ever need to do.

What impact would an edge that could finally free you from all of the roadblocks that’ve held you back so far –

The guessing, the predicting, the worrying, the stress, the anxiety, and all of the other hurdles that discretionary strategies leave blocking your path

– have on your trading?

If you’d like to completely remove all of the above, all of the things that hold back the consistently losing majority, and you feel you’d benefit from trading a statistically proven strategy using a clear set of rules;

I can help.

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Trading Is Just Like… Going To The Gym?

Think about it…

So many people go to the gym, yet very few ever see significant, lasting results. They might lose a little weight, but it’s all soon put back on. They might gain a little muscle, but it’s all soon gone again.

The problem is, they have unrealistic expectations of what’s possible.

…and no plan or process in place, which is strange because, much like in trading, that is all you need to succeed;

Realistic expectations, a plan, and a tried, tested, proven process to follow.

We know, from a simple, logical perspective that if we follow a meal-plan and exercise regularly that, over time, we’ll lose weight, build muscle and achieve our dream body.

We also know, from a simple, logical perspective, that if we follow a trading plan with consistency, along with trading a statistically proven strategy, we’ll trade successfully over the long-term and finally achieve our dream of trading profitably.

At the gym though, much like in a new traders’ trading account, it takes time for the results to appear and become tangible…

After a month… nothing.

Two months? …nothing.

Three months? …still nothing, and then it happens;

“I quit, I can’t do this. I can’t keep this up. I’m not seeing any results and I’ve sweated it out for three months?! Four months?!”

…and you give in, when results were only a meal-plan and another month or two of hard work away. It’s all over. Yet again, another dream falls by the wayside.

How much more of your valuable time are you going to have to waste, and how much more of your hard-earned money are you going to have to lose to the markets before you say enough is enough and put a trading plan and a proven strategy in-place?

…simply put, it’s all you need.

The freedom from the rat-race, the ability to make money on your own terms, to live life without having someone controlling the days and the hours that you work, the luxuries that you’re missing out on; It’s all waiting.

It’s interesting because, deep down in side of us all, we know for an absolute matter of fact that trading profitably is possible. But again, only with realistic expectations, a plan, and tried, tested, proven strategies to follow.

In the gym or in your trading;

You know success is possible, you know the dream can become a reality, so ask yourself those crucial, all-important questions, because these answers will tell you exactly whether you’re headed for success and dreams achieved, or failure, yet again;

  • Do I have realistic expectations?
  • Do I have a trading plan in place *that I follow, win or lose* on a daily basis?
  • Do I have a statistically proven strategy in place that provides edge, and *that I follow, win or lose* on a daily basis?

If the answers to the above questions are yes;

Congratulations. You’re either trading profitably now, or you’re very much headed towards profitability. Keep up the focus and the consistency.

If the answers to the above questions are no; 

Admit it to yourself, you know the reason you aren’t achieving success. You know the reason you aren’t moving towards your dream of trading profitably, and it’s because you don’t have the above in place.

…whether you do anything about it or not, well, that’s on you.

Don’t be the person who goes to the gym for a month, doesn’t see results and quits…

Be the person who decides, this is it. Don’t allow your dreams to remain dreams any longer. Do what you know you have to;

  • Learn a statistically proven strategy that provides edge.
  • Put a plan in place, and follow this plan no matter what.
  • Gain consistency and remain focused, stay the course, and achieve the dream of trading profitably.

…it really is as simple as that.

Food for thought – William.

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Is Trading A Scam?

I was approached by a trader a couple of days ago distraught with the losses he’d incurred over the last few months and years. He came to me after finding me via Twitter and reading my blog, seeking guidance on process and most importantly removing emotion from trading.

We jumped on Skype together and his first question was, as the title of this Email would suggest, “Is trading a scam?”. He told me that every time he seemed to either execute a trade, close a trade or re-open a trade the market would go against him. He’d convinced himself that brokers were all a scam, all setup simply to take his money. He believed that whatever position he opened, long or short, the trade would be a loss no matter what.

And if a trade moved in his favour? He was so frightened of then losing the very small profit he was finally looking at, he’d close the trade before his target was reached. Emotional decision after emotional decision, destroying his trading results and slowly blowing up his second trading account.

A quote from his Email to me; “Honestly Will, is it all a fix or do people really make money trading?”.

To assure him it is possible, I showed him a few real Emails and Twitter messages from traders I’ve worked with [Some of which are here on my blog] including a trader I taught my GBPUSD strategy to recently who make +6R in 4 consecutive days trading with a +1.5R target each session, telling me how well he was doing and how pleased he was. A real person, a real Email. Black and white proof that yes, you can make money trading. Anyone can if they manage emotion and trade a strategy that is proven to produce results.

“So what’s the answer?” He went on to ask …well, for me and every single one of the traders I’ve worked with so far in either mentoring or sharing one of my strategies/processes, the answer has been the following;

Applying rules. Trading mechanically, completely removing emotion from the equation.

See, when you have a black and white, statistically proven process with trackable, testable data that backs up each action and outcome, you know exactly when you’re doing the right thing and more importantly when you’re doing the wrong thing. There’s no question. Did you execute [effectively, with precision] in line with your strategy? Yes or no, it’s as simple as that. If the answer is yes, across a large enough amount of trades you will profit. And if the answer is no, you know exactly why you aren’t seeing results, and the best part is, because we have rules you can zero in on exactly where you’re going wrong.

Discretionary trading is fun and watching a flurry of traders make predictions online is exciting, but it’s completely unreliable and as the statistics show, a vast amount of these traders fail. If not quickly, eventually. Whereas mechanical traders don’t make predictions, we simply trade recurrences that we have discovered within markets, utilising data and statistics to aid our execution and our results are proven, black and white, and can be applied by anyone.

As soon as I began trading mechanical strategies, those being my GBPUSD, DAX and D1 Swing strategies, my trading completely changed for the better. There was no more guessing, no more predicting and no more worrying…

After all the days, weeks and months of stress, disappointment and constant hard work that I’ve put into my trading business [If you follow me on Twitter you’ve seen how many spreadsheets and data sheets I’ve laboured over], honestly, trading has never been this easy, consistent and stress-free.

So if you find yourself in the same position as the trader I was approached by, or hell, you’re currently where we’ve all been and you’re working hard but emotion is holding you back, I’d implore you to either research mechanical approaches to trading or take on a mechanical strategy because it might just change your trading the way it changed mine, finally resulting in a structured, black and white view of the market/s you trade and the confidence to follow a proven strategy and process.

If you’re interested in learning more about my strategies, click here, or if you’d like to know more about how mechanical strategies work, or maybe you have questions you’d like to ask, feel free to Email me.

I’m always here and happy to help and/or answer any questions.

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Understanding Probabilities, and Risk Balanced Alongside Return

A fundamental step forward for newer traders happens when they understand probabilities, and risk balanced with return. From experience, a solid understanding of both is usually a key turning point in a traders’ career. It certainly was in my own trading journey.

You see initially, when we experience a run of losing trades, as humans and inexperienced traders it’s completely natural to worry. We’re losing money, of course we aren’t going to be particularly happy. But in trading [as long as we have an edge] all we’re seeing is probability playing out in front of us.

Understanding this alone is a big step forward for a new trader.

Bottom line: We can experience a run of losses, in fact at times a large run of losses, and still come away profitable. How?

This is where the importance of knowing your strategies’ win-rate, or strike-rate, or win-rate-percentage comes in, and is crucial. Why? Because we can use the knowledge of our strike-rate to study, expand on, place and refine our targets.

Let’s say your strategy has a 30% strike-rate. It doesn’t sound like much, but I know an extremely profitable trader who’s strike-rate has never been above 40%, it’s just his losses are small [Rarely larger than -1R, only being larger when slippage occurs] and when he has a winning trade, it’ll either be a small winner or a big winner, and it’s that rare handful of big winners that make him profitable.

The largest winning trade he’s experienced in the last 6 years of his career is +32R, or +32 times the risk he took on the trade. In other words, a +3100% return on the risk he placed on the trade.

Think about this; He could have a terrible quarter, he could drawdown his account by -25R or -30R, and that one winning trade still leaves him profitable.

And let’s look at this the other way around; My GBPUSD strategy has a strike-rate above 75% which provides winning trades more often than losing trades, but these winning trades are small.

In balance, these winning trades may be small, but their consistency provides us with enough profit to easily withstand a run of losses. The most losses I’ve had in a row on the strategy in the last 10 months has been five -1R losses, and the most winning trades I’ve had in a row on the strategy in the last 10 months has been 8 +1R winners.

This is risk balanced with return. Let’s visualise what the above variation in strike-rate looks like alongside the probability of a run of losses;

PPI 135

Strike-rate-dependant; Are you managing risk with the level of efficiency required to make it through the inevitable string of losses that your strategy is going to yield?

As you can see, with a strike-rate even as high as 60%, statistically it’s not out of the question to expect to have [a fairly terrifying] 7 or more losses in a row at times. So, next time you have 5, 6 or 7 losses in a row, remember to put a focus on respecting probability as it plays out rather than throwing in the towel before the winning trade that you need comes along.

As long as your strategy is statistically proven to provide an edge, all you have to do is stick to your rules, stick with your process and allow probability to play out.

To conclude;

Know your strike-rate, and use this to your advantage. Have a low strike-rate? It’s essential that your winning trades are large, and your losses as small as possible, never exceeding your risk [-1R]. Have a high strike-rate? Assess the size of your winning trades in comparison to your losing trades and refine your target.

I hope this short blog post on probabilities, risk and return help at least one trader out there the way it did me when I first gained a real understanding of the two combined.

Good luck with your trading.

  • Will.

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What is a market edge, how do I find them, and how do I turn them into a viable strategy?

Simply put, a market edge is a technique or process that when repeated leaves you with profit above other traders, when allowed to play out over a reliable sample size.

An edge can come in many forms and does not have to be elaborate; Although these aren’t actionable strategies, patience is somewhat of an edge, as is confidence. The ability to execute a plan with unwavering perseverance is somewhat of an edge, as is having an indifference towards money. These defining characteristics allow a trader to progress beyond most other traders and achieve better than average results which over time, compound exponentially.

An edge also doesn’t have to be complex; Something as basic as [and this is a fictitious example] realising that over a very large sample size, every time you execute long when a 14-period RSI reaches an oversold reading of 15 on a H4 chart with a -1R stop and a +2R target, across 100 trades you come away profitable.

But, make sure you’re looking in the right places; Although simplicity can be extremely profitable, you’ll rarely find an edge by utilising a common indicator.

Let’s strip things back for a second and zoom out; A brokerage platform is a business and your broker aims to take your money, plain and simple. Why on earth would they provide advantages to you, the retail trader, to profit regularly and take money from them?

They don’t provide tools like the RSI, the MACD or the Williams% for example to aid you and there’s a reason why your average broker doesn’t supply you with market profile, a footprint chart, the volume weighted average price and so on, and that is because they’d love for you to trade using the same old indicators as every other struggling trader and in my opinion, they provide them to you to keep you busy losing money and going around in circles.

As Zach Hurwitz says in his Chat With Traders interview – “Retail indicators are designed to make new traders feel better. They’re there to help them feel like they know what they’re doing.”

But, to add balance to my above statement, many traders do of course use indicators such as the RSI and the MACD and profit using them, but it’s always useful to bare the above in mind.

So, how do you discover edges?

I discover edges by looking into and testing many, many different occurrences that I notice within the markets whether based on varying timeframe levels, open prices, close prices, contract rollovers, methodologies I’ve read of in books or online, or a combination of one or two of these things, and so on.

At one point I was having a coffee with a trader who mentioned that he’d noticed certain currency pairs rose towards the end of the week. This spiked my interest and, me being me, I spent the following few weeks looking into this, literally spending hours each day building spreadsheets on occurrences, the time that certain things took place, relative MAE and MFE calculations, asking what would the outcome be if I executed at ‘x’ time of day as opposed to ‘y’ time of day, what if I only aimed for a +1R target, what if I only aimed for a +2R target and so on, to see if I was able to capitalise on any potentially reoccurring happenings.

This is my process, I pay attention and simply investigate everything and anything. When I’ve collated data on a potential edge, if the setup or occurrence seems to be taking place regularly I test these with varying parameters [As mentioned above] and try to apply rules and in turn build a strategy. I then re-run the strategy to build a win-rate and to see if it provides profit across a reliable sample size. If it does, I have a profitable edge on my hands and, I begin trading it.

Unfortunately the aforementioned currency price rise wasn’t conclusive [In my investigation at least], but similar testing has led me to find extremely profitable edges [i.e. The $DAX and $GBPUSD edges I currently trade regularly].

Edges don’t have to be complex but they do have to be statistically proven to result in profit in order to provide the confidence needed to execute across a large sample size of trades. For example, I could explain one of my edges, but without showing you the data, the win-rate, the expectancy, the most profitable R-target to utilise etc, if you were to then execute the edge and you happened to begin trading at the start of a 3, 4 or 5 trade losing run I expect your conclusion would be that the edge doesn’t work, when in fact, had you traded the strategy with consistency and let the edge play out across a valid sample size, this would have resulted in profit.

When you repeatedly follow a proven process you experience satisfaction. Repetition builds self-trust and psychological capital which leads to confidence, and in the end, profit.

Following on from the above, an edge also has to fit your personality. If your edge is mechanical i.e. you execute, place a stop and a target and walk away, if this process leaves you anxious you’ll be lead to emotion and when this takes hold it will impact your decisions and you may find yourself checking the chart, closing trades early or making adjustments that aren’t part of your plan, rules or strategy therefore sabotaging your edge and in turn your results.

How can you know whether your current strategy provides an edge? If you have a concise and statistically-proven strategy in place and you’ve followed this with precision over a reliable sample size of trades [Ideally a minimum of 100 trades], in most cases you will come away with profit. If you don’t come away with profit, it may just be a case of fine-tuning your process and your next step would be to look back over the data gathered across your sample size [And again, you must have followed your plan with precision, or the data won’t be accurate and thus your edge is indeterminable] zeroing in on perhaps your MAE or MFE, your target and/or stop distance/s or your entries perhaps. A couple of small adjustments that allow you to take that extra R or those few extra pips per month builds an edge that lasts a lifetime and dramatically increases profitability.

Analysing this data is something I specialise in and have regularly helped traders with. Many traders have approached me with a solid plan and a valid strategy, but poor results. All it’s taken is for me to either fine-tune their edge, strategy or process and they’ve gone on to profit from the markets they trade soon after.

I could write thousands of words on uncovering, testing and building strategies around occurrences in the markets to generate an edge as it’s something I’m incredibly passionate about, but for now I’ll leave it there.

Thanks for reading and I hope you’ve taken value from the above.

If you’d like to know more, if you have any questions or if you’d like me to take a look at your data [Journal, trades taken, strategy or plan, etc] feel free to Email me. I’m always happy to chat.

…or if you’d like to join me in trading my strategies alongside me, click here.

  • Will.

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