Improving Trading Performance

Methods for positive change and

how to overcome trading issues
 Everything begins with discipline
• But where does discipline come from?
• The relationship between discipline and
confidence
• But where does confidence come from?
• This presentation will not be what you think it will
be… this will not be about psychology or
psychiatry or therapy or the analysis of fear and
greed or anxiety or positive mental attitude
• We will focus on practical, workable, pragmatic,
actionable understandings and solutions based
on reality and facts
 The discipline confidence model
• Discipline with a worthless strategy is a losing
proposition
• If discipline comes from confidence then how do we
get confidence…from Tony Robbins…from Zig
Ziglar…from motivational speakers...? NO!
• Confidence comes from creating or developing things
that work!
• How to do that?
• The good news is we KNOW how to do that
• You cannot and WILL NOT get confidence from a “life
coach” or a psychotherapist
 Before you do anything know this
• Your trading system or method or lack thereof
will be your greatest asset behaviourally and
psychologically or it will be your worst enemy
behaviourally and psychologically.
• Everything you do as a trader or investor must
absolutely begin with a valid methodology. If
not then you are grist for the mill even before
you start. This is a cold hard fact. It is
undeniable and irrefutable.
 Categories: traders and systems
• Profitable system – bad trader
• Profitable system - good trader
• Profitable system – marginal trader
• Losing system – losing trader
• Losing system – good trader
• Losing system – marginal trader
• Marginal system – bad trader
• Marginal system – good trader
• Marginal system – marginal trader
 Elements of Success
(in order of importance)

• Trading system or method

• More than sufficient trading capital
• A trading model that should be part the system
or method: STF
• A structure or routine, intraday, daily, weekly etc.
• The timeframe or time frames in which you want
to trade
• Your market or markets of choice
• A checklist of procedures and methods (pilots)
• Where do you fit in the above elements?
 The tyranny of charts
• How can looking at the chart be bad?
• The hidden problem with charts and
indicators
• What to do?
• How charts make things look easy (hindsight)
• Example: next slide
• How to avoid the problem
MAC – USDJPY daily
 5 categories of trading problems that
limit performance
• Not understanding your system(s)
• Problems of discipline
- entry, exit, and follow-through, stops, homework,
consistency, emotional response, lack of patience,
micromanaging, over trading,
• Lack of organization
- schedule, which markets the trade, which methods used,
consistency, homework, homework
• Inability to maximize profits
- Lack of methodology, inappropriate position size,
misunderstanding of profit targets, failure to let profits ride
• Errors of focus
 CRITICAL TRADING RULE #1
Trade on Facts and not on Fantasies
• Always trade based on what you know or
what you think you know because even the
things you think you know are not 100%
accurate.
• Therefore if you trade on things you really
don’t know you’re asking for big time trouble
and you will get what you’re asking for.
• But how do you know that what you know
works? That’s simple; do some research.
 CRITICAL TRADING RULE #2
Know WHY you are making a trade
• Is there a reason?
• What is it that reason?
• Is it your trade or did it come from somewhere else
• if it came from somewhere else then what is the exit strategy?
• Did the source of credibility?
• Was it a technical trade?
• Is it rule-based?
• Did it come from a gut feel?
• Do you have hope?
• Was it a “looks like” trade?
• What’s your risk?
• Is there a track record?
• Was it based on a mythical or mystical concept?
 CRITICAL TRADING RULE #3
Understand your trading system and how it works
• What are the statistics if available?
• Max consecutive wins and losses
• Does the system scare you?
• Is it realistic in terms of how much money you have in your
account?
• Are you able to place orders given your time commitments?
• Does the system trade too much or too little for you?
• Is the average profit per trade viable?
• Where did the system come from?
• Have you run through some sample trades?
• Does it trade active markets?
• Does it have face validity?
 CRITICAL TRADING RULE #4
Simple is Better
• Trading strategies with simple rules and fewer
rules tend to work better or in other words
more profitably than trading strategies with
many rules.
• Do note however that trading strategies with
an extremely large number of rules can work
well in very small time frames by which I
mean fractions of a second as in high-
frequency trading
 CRITICAL TRADING RULE #5
Know your max $ risk BEFORE you trade
• Why?
• How to determine?
• Reality vs fantasy
• What can you do with $1000, $5000? Etc..
 CRITICAL TRADING RULE #6
Don’t trade any system/market that scares you
• Why?
• Fear about a trade or market indicates
attachment
• Attachment is an emotional response
• Emotional responses promote errors
• Errors degrade performance and confidence
• To make money you need to not care
 My trading issues
• Inconsistent application of rules
• Not knowing rules thoroughly
• Getting out too soon, getting in too late
• Entry and exit using different methods
• Entry and exit using different time frames
• Loss of confidence after a few losers
• Taking small profits
• Trying to do too much
• Following the news
• Using small stops
• Listening to others
 My trading issues (cont.)
• Micromanaging trades
• Listening to brokers, Bloomberg, CNN…
• Becoming impatient
• Stocks vs. Commodities/Fx: trade duration
• Knowing too much
• Thinking too much
• The belief that others know more than me
• Failure to test what I was doing
• The belief that inside information is the best way to
trade
• Not having a mentor
 Know your system
• What does that mean?
• You must “live” your system BEFORE you trade
it…why?
• The trader must be right for the system and
the system must be right for the trader
• DON’T TRY TO OPERATE A VEHICLE THAT’S
NOT RIGHT FOR YOU OR YOU WILL FAIL!
• How to know?
 What ’’living’’ your system will do
• By showing the worst case you will test your limits
• You may see new patterns
• You will see that micromanaging will not help…or will
it?
• You may gain confidence or
• You may decide this system is not for you
• You will understand how it works
• You may see ways to improve it
• You will find that the system doesn’t care about you!
 Why develop and PERSONALIZE a
system?
• It will conform to your needs, likes and dislikes
• It will be suited your risk tolerance
• You will understand its logic
• It will be your project and you will treasure it
• You will understand its procedures and its limitations
• You will know how the sausage was made
• You will have made a time and effort investment in it and
will be more likely to use it consistently
• It will not be exactly the same as anyone else’s system
• You can develop profit maximizing strategies that fit your
risk tolerance
• You will learn how to develop systems correctly
 The problem(s) with comparing
• DO NOT compare your results with those of
any other trader(s).
• WHY?
• The illusion of managed accounts
• The illusion of hedge fund performance
• OPM and YM
• Who is YOUR competition?
 A letter…
• Hi Pro Trader:
• I’m writing you today out of desperation. In short – I need help! I’ve been trying to
be a profitable trader for almost 4 years with no success – I have NEVER been net
profitable on any month but there have been some good weeks and great days!
Can you help me? XXX
• --------
• Dear XXX:
• Tell me more. Please be to the point. Give me details without self hatred or
whining. Give me facts.
• --------
• Pro Trader:
• OK. Here are facts:
• Lost $53,000 + in last 4 years in stocks, futures, forex, options and bitcoin
• Spent $23,000 + on courses, seminars, tutoring, mentoring, webinars, books, and
software (not counting travel or time lost)
• I spend 3 to 4 hours daily preparing my trades for the next day and usually 6 to 10
hours studying charts over the weekend
 A letter… (cont.)
• Software: I have Metastock, TC2000, ninja trader, Tradestation, Genesis, Fibonacci
trader, and a few other programs I don’t use anymore
• My main focus is trading in currencies, bonds, and S&P futures
• I use nine different indicators and the triple screen method to find my trades
• About 37% of my trades are profitable but my average losing trades are about five
times larger than average winning trades
• I do not have a profit maximizing strategy because I have a price target for each
trade and when the target is hit I close up my position and go on to the next trade
• I make about 16 trades a day using mostly the three minute chart for my timing
• My main method of timing is the four, nine, and 18 moving averages with
Fibonacci retracement’s, and intraday elliott wave analysis confirmed with Gann
angles and regression analysis
• Several times a week I take a few hours away from the markets during the day to
attend live trading rooms and chat rooms to see what I can learn
 A letter… (cont.)
• My usual goal is to make $500 a day. Whenever that goal is hit I’m done for the
day
• I’m also working with a very experienced broker who gives me input from time to
time
• I think I’m paying too much in commission ($24 in futures rallied term plus fees)
• I’m constantly researching better ways to trade
• I love trading it’s my passion
• I know other traders who are making money I just don’t understand why I can’t do
it
• I’ve tried just about every game in town and it won’t work for me
• It’s beginning to affect my home life and my job
• You think there’s hope for me?
• What should I do? I’m desperate
• Thanks for all of your help
• XXX
 Critical elements for success
• Avoid problems before they happen
• How?
• Organization using rule-based procedures is critical you
must do your work every day without fail
• Understand and live your trading methodology
• Implement solid risk management based on your
account size and risk tolerance
• Avoid markets that scare you
• Do not compare signals from different time frames and
different systems
 10 Trade Challenge
• Use a 100% rule based system
• Make sure the system has been optimized correctly
• Make sure you understand all the rules
• Make certain there is a profit maximizing strategy
• Make 10 consecutive trades strictly according to the
rules using at least two but preferably three units
• Keep complete detailed records of every trade
• Do not trade your system in markets that are too risky
for your account size
• Why do this?
 What if?
• What if you are afraid to take the challenge with
real money?
• Here are some alternatives:
1)Do simulated trading
2)Do five consecutive trades instead of 10
3)Trade with one or two positions rather than three
4)Use at or in the money options instead of stocks
or futures
5)But whatever you do…do something
 What could you learn?
• That consistency pays off
• That profit maximizing strategy pays off
• That micromanaging trades is not effective
• That your system really works
• That your system doesn’t work
• That you have made errors in application
• That you do not understand the profit maximizing
strategy
• That your system doesn’t make sense
• That your system does make sense
 What could you learn? (cont.)
• That you can’t cope with the opening losses
• That emotional reactivity doesn’t help but rather
hurts
• That the system does not suit your temperament
• That the system works better than you thought
• That you have shortcomings in organization
• That you are inconsistent
• That you are stronger than you think
• That there are changes you can make to improve
the system
 What information to record?
• Stock or futures contract created
• Buy, sell, or spread
• Number of shares or contracts
• Entry price entry date
• Exit price exit date
• Reason for entry
• Reason for exit
• Initial stop loss
• Initial profit target
• Profit target two
• Profit target three or trailing stop
• Outcome (profit or loss)
• Notes or observations
• What you could have done better
• What you should or should not have done