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Friday, November 17, 2006

Chasing success, again

I made a post titled "Chasing success" in September, and I think it is worth re-visiting as we enter the final month of 2006.

If you are not having the success you think you should be having, make a resolution right now to spend the next six weeks focusing on one chart pattern (look at Tom C's RMBS example from yesterday for an idea). Learn it, live it, trade it. Print off a few examples, and hang them above your computer. DO NOT make a trade unless the set-up you are looking at is at least 90% similar to the examples you printed.

You have six weeks left in 2006 - what are you going to do with them?

___________________

"Chasing success"
originally posted September 16, 2006

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 though 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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22 comments:

KayakHandy said...

GREAT INFORMATION!!! Trader X.

I think you hit the nail on the head about mastering each type of trade system before you trade any of them on anything but paper and never confuse them or intermix them with each other unless you are very organized.

I disagree with you on limiting the number of trades and kind of compare it to a Blackjack dealer at the Casino...the dealer makes about 55 hands per hour, the more hands played the more the advantage goes to the house over time...thats why if a Blackjack dealer falls off in the number of hands per hour they get yelled at by the Bosses or replaced.

This strategy must go along with the good setups on trades to work along with STOPS that must be respected. There are thousands of them every tradeing day over many markets.

Have a good weekend.

Trader-X said...

We will agree to disagree. I think overtrading kills most people, and if they can find a few high probability set-ups and focus on trading them, taking fewer trades and concentrating on managing open positions...they will be much better off.

T.C. in Orange County said...

Thanks for giving me something to think about going into 2007.

QQQBall said...

OT/

went to see the new James Bond flick... it is very, very good. highly recommended!

Trader-X said...

qqq - I saw it too. It was really good. Daniel Craig is a great James Bond.

QQQBall said...

you're right daniel craig is awesome as james bond. i cant wait for the next one

rutherford said...

Hey Trader X.

Bit of background - I regard myself as a market timer over medium timeframes (1 week to 6 months). I've been into it for about 6 yrs now since I left high school. During that time i've come out ahead. I would claim to have a disciplined and repeatable strategy - i've went to zero once, but never considered giving up and always always learn from my mistakes.

The problem I am facing now is my market timing (Dow futures) works, but only in limited circumstances. I believe strongly that nothing can replace good intuition (I would study a new market for about a year, making 'virtual' trades & studying results before doing the real thing, to build up a feel for the product). I'd like to leave my job and go full-time, but as yet my trades are too infrequent to make a stable living from. I've considered day-trading the same market but haven't yet gained the intuition and ideas (I prefer to develop my own rather then work off recommendations without understanding them) to enter it.

My strategy on market timing is based on two main themes: market psychology and macro economic trends. I'd like to exploit my understanding of these areas into other markets (hopefully uncorrelated with the Dow). At the moment I'm thinking FX/commodities, but am aware of the high levels of volatility in these markets, even though it is this that I feed off in my Dow plays.

Any advice from a day trading shark? ;)

T&A Trader said...

X- Rated

I have been a trader for 20 years, and I have yet to trade X's methodology,but do use his principles and techniques in my style. This is HANDS DOWN the premier site for a non-profitable trader to learn how trade and make Dough. If I had to point ONE website for a losing trader to go to, with NO BS, and easy straight up quantifiable rules. This is it! Happy Holidays to the X!!!. X knows to Give...you GET back more!

5150 said...

KayakHandy has a point but what your forgetting is that the market is the house. Therfore the more trades that you take your putting the odds in Mr markets favor not yours.

Bob B. said...

I agree with ta trader, this is a great place. I appreciate X's kindness in sharing so freely. I read that you have studied Buddhism and I also read the Tad principle. It is no wonder that you are successful, you reap what you sow. And the help you give out and the kindness you show to others comes back to you multiple times over. God bless!

Trader-X said...

Thanks for all the kind words though I don't know that I deserve them. But thanks. Everyone have a great weekend, and don't forget to check out all the other great blogs on my Blogroll...TraderMike, Tale of the Tape, Wall St. Warrior, Ugly, Estocastica...there are too many to list but they are all good and you can learn from each.

KayakHandy said...

5150

I extend to you a personal invitiaion to my trading room during business hours...I believe you will see who the house is.

Just tell me when you want to come and see the operation and how it really works in real time.

Flatwallet said...

great post! As a young trader this hits home. Why trade a hundred times when a few great trades will build you P&L and confidence. Without confidence nothing else will follow. All young traders must learn how to do one thing really well before learning and experimenting with other things (be it another market or setups). Learn to earn your bread before you work towards your feast.

downtowntrader said...

X,
I loved this post the first time you put it out, and I think the timing is perfect for re-releasing it Disney style for the holidays.

As far as Kayak's comments, I think you are both right to an extent. If you have a system that yields a positive expectancy, then there is no reason to limit your trades as long as they meet the systems criteria. In fact, the more trades the better as your edge will be exploited. The key is to not take questionable setups as the trade frequency increases.

However, in most traders cases, they don't have a profitable system, and taking more trades will just accelerate their loss of money. I think this is where X's advice is right on the money. For traders still feeling out for a system, it is best to limit trades to only the exact criteria that they are testing or trading. Just my two cents.

Keep up the good work,


DT

KkayakHandy said...

Are you going to pass up 100 good trade set ups only to take a couple? ...just makes no sense unless capital funds are an issue or you have trouble manageing more than one or two positions at a time. I can't think of a better way to limit profits than to not make trades.

Trader-X said...

Kayak, most people don't make good trades, and most don't just take good set-ups. That is why I talk about having focus, and say "Would you rather have 2-3 great trades and a positive, money making week? Or 30+ trades and a negative, losing week?"

Again, it is all about focusing on good set-ups. That is what my blog is about.

Trader-X said...

Yes DT, you are right. That is why I say take the next six weeks and focus on a high probability set-up. Even if you only find a few trades a week and make money, it beats trading a few (or 10+) times a day and ending the week losing money.

Spence said...

Makes perfect sense X. Thanks for the great post.

Brook P. said...

Kayak, I think you are missing the point of X's post. That is to focus on a few great setups, and only trade them when they come instead of having your focus on many different setups and overtrading, usually trading mediocre setups.

Brook P. said...

X, I didn't see your comments above where you elaborated. Sorry to post a repetitive comment.

More thoughts: Kayak, X is not saying if you are focusing on a great setup and it happens 10 times, only trade it 2. He is saying that it may only happen 2, and traing only those 2 is better than trading 20 mediocre setups.

Trader-X said...

Brook P - well put. Good comments.

Everyone have a good trading day.

Flatwallet said...

I was just re-reading your interview and I can't believe you get hate mail. I was gay, I send you love mail. The stuff you have on your site can only help most traders. I know it's helped me, and I've been only trading for the pas month and a half. If it wasn't for this blog & TraderMike's, I would be out of the game by now. I've learned position sizing and setups right here. I hope to one day learn out to exit on profitable trades properly as this is quite possibly the hardest thing for me. But thank you so much for everything.