Trading REALity
A Forex, Futures, Stocks, and Options Trading Blog

Welcome to the "Trading Reality" Blog. We've created this blog for individuals that are trading or looking to trade for a living or on a part-time basis.

There is just too much misinformation out there on pretty much every topic related to what it really takes to trade for income or wealth-building. Bringing trading back to reality..

 

Taking Action, the Key to Trading AND Life?
March 15, 2017

While at my desk trading and working, I often listen to educational and motivating videos.

They really help to push me and re-energize me in my trading and other parts of my life.

One thing I notice over and over again in so many of these encouraging videos is this: NOTHING happens unless you take action. Nothing.

This is so true in trading. You can have the best trading plan and set-up, but without taking action, the opportunity will wield no results.

I'd almost say it's the most important part, for all else depends on it.

We've all done it. You look at a chart and think "Wow, that's such a great opportunity to enter here. But.."

You're frozen into inaction. You know you're likely right, but something (often fear of somehow being wrong) holds you back from placing the order.

Or perhaps you want to become a successful trader, but haven't taken the time (action) to become one.

This applies to all things in life. How many times have you told yourself you want to get in shape and eat right?

Maybe, like me, you designed workout programs and even made diet plans.

The first day comes, time to head to the gym. But, you find an excuse. Next time. Yep, another excuse.

Due to lack of action, you're getting nowhere. Again.

Trading, starting a business, health, wealth and so much more. They all began and/or end with the same thing.

Pablo Picasso said it best "Action is the foundational key to all success."

"Time to head to the gym." -Me.

 

You're Not Trying to Hit Home Runs. However..
February 22, 2017

If a beginner trader tells me he just completed a day trade and made $5000 on his $3000 account, there are two things I know for certain:

  1. He's risking WAY too much money.
  2. Without changes, his account will go broke (or worse).

Obviously, a 167% return on any trade is abnormal and you shouldn't expect it to happen.

However, it sometimes does. But, there's a right way for it to happen and a wrong way.

Risking a large percentage of one's trading capital (like the trader above) on any single trade trying to obtain a huge return is trading suicide.

Don't do it. Don't do it. Never ever do it.

Risk only an acceptable amount of your total capital on any given trade at all times (the oft quoted 2% max loss is a great benchmark).

But, staying within your risk parameters and trailing a winning trade as far as it can go, that can give you "Home Run" trades.

I always look to exit a large portion of my trades at my Targets.

But, I'll nearly always allow a percentage of the trade to go as high as it can, adjusting the Stop as it goes.

Cause you never know how far your profits can run. It's like hitting a Home Run, but without the risk of striking out.

Every baseball player ever would love that batting opportunity.

 

Ignore Outside Opinions When Analyzing Markets
January 18, 2017

You've done your homework and have a real good reason (according to YOUR strategy) to buy.

But, before placing the trade, you decide to check the news. Big mistake.

You find a number of articles and/or news headlines related to the security you were just about to buy.

And all of them are negative. Very negative. Somehow, all your research must be wrong, you must have missed something, right?

So, you decide to skip this trading opportunity and you will look for another tomorrow. Sure enough, the morning brings a huge gain in the trade you DIDN'T take.

Don't let this happen to you. If you have a viable trading strategy, don't let outside opinions in.

Although some may believe that it won't sway them from their own research, it will, even if you're strong enough to proceed with the trade anyway.

Self doubt may creep in. Or perhaps the news and opinions are positive, leading you to double your original position size.

There's an incredibly simple solution to avoid any of this; Once you've finished your trading analysis, place the trade.

Don't turn on the news, don't search the Internet. Just place the trade as planned.

And after it's placed, yes, continue to ignore outside opinions regarding it.

Trust your trading strategy, trust your own research. Everyone else has an opinion, but who cares?

Hopefully not you.

 

Chasing a Missed Trading Opportunity
January 11, 2017

So, you missed your entry, and now it's going strongly in the direction you were hoping. WITHOUT you!

You're certain it'll keep going higher and higher. Perhaps you should just enter NOW?

I mean, you can just higher the Stop/Loss on it to make up for the increased risk, right?

Stop! You're on the verge of chasing an entry. There are many reasons to not do this.

First is risk. If you're buying higher (or selling lower) than you originally planned, you're increasing the amount you were originally planning to risk.

Why would you want to risk more money than you originally planned? If so, why didn't you just do this in the first place?

It's always better to know your risk limit and stick to it. Always.

If you think that you can just move your Stop/Loss up to reduce this, that is even worse.

There was a reason (or there should be) that you picked a specific spot to place your Stop in the first place.

Moving it up means you've just moved it into the area you were originally giving the trade room to breathe (likely inside a Supply or Demand level).

This means there is a much higher likelihood of being taken out of the trade before it has time to work in your favor.

Increasing risk or reducing the amount of room you're giving the trade to work WILL take away from your bottom line over time.

It can easily be prevented and is never necessary. Just remember chasing trades is bad, Mkay?

Either wait for a pull-back to your original planned entry or move on the next trade. There's always a next trade.

 

Setting Trading Goals (Correctly)
January 4, 2017

It's that time of year where many set new goals, with the hope of future results and self-improvement.

Written goals have and always will be an invaluable method to help you achieve great things.

However, how you frame your goal can make all the difference.

This is especially the case when setting goals related to your trading.

For example, setting a goal of making $200 each trading day is dramatically different than a goal of making "an average of" $200 per day over a 90 day period. Really?

Really. Let me explain.

If you expect to make $200 per day from your trading, you'll have many days you don't make your goal. This will lead to many disappointments.

If you set the goal of making $200 per day "on average" and after three months, you've made $12,800, you've achieved your goal ($200 * 60 trading days = $12,000).

With the 1st method, you'll likely have given up after falling short of your goal many days.

With the 2nd method, you'll have achieved your quarterly goal and will feel quite motivated to continue.

Other helpful tips when setting trading goals (or any goals):

  • Give yourself realistic time-frames for achieving your goals, don't expect overnight success.
  • Goals need to be broken down into small steps, don't overwhelm yourself.
  • Developing consistent actions (routines and new habits) will overcome willpower every time. Willpower doesn't last, habits do.
  • Success and failure doesn't just happen, it's the end result of all the little things.

Now, grab a piece of paper and get to work.

 

Reduce Position Size For Mediocre Trades?
December 21, 2016

It's a question I get asked occasionally by beginning (and experienced) traders.

Typically the aspiring trader will ask something similar to this:

"I've found an OK chart set-up. It's not that great, but still OK. How much smaller of a position size should I take on it?"

My reply is along the lines of "Take the dollar amount you usually use and times it by zero."

"What? That would be $0.00!" they exclaim.

Perfect, that's the amount you should allocate to your weak and mediocre trades.

Think about it, they're asking me how much they should invest/trade in set-ups that are not that impressive.

What if I told you I had some paintings to sell you, and proceeded to tell you that they weren't very good.

How many paintings would you buy?

Don't reduce position size on these trades, simply skip them entirely.

Only take the best trade set-ups you find. Avoid the rest.

Unless you'd like to buy my paintings (I don't paint, but I'll gladly make some for you).

 

Paralysis By Analysis
December 14, 2016

You're just about to enter the trade, but wait, you see that it's gaining momentum as it approaches your entry point.

"Oh no, what if it blows thru my entry and takes me out?"

You cancel your entry, only to see it hit your entry and quickly move in the direction you were hoping it'd go.

You've just been hit by "paralysis by analysis", or in other words "over-thinking".

The longer you stare at a trading chart, the longer you'll look for reasons to take or not take a trade.

More information, more analysis at this point is NOT better!

If you have a trading plan, you should know what you're looking for. You either see it or you don't.

Trying to look at it "differently" or checking to see what an indicator you usually ignore says won't help.

Once you have defined a good entry point according to your trading rules, place the trade.

Don't ponder on it, don't look for excuses. PLACE the TRADE!

It'll either work or it won't, but sitting there paralyzed by indecision is even worse.

 

Simplify Your Trading Charts, Then Do It Again
December 7, 2016

Over and over again, you'll hear advice that you need to simplify your trading charts.

There's a reason for that, because it's TRUE!

I've met many, many traders in my career, and can't think of a single successful one that uses messy over-complicated charts.

Show me a trader that has 15 different indicators and 10 different overlays on their charts, and I can predict their results (FAIL).

Less is better, less is better.

Think about it. Nearly all indicators are based on lagging price history.

If so, how could adding yet another based off the same thing help?

It'll help to confuse you. It'll help to give additional false trade signals. It'll make your charts unreadable.

What it won't do is improve your trading results. How to fix it?

Make a list of the indicators you're using. Now, next to it, list what that indicator is based off of (price/volume/time/etc.).

If you have five that are similar, reduce that number down to four.

If you have four that are similar, reduce that down to three.

Keep repeating as necessary.

 

The Less You "Know" in Trading, the Better
October 26, 2016

The more you think you "know" what will happen in any trade, the less you'll be able to see what's really happening.

You're likely to ignore all evidence to the contrary.

-That stock can't be going down, I "know" it's going up.

-Wait till Friday, I "know" what the Federal Reserve is going to do.

When trading, you must eliminate the idea that you "know" what is going to happen. You don't.

A question I'm constantly asked when someone first learns I'm a professional trader is "What do you think the XYZ market is going to do?"

Whether it's a specific stock, about oil, about any market, my answer is always similar.

"I don't know, nobody does."

Nobody wants to hear that. But, it's true.

My focus and your focus should be on what IS happening or has happened, never on what our opinions are.

Never confuse knowledge with "knowing". When you're certain about something you can't know, that is not knowledge.

But, if we "know" nothing, then what can we do?

Do you know that price moved up today into Supply and dropped like a rock from there?

THAT I do know. It happened. THAT is important.

 

Trading While on Vacation
August 24, 2016

Vacations are necessary to recharge your mind and body from the rigors of trading.

But, when on vacation, should you attempt to trade as usual, trade on a limited basis, or stop trading entirely?

Stopping trading entirely may be the best choice for many. No new trades, close open trades, and go ENJOY your well earned time away.

During the first half of August I traveled to Japan, with the intent of minimizing my trading.

Since I run a trading service, I feel it's my duty to continue to give paid subscribers trades to take.

However, if I had planned to trade as normal, a number of negative things would've taken place.

I would've had to find time to perform my daily trading activities, not allowing me to partake in most of the activities my family and I experienced.

Worse though, I would've returned from a vacation where I spent a large part of my time working.

Definitely not the way to refresh my mind and body.

My solution was to trade on a longer-term time frame than normal. Of course, this will give me fewer trades, but that is part of the goal.

One thing I noticed is I had very little time to trade, and quite often the Internet access was either poor or non-existent (i.e. the mountains of Japan).

With the planned reduction, it all worked out great, the minimal trades I took paid for a large part of the trip.

Even if it hadn't, I strongly believe a vacation should be a vacation.

Now, I'm back, rejuvenated, and ready to go!

 

Treat Trading Like Any Other Business
July 27, 2016

Want to be a great trader? Obviously you do. But, what does it take to make it?

Well, the same things it takes to succeed in any other business.

Too many think of trading like a hobby, something "fun" they can do to make extra money.

But, do hobbies normally make you money? Generally no, they cost you money.

So, how about treating it like a part-time job?

Usually that means showing up for work, performing your regular job duties and heading home.

While that could work, but rarely do you put forth your best efforts while working at a "job".

A much better solution would be treating it like a business.

More specifically, YOUR business.

Yes, you need to be the one making sure all the regular duties of a business are performed.

This includes planning and strategy, market research, finance and accounting, taxes, and all the other "things" associated with running one.

And just like every other business endeavor, the more effort you put in, the better results you're likely to get out of it.

 

3 Things I Re-Learned About Trading Today
July 20, 2016

1) When you're anticipating a nice trade set-up, but it's taking forever to develop, you will lose patience.

You will, no matter how much you don't want to. It's human nature.

When this happens..

You must make a conscious effort to REMAIN patient!

The set-up may or may not materialize, but if you lose interest you may miss it.

Or worse, you try to trade it by assuming it'll happen. If so, your results will suffer.


2) When markets are trading in such a tight range it's super boring to watch, you must pay even more attention to it than normal.

Getting distracted is easy to do.

But, sooner rather than later it's going to break out one way or another. When it does, it could move big.

Make sure you're there when it does.


3) Simply wishing something to happen will not make it happen.

Sorry positive thinking enthusiasts, while I completely agree that positive thinking can provide many useful benefits in your life, but making a security move by "hoping" doesn't work.

If it does, it was a coincidence.

Each and every day we're re-learning so many things that we already know. Each time we do, we're that much better for it!

 

Unrealistic Expectations
June 28, 2016

So often I talk with "Wannabe Traders", which I would define as those that want the benefits of trading without any effort, and what they expect from trading is ridiculous.

They'll ask the question "Is it possible to make $300 per day on average?"

My reply would be "IF you have a big enough account AND you use correct position-sizing methods AND you know what you're doing, then yes, it's definitely doable."

Then comes the part where they tell me that they have a $1000 account, been trading for two weeks, and they're not quite sure what position-sizing is.

If I then comment that those are super unrealistic expectations, they get upset and say "my friend is doing it, so I know it's possible!"

OK, good luck producing a 30% return on a tiny account each and every day on average.

While you're at it, you should compound your gains. At the end of the year you'll have more money than is in existence ($1000 starting capital x 30% return per day x 250 trading days per year = $30,608,220,174,415,542,446,215,357,530,112.00).

Of course, I'll only actually say that first part,"Good luck!"

You need to have realistic expectations. Making a a lot trading is a very viable goal, but you must understand that it takes time, knowledge, and capital.

Patience is a virtue, and also a necessity when trading for real income or wealth.

Thru hard work and effort, with time and accumulated knowledge, you will be able to make a fortune thru your trading ventures.

Just don't expect it to happen overnight.

 

Always Know the Big Picture
June 15, 2016

"Wow, look at that uptrend of oil on the 5 minute chart, it's going back to $100/barrel for sure!" -say many Amateur Traders all the time.

Quite often, traders and investors will only focus on one specific time-frame when deciding whether or not to take a potential trade.

This can cause so many problems, not the least of which are quick losses.

Using the initial statement above about oil surging, what if it was quite obvious on a higher time-frame chart that there were a ton of sellers just a bit higher in price?

The most likely scenario is oil would pull-back, possibly even reversing direction to the downside.

This would cause the trade to get stopped out for a loss, or worse (if you didn't set a stop/loss), huge losses.

I don't care if you're trading on the smallest of time-frames, you need to know where your trade idea stands in the grand scheme of things.

Yes, even if trading 1 minute bars, you need to be aware of what's happening on the Daily chart.

Is it an uptrend/downtrend, where does long-term supply and demand sit, is there room to run?

These and so many other questions can be answered by simply paying attention to the big picture.

Once you know this info, THEN you're free to trade off of any shorter-term time-frame you feel like.

But, by ignoring the big picture and its easily accessible info, you're guessing.

Can you guess if doing that will increase or decrease your odds of winning?

 

What to Do When the Market is Doing Nothing
June 8, 2016

It's been days now and the market has barely moved. You've placed no trades this week and you're getting restless.

What to do?

First and foremost, you should NOT force any trades. The hardest market to make money in are flat markets.

Forcing trades in the hardest type of market will typically result in the most likely outcome (losses).

There are many things you can do with this break in action. Why not use this time to do that review of your past trades that you've been putting off?

Or, you can update your trading plan (you do have one, right?), or just take the time to read it over.

It's amazing how just re-reading something can trigger one of those "ah-hah" moments.

If you've been looking to expand your trading into other markets, then now's the time to do some research/testing into these.

You know everything there is to know about trading? Of course not.

Use this time to learn something you've been curious about, but didn't have the time while the markets where moving.

The main point is, USE this down-time to improve your trading. Trading will be (or should be) boring most of the time.

Markets will never stay flat forever, they will move again. Always. With downtime, you should now be extra prepared for when it does.

Just sitting there doing nothing waiting for the market to move again accomplishes, well, nothing..

 

Markets Are Never Wrong - Opinions Often Are
May 24, 2016

Quite often I'll see an ad proclaiming that you can "Beat the Market". This is just not true, the market doesn't lose.

Ever. You can beat some arbitrary market average or benchmark, but you're never going to beat the market.

You can achieve a higher return than the overall market returns, but that is not beating the market.

If it wants to go up, it will. If it wants to be choppy and flat, it will. Your job is not to beat it, it's to listen to it and react to what it wants to do.

Suppose you have an opinion that the Australian Dollar is due for a large uptrend. Where did this opinion come from?

If it is based on what the market is doing or has done, then it's possible.

But, if it is based on some news or information that you heard and no one else knows (trust me, this will never happen), then you need to rid yourself of this opinion.

All economic data and news up until any moment in time is already part of the market. Yes, it can move quickly with new releases, but YOU don't know how far and long that will last.

Pay attention to how it's moving right now. Look for areas where it's likely to go and then decide if you want to risk some money on your observation.

Then place the trade or don't. But, never have the opinion that you can beat what the market will do.

That's a battle you're going to lose every time.

 

Time to Break Your Rules
May 12, 2016

When is it OK to break your trading rules?

The market has been behaving erratically, moving up and down in big spurts.

You're certain that if you adjust your Trailing Stop/Loss Order up, you'll be taken out of the trade for only a small gain.

You're going to miss the next big move up and huge profits.

But, according to your rules, you need to adjust your Stop/Loss. Not this time, you KNOW it'll go higher!

Every trader with some history has experienced this. Here is what often happens..

The market starts moving up. You were right, right?

Then all of a sudden it changes direction, passing thru where your Trailing Stop/Loss was supposed to be.

And then it continues dropping, fast, shooting thru where your original (non-adjusted) Stop/Loss is, handing you a nice sized loss.

Congrats, you just turned a small gain into a big loss.

So, when is it OK to break your trading rules?

When you have a "hunch"? A gut feeling?

How about NEVER.

 

Trading What You Don't Know
April 6, 2016

Have you ever been stuck in a situation you had never faced before and had no idea whatsoever to do?

Imagine playing in a baseball game and you had never watched or played baseball before. Have fun!

Yet, constantly, people jump right into trading a market they have no experience in, and expect some magical success story to happen.

If you've never traded Options (substitute any market of choice here), you probably should learn how to trade them before you start trading the Options markets.

This is obvious, but ignored by so many. Don't trade any market you don't know and understand.

The reasons should be blatantly clear. IF they're not, don't quit your day job.

Learn about the market you want to trade. Practice A LOT. Learn more. Repeat.

On the other hand, the best way to learn something is to do it. But, don't risk a huge chunk of your money "learning".

Of course, if you're foolish enough to risk a lot, I'll love it, because guess who I'm trading against ;)

 

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