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Saturday, September 16, 2006

Chasing success

I talk to numerous people through email every week who are struggling to be successful at trading. And, I find two common traits in most of them:

1.) They trade too much - most of the people struggling make multiple trades daily, some as many as 10+ round trips.
2.) They have a lack of focus.

I will start with #2. I have discussed this in the past - most people jump from indicator to indicator, timeframe to timeframe, method to method. They will use something for a few days, hit a bump, and move on to something different all together. One day the holy grail is a XX period moving average, the next day it is MACD or an oscillator. One day it is a 30-minute chart, the next day it is a 5-minute chart. One day it is buying the break of the first inside bar, the next day it is a pullback from the high.

I call this "chasing success". The bottom line is the person does not spend enough time on any one method to really understand and execute it properly. They bounce around, and before they know it a lot of time has passed and they are still struggling.

If you pick something and stick to it, you get good at it. Once you get good at it - once you perfect it, THEN you can add something else to your arsenal.

There are plenty of set-ups I have highlighted in the blog that have a 70%+ success rate. Do you want an idea? Look at 30-minute charts that break the opening range high, then pullback and consolidate with a textbook hammer at a key moving average. You may ask, "well how many of those are there a week?" My answer is a pretty high number - you just have to focus and find them. But, say you can only find 2-3 per week. Would you rather have 2-3 great trades and a positive, money making week? Or 30+ trades and a negative, losing week?

Regardless of what set-up you choose, focus on it and study 1,000's of charts. Analyze the details - does it work better when the tail of the hammer also touches the opening range (OR) high or the Fibonacci extension? What produces better results - a slow, 3-5 bar pullback or a violent 1-2 bar correction? Does it matter if the bar preceding your hammer is narrow-range or wide-range? What about the hammer being green (closing positive) vs. being red (closing negative)? Learn your set-up inside and out!

A final thought on #1 - why do you want to make 20-30 (or more!) trades a week when you are losing money? Stop trading so much! And a way to "force" yourself to do that is to FOCUS on one thing. Pick a timeframe. Pick a moving average. Pick a set-up. And wait for it to happen. What do you do while you wait? Study charts!!! And if a day passes and you do not make a trade, so be it. Look at it as a positive - you did not lose any money!

And feel free to email me when you think you study as many charts a day as I do!!!

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13 comments:

QQQBall said...

that is a great post - thanks X.

when im going poorly, i reduce size and allow myself 1 trade a day with a tight stop. this forces my entry to be pristine. this helps to build confidence, b/c if i can do it once, i can repeat the process successfully over and over.

i like to buy pullbacks. im not terribly patient with BOs that break back below the BO area (on gaps up) i like to buy PBs back to the low of the OR high, or high of OR on gap down. these can be near fibbo levels too. what i have been working on is flipping and going opposite direction when the pattern fails. i generally want to trade in direction of the gap.

ive been working alot, so im trading vicariously thru the posts here.

QQQBall said...

have you guys been noticing that the level of the close of the first 15-min bar quite frequently seems to be S/R?

ciao!

Anonymous said...

I look at charts and do try to get a feel for fairly simple patterns, but moreso I feel for when all the right people are pointing out what's too cheap. I track a saturation of information and commentary and learn to hear patterns over noise. Occasionally real clues pop out. Though it's time-consuming, it works better than any other technique I've tried.

Stan Kravchenko said...

Appreciate greatly when someone puts a simple truth into a very easy to understand artcile. Just great.

John Wheatcroft said...

Excellent!

Ed said...

This really gets down to the heart of the issue for me. Thank you. You have given me much to think about today.

Zeke said...

Once again proving you have the best blog out there. Thanks X and Tom C. If you guys go away, I may be forced to retire!

Dave said...

So simple and just as Ed said, hits right at the heart of the issue for me. I printed this post out and taped it to my monitor.

huh? said...

Trader-X,
Call me lazy (although I have been searching for a year now)but why re-create the wheel? It appears you have posted the basics of a winning strategy.Perhaps you might be willing to be more specific? for all of us struggling new traders.
I have posted my questions in parenthesis.
"Look at 30-minute charts that break the opening range high,
(how does one screen it down to 3 candidates? can I assume this strategy would work with emini futures? that would simplify my search to one or two charts each day)
then pullback and consolidate
(how many? or does it not matter as long as a textbook hammer prints)
with a textbook hammer
(hey, i know what that is thanks to your charts!)do you enter above the high of the hammer?
at a key moving average.
(you usually show the 5 and 34. are they simple or exponential or?
Also - how would one set reasonable targets? maybe a fib extension? or trail with a MA?
and stops? the low of the hammer? or the moving average?
I would be extremely, extremely content to have a 70% win rate with only two or three trades a week. It would put me out of my searching misery knowing I have a winning strategy I can believe in.

Trader-X said...

huh?

This whole blog is for struggling traders, and is very specific. I don't hide anything. They are almost 460 charts and 100's of other posts that address all of your questions. I have even made it easy by categorizing, and putting links to key posts at the top of every page. You have to actually read through the stuff. It is all there.

By the way - where did you get that I screen down to 3 candidates?

huh? said...

X dude - chill. I never said you hide anything - I was looking for more guidance on a specific trade you said was a profitable set-up.
I said "down to three charts" because as a new trader I feel I can only watch three at one time.
I clicked on your charts icon and scrolled through and only saw a few that were tagged "30 minute time frame" posts. Please don't misinterpret my misunderstanding. You put forth a tremendous effort for free. I just keyed in the strategy you posted and it sounded great to me. I will look at every chart to determine whether it fits the criteria you outlined. Thank you!

Anonymous said...

X,
Your blog is wonderful.I am still learning a lot from your charts and keeping my losses small and making tiny profits too.
I am not full time trader yet since I have a full time job . My new job will only allow me to trade till about 7:30 in the morning .What would your advice be to such part time traders like me ?

@bclund said...

Spike.