The Market and You is like the Sea and You

Your relation to the market is like you and the sea. The sea does not know of you existence. The sea has no interest in your welfare. With the right tools and skills, you can go out and make a living from the sea. You can study the behavior of the sea. With that knowledge, you can avoid the danger and survive. With the knowledge and skill you can find fishes and make a living from that. You can even become rich. However, there are dangers in the sea. The sea may drown you if you don't read the danger signs or when you take too much risk. For example, if you only have a small boat, you can only go fishing in extremely calm water. However, if you boat is bigger, you can afford to take a bigger risk and fish in more choppy water. With smaller boat, you can only fish along the coast where there might not be much of big fishes.

Trading is like that. You need to build your capital to be able to take a bigger risk. If you capital is small, you better off taking lower risk or you will be wipe out very fast. The market does not know your existence. It does not care if you exist. It does care if you make tonnes of money or if you go broke. It just kept moving on. You can cry over your loses or celebrate your winnings. It does not matter to the market. Traders come and go. Investors come and go. Market continues.

Trading Consistency

More trades has been done after the previous post. Based on the log below, as can be seen, the results are no as impressive as before. Many more trades were added but the profit was not as good.



More losses compared to the previous results. Now, let me reflect on what has happened since then:

1. A few hasty trades were put in. Over confidence, greed.

2. After meeting with a friend who does Forex trading for some time, new ideas were added. Testing of new ideas resulted in some loses.

3. New ideas adds to new dimensions to the trades also creates distortions to the existing trading strategy and confidence. Sometimes confusion arise out of new ideas.

4. Psychologically, some complacency might have crept in.

5. Possible Market condition changed. But by re-looking at the charts, this should not have been a main contributing factor. The currency still moves in the same trend on the daily basis and more or less similar pattern on hourly basis.

Conclusion:

1. Do not discuss strategy with anybody. Other traders' ideas may not be suitable for you. Monitor for yourself and feel it for yourself.

2. Keep focus on your strategy that works and do not tweak it if it is still working fine. Doing minor tweak to improve its result is OK but not major switch.

3. Patience is still the king. Do not take any trades that are half chances only. Feel the rhythm of the price movements and always check for margin of error. Only take trades that allows larger margin of error.

4. Avoid counter trend trades unless the movement is clearly a sufficiently deep correction.

What is important in trading?

Recently, I put my hand on Forex trading. I had tried before and the result was dismay. I started GBPUSD and mixed with EURUSD and USDJYP. My strategy was to scalp whichever that comes with some move. I ended doing too many trades that are not very well setup. That means I took a lot of half-chances and as expected, I missed most of them. Then I stopped for a few months doing other things. Recently, I am back again. This time, I focus on EURUSD and I waited more patiently for setup to appear. Still, my strategy is scalping. The big different is I prepared myself differently in term of psychologically. One, I kept telling myself to be patient. Two, I don't look for big gain. I am not looking to take small gains in a bigger move. That means, I don't wait for the whole move to be complete to get out. I will get out as soon as my target is reach. Three, I lower my targets. The result turned out to be very encouraging.



Now that I have achieve very high return (in % wise), my next question is the most important one. Can I kept my trade consistent? After reading many forums and blogs about trading, I realized that what most traders looking for is CONSISTENCY. Yes, we can make a few good trades here and there but how can we keep getting consistent results?

Taking the above example, the result could be due to combination of the following factors:

1. The market is moving in a certain direction that favors that trading strategy. For example, in a bull run in stock market, everybody makes money.

2. The stake is relatively small and you can be more calm when taking trades.

3. Your state of mind is suitable for that trade at that time. How can you maintain that state of mind? Will you ever get swollen head?

The best thing to do, in my opinion, it to test yourself. Don't increase the stake yet. Do exactly the same thing for another 4-6 weeks to get the consistency first before deciding to increase the stake.

Expect the unexpected

Almost everyone expected today to have some form of pull back from profit taking. To the surprise of many, today is extremely strong day for STI. After initial advances in the morning, the afternoon session proved to be even stronger.

My portfolio is now 10% above last week's position on average.

Trading psychology - be emotionless

Nicolas Narvas:

There was no doubt in my mind now that I could not make money by buying a stock and then trying to cheer it on. JONES & LAUGHLIN had convinced me of that. I could remember how I almost felt myself willing and pushing that stock upwards. It was a very human feeling, but it had no effect upon its market any more than spectators have on a horse race. If one horse is going to win, it will win, even if thousands of onlookers are cheering for another one.

It was the same now. I knew that if I bought a stock and turned out to be wrong, all the cheering and pushing in the world would not alter the price half a point. And there was no telling how far the market might fall. I did not like the trend, but I knew it was no use trying to fight it. The situation reminded me of George Bernard Shaw's remark at the opening night of one of his plays. After the curtain fell everyone cheered and clapped except one man who booed. G.B.S.
went up to him and said: "Don't you like my play?" The man replied, "No, I don't." Whereupon Shaw said: "Neither do I, but what can the two of us do against all that crowd?"