How to improve my trading in 2023

Thoughts turn to 2023. How to take my trading to the next level?

One per cent improvements.

‘The trend is my friend’ is the most used term in trading. Yet I often ignored it and found myself constantly fighting a strong trend. A much-improved feel for order and market flow is my primary goal for 2023.

Somewhere between small wins and high-level income, I need to master my primary goal to advance. Let’s see how that pans out at the mid-year review point.

Only trading a recognised setup was my best upgrade for 2022. But I have room for improvement, together with reading the structure and expected projection.

Loss management is now one of my strengths. However, I need to implement the two-pause three-out rule more carefully. That is two losses in a sequence, and I pause my trading and reaccess my read. I take a break at three losses and can only retry on a significant structural change. I acknowledge that a vital part of any edge is the ability to sit on the sidelines and wait for more favourable market conditions.

I need to be more aware when traders on the other side of the market are getting it wrong. Because at that point, it moves the market. See the pain, not the price. And avoid bad trades. I don’t want to be the one that’s trapped.

Until I’ve got it right, a decision made quickly—with permission to correct and amend that—is often superior to hesitation. But always with an eye on the correct process. As Tom Dante said, I’m meant to trade like the casino, not as the expletive sat in one!

My job is to identify favourable expectancy bets, then enter and manage whatever follows, win or lose. And to replicate it as many times as I can.

Context – setup – execution – manage – learn – repeat.

The Darwin Award.

A hectic time, even to write a blog.

I am still doing significant home improvements but outside of that dedicating myself to my trading.

My trading style is discretionary lower time frame price action, and I’ve settled on a particular procedure for some time.

Yes, as with most longer-lasting traders, I’ve tried most indicators, timeframes and magic sauce known. And in great detail too.

It is so important to find what suits us personally. For example, I prefer a lower timeframe pure price action read with context from higher timeframes.

It’s only for some, requiring significant screen time and skills development.

I’ve also gone from multiple markets to one or two indices—namely, the Dax and the Nasdaq. But my go-to is the Dax, which suits my preferred trading hours.

Now I’ve found my style (rather than following someone else’s), it is suitable to be able to verify what I’m doing continually.

To do that, I subscribe to Straydog Trading (aka Relja Radovanovic) for daily context. By email and access to his website. I get his take on the Dax every morning before the market opens. He’s been in the game for a couple of decades, and not much gets past him. It is also a good check that I’ve caught everything in my preparation.

Straydogtrading.com

Straydog’s process is the same as mine, which, for me, is the vital thing.

How can you learn price action? Lance Beggs is the best I’ve found online for a detailed price action trading course. Before Lance, however, you’d have to learn the basics of which there is a great deal of information online or by studying multiple books on the subject.

Lance Beggs

Price action is suitable for any timeframe. Indeed, the higher the timeframe, the more stable the price action, as the news is not as noticeable.

But, like Lance, I prefer the very low timeframes. I need to be watching the screen, and I like to work with tight stops. Not suitable for most, but I like it. The price rarely gets to my ‘stop’ before I’ve rejected a trade. Having had a significant loss in the past, I’m now super conscious of risk.

Letting the price escape one’s control is a feeling I’d assimilate to Larry Walters, a surviving Darwin Awardee. In 1982, Larry bought 45 weather balloons, attached them to a tethered garden chair and filled them with helium. Then, armed with sandwiches, beer and a pellet gun, he released the rope.

Looking forward to floating around at about 30 feet, he envisioned taking out a few balloons to get back down. But, in reality, he immediately ascended to 16,000 feet. Finally, after some fourteen hours, he got the courage to shoot enough balloons that he descended.

Yes, trading can be exactly like that if you ever let it get away from you. As Larry probably said, “expletive, never again”.

Have a wonderful Christmas and New Year. All the very best

Buzz

Over October, I day traded a bunch of indices; here’s the trial result.

I regularly traded last month from before 7 am to about 8.30 am. The trades were tiny, starting with a £1,500 account. The idea was to trade several indices with a simple but consistent system. Rather than a demo, I prefer an actual, if not negligible, account. The result was nearly a 50% increase in net P/L.

The month comprised nearly 200 setups that I traded. (I take and manage from one to a few entries per setup).

More time is needed, but I’m happy this month to increase the trial account to 15K. I will report my results at the end and provide more information on my process, edge and what’s the next stage.

Daytrading is all about precision, but what does that mean exactly?

I took a significant loss in the fund many months ago. Although consistently profitable at the time, I had to restructure my trading system to build the fund back up as quickly as possible while removing the likelihood of such a loss from ever happening again.

Now I rarely have a losing week, and an out-of-sorts loss, I know, will never happen again. So how have I done this?

Successful trading is about precision. It is about risk and reward and being very good at judging probability. We derive expected value (EV) from risk, reward and probability. In addition, all three variables are constantly changing, and my decisions must reflect these changes in real-time.

To calculate EV, we take the estimated win rate as a percentage and multiply it by the reward minus the same calculation with the risk. I do this for each significant bar or phase of the trade. So, for example, if a percentage win rate is 30% with a reward of £250 and a risk of £20, then EV is £60.10.

EV=(250 x 0.3) – (20 x 0.7) = 60.1

However, EV is dynamic, so the calculation is done through experience as the trade progresses.

Appreciating what the EV is in the moment provides an immediate decision: exit, hold, take some risk off, or even add to the trade.

An advanced concept introduced by Lance Breitstein, but one that has made a significant difference to my results. Other aspects from Lance are exponential size on graded setups and a regular video review of my best trades.

How am I finding the all-important time over price structure?

The first chart I view is a line drawing, and surprisingly, that has markedly improved my win rate. A potential structure is generated from time-over-price and shows up very clearly in an uncluttered line drawing. A line provides the closes. In other words, you don’t see the wicks, and of course, with a line chart, there are no long and short coloured closes as in a candle or bar chart.

I’ve spent the longest time viewing charts with different tick and minute bar durations. As a result, I’ve chosen a 300-tick chart as my basis for the line, and I have the line more compressed (covering a more significant period) than I would have with a candle chart.

Once I find a potential chart structure, I review the higher charts for context. As my overview, those higher charts are the 30-minute and the daily candle charts. Both higher timeframe charts must agree with the trade direction for the line chart structure to qualify.

Therefore, I find that my review of some fifteen FOREX charts and the GER30 chart via the line drawing first is the best way around for me.

The setup is next.

With a qualifying structure, I switch to a 300-tick candle chart. The setup is usually a break in the desired direction. For me, a measurable target is a necessity. However, being practised in the many price action conventions is also essential. Before an entry (or immediately after), I’m aware that the trade satisfies my VSSS (See previous blog post). I’ve changed the A to ‘the right side of the V’ by Lance Breitstein).

In addition, the trade has to have a measurable target and a suitable stop position with a worthy risk/reward. As part of the process, I’m looking to the left to clarify the win percentage through prior chart structure and or significant support and resistance levels. And an awareness of the grade I have given the trade, and therefore the trade size gleaned through hundreds of hours of chart video.

In many instances, to achieve the all-important EV, trades happen in the blink of an eye. Under these conditions, mistakes happen but are minimised through practice and waiting for the proper setup.

Am I ahead of this trade or playing catch-up?

Something I consciously consider at the point of each trade entry is ASSS. That’s somewhat the point—easy to remember. The ASS part (always-in, structure and setup) is understandable to most traders, and I will cover them in a future post. The final ‘S’ is my consideration here and stands for speed.

Speed in this context is getting out ahead of the market. I don’t mean prediction, as that can often lead down the wrong path. I mean being in the moment, focused and seeing and reacting to the signals as they occur. How often do we stumble across an ideal setup (which wasn’t anything a few moments ago) and are now late to the game playing catch-up?

The trouble with catch-up is that often it puts us in the wrong frame of mind. For example, I want the price to return to my desired entry-level if I play catch-up. However, in the same situation, I may exit the trade if I entered already and got a reversal.

But speed has considerations further down the trader’s line too. It involves everything. Probably unnecessary in this day and age, but I’ve dedicated a computer entirely to trading—both for speed and distance from unwanted distractions and clutter. The charts I use and how I organise them for ease and speed of access help define my success (enormously), as is my WIFI connection and, crucially to a day trader, my chosen broker’s connectivity.

Speed, therefore, is a review of my physical and interactive process to ensure my mind is in the right place—focused, open, ahead of the chart, if only minutely—and decisive. As I have said previously, I enjoy considering multiple charts as that helps keep me absorbed. But I make a point of trading one chart at a time. Once I recognise a qualifying ‘ASSS’, I automatically judge my risk and ask, “is this a B trade or better”. Finally, I view the other side of the trade closely—because there is always another side to some degree or other. Am I seeing the beautiful lady and missing the witch?

Exponential risk, does it have legs?

I took a few days out and walked forty miles in the Lake District. After the walks, I read The Antidote by Oliver Burkeman and reread Atomic Habits by James Clear. Trading is improved by almost every good idea I read about; these books are no exception.

I’ve been pleased with the results of trading nine currency pairings. If done correctly, more markets can result in fewer, more selective entries. As I observe, an appropriate structure and setup are available in most sessions.

The currency market continues to have good price movement. And I’m continually scanning for high-probability trades. Oddly my ‘C’ trades seem to present themselves before the more lucrative deals. If I jump on a weaker deal, it tends to draw me as they can often be more challenging managerially. It is only later that I notice the better trades have sailed past undetected.

At the same time, I do not want to be hesitant when a higher grade trade presents itself, wondering if it is a ‘C’ or better. That comes with a lot of practice and consideration. Writing up in great detail each significant trade and honestly drawing out all the lessons helps. I’m starting to video my trade sessions too. I can then play the good ones repeatedly to reinforce what I did right.

It sounds like an awful lot of trouble. But the more repetitions I do, the easier it is to recognise when the play is so good. I also record repeat wins to note categories and pairings. It’s all about building a database of those setups and charts and what they look like when they work well.

I now have a note card of my ‘C’, ‘B’, ‘A’ and ‘A+’ trades and how much I want to risk. The risk I now use is exponential as the bet grade improves, and I gain confidence in judging those differences. An approach used by Lance Breitstein and one, I realise, that moves away from the usual convention. But as long as I work up slowly to the process, I think it has enormous potential.

A game-changer—increase in entry size based on the grade of set-up.

I introduced nine markets to my trading watch list this week and saw a profound favourable difference. Why?

Recently I’d traded only one and then two currency pairings. That had the advantage of knowing my market and, by association, controlling risk. But it introduced unwanted aspects to my trading too.

Patience is my Achilles heel. With only a single pairing, it might not be in play for some time, and, through impatience, I’d take a less than perfect setup trade entry. The in-play is an expression often used by SMB Capital and also identified by Lance Breitstein. They refer to stocks, but as the definition is technical, the principle applies to currencies too.

Observing so many more pairings, I’m more conscious of ‘always in’ and structure, which often results in an improved setup selection. For example, if I rate my setups from a ‘C’ to an ‘A’, I find that with multiple charts, I’m only taking what I might class as ‘B’ and ‘A’ trades and passing on the ‘C’ opportunities. Previously, with one or two pairings to view, I had a plethora of ‘C’ trade setups to my name.

Another advantage of waiting for the higher grade entries is that I can build my trade size and, conversely, my risk more confidently. This selective size and bet process, championed by Breitstein, is a game-changer. Yes, let’s not put the cart before the horse here. Reading probable direction (or always in), market structure—and recognising in good time a favourable setup—has to be proven before we up our stake.

After months of charts and hundreds of setups (a relatively limited view, thousands would be better), I found that the 500 tick chart provided three times more (precise) entry setups than the 5-minute chart. However, the 5-minute chart offers a better price over time visual structural assessment. So I have gone with both.

The left shows a 500 tick chart set at a ten pip scale (the market is closed hence the wide bid/ask lines), and the right shows a five-minute graph with an automatic scale.

Every chart can change our perspective about price over time and volume capitulation depending on its median and how we set the axis. I can identify the market structure more quickly from the layout of the right-hand chart. However, the one on the left is for trade entry. The advantages here are consistent risk assessment, thereby reducing errors, and often a sharper (and for me, it is subjectively less emotional in its appearance) presentation of a setup.

The tick chart can work well with others

Another active week in the currency markets. I mean broad, predictable vertical price movement. For me, predictable is if I can identify the market structure. If so, I have a fair chance of realising when the form is moving from balanced to trending. No matter how brief or extended. I worked this week rather pleasingly in terms of results with side by side a 5-minute and a 500 tick chart (and a 10-minute VWAP chart for mean reversion guidance).

This week’s screen is on an ultrawide 38′ Alienware.

To the casual observer, they look similar. And that is true. The 5-minute and the 500-tick harmonisation is close but derived from a different source. The 5-minute is, of course, the price movement that occurred during that specific five-minute period. The tick bar, alternatively, represents the net effect of each five hundred bought and sold contracts.

Why did I like this trading combination?

Market conditions always favour a specific set of trading parameters depending on market activity. However, often this is only evident after the fact. Therefore, we go into our work generally with a known system (how we’re going to trade today) and fit it as best we can to the conditions that develop. The market can favour a set of trading parameters for days, weeks and even months. So a regular change in our system is not needed.

I’ve worked a lot with a standard split of charts. Maybe using the 5-minute chart as the principle with the lower timeframe assistance of, say, the 2-minute chart and a higher timeframe—for mean reversion estimation—of the 30-minute or hourly chart—all standard stuff. But as I hinted last week, we can get in a lot of bother with overly interpreting the lower timeframe charts.

I use the mnemonic ASSS before I enter a trade. That stands for: always in, structure, setup and speed. The ‘always in’ is the initial key. It is where I decide which probable direction the market is favouring for the timeframe in question—long or short. You have guessed it, though. The lower timeframe chart can often be at variance with the principle diagram. No problem, we wait until the lower timeframe ‘always in’ direction agrees with the principle timeframe. Easy in theory, not so simple in practice.

Understand that on or about to enter a trade, most (and particularly inexperienced) traders’ IQ drops by about 100 points. Not ideal when we have to manage differing setup suggestions on very fast-moving platforms.

The trading combinations of the 5-minute and 500 tick charts provide correlation in structure and ‘always in’, but one can present us with a setup when the other does not. Two possible bites at the same cherry. Other traders might want to find a different trading tick chart correlation. On a limited test (over several months, creating hundreds of setups), I got three times more entries from the tick chart than the correlated minute chart.

For sure, you have to know what you’re about if trading the one-minute chart

To be profitable in this game is such a finite thing. No surprise there. But once an account can be held steady over an extended period, the next stage, profitability, flows very nicely. But my goodness, it can be messy. It requires grit and the need to come back from negative experiences. It’s not for everyone.

Having an edge is talked about a lot. I’ve mentioned it previously, but it is something I review regularly. Which, in turn, sees me tweaking my set-up criteria here and there. But I try not to fall far away from what I do day in and day out. I think trying as many methods and timeframes as possible to see what suits our personalities and goals best is necessary. But then, once past that stage, we need to focus on our chosen narrowness and utilise it better than anyone else.

ASIA (access, speed, information and automation or algorithm) is a simple way we have discussed previously to determine our edge. As a day trader of a currency pair, I offer the following thoughts.

Access to me is the accessibility of my chosen market. For me, this primarily comes down to where I live. The currency market is at its tradable best from as early as 6 am consistently through until gone 4 pm (UTC + 1). Perfect. Within the day, there are more favourable trade times. The European and UK markets take us from 7 am until about 9.30 am. The US market comes online from 1.30 pm and is at its most active for a couple of hours. I also like to have a currency pair where only one of the pairings is open to news events. As a day trader, access to a market at its prime time usually provides the more favourable and all-important minimum spread—the difference between the ‘bid’ and the ‘ask’ price.

Speed, I think, can be misinterpreted. Very easy here to put the cart before the horse. The pace of entry cannot stand alone. It’s the precipitousness with quality set-ups that counts. Also, this does not mean watching the smallest of charts. Whether a minute or an hourly chart speed of entry requirement is similar. In this instance, the recognition of the set-up is the most challenging. I use multiple timeframes of the same market. My primary chart is the 5-minute bar chart. But I like to know how I stand with other timeframes—I want to know what they’re doing. To that end, the hourly and 4-hourly bar charts are visible to me. In unison with the 5-minute chart, I keep close tags on the one-minute chart. I do this because I can identify entry set-ups valid to the higher timeframe chart but not registering. (A word of warning here, however, trading from the one-minute chart without the necessary practice and firmness of objective is highly detrimental to profitability).

Information to me is chart-based. A forward rather than a backwards-looking indicator is better, says Chris Cady, a trader of some 40 years. I have studied many such signals, including VWAP and market profile. But I’m at my most profitable, with the awareness such study has brought, by viewing a clean chart for structure and set-up. I suppose for me. Less is more. But this approach has a minimum lag, and the combination of information and speed is the nub of my edge.

Automation, to me, is structural and set-up recognition time after time. Alice, the name of artificial intelligence in a Jack Carr novel, says: “the data is collected, I can see it, it’s the looping it all together into patterns, watching for variations and turning it into meaningful predictions that is difficult”. Computers, though, do not fear missing out, do not revenge trade or lose their mogo. So I have to stay centred and manage all valid transactions correctly. That’s the theory anyway.

How do I know I’m in control?

I always mention day trading in terms of how I trade—no one wants to know the management bit. Last week, I said that managing my work trumps how I go about it. But that, in turn, bows to what is going on between my ears—the top idea in my mind.

In truth, everyone realises that I can’t profitably have one without the others over the longer term. It’s just that the ‘how’ tends to be more interesting. Jean-Francois Boucher puts it well in his chat with Etienne Crete. The getting in and the getting out are the easy parts. I also like how he mentions that trading is boring if you’re doing it right but not too dull. Charts are repetitive, with lots of the same every day occasionally thrown into turmoil.

Boucher has a reasonably distant safety stop-loss relative to his timeframe. A stop, as he mentions, that saves his account, not the trade. I do the same. Nearly all my transactions are manually rejected when they don’t work, but my safety stop is always in place, and I manually trail the safety stop in a winning trade.

I like to know what the value is versus the perception. In this regard, trading a currency pairing will be very foreign to an equity manager. Stocks and shares predominantly go up. Indeed most brokers only allow longs. In this regard, buy and hold is the way. Not so in currency pairings. With these, what is up anyway and to what? Price revisits the same level time after time. But this hope is dangerous too. It has been to me several times in the past. Okay, I get it a slow learner, but no different to many eventual profitable currency traders.

Over several days until mid this week, I’d traded light at no more than two lots per entry and added steadily to the fund. Then on a day of pure personal genius (cynicism), I traded my feelings rather than the chart with early anticipation of a market reversal—this has rarely worked in the past and certainly didn’t go favourably here. As a result, I dropped a thousand pounds. Not a lot in the big scheme of things, but I know it can quickly get away from me if I don’t halt and come back the following days with my head right.

I sorted my feelings, went back to basics and traded the two following mornings returning all the losses. It’s never about the profit. It’s always about working well. If I’m proficient, profits tend to look after themselves. Overall, not a big win week financially, but (correctly) bringing back a loss is very positive. It tells me I’m in control.