This is 3rd post on the EURUSD trade. First post has analysis and case for taking long position two weeks back. It is available here. Second post has analysis and reason for taking partial profits from the position. It is available here.
In retrospect, would had more gains if part of the position was not taken off. But on other hand, the profits (R:R) were good, it is counter trend play and we never know how market would unfold in future.
At this point, market hasn't touched the stop on 2nd part of the position. So what is next? Given the recent sharp up leg (strong momentum) and break of prior swing high (blue line), good chance that market might bounce from any pause/pullback. So assuming for now market is still on path to 1.345 area (blue rectangle on chart). Moving the stop up to 1.305 area (i..e., red line on chart) though as it is counter trend position. If a pause/pullback forms before reaching 1.345 area (which is likely given the size of up move), would trail stop more closely after that.
Every day, we make decisions that have good or bad consequences for our future selves. Can I skip gym just this one time? Can I take this trade just one time against my rules? Can I eat this creamy pastry just this one time? The list goes on.
The following Ted talk video (15 minutes) from Daniel Goldstein talks about tools that help us imagine ourselves over time, so that we make smart choices for our future self.
We regret short term for the things we have done, and in long term for the things we have not done.
Most people believe that success precedes happiness. "Once I get a promotion, I'll be happy". Or "Once I hit my performance target, I'll feel great". Problem is success is a moving target. As soon as we hit target, we raise it again.
No wonder, the happiness that results from our success is fleeting. Research shows that it actually works the other way around i.e. people who cultivate a positive mind-set perform better in the face of challenge.
Training our brain to be positive is not so different from training our muscles at the gym. Recent research on neuroplasticity reveals that even in adulthood, as we develop new habits, we rewire the brain. Engaging in even one brief positive exercise every day for as little as three weeks can have a lasting impact.
Five activities that correlate with positive change:
Choose one that resonates well with you. Then try doing it every day for next three weeks.
Jot down three things you are grateful for in your life.
Write a positive message to someone in your social support network or coworker
Meditate at your desk for two minutes.
Exercise for 10 minutes.
Take two minutes to describe in a journal the most meaningful experience you had in past 24 hours
Change our relationship with Stress:
Stress is another central factor contributing to our happiness. Many training courses on mitigating stress focus on its negative effects. The problem is, we then get stressed-out about being stressed-out. The next time you’re feeling overwhelmed, try this exercise:
Make a list of the stresses you’re under.
Place them into two groups—the ones you can control (like a project or your in-box or your routine) and those you can’t (the stock price, housing prices).
Choose one stress you listed under the group you can control.
Come up with a small, concrete step you can take to reduce it.
Then act on it. In this way you can nudge your brain back to a positive—and productive—mind-set
Bottom line, increasing happiness increases our chances of success. Doing activities that correlate with positive change, changing our relationship with stress and nurturing social support are a great start!
Credits: The source for this post is from Harvard Business Magazine article - Positive Intelligence
Happiness is not something ready made. It comes from your own actions - Dalai Lama
This is a simple story of a stone cutter. It is also an empowering story that I think many traders can feel and see themselves in.
How does a stone cutter break open a giant boulder? He starts out with a big hammer and whacks the boulder as hard as he can. The first time he hits it, there is not a scratch, not a chip - nothing. He pulls back the hammer and hits it again and again - 100, 200, 300 times without even a scratch.
After all this effort, the boulder may not show even the slightest crack, but he keeps on hitting it. People sometimes pass by and laugh at him for persisting when obviously his actions are having no effect. But a stone cutter is very intelligent. He knows that just because you don't see immediate results from your current actions, it doesn't mean you are not making progress. He keeps hitting at different points in the stone, over and over again, at at some point - may be on the 500th or 700th hit, may be on the 1004th hit - the stone doesn't just chip, but literally splits in half.
Was it this one single hit that broke the stone open? Of course not. It was the constant and continual pressure being applied to the challenge at hand. It is the consistent application of the discipline of CANI (Constant And Never ending Improvement), the hammer that can break open any boulder that is blocking the path of your progress.
My progress as trader was (and is) never linear i.e., no visible progress for weeks, months (and on some - years) and then suddenly few aha moments that nudge towards a bit more better trading and better trader. The cycle then starts again. You can see now why I find the above story empowering.
What is your experience on this road? Can you share any stories that you found helpful and empowering as a trader?
"In the confrontation between the stream and the rock,the stream always wins - not through strength, but through persistence." - Buddha
When traders lose money, they often attribute the problem to a lapse in discipline. Then often the next step is negative self-talk, self-criticism followed by resolutions to stop this with will power and self-control.
I think not all discipline problems are necessarily due to psychology. Many times the loss of discipline can be due to other problems in trading. I think having an understanding of what caused (trigger) the lapse in our discipline coupled with self-control is more effective than trying to resolve by just will power alone.
Following are the top 10 reasons:
Environmental distractions and boredom cause a lack of focus;
Fatigue and mental overload create a loss of concentration;
Overconfidence following a string of successes;
Unwillingness to accept losses, leading to alterations of trade plans after the trade has gone into the red;
Loss of confidence in one's trading plan/strategy because it has not been adequately tested and battle-tested;
Personality traits that lead to impulsiveness and low frustration tolerance in stressful situations;
Situational performance pressures, such as trading slumps and increased personal expenses, that change how traders trade (putting P/L ahead of making good trades);
Trading positions that are excessive for the account size, created exaggerated P/L swings and emotional reactions;
Not having a clearly defined trading plan/strategy in the first place;
Trading a time frame, style, or market that does not match your talents, skills, risk tolerance, and personality.
Credits: The source for the post is from this article by Dr Brett Steenbarger.
It is not the trading that's hard, it is the discipline!
Prior analysis for EURUSD along with my reasoning for long scenario are available here.
Best way to understand the follow up is to approach from this premise i.e., find low risk zones, manage to profitable outcome basing on what market has done and stay away from reward predictions or what market should do next.
EurUsd Analysis - Jan 20 2012
Longs who entered in the zone after waiting for market to rinse early longs and shorts should have good R:R in their position now. The question is what's next?
Market is in a place where one can make a case for both bulls and bears (but without low risk) and that is not a good thing. For bearish view, market in down trend on daily chart scale and it pays to follow trend. But flip side, trend is extended with 5+ pullbacks without deep correction. For bullish view, market completed first part of diabolic sequence (i.e., trap early reversal longs) using strong support zone (visible better on weekly chart) as base and 2nd part typical for bigger with trend moves is pending i.e., rinse longs that came in after trap or eager shorts who want to follow down trend. But flip side, the position is fighting trend.
Given above, my sense is to be satisfied with good R:R from longs i.e., cash out good part around 1.295 area with a tight stop on the rest (like around 1.283 area). Then wait for a low risk short zone and leave high risk zones to experts/advanced players.
Ambiguity aversion is basically an aversion to uncertainty - like preference for security over uncertainty, known risk over unknown risk etc. It is one of the major causes of a trader's under-performance. We all have this aversion with the levels varying from person to person unless you are from Mars. If so, curious to hear your perspective as well.
The basic idea is when a trader is not comfortable with ambiguity, the trader tends to seek more data than necessary.
A simple exercise to determine ambiguity aversion quotient in your trading:
Count the number of inputs you considered in your back testing to initiate & manage a trade.
Assumption: Reader has a method/plan that was back tested via automated, sim or live trading.
Now count the number of inputs you considered in last 10-15 trades. Or all the inputs you would consider for your next trade.
Now calculate the difference (i.e., subtract 2 from 1) and multiply by 5%. Result is the ambiguity aversion quotientin your trading.
Two questions to ponder:
If the extra inputs you consider in live trading are really needed and improving the performance, then why is it not included in the trading plan?
If those extra inputs are not improving the performance then why are you considering them and making your trading complicated?
Obviously I am not a psychology expert. So treat above as fun. Who knows the exercise might trigger some other insight that might also prove useful.
Note: If you are a not a trader then just use "decision making" as proxy for trading.
Trading is an art of uncertainty and science of probability.
For a long time I had difficulty keeping a trading journal. On other hand, I had no problem in tracking trading stats and chart diary. Part of the reason, I guess journal was not structured and cumbersome.
Following is a simple 1 page trading journal template that I use currently:
What did I do well today? (2-3 lines)
What can I do better tomorrow? (2-3 lines)
What did I learn today? (2-3 lines)
What did the session felt like today? Why? (2-3 lines)
What is my plan for tomorrow?
Restricting the answers to 2-3 lines is not easy. On other hand, it forces the real reasons to bubble up from the noise. One tip - If you have difficulty bubbling up real reasons (happens on some days), try to say it out loud.
To give credit where it is due, I created above revised template for my use some time back based on comments by a veteran trader - Steven Goldstein.
Those who are blessed with the most talent don't necessarily outperform everyone else. It's the people with follow-through who excel - Mary Ash
A large part of trading is about making quality decisions with incomplete or ambiguous information and then managing it to favorable outcome. So as a trader, I felt it is useful to learn more about decision making. My current plan is to learn little bit each week, share via journal and seek comments and perspectives.
Outline
This week I will share different categories of decision making strategies at high level and go deeper into recognition primed decision making model.
Decision making categories:
I think on a large scale there are 4 main decision making categories
Summary:
Long term looks like 1st correction of a down trend. On daily, last down leg started in Aug 2011, then big sideways congestion followed by contraction i.e., smaller sideways congestion. Two potential short zones. One zone is higher risk then other. Probably it will be more clear after seeing the chart. Regarding targets probably I would keep some position beyond target 2 as it is a first leg.
Note:
I generally prefer entering in low risk zones. A zone is low risk for me when it has two attributes - small stop AND an entry point that allows position to break even very quickly with low chance of getting stopped out after that. The later is a stringent filter and would miss often good moves. But there is always another train coming. I am curious to see how other readers would analyze this chart. Feel free to let me know.
Prior analysis for TLT is available in here. Now that TLT made a +1R (where R = initial risk) move, I see three potential trade management approaches to this trade.
Trade Management Approach-1:
Move the position stop to break even. Sell half @ 1R profit (which should have been triggered today) If not then hopefully it will go there again tomorrow. Key is moving position to break even so that position becomes a free rider.
Trade Management Approach-2:
Move position to break even. Don't sell any yet. Let entire trade run. In short, take out the risk and make full position a free rider.
Trade Management Approach-3:
Don't do any thing yet. Give wiggle room for the market to work.
Now which trade management approach do I take?
If I know what market will do next then that would be fairly easy. Since I don't know, I am going to chose suitable trade management approach via a process of elimination
What I know right NOW is - market is in a range, there are two resistances in front of it and today's up move is weak. It already failed to go up once (prior swing) and if it fails again then I am not comfortable keeping the risk i.e., waiting around and hoping third time is the charm. Also this is not early stages of a trend. So approach-3 is out.
Right now I know market is still in uptrend longer term and I would like to participate in the trend for higher R return. Both approach-1 and 2 would satisfy this requirement. But there are two resistances in front and market is near Dec 2008 peak. So the move to new highs may still happen but not good enough reason to stay without any pay for from the trade for the work and risk I have taken. So approach-2 is out.
So my choice is approach-1 i.e., sell half @ +1R and move stop on other to break even and trail via a stop.
Wow this became much bigger post than I thought. Thanks for reading so far. On a side note, I don't do this much analysis consciously in actual trading and also trade management approach is selected much earlier i.e., before entry.
How would you analyze TLT and if you had taken trade how would you manage this trade? Feel free to point out any errors you see in above analysis.
Summary:
TLT (iShares 10-20Yr Treasury bond fund) - in long term uptrend with large corrections and in sideways congestion last few months. Since December 2011 it is both sideways and contraction. Now I think it is at a point where it rinsed and outrun patience of enough traders to start a move. The annotated chart below would make above summary more clear.
Now would the move and direction as analyzed will happen? I don't know and probably will be more of interest to analysts and newsletters. As trader what interests me is -- do I have a high probability, high reward and low risk position? I find this chart meets those requirements if it happens in next 2 days.
Following is an edited image from a signal service provider advertising its performance. Just for fun, how many tricks can you identify that are being played? I notice three tricks.
My interest is more in the puzzle aspect. So edited the image to remove page resemblance and name of the site.
Who in the world am I? Ah, that's the great puzzle - Lewis Caroll
Common advice is to share your goals with others so that it increases your accountability and commitment. Looks like recent research suggests that sharing your goals might have precisely the opposite effect. Instead of increasing the commitment, sharing appears to reduce it. Part of the reason seems to be publicly committing creates similar effect to fantasizing about reaching those goals and the illusion of progress when there was no progress.
This journal is to share my thoughts related to trading and market analysis. Most of my trading is on index futures. I trade other markets also but on higher time frame.
