Some Interesting Observations

I saw this post on Forex Factory a while ago and found it very thought provoking – very rare for most of the things posted there. Please feel free to leave me your comments. I would be interested in what you think. The discussion was about the life cycle of threads that are sharing trading systems.

“No doubt, I like the idea of sharing trading ideas and concepts. But, to share an entire trading system (if it truly is a full blown trading system) is not only unwise, but in most all cases it will be as close to impossible as anything else.

Real trading systems have lots of moving parts. Each of them could be uncomplicated as a simple one line mathematical function that derives a single value. Or, a part of a trading system could be an entire cluster of mathematical functions, algorithms and signal processors – just to make-up one component of an even larger trading system.

Trading Systems, are really not the same as Trading Methods, Trading Tactics and/or Trading Strategies. A system by definition is the integration of several (many) lower-level functions, methods, calculations, inputs, filters, scanners, etc. To describe how one uses just one of those components, could take an entire semester. To layout a full blown trading system, could take years in an online environment such as this.

For that reason, I opt to talk about trading concepts that have made me a consistently profitable trader. To that, I would add several key concepts that I learned from a serious trader about 7 years ago. That person showed me the futility of attempting to trade any market without making certain that my trading system could account for the following concepts:

a) Timing
b) Direction
c) Magnitude
d) Framework
e) Probability

I learned from that individual the importance of trying to account for each of these core elements to successful trading and how ignoring any of them would lead to ultimate de-optimization of my trading system.

When you stop to think about it – each one of these core components go hand-in-hand. I was shown that:

Timing = Maximizing profit
Direction = Minimizing draw-down
Magnitude = Identifying profit potential
Framework = Minimizing psychological draw-down
Probability = Maintaining positive expectancy

Trying to trade without these core components, de-optimizes the entire process of trading in general. To prove it to yourself, simply take the inverse of each one and say it out loud to yourself:

“Minimizing profit”
“Maximizing draw-down”
“Failing to identify profit potential”
“Increasing negative trader psychology”
“Maintaining unreliable and unstable expectancy”

You would not willingly attempt to blend any of those things into your trading routine. Yet, many traders do this all the time without ever realizing it, by failing to properly account for these core elements by their own design.

Thus, whatever the trader can do to ensure that they have accounted for these core elements in their trading habits, routines and systems, is time well spent.”

Some great and interesting observations . . . discuss.

Rick

Technical vs. Fundamental

I consider myself a technical trader. What does that really mean and what are the advantages?

Technical trading is based on technical analysis – the use of price action to determine trends and potential trend reversals. The consistency of technical analysis lies in the fact that all traders see the same thing when looking at a chart. They may react differently, but the data they observe is the same.


(Click on chart to enlarge)

Based on the chart above, 1000 out of 1000 traders would have to agree that . . .

The candle at 1 is the structure low of the price action shown.
The candle at 2 is the structure high of the price action shown.
The candle at 3 is the swing low immediately following 2.
The candle at 4 is lower than the low of the candle at 3.

The point simply is that there is nothing that is subject to interpretation. Therefore, because the information is the same, this levels the playing field between all traders viewing this data. What they do with the information may vary widely, but the fact remains, the data is the same for all.

Fundamental analysis is quite another story. Fundamentals hinge largely on speculation. Although they clearly effect the markets, they are subject to wide interpretation. If they were not, we would not need the likes of CNBC, Bloomberg and other financial information outlets. These sources owe their existence to the opinions of their “experts” that consistently debate opposing viewpoints; their interpretation of the data generated by the fundamental variable and how it will affect the market. Furthermore, beyond our resources, there may be inside information or other factors we are unaware of that will influence the outcome of the news. Without this additional information, it would be ridiculous for us to speculate as to the market’s behavior. We would never have enough information to create an edge, so trading purely on fundamentals is not wise because the risk for most of us is unacceptable.

As technical traders, we are only interested in what the results are, not why. We can observe the market’s reaction to fundamental data, but we react with a technical approach. We know that news (fundamentals) may move the markets, or not. We never know to what degree or in which direction the market will react until we actually observe the outcome using our technical analysis. How often have we thought the market should do one thing based on fundamental data, and to our minds, the market’s reaction was totally the opposite? How often have we found that there is really little correlation to news and the market’s reaction to it?

It is often said that fundamentals drive the market and we can all cite infinite examples. That premise is not in dispute. However, all we have to concern ourselves with as technical traders is that something did happened and the price action we observe is the result. We need to be aware of the news, but we should never assume we know how the market will react to it.

Don’t get caught up in the speculation. Know when the news is coming, but let your technical analysis and trading plan dictate your rules of engagement – not the pundits.

Rick

We’ve Moved . . .

Dear Friends, Clients and Fellow Traders,

As of 12/31/17, the Pro Trader Network Thinkific Education website will no longer be available.

The New Excel Course 2.0 site is available. Once enrolled, you will have lifetime access to course materials

If you are an EXISTING Excel Course Client, the new hosting website HAS A MINIMUM COURSE FEE. I cannot provide login details for no cost. Please email me and I can work with you for a MASSIVE discount.

If you are new to the Pro Trader Network, PLEASE CLICK ON THIS LINK FIRST
PTN EXCEL 2.0 as the Education Hosting Site maybe offering the Excel Course 2.0 at an incredible value well below the normal price of $145.00!

The New Skill Builders and Traders Workshop sites are now available. The sites require a minimum course fee of $10 for lifetime access.

Click this link for 50% OFF the FULL PRICE of $20.00: PTN Skill Builder Series 50% OFF

Click this link for 50% OFF the FULL PRICE of $20.00: PTN Traders Workshop 50% OFF

I hope to see you soon.

All the best.

Rick

Education of a Trader

I can not find the source reference for this Article. All the same, some good information – Rick

Throughout your personal trading journey I submit that you will find there are two distinct types of education:

FORMAL EDUCATION

This is typically obtained from books and seminars. This information is critical as it appeals to the logical mind and is accepted based on the trader’s belief or current references about that particular topic.

FOR EXAMPLE: Trading with the tides shifting and the particular alignment of the moon with the other planets might be considered by some to be total hogwash. While others who understand the incredible power of symmetry and the mathematical relationships study this phenomenon with passion. Your personal beliefs about the value or validity of this trading style will greatly influence your ability to accept it as a viable strategy.

LIFE AND TRADING EXPERIENCE

Is knowledge obtained from the experiences that life teaches? Formal education may or may not teach an individual how to trade, but allows the trader to learn from the mistakes of others. This is a good learning experience, since it would take the trader a long time to make all the same mistakes. Education from real life trading experiences, teaches an individual appropriate and necessary survival instincts.

The final step to achieve success is to apply analytical evaluation to the actions required. This places emphasis on repeating actions that produce the desired results, and carefully examine closely what does not work. Once the reasons are clearly understood why some technical actions do not produce desired results, they should be adjusted, improved or discarded.

This basic approach of how to achieve success may leave the reader with the false impression that trading success is an easy process. Not so. General George Patton stated, “A warrior’s greatest asset is self-confidence.” This demands knowing what should be done, and why it should be done. This will be presented later, when I will examine the reasons that prevent most people from achieving success, and what can be done about correcting them.

The importance of a positive attitude, the two most important psychological laws, and the four steps to achieve success have laid the foundation for understanding the nature of personal change, why most traders lose money, and actions responsible individuals take to correct losing behavior.

The Three Reasons Why Most Traders Lose

One way to change from a losing trader to a winning trader is to change the thoughts that preceded the actions responsible for the losses. It is difficult to alter the habitual thought processes that have embedded themselves deeply in a trader’s personality over a number of years, due to the powerful influence of three intertwined emotions: fear, anger and guilt.

Fear is an emotional state of anxiety due to the presence or perceived presence of danger. (Stress is often defined as anxiety from an unknown source.) Each newborn child has only two natural fears- fear of loud noises, and fear of falling. Most fears produce learned behavior to a specific set of conditions, called conditional responses. Pavlov pioneered this research with dogs in the 1920’s, then B.F. Skinner with human beings and animals in modern times.

Fear often impairs the rational trade decision-making process by emotionally relating the possibility of past financial losses to the future. Fear often immobilizes the trader’s decision-making process resulting in no trading decision, or a delayed incorrect trading decision response.
Fear will elicit a trader’s “flight or fight” response when he is confronted with methodology’s trading signals. The trader will either take actions as demanded by his trading methodology, or remove himself from the presence of danger. An acronym for Fear may be “false evidence appearing real.”

Attitudes Determine Actions

Traders with positive attitudes have positive expectations, and take decisive goal-directed trading actions despite fear.

The winning trader accepts the possibility of losses or mistakes yet has the self-confidence to take action despite fear. Winners manage fear, and losing traders are controlled by it. The greatest mistake is to fear making a mistake. Trading success is based on knowledge of what works and what fails. Managing fear and accepting mistakes are an essential part of the trading educational experience that makes success possible. Winning traders learn from mistakes, losing traders repeat them.

Self-confidence naturally develops from self-discipline as a trader learns what actions should be taken from a given set of technical conditions. The more accurately a trader interprets price action, the better his trading results should be. Thought precedes both emotion and action, yet thoughts combined with emotions determine actions. Self-confidence comes from believing in one’s abilities, assessing and accepting risk, then taking actions. The winning trader knows personal or financial growth is impossible without risk assumption, which is part of an educational process.

Only emotionally healthy traders can adequately assume risks, because losses must be emotionally and financially acceptable to each individual trader. Each trader must define their own thresholds of pain for each, and develop the self-confidence to accept them. Fear of being wrong may be more important to a trader’s ego than fear of sustaining a financial loss.

In a similar manner, many traders can’t accept financial success, because it does not conform to their negative self-image as a losing trader. There are various ways fear can be creatively used for financial destruction by the losing trader, but the one common denominator is allowing fear to control trading actions.

It is important to analyze fear and determine its origin to learn why it is being experienced. Most fear is based on irrational beliefs adopted years ago. If fear of losing money is causing anxiety or loss of self-esteem, the trader may wish to simply stop trading until this fear is understood and positively accepted as part of the trading experience. Traders should never borrow money to trade, or risk money they cannot afford to lose.

A few solid takeaways here – Rick

A Final Message

Dear Friends, Clients and Fellow Traders,

As of 12/31/17, I will no longer be continuing with the Pro Trader Network. Until that time, I will no longer be posting any additional analysis or content. I will still return emails and work individually with clients.

For the last several years, my family and I have encountered circumstances around the health of our aging relatives that have taken my focus away from maintaining a meaningful online presence and commitment to other trading products.

The obligation in time, attention, and resources has been more that I could take on and will be for the foreseeable future.

The recent unexpected death of my oldest son Max has been the greatest challenge of all. He was a wonderful young man of 25 years that was in the happiest place in his life.

My family and I need each other now more than ever.

I would like to express my appreciation to so many of you that have been loyal and supportive for so many years.

My sincere hope is that I was able to help many of you understand that you are worthy, capable and deserving of the benefits that a life in trading can provide.

I wish you the very best for a bright future for you and your families.

Rick

Getting A Grip

We know trading is a mental game. What are we doing that is holding us back, creating anxiety and hindering our progress? Distractions, doubts and just life itself can put forth many ongoing and daunting hurdles.

Please consider these questions as a probe into your trading mindset and everyday personality that may bring to light some of the issues we need to address to get beyond our struggles and begin to turn the corner.

If we learn from our mistakes, then why are we so afraid to make them?

What is the one biggest fear that is holding you back? Why? What are you doing to overcome it?

What mistakes are you making over and over again? Why?

What worries you the most about your future? What are you dong every day to plan for it?

Trading success is not out of reach by any means, you just have not stretched yourself enough. Ask yourself if you are really stretching – getting out of your comfort zone?

The problem is that most people/traders pretend to understand when they really don’t – trying to avoid embarrassment. What are you pretending to understand that is confusing you?

What are you procrastinating about right at this moment that is effecting your trading?

In what ways are you currently sabotaging your trading success? Make a list.

What is the #1 thing you intend to accomplish as a result of your trading success?

What has the little voice inside your head been saying lately?

What is worse, failing or never trying?

Are you totally committed or just settling for your current effort?

When will you stop fearing risk and just go ahead and do what you know is right?

Are you holding onto something or someone you need to let go of? Past events or relationships?

At what time in your recent past have you felt passionate about something and really alive? Do you feel that way about your trading?

Decisions are being made right now. Are you making them for yourself or are you letting others make them for you?

Here are some suggestions to create a more highly effective mindset – that is, one that makes the best use of available resources to create positive change and good decisions. It’s not about trying to do everything or be everything at once. It’s about making the very best of the moment with what you know and finding some enjoyment with the process. (Some ideas taken from Practical Tips for Productive Living.)

1. Enjoy and appreciate the present – Quit thinking that happiness waits in the future or that your best times are in the past. Your happiness or misery depends solely on your attitude at any given moment, regardless of events. You need much less than you think to be happy and have a lot more than you might think. It’s just a matter of thinking differently.

2. Connect your purpose with your effort – What is important to you? You can accomplish anything when you really care about it. You need to wear yourself out with focus and discipline on the purpose that connects with who you really are. Start being sincere and authentic toward achieving this purpose and you’ll find joy and success.

3. Accept and embrace challenges – The most productive and rewarding days of your life won’t be easy. Contending with great challenges forms the foundation of greatness and accomplishment. The most satisfaction you will ever derive will be when you feel overwhelmed, but still persist and overcome. When you are challenged by tasks that engage your purpose, your talents and energy help you grow into your greatest self.

4. Employ self-discipline – Without discipline, success is impossible. Discipline is making the choice to do what must be done for as long and as often as required – whether you like it or not. Discipline allows you to truly control the course of your life. If not, others will do it for you, but not necessarily to your best advantage. Whatever goals or aspirations you have, discipline is the vehicle to get you there.

5. Remain positive and focused during times of failure – Progress is more important than worrying about failure. If things don’t work out as you planned, make adjustments and try again. In the end, it is focused resilience that will lead you to your desired result. Make the decision to stay positive and persistent and you will begin to reap the rewards of your intended effort.

6. Filter and channel anger – Being angry is easy, but anger never gets anything accomplished. Put your anger to good use by adopting a productive plan of action. You must direct your anger at specific problems that can be solved, not people or general things. Look for answer and solutions, not excuses or complaints. Read The 7 Habits of Highly Effective People.

7. Serve others – Interestingly enough, when you serve others, you benefit as much if not more than those you serve. The most curing work is found in helping someone with less than you. When your focus shifts from your own confusion and difficulties to those of others, you will see the positive difference you make and be filled with meaning and satisfaction. This is the illumination that will light the way for your brighter future.

You can surely see that your trading success is directly influenced by all the other aspects of your life. You must live and behave congruently or your efforts will be in conflict with your goals – an impossible way to achieve your desired results.

Rick

A Family Tragedy

Dear Traders and Friends,

My wife and I received some heartbreaking news on Tuesday, August 1st.

Our beloved and oldest son Max suddenly past away from natural causes while he was at his job. He was 25 years old.

Max was a wonderful son, brother, friend and citizen.

I will be away for the immediate future as we gather our family to mourn this devastating loss.

Rick

Max Galloway Memorial Website

In lieu of flowers, our family has set up a Go Fund Me Scholarship in Max’s honor
Max Galloway Scholarship

Managing Capital and Risk

A great Article by Nial Fuller

The Trading Secret That Will Decide Your Success or Failure

Fact: If you take three traders with the exact same abilities and trading talent and pit them against each other, on average only one of the traders will survive. It doesn’t matter if a guy is playing poker with his mates or they are trading together at a coffee shop, the last-man standing will ALWAYS be the guy who managed his bank roll properly.
This article is going to show you how to not only be the “last man standing”, but to be a disciplined winner and hopefully come away with a larger bank roll than you started with. Today, we are going to talk about the capital management “secrets” that will give you the edge over any other trader in the room or your mates at the poker table, so pack your cigars, because if you manage your capital properly you might just walk away a winner next week

The best offense is a good defense.

As a trader, if you really want to have a chance at long-term success, you need to learn VERY quickly that your mental energy must be focused on the trading variables that you CAN control. Obviously, we cannot control the market or make it do what we want (although certainly some traders act as if they can), but we can genuinely control most other aspects of trading; 1. Trade entries, 2. Capital preservation and money management, and 3. Our exits…these are all things we DO have control over.

The KEY point there is capital preservation and money management; properly controlling the amount of money you risk per trade (your leverage and exposure to the market) is the primary thing that will make or break you as a trader; in fact, it will decide the fate of your entire trading career. Any professional trader knows that capital preservation is the most important part of their day to day routine as a market professional, this can also be called “playing defense” in the market.

Great traders and fund managers think about how much they could lose before thinking about how much they can win; this is essentially the OPPOSITE of a gambler’s mentality. Gamblers suffer from an uncontrollable mental sickness whereby they focus almost entirely on how much money they could win with almost no regard for losses, this is borderline psychopathic behavior. Unfortunately, this behavior is also very common for many beginning and struggling traders.

Why some of the best traders and market analysts end up as “nobodies.”

I’m sure you’ve heard of some of the huge hedge fund blow-ups that have occurred in recent years. The two primary causes for these have been fraud and excess leverage. Excessive leverage can also be called “irresponsible use of risk capital”, aka NOT practicing proper capital preservation.

As Scott C. Johnston points out in his popular blog “The Naked Dollar”, many prominent hedge fund managers and traders have blown-up hundred-million-dollar portfolios because they did not manage their capital properly. It only takes one hot-head “young-gun” trader to think he is “sure” of something to blow-up a huge fund by taking an extremely over-leveraged bet on some company or some news event.

As I alluded to in the opening paragraph, you can take two traders or investors with the same amount of skill and trading knowledge and one will achieve long-term success while the other continuously loses money and blows up trading accounts. The difference between the two traders is that only one of them may have the mental abilities to manage risk, plan for losses, manage trades and execute capital management correctly and consistently (meaning with discipline over time). Thus, a good trader is truly defined by his or her ability to manage risk and control their exposure to the market…not by their ability to find trades or analyze the markets, contrary to popular belief.

SOME OF THE BEST TRADERS WITH THE BEST TALENT WILL ALWAYS BE NOBODIES, they will always be losers, and they will never make the headlines, because they completely lack mental discipline or skills with capital/portfolio management, and that is where it counts. So heed this advice and listen up…it’s one thing to find a good strategy, it’s another to stay in the game long enough to see the fruits of the trading method; if your capital management and risk control sucks, you’re going to be a loser, it’s pure math, plain and simple.

Capital preservation IS exciting…you just aren’t thinking about it right.

I know why many traders don’t focus enough on capital preservation and risk management: because they mistakenly think it’s not “fun” or “exciting”, but that’s only because they aren’t thinking about it right or they don’t fully understand how powerful it is.

You see, the KEY to making money over the long-term in the markets is simply staying in the game. You need to preserve your capital good enough so that you stay in the game long enough to see your trading strategy play out and reward you.

The only way to make consistent money as a trader is to have small losses (because you will have losses so better to keep them small) and a few big winners in between. It seems simple, but if you can’t do that, you can’t make money. Now, the hard part in all of this is having the mental state of mind to manage capital properly on a per-trade basis, one must consider dollars risked on the trade and also the leverage used, one must also calculate if this risk is justified but not get too emotional about it. You should always have a max dollar loss per trade pre-planned, but you may risk less than that amount obviously, it all depends on how confident you are in the setup. In essence, you need to have a mental “obsession” with capital preservation, and drop your obsession about rewards and profits. Ironically, if you can do this, you will then start to see the rewards that you were so obsessed with before.

The best traders cut their losses and they get the hell out when they know they are wrong, and they NEVER put their portfolio, their major assets or their shareholder’s assets at major risk if they get a trade wrong. They plan ahead obsessively and they always know the “worst case scenario” for any trade or investment. These are the traders, investors and fund managers that stand the test of time and experience success while the others blow-up accounts and fall to the way side.

As far as HOW you actually preserve your capital, it mainly involves knowing how much you are emotionally OK with losing PER TRADE and understanding position sizing and risk reward.

Conclusion…

Whilst sound capital and risk management is certainly the “key” to success in the markets, combining these money management skills with an effective trading strategy will give you an extremely potent edge in the market. Combining my price action strategies with sound capital preservation and risk management skills has enabled me to stay in the game for 12 years. Of all the traders I know and have met, the one thing they always describe as their “secret weapon” and the reason for their success, is focusing on capital preservation; keep losses consistently below a certain dollar threshold and secure profits and let them run when you can. Capital preservation and risk management is your most definable edge in the market, and it’s an edge you have full control over, so don’t take it for granted or abuse it. Your other genuine edge needs to be an effective trading strategy like price action.

WMA 7.30.17

Hello Traders,

No video this week as I am out of the office.

30M charts at the open:

EUR/USD overbought.
GBP/USD overbought.
USD/CAD oversold.
USD/CHF look for triangle/pennant breakout.

Don’t forget the Excel Course 2.0, Skill Builder Series and Traders Workshop:
PTN Education

Have a great week.

Rick

WMA 7.23.17

Hello Traders,

1H and 4H set ups this week.

Don’t forget the Excel Course 2.0, Skill Builder Series and Traders Workshop: PTN Education

Have a great week.

Rick