Knowing Which Style to Play and When to Play It Part II

As per my previous post on this topic title I mentioned that I had and am still continuing to face some rather monumental difficulties in my life and in my "career" as a currency trader (aka, foreign exchange operator). I am small time, an account less than 10K (growing though), with some memorable wins and some gut-wrenching losses in my past. My pattern is usually one of two or three steps forward and a step or two back, but at the moment I am progressing. Part of my problem at the moment is the fact that I cannot support myself through this activity alone, but I am looking forward to the day when it will be possible - I was on the cusp of it approximately three years ago, had an account just shy of 10K > grown from 1K a year prior, with an equity curve that I consider impressive considering I was working for someone else full time, with a combined commute of one to two hours a day thrown in to suck extra time away.

Then I got desperate, my work situation was - less than ideal and growing worse by the month, and I decided, and I chose my words carefully - fuck it, I loaded up against GBP/JPY sold 100,000K into the wickedest rally that I ever saw on this pair - a pair which for the most part I loved to buy low and sell high on. I threw myself against a brick wall, and refused to give up - being honest here. I lost, in the end $4500 on the trade when on Boxing day of 2013, the markets gaped above my stop loss - or did I run out of margin - no matter - I was stupid, and I was stupid for a period of a couple of months where I kept thinking I would come back, and I kept selling on the way up to add to my woes. Plain and simple I was an idiot, running into a brick wall repeatedly, thinking, soon it will retrace and then return to the range, and I'll earn my next 10K in a matter of months. I cannot stress the utter stupidity of the initial decision, but also the continued stupidity of what I continued deciding as the days wore on and I lost more ground to this trade, never mind the -ve carry on this sucker.

It takes a special kind of idiot (me at the time) to allow the feeling of desperation to overwhelm my normally good judgement (and cold blooded trading style), to interfere with my analysis, my money management, and my damn case money.

Never mind the fact that less than a year later, I did this again with the AUD/USD (during the shocking interest rate cut), this time I went long, and continued buying on the way down. lost only 1.5 K on that one, and in my defense, it was my home life (roommate, whom I sure meant well, but was extraordinarily harsh to be around), that was the distraction and the negative influence, so much so that on the month that I moved, I wrote this this piece on the importance of a good environment when attempting to work magic, to employ a craft, to build something of lasting value.

I am now here, just under a year later, and while it has definitely not been a cakewalk by any stretch of the imagination, I feel that my instincts for the trade are somewhat returning. I am nowhere near the level that I was back in the first 3 quarters of 2011, where for three or four solid months, I was earning more money trading than I was at my day job, while working my day job, while commuting, while sacrificing precious time in the present for the future, but I am still playing, and still making gains.

What did I do when I realized I had to fix my brain, especially in regard to how I operated? I stepped back, after a few mistakes, and took things slowly, also my broker started allowing microlot 1K positions to be taken, so I started trying to think like an institutional trader, which means I began to take my business more seriously and enter into deals more cautiously, and more slowly, building positions gradually - which I recommend to anyone who has lost the magic touch of instinctively finding tops and bottoms (which is what I used to do) and playing their whole hand right at the reversal point; which is a bit of bull, it is not magic, and tops and bottoms are generally speaking only a matter of time and perspective (quarterly, monthly, weekly, daily, 4-hour, 1-hour, 15-minute, 5-minute) i.e. which chart is being looked at.

While I have played a few hard and fast trades and done it well on occasion, I traded small for the most part and gradually improved my instincts to the point where some of the fear (and chain-smoking) diminished, and started to have a bit of fun. I realized this step back in intensity and focus allowed me time to heal, and time to look at other aspects of my life sorely lacking...

While I do not think I was quite at the breaking point, I really did feel almost no reason to continue trying, in trading and in life - it was that bad. I am not now in a much better position than I was a couple of months ago, my environment is not great but it is for the most part stable, my day job leaves a bit to be desired but the people there are great, and though I am still way more solitary than I am used to (I miss my old friends badly because I shut them out), I did make a few new friends when I stepped back and just feeling some sincere and meaningful human contact can work wonders even when the world seems to be collapsing around you.

USDJPY to 110 and eventually 200: a few cases for staying Long or Buying on a Dip, or Adding to a Long Position

This is my Daily Chart for USD/JPY, and though I did not post this idea originally when I started establishing my long position months ago, there is new information pertaining to the possible future, and some new technical developments to merit a look back and a look forward.

USD/JPY Daily Chart taken September 09, 2014 at 23:20 EST

When I started establishing this position, I had recognized both the trend from 2012 (I bought much lower that year and cashed in because I did not recognize the opportunity (below 0.80 -which I am still kicking myself for). This currency pair has gone up since then, and was playing between 101 and 103 when I decided not only to start buying, but to hold (a bit unusual for me). In hindsight that previous area of range 100.70ish to about 103.10 now serves as a deep base for the move higher.

I began buying at around the 102 level, and on dips towards 101.50ish, and then even a few tiny additions in the 102/103 level. Now, I should have bought more on the break of 103.10 which was a plan, but instead I trimmed my position to take a minor profit. Nevertheless, I am currently long from 101.85 (Average contract price).

What has gotten interesting as of late is that downward sloping red line from left to right labled (16 year bearish (-ve) trendline...). This is trendline has been indicating that in fact USDJPY was headed downwards over a period of 16 years FXstreet article indicating major resistance started from 16 years ago with tops in place from 150 down to 124,  which by extrapolation put resistance to this trend at about 105.50ish. Price is now not only above 105.50 (closed on daily at 106) On Friday September 06, 2014 and the weekly candle had only a small wick, which technically establishes a daily and weekly break of this 16 year trendline. A monthly close above 105.50 would probably confirm price continuing higher.

For me personally, I am now cautious to add to this position because it is now at highs not seen since October of 2008, and because I have other trades in play as well (margin is precious).

Nevertheless, I have come across some interesting posts today that speculate that price will continue into the 110.00 / 112.00 area before year's end, for example Citi's Case for establishing long USDJPY

This article illustrates Kyle Bass' case for USD/JPY to reach 200 (Yes, pretty much doubling from here) in the next 3-5 years if you have the intestinal fortitude.

A few minutes ago, I came across a article adding to Japan's economic woes on Zero Hedge, as Japan began Monetizing Debt at Negative Rates which could begin the slow process of crashing the Yen.

Another piece of the puzzle is the potential United States Federal Reserve (ironic name considering it is a private bank, but never mind that) to schedule rate hikes in 2015, which would only add fuel to this position as it would become a proper carry trade in full.

After reading all of this and watching the exciting price action over the last couple of weeks, I myself have to take time to pause and reflect on the possibilities here, but I have begun to consider adding to my position on breaks higher should price continue to elevate. Another case, is to try to buy anything approaching that 16 year trendline should price go towards it.

Naturally, none of this information comes with anything close to a guarantee.

Knowing Which Style to Play and When to Play it

It has been a strange couple of years for me, my head has been in a serious fog for a while and the last couple of years have been bleak. Lost a fairly decent job a couple of years ago, and this year I lost two very good friends who passed away. To make own matters worse, I isolated myself from my remaining friends. Though I did make some seriously bad mistakes and still do, both in life and in my trading, I have learned a few things about both and about myself.

Sometimes I make the same mistakes over again, because well, a painful lesson is often my best teacher, learning it twice or three times creates a deeper impression.

I have learned the strength of a diverse trading style, with contracts spread among several currency pair trades, rather than placing everything in one idea. This used to put immense pressure on me as my progress would be either halted when one idea failed, or stalled while that idea languished in limbo, or reversed as the idea turned against me and cost me more than I should have allowed.

The lesson is that no one idea should or can realistically make a person that trades wealthy; it can happen under the right circumstances, but it it not likely and therefore not highly probable.

Someone that studies and takes positions in the market with an aim to be an "expert" or at the very least professional about it should have more ideas to employ than they know what to do with as they progress, then it is a matter of choosing the right ones, in other words, best risk/reward for your efforts - life on the other hand is not so simple.

When I realized sometime over the last year I had issues with the way I operated, I tried to take steps to improve myself, and what I did was I took the margin I had left over (from carrying some -ve positions) and choosing a bit more carefully where I put my money, and by taking several months to use smaller positions and also to scale into said positions, by buying or selling in blocks, at different levels, rather than the whole position at once, and also waiting for price reversals at extreme levels and then having the patience to wait for that tiny position to be worth something substantial (weeks, and months as opposed to hours and days), which means essentially swing trading with small amounts to reduce the amount of stress I carry day to day. It has not worked out perfectly but I am still a human being with some degree of psychological issues - so bad I went to see help.

Over the last week or two, I have tried to take day trades or larger positions (with recently freed margin), and made a few mistakes and a few good decisions. I am not sure if I will be as fast as I used to be, as this takes good health, an even emotional state (something I have not had in a long time), and plenty of rest. Trading when your life is in a survival mode is difficult, and I realized that I have been in that way of thinking for the last year and a half.

Baby steps it seems, for now, in life and in my trading, and if I learn to run again, it will be nice, but I need to make more progress before that can happen, and continue trying to cut out the bad behaviors that mess me up. I am not trying to be perfect; I will settle for better though.

Trading financial markets should be something you approach with a happy and healthy attitude, but then I realize, so should life.

USDCHF and NZDCHF Updates ~ Both Longs in Money Currently

Not too much time to write here, I am long on both of these currency pairs, from more than a week ago on USDCHF - which has been under water till this morning, and my NZDCHF which dipped yesterday uncomfortably below 0.74 but moved back up since the FOMC meeting. I am holding both for higher prices, but I have to accept the possibility that the market does not agree with me. In the next few hours I am looking for USDCHF (on the left) to violate the downward trendline from the September 2013 highs. and for NZDCHF to clear the 0.75 handle. My most immediate concern right now is the October NFP report which comes out on Friday November 8th where USDCHF (wherever it is) may take a monstrous hit because the NFP is not looking good from where I am standing.

NZDCHF Update on the Hourly

Not too much movement, the pair has been confined to a 40 or so pip range since I took the deal, but it seems to have broken the first line of resistance drawn on my chart here (diagonal descending trend-line in red). It is still below the two parallel lines of resistance which I consider a possible sell area slightly above.

Risk event is of course the RBNZ rate decision and the accompanying statement:
http://www.rbnz.govt.nz/monetary_policy/ocr/
Forex.com provides a bit of insight here:
http://www.forex.com/post?SDN=fba3bc39-0af7-423a-9394-561668b47628

Trading On The Go ~ I Move In Four Days

I had the intention of not trading during the last week and this week as I find myself in transition, but then, I make the mistake of opening my charts and seeing opportunities at every turn. I had read somewhere that you should not trade when things are unstable in your emotional realm ~ but that is how life is and if I were to only trade when things were stable, I would have too much time off. I found a good compromise in that I open smaller positions than I can when my life is in extreme flux to compensate the stress load and the results are good! In fact, by playing smaller positions, I've learned to do more with less, as the saying goes. Over the last couple of days, I had a tiny position in EURUSD -ve which I cashed in this morning for +8 pips, USDJPY +ve which I cashed in for +41 pips, and a USDCHF +ve which I cashed in for +2 pips. 50 pips is not bad considering I did not plan on trading at all. Since that, I've re-opened a long USDCHF at a better price and I am sitting in a coffee shop right now, planning the rest of the packing I have to do and the move I have scheduled for this Friday.

The Value of Mobility

Just recently, I found myself away from home (and therefore my desktop) for about three weeks out of the last seven. I did have prior knowledge so I have a laptop. This is about the first time in ten years since I have owned a laptop and I must say that considering what it has done for me, along with the proliferation of Starbucks locations (and their free WiFi service). I am not yet the type of trader that can leave my positions running for days without checking and managing them, so the ability to operate when I am not at a desktop computer is invaluable for me. I know, I could still check my phone and call in (I won't talk about the lousy phone app that my broker provides), so instead I'll just say that I am happy with my new mobile solution. There is nothing worse than a missed opportunity, and this should cut down on those.

USD/CHF Ichimoku Kinkō Hyō Asian Session

I am only beginning to start using Ichimoku in my analysis, certainly not yet for entries, but I think I'm going to start using it more. USD/CHF is now challenging 1st level of resistance in my view. After going below 0.9100 a few times in the last several days, the pair has managed to carve out a temporary base at 0.9090-0.9110 and is advancing on 0.9130-40:

Slightly bullish, but cautiously considering the recent drop. In my view, if it goes higher, the next test would be 0.9170-80, above here, gains can accelerate. Aside from the move up in price, on this chart with Ichimoku cloud, the Tenkansen line (blue) has just crossed the Kijunsen line (green) in the last 4-hour candle; a sign of an impending move up if things hold up.

AUD/JPY on 4 Hour Time Frame

The 5 minute entry now on for over 24 hours, and it is in the money. The reversal is in the cards, for now...

Now that the deal is on, it is a question of management, which means exiting at the best possible moment with the information I have at the time. The first trend line of resistance has been breached, but not with excessive strength and price is hovering just above it at the moment. The second line of resistance is where I am shooting for, and is realistic in the next 24-48 hours of trading (meaning I may need to hold over the weekend). The ultimate goal, would be shooting for the monthly high of 83, or even better 83.50 of August. At this point, the next few hours may decide if I close this, take my 300ishUSD from $50,000 in positioning, or if I shoot for higher. So far it has been an incredible month, with this month being the first month that I have earned more in my part time job (trading foreign exchange) than I have in my day job; I would love to wrap it up with another decent sized win...

AUD/JPY Bullish Spontaneous Move

Bought more, just before it happened, we'll see if it goes up further.

I'm in at 81.1516 for 50K and looking for a large move up. The engulfing candle bar appears to indicate high liquidity on this move; which means a large player might be involved, which means someone with a large amount of capital thinks AUD will rise vs the JPY; which means, that at the moment I'm with the big money on this one. Lately I've taken a few losses, and my confidence is down, but I'm bloodless on this one, and I will chase price according to my method. If I can get 15-20 pips up, I'll move to break-even before I go to sleep. Once again hoping for 82+ on this pair.

AUD/USD and AUD/JPY Trade Update - Bulls Win with Announcement of "QE Infinity"

With the announcement of the United States Federal Reserve announcing QE3 (link to bloomberg.com) with a pledge to continue asset purchases until the US economy improves, the USD has lost quite a bit of value in the course of a single trading day. My estimate, looking at my quote sheet is about 1 - 1.5 cents against everything so far.

I have a couple of trades on AUD/USD and AUD/JPY, long on both, prior to the FOMC meeting and press conferences, doing fairly well on average. After the announcement, it was quite a fight but both pairs have put in some impressive highs for the week, and the corrections (thus far) seem to be muted.

I am currently waiting on both of these positions to see if they have the potential to reach my first targets of 1.06 on AUD/USD and 82.00 on AUD/JPY, though I may have to wait to see what the Asian Session brings.

Review and Strategy Going forward into Autum 2012

After what I would consider a slow start to the year, with only a couple of trades (literally only one in February), and then a meager spring (only a few), my summer took off and never looked back. I have managed to reach the point where my trading activities are netting almost the equivalent to my day job salary. I work almost 50 hours a week, by the way. I'm not bragging, well, I have put in nearly 5000 hours into this over the last few years, and, it seems, while I was not a slow learner, I was slow to control myself.

This morning, I took my monthly statement from my broker, along with a notebook and sat down in a coffee shop and wrote a bit. My August was decent to say the least, $1670 in profit from a less than $5,000 trading account. 5k was a bit of a barrier for me as I had been there before and crashed afterwards. Now, I'm sitting nicely at $5,800 and looking to $10,000 in the coming months. So far, September has been decent to me with $670 earned this week. I have no illusions about not needing a day job at the moment, but I think the next book I purchase will be the The 4-Hour Work Week.

In the last couple of weeks, something interesting happened, I learned to pace myself, I learned to not sit at my desk all the time and stare at the charts for trades that I had under way. I learned to trust myself, step away and allow my trades to work out. I have in fact spent less time trading and my profits have improved.

Aside from everything else I am doing this weekend, I am going to put some time into studying chart patterns, and planning a couple of automated trades for the next week. I have only limited experience with this, so I will only be using light orders for this while I get my feet wet. In theory, a few minutes of analysis a day could earn profit without me having to manage the trades while they are in process. Now, time to study a bit.

AUD bad data (Trade Balance) but a muted negative response

The trade balance released by the Australian Bureau of Statistics is the difference in the value of its imports and exports of Australian goods. Export data can give an important reflection of Australian growth, while imports provide an indication of domestic demand. Trade Balance gives an early indication of the net export performance. If a steady demand in exchange for Australian exports is seen, that would turn into a positive growth in the trade balance, and that should be positive for the AUD.

-556M Actual > -300M Consensus > 9M Previous

This is where I get a bit scared, so trade balance is down, down by more than anticipated, and the result is that the AUD/USD and AUD/JPY both dipped but are now showing stability. When this happens, I start to think either technical analysis is winning over fundamental analysis or that something is rotten in Denmark. Mind you, I'm hoping both pairs go up but I can't figure out why.

AUD/USD Update

Interesting to see a partial confirmation of my earlier Analysis. Hopefully going much much higher in the next day or so.

Immediate target of 1.0450ish area, and if this resistance zone is broken with sufficient strength, I'm confirmed for a move to at least the 1.0520 highs of last week, and depending, a break higher on that range to 1.06 / 1.07 area.

In Trading, Psychology is Key

About to go out and have a bit of fun, my week has been great and bad, but I continue to exist, and I move forward. I am about to share time with friends and have a bit of fun, but I did want to share a gem of a webinar that I found on fxstreet.com on trading psychology, which is in my opinion, how the mind works, the most important factor in trading and in life.

The Trading Mindset

AUD/USD Update Downtrend Appears Confirmed but...

The Downtrend seems quite evident now on this pair, but it appears as though the low of the trend is in place for the time being. The long position may still have some validity, based on a possible upward move in the channel drawn on an hourly chart here:

A more conservative target of 1.0480 to 1.0490 might be possible, but it probably will not happen during this trading week. I would keep a stop below 1.0380 for the day and possibly even lower for the weekend if I were in a long position. While this might be a mistake, and it does violate a trading rule held by many traders, conditions are dynamic and can often change at a moment's notice. I am of the opinion that adjusting stops can be done within reason if conditions keep your goal within reach and the additional loss is not beyond your tolerance. There is no reward without risk.

First $1000 Week In a Long Time

This week is a bit of a milestone, but I have been here before. This time, I will do what I did not do the last time I reached this goal: I will stop to smell the roses, as they say. When I started trading, I came up with a series of goals, one that stands out in my mind from several years ago, aside from the Aston Martin I wanted, was to build a $500 trading account into a $5000 trading account, in a period of 6 months through successful trades. I was doing this full time, living in my father's basement, and unemployed so I had not much else to do at the time. I dived into the markets, I researched, I lived, breathed and slept trading; yes I even had dreams where I was trading.

The end result was that I did reach that goal in approximately six months, but the problem was that I broke a few rules to get there and I did not know how to behave once I reached that mountain top. Well, I kept going, and I kept taking risks without proper analysis and I got into a series of trades that broke my account pretty much right back down to 500 or 600 dollars but I would need to check my monthly statements to confirm the exact amount. I climbed up to the top of the mountain and ran right over the peak and went down to were I started.

Several years later, while working a full time job that has been stressful to put it mildly, I have once again reached that goal I set for myself, and in one week, a series of trades put my account back up to $5000 with this week's gains going slightly over $1000. This time, I am taking some time to reflect on what I have achieved, on what I have sacrificed, but more importantly what I have learned and what my future goals are from where I am now. Where ever I want to go, whatever I want to do, it is just a matter of time, patience, and discipline.

Mentoring a New Trader

For those who can impart the basics of trading and the psychology of market behaviour, helping someone learn how to trade can be as rewarding personally as it is for the student. For the student, a careful and disciplined application of their new skill set can change their life. For the teacher, the rewards are many. First, there is a reinforcement of the skill they have already honed in the market. Next, the teacher's own trading rules and respect for the market will be relearned and reinforced. Finally, there is a satisfaction to improving someone else's life.

Direct trading advice (as I have learned from my own mentors), should be avoided; a consistently successful and established trader should be able to spot their own opportunities for the duration of their trading careers. In addition, direct trade advice will carry with it, the possibility that the trade will go badly, and potentially sour an otherwise good relationship. Part of learning how to trade is learning to take both responsibility for ones losses and personal satisfaction for one's success. Trade ideas on the other hand can be given freely but with the disclaimer that results are not guaranteed. Often, the best way to teach someone about operating in the market is to show examples of market behavior, and extrapolate possible outcomes.

Much can be learned about trading by direct observation and the very action of taking a continuing series of trades; there is no substitute for direct experience. Researching from a variety of resources including books, forums, and encyclopedias can help tremendously, however, often the most interesting lessons can be learned directly with consistently successful and established traders. While this last source of knowledge might seem out of reach for those students who do not know anyone personally or cannot afford a trading coach, the knowledge is obtainable with some effort. Many recorded webinars and videos can provide a trader with a non-interactive source for this information. Topics include everything from technical analysis to market psychology to building trading strategies and everything in between. Furthermore, many brokers and several websites provide access to live and interactive webinars hosted by traders, analysts, and other experts for a whole host of topics relating to the market.


Finally, a newly minted trader, with a fresh perspective, can show their teacher new information and ideas obtained through their own research and experiences. As with other skills in life, you never stop learning.

An additional note of caution, be careful about choosing who you share knowledge with, trading is a full contact sport and carries with it risks both financial and psychological...

Trading Again after a Break

Some things change, some things stay the same. Since last updating my blog, I have been through quite a few changes in my life. A new job, two moves, and a serious reduction in my trading activities for a spell; this did not and could not last and I find myself trading around my career, working towards the time when I can trade full time. This blog has also been neglected for about two years because I have had nothing to add. I will be making the odd post here, when I have time, but it is not a priority. I would rather be trading, than writing about it. This morning I found myself with a bit of time, a very good run on my positions and I had something to say.

My Forex Trading Success Keys

Along the way to a moderate amount of consistent success (by my own modest standards) in forex trading, I have found a few keys to successful self-management as a would be forex trader. These tools can be used for any type of trader, and in any market.

Research

This should be second nature to a trader in my opinion, as with any mentally intensive field. Even before I started demo trading, I was reading as much as I could, watching as many videos as I could, and organizing my thoughts and observations about trading. Learning is what keeps our minds young, and expands our horizons, so it should be something a trader enjoys. Throughout the course of this blog, I will provide some of my best sources of data, and some of my methods to organizing that data.

Trading Plan

Having a plan is an ideal place to start if you are just new to trading, and even if you have traded for a while, it can be a worthwhile endeavor. Where have you been, and where are you going? A good journey often starts with a plan or outline. Sometimes it is thrown together last minute, sometimes that plan is loosely sketched in broad strokes, and sometimes it is planned with extensive attention to detail; regardless, having at least some idea of why you trade and what you plan to achieve is a good idea.

Rules and Strategies

Assembling and improving your tactics is one of the most important aspects to trading; if a trading plan is your outline, then your rules and strategies can be considered your blueprint for constructing a trading business. The blueprint is an abstract concept and is open to change as circumstances change. For example, when I was starting to trade, I primarily used visual analysis, with my main indicator being the bollinger bands. To me, buying low and selling high or selling high and buying low was intuitive and seemed natural. I was even successful for a while, constantly earning, no matter what. However, as the market changed tone, I was slow to notice, and I allowed habit to dictate the course of my trades, which was damaging to my bottom line. I had to expand my strategies, so I researched and I experimented. While I still make use of bollinger bands, that one strategy is only a single tool amongst the many in my tool box, applied when the circumstances indicate their usefulness. Some important considerations for a traders strategies are answers to basic trading questions:

When to enter the market

For me, I tend to trade mornings, during the European/London trading day, and early American times, and occasionally, during the American afternoon. The reason for this is because price action tends to be the most active during these times, which means that if my trades are good, my potential for profit increases. I will occasionally trade outside these times, but rarely.

What conditions are needed to begin trading

I need to at least have the potential to earn money, which means that I need to see opportunities that present a high probability for my strategies to succeed. Also, I need to be in a reasonable state of mind, with a decent night's sleep behind me, usually an hour or so after I have been awake; at this time I am at or near the peak of my alertness and energy levels for the day. I need to either be in a good mood, or on my way to being in a good mood otherwise I will stay out of the action. Everything else in my life is preferably on hold, an out of mind.

When do you avoid trading

Typically, I will avoid trading when the market is erratic. Some people avoid big news days, but since some of my strategies revolve around news, I have learned to adjust to the price action that happens during large news events. I tend to avoid Friday afternoons (16:00GMT and onwards), Sundays, holidays, and periods of low liquidity. The only way that I can describe trading on a holiday is that the price action is extremely erratic and that price can move in a choppy fashion that makes me uncomfortable.

When to open a trade

Obviously this one is subjective, because entries are defined by strategies. The rule here is that the probability of the trade working should be in my favor. I almost always have mental stops placed even before I open a position, and assign them as soon as I hit the buy or sell.

When to close a trade

Again, this is subjective, but with every trade I try to exit when my position is in profit, with the idea that even a partial profit is better than earning nothing or taking a loss. In fact, my profit target is rarely hit, but I have managed to continually improve my equity on the basis that I am always moving my stop loss inside profit at the nearest opportunity when price goes in my favor. In most cases, I have the philosophy of letting my winners run, which means that I give a profitable position a chance to run higher; I use my stop-loss to lock in profit, and then move it up as the market moves up, usually allowing for a decent amount of retracement. Occasionally, I leave a large amount of money on the table if the price swings against me, but sometimes, this has allowed me to take a 1:3-5 risk/reward on my trade when the market has moved heavily in my direction. In terms of losses, the issue is even more subjective. In the first few months, I would take some losses needlessly because I did not understand enough about support and resistance, so I would often set my stop loss incorrectly. There is nothing more frustrating than watching your stop get taken out, and then watching the market swing back in your direction and hit your target. Sometimes, you have to look at larger time frames and determine major areas of support and resistance. If you are too slow to get out of a negative position, it is sometimes beneficial look at a larger time frame, where you can spot a new area of support, place your stop below and apply some patience. This is not for everyone, because it is hard to see a -100 or -150 pip position on your account; but if you have the fortitude of will, the margin, and some solid evidence that the price will move back in your favor, or at the very least, to a break even situation, then you can avoid a loss. The key to this tactic, is to not apply your full commitment to a position at first, where you keep plenty of margin in reserve to absorb a negative balance, and look for other opportunities in the meantime.

The lesson is that the market does change behavior, and when it does, so must the tools. As with strategies, rules must change to suit the market. In my first few months of trading, I would assign stop losses and profit targets based on an arbitrary dollar amount, but as I learned something about resistance and support, this became obsolete. Yet, having and following a set of rules is the only thing that a trader can control, and can save a trader from ruin and guide them to success on regular basis.

Trading Journal

Having a diary is great tool for any trader; I've read or heard this tip in at least a dozen places and I don't think I'll stop using mine for as long as I trade. In fact, this blog is part of that journal. How you use the journal or what you write is your business. Some people like to write down all their trade ideas before they execute them. For me, trading is all a matter of successful analysis, planing and timing so I usually do not have the time to write all of my ideas down; by the time I've written it down, in some cases, I've missed my entry, but I do it when I can afford the time, i.e. when the market is moving slowly. I use my journal to write out my ideas when I'm not in the market, most often when I am away from my office, and enjoying a coffee. Being away from the action give me the chance to look at my activities with a more relaxed perspective; I can review my issues, my successes, my opportunities for improvement. I can make plans, go over my goals, review my rules and strategies, and I can be honest with myself if I have adhered to what I have written.

Goal Setting
 
Setting both long term and short term goals is a very good thing to do on a regular basis in order to measure your progress. In my opinion life is about the journey rather than the destination, which means that the bulk of life is spent getting somewhere and the arrival is only a sliver of the whole experience. However, if you have a destination, you have a direction and a purpose, and the impetus to start the important part, the journey. If you have regular goals, you can measure your success by your own standards in time. If you are exceeding your goals you can start increasing your goals. Having progressive goals is one way to give you a motivation for improving your game. If you are missing your goals, or not getting close to them, then you can start to examine why missed those goals; perhaps your goals were unrealistic, or perhaps you had some issues outside your trading activities that forced you to lose some time and productivity, or perhaps you need to identify what you are doing that is holding you back from your potential. Another means of setting goals is to do it visually, both in the mind, and with a goal board. If you want to use your trading proceeds to fund a vacation, put up a picture of where you want to go, or if you want a new car, put that up on the wall.

Positive Thinking

In my experience, having a good attitude goes hand in hand with goal setting; if you enjoy trading, then it makes the process that much easier. I have found that while I may not always be winning, having a good attitude is key to staying in the game and prospering. Even taking losses can be viewed in a positive light, if you understand that losses can be powerful lessons for your future trading success. If you believe in the Laws of Attraction, as I do, then you can apply them to your trading as well, with often surprising results.

Self-Review

Something that most successful people will do on some level or another is to monitor their activities to measure their progress in life. I can't verify this fact because I haven't spoken to all or most successful human beings, but I do notice that many successful people write about their exploits as either trade books, or biographies which are form of self-review. This is where you can be honest with yourself regarding your activities as a trader. Did you follow your rules? Did you break them? If you broke them, did you do it for a very good reason? Perhaps the rule needs to be changed. You can review your activities daily, weekly, monthly, yearly, but regardless, it is a good idea to go over your performance because it is a great opportunity to spot areas where you can improve your trading.

Equity Curve

At first when I started using a graph and spreadsheet containing my profits and losses, I experienced difficulty stopped using it for a period of a few months. I was being dishonest with myself over the fact that for a time I was taking on more losses than gains, and it was painful to commit to a document, and also because, I needed to focus on improving my performance rather than documenting my lack thereof. Nonetheless, even though the losses are painful when they occur and ugly dips in an otherwise increasing curve, I update my equity curve at the end of every trading day to remind myself of what I am doing correctly and what I am doing incorrectly. This provides me with a reality check when I need to improve, and it also shows me graphically the sum of my work over the course of my career. In so doing, it gives me a visual representation (other than my available margin reading on my trading platform) of what I need to protect when I'm in the market; it is an additional pause button for my mind before I think about taking excessive and less-probable risks. Before I open a position think about the other side of the deal, where I may be wrong and I may need to document a drawdown at the end of the day, as a result. This is also helpful in that I have a few built in formulas calculating certain percentage amounts of my available margin, daily. Many successful traders have a rule where you expose a certain percentage of your account on each single trade, some of which apply this to all deals at any single point in time. This percentage varies depending on who you talk to or listen to, it can be as low as 1% or as high as 10%, I've even heard of cases where some traders expose their entire account when they trade, but I imagine they are crazy or that they really know what they are doing and extremely focused and disciplined. Regardless, my spreadsheet shows what the value, in dollars, of 1%, 3%, and 5% of my total margin. This is the amount of exposure to the market I am willing to take in most cases. I have violated the 5% rule on a very small percentage of my total trades, but I have had good reason to do so in these cases; sometimes I have paid the price of a very ugly drawdown, but in most cases, the calculate risk paid off rather well. One argument for going over this percentage might be when you are in a progressively improving trade (but not a progressively diminishing one), you increase your position, or so argues Jessie Livermore. In any case, I have accepted responsibility for each trade before entries, and after exits, regardless of whether or not they were at a profit or a loss.

Although I have found some success with these tools, I am always on the lookout for improving my game, learning new tactics, and overcoming weaknesses and improving my strengths; as with life, trading is not about achieving perfection, but constant attempts at improvement.