Trader Q&A

“Plans That Pay’

Trading Situation:

Dave has been trading for 4-5 years now & is still learning his strategies and fine tuning his trades. His profits don’t seem to be increasing and he is only winning slightly more than he is losing. Basically he is stagnant.

Trader Background: 

My situation is that I have what seems to be a good strategy. I win and lose, up and down and I can’t seem to get better. My trading is stagnant and not improving nor is my profitability. What can I do?

Coaching Feedback:  

C- The first question for Dave is do you have a trading Plan? His answer at first was “yes” So then I asked what does that include and does he have criteria and a plan for:

1) Learning more

2) A strategy to improve what he has now

T - He said, "I went to a class and I have a strategy that has more wins than losses that’s my plan."

C- I suggested that his plan maybe missing a few things. Bottom line is a plan encompasses much more than that your strategy for a trade. Plus he doesn’t have a methodology that allows him to modify and measure his trades that will maximize his profitability. So there are two parts that can be improved. First is a way to measure and improve upon the existing set-up strategy, and second is the overall trading plan.

Lets deal with that part first. When you have a strategy that needs improvement it’s important to establish measurements that allow you to refine the components as well as improve the results.

Here is a place to start. Potentially there are 4 areas of the trade to modify or refine.

1) Pre-entry or set-up criteria, the conditions that exist before you enter the trade

2) The Entry – where’s the best most profitable place to enter

3) The trade itself- once the position is filled, monitoring

4) The exit – where do you exit locking in the most cash, given the situation

Each one of these areas can be tracked, reviewed and fine tuned because there is lots of detail to each of these parts. Because there are many parts to each and to developing a good traders plan over the next several weeks in the newsletter we break it down and review it piece by piece.

Pre-entry or Set-up Criteria

So let’s start with the pre-entry or set-up. I define the set-up as conditions that need to be in place before you enter the trade. To do a full analysis each indicator and condition needs to be reviewed. 

In this area looking at:

1) Market trend and conditions

         - Do other markets influence the market you trade?

         - Does your market lead or follow?

2) Different time frames and what each would lend to a trade strategy

 - Usually a higher timeframe is the signal to get in and the smaller timeframe fine tunes the exact enter.

   Example: Let’s say all your indicators line up on a 15 minute chart and that is your signal to get in. Your trade may have a better chance of working if the 5 minute and 3 minute are also in sync with the 15 minute. Also notice how each of your indicators are reacting in each different timeframe.   

3) What specific indicators do you use?

- What is the priority of the indicator?

- Or better yet rate the importance of the indicator within the trade.

        - How does each indicator affect the trade?

- Noticing how each indicator is working with the trade in detail is so    important

4) How does the trend affect your trade?

        - Does it affect your trade at all?

        - Do all your timeframe have the same trend?

        - Are you a counter trend trader or a trend trader?

The Overall Trade Possibilities

Remember each decent strategy should work at least 85-90% of the time. So, there is that 15-10% that doesn’t work. The question becomes, how do you know when the trade falls into that 10-15% range? The only way is to detail the results of what works and what doesn’t and over time the right pattern will present itself.

Trade Conditions – Perfect/OK/Bad

-          Perfect trades work when all the “planets” are aligned and knowing this allows the trader to up on size on the position, taking advantage of a great set-up.

-          Next there are those “OK” trades where the trade works half-way and you manage to get some profits out of the trade but they are small. In this situation most likely something has happened to the market conditions and during the trade and the mode has gone from offensive to defensive with the goal of locking in something or minimizing the loss.

-          Than finally is the situation where nothing works the indicators change quickly wrong. Here is when knowing the difference helps the trader exit as soon as possible because nothing is working or as an extra measure if they KNOW what’s off based on how the perfect trade sets up they can avoid it and stay out completely.

Noticing and defining the market conditions of the perfect – OK – and Bad trade can really save a trader from unnecessary emotional build-up. Create certainty, eliminate fear and best, increase profits. But the only way a trader can do this is by tracking and reviewing each trades results. 

I can’t tell you how many traders call me for coaching that do NOT track their traders. I guess it’s obvious because they are in trouble and so they’re calling me.  The great traders I have come across all seem to have the common thread of “digging” and really knowing the markets they trade so they can load up when it’s right and stay out when it’s bad.

Your goal is to be one of these “diggers” too.

Measuring the results:

When looking at the trade set-up it’s helpful to create an excel spreadsheet listing each indicator and tracking the results for a trade strategy you want to fine-tune.

Notice how each trade is different looking for anomalies that may pop out.

Story: when I was trading on Wall St. I never tracked trades and after 3 months I couldn’t understand why I was losing.  So then I decided to track the details.

When I looked at them and they were very basic. I was tracking the time of day of the trade and when I was winning and losing.  My first big Ah –HA was I made money in the morning trades lost at lunchtime and was 50-50 at the close.

So, I change a few things from this new information. First I was more aggressive in the morning.  I stopped trading at lunchtime and was cautious at the close. I never really changed more than that and the profitability went up.

So small changes can have big affects.

Again the goal is to notice patterns of winning and losing and setting up new rules that can help you increase profits.

If you have a plan you want reviewed please forward it and we will get back to you.

In the meantime Great Trading!