Withdrawals are closed for a while, sorry

The trading account is closed to withdrawals for a while.

Not that anyone has taken money out, but I know it is disconcerting not to be able to.

I made a big mistake, and it’s put us back many weeks.

I’ve wondered repeatedly what in the world was I doing—as risk management is so crucial.

Trading heavily in the run-up to announcing our profits, I wasn’t necessarily trying to bolster the coffers—although that will be an aspect—it was, ironically, the protection of it.

But rather than protection, it became the fear of losing. So how does this come about?

I had committed to a weighty trade to XAU/USD (gold) and gave it more room to move than I do on any other transaction. I noticed a higher timeframe structure for its significant support (a fundamental error) and a probable return to the entry price, which it did.

But beforehand, the trade (as it’s now on a higher timeframe) needs to be carried overnight. Something I don’t do!

So if the price came back to the entry, what was the issue?

I’d loaded the account significantly higher than usual in anticipation of trading bitcoin in the future. The margin on bitcoin (no surprise) is exceptionally high. I’ve not traded bitcoin with any weight, so to have loaded prematurely was a mistake.

Moreover, my broker—something that wasn’t a factor before—offloads the trade automatically as the margin gets to 50%. So when margin and drawdown (losses in this case) combine, it can cut the account (the now more extensive version due to the bitcoin argument) at an eye-watering rate. 

When I checked the chart at 4 am—sleep had been brief—and the price was in the ascendancy to the entry-level, my immediate thought was of relief. 

But short-lived, as I noticed what had occurred with the automatic margin reduction and the subsequent cut to the account.

The responsibility for this is all mine. What the broker has in place is correct. I’d gotten myself into a position that should not have occurred, and I can say quite assuredly, never will again. I say that with such conviction because the stress from it is so enormous that you never want to experience it again. That’s for darn sure!

I have regrouped, been honest with myself as to what I did wrong and learnt from it. I’m trading small to build confidence, reassert strategy and recentre. 

Trading small at the core amount of one lot and up to three lots per setup is in the region of tens to hundreds of pounds per day.

I was trading at a core of fifteen lots and up to 45 lots per setup. So you can do the per day expectation.

I will work steadily back up to that level but with much-improved dependability—no more big bangs!

Apart from a greater awareness of risk management, what else have I changed through this lesson?

  • Patience.
  • Probability.
  • Know what setups work best for me and only take those.
  • I’m quicker to exit when it’s not working and better at holding when it does—loading appropriately on my best entries.
  • I now trade from a higher intraday timeframe for structure, only venturing to the lowest timeframe for the fine-tuning of an entry.
  • I now view more pairings looking for the ‘charts in play’.

My trading journal provides a daily profit—to know if I’m consistently profitable rather than an obsession with P&L—and I log entry quality which I score from one to ten with a brief explanation of lessons learnt. 

A daily or even weekly report on the blog would be too much—for you rather than me! However, I think a regular end of month synopsis of my trading journal would be beneficial. 

Develop your own trading style

There are so many styles of trading, so what makes sense is the direction we go.

However, we do spend an awful lot of time following what we happen to come across initially.

To a developing trader, I’d say try a wide field of methods to see what fits best.

But even a good find is constantly evolving.

In years gone by, day trading acquired a bad name. So much so that present traders, to make the distinction, refer to it as intraday trading.

Day or intraday trading has changed due to improvements in technology—and consequently tighter bid/ask prices—and greater liquidity.

More (if not the majority) proprietary firms are intraday trading today.

What I’ve liked recently is anything by Mike Bellafiore. Start with Chat With Traders episode 162, followed by One Good Trade (available on Audible) and The Playbook—an inside look at thinking like a professional trader.

As he is known, Bella teaches stock trading, but the material is excellent for whatever we have on our screens. For example, if you haven’t considered watching the order flow (also known as Depth of Market)—and the chances, like me, are no. Then Bella will make you reconsider.

The VWAP is an excellent tool for stocks and shares, commodities and (probably) indices. Not as valid for FOREX. Read The VWAP roadmap by Zach Hurwitz.

I trade gold (XAU/USD) intraday, which can provide a VWAP signal throughout the day (UTC+1) and recently the DAX (DE30) from early morning until early afternoon and watching again the US 500 (S&P) and US 2000 and US 30 from midafternoon (New York stock exchange open) onwards.

I watched bitcoin for a few weeks and decided to give it a miss—at least for now. A great introduction to bitcoin, and one that will change your mind if you have a negative bias, is the Digital Slowmad letter by Chris Lee.

Trading gold and bitcoin

What am I trading at the moment with the fund?

Gold and Bitcoin. 

To be more exact, in comparison with the US dollar.

Firstly the yellow stuff. 

It is highly liquid, meaning it has no gaps on the chart—even at the lowest measurements like the one-minute bars or 100 tick bars.

Trading over the last few weeks, gold has generally traded bullish at between $1,750 and $1,900 per ounce.

I get a good read on gold with my only ‘where am I to the broader market’ indicator: the institutional volume-weighted average price or VWAP.

Beyond that and awareness of the previous day’s price action, it’s all down to traditional technical analysis.

Is it a good idea for an intermediate to trade gold? Probably not, but if they do only on the proviso that their risk management is faultless. As with any pairing but particularly gold. 

Bitcoin

Bitcoin is a very recent trading possibility because its price fell recently by 50% from some $65,000 per coin.

Today trading in the region of $36,500, bitcoin entries are available, but pockets still need to be significant.

But let us go back one. 

I am a big fan of the future of bitcoin. For many reasons but mainly:

  • We can buy .00000001 of a coin (it’s available to anyone).
  • It is decentralised. (Presently a perceived disadvantage that I think will become a significant advantage).
  • It will top out eventually at 21 million total issues of the digital coin. (Compare this to the US dollar that seems to be never-ending printed).
  • It follows fixed rules.

The distribution between competitive financial assets is namely: gold, negative yield bonds and crypto. 

That amounts to some £30 trillion in market cap, with bitcoin presently taking only $1 trillion. That distribution will change and, accelerated by the economic effects of the pandemic, relatively quickly. 

But I get away from the intraday considerations.

Bitcoin characteristics are similar to any other highly liquid asset during the London and New York trading sessions.

However, we avoid the New York close as some significant gapped price changes at this time have occurred.

Moreover, the margin required on bitcoin is significant, which is on a so-called professional 1:500 leveraged account. 

And within that large margin, sensibly, it needs to be a low percentage of one’s overall account. 

So not a realistic consideration to most retail traders.

Other than that, as with gold, bitcoin seems to be represented suitably by the VWAP indicator—but it is early days to determine the VWAPS overall utility in this instance.

I do have a very particular set of skills!

To ponder.

This game requires a specific skill set.

Traders need to be ‘wired’ in a definite way to be able to make money—they need to be able to:

  • React quickly to a large number of variables. 
  • Act with ruthless decisiveness.
  • Commit to a position, and in the next breath, can change their mind if necessary completely.
  • Cope with insane pressure.
  • Get knocked down and get back up again.
  • Stay strong and stay focused for long periods.

Patience, self-belief and self-confidence are essential skills of a trader. Can these traits be learnt? Or do we need to change our personality?

Regularly ask:

  1. How can I make more money from my winners?
  2. How can I lose less money from my losers?
  3. How can I get more trade ideas?

Tom Dante interview notes.

Ditch what does not work

An entry without an agreed setup is a form of overtrading.

We see patterns everywhere, and that is the problem. As a result, we end up trading on feeling rather than probability and a clear risk/reward.

Overtrading is any trade based on a fear of missing out—or any emotion.

All traders overtrade at some point or other.

I refer here to day trading. But, it is a consideration for all styles.

Because of the intensity of day trading, concentrating on the ‘one thing’ is particularly relevant.

The one thing is one market, one session, one strategy, and to master one set up at a time.

The idea of the ‘one thing’ will fly in the face of what most traders do. Many will watch multiple markets across various sessions and apply different strategies and setups.

Suppose we learnt to sit on our hands. Watch and wait. Narrow our trading time, if day trading, to a few hours a day. Or be much more specific than that. Specify a session to trade every day with the same strategy and set up.

A FOREX market, for a while, tends to repeat in volume at similar times.

And how about, instead of bouncing around multiple markets, view only one. Get to know that market. How it moves, how far and how quickly—including spread, commission and expected slippage.

Similarly, with strategy. Do multiple approaches work? What is the statistical result over an extended period of each trade variation on our profit and loss?

Do we know if one works and another doesn’t?

Ditch what does not work—and more often than not, it will leave only one.

Maybe within that one (consistently profitable) strategy, we have different entry and exit criteria. But again, run the results methodically. Are they truly working?

Be ruthless and throw out any that don’t. The more we focus and specialise, the fewer mistakes we make.

And mistakes lead to loss and away from consistent profitability—the last two words being the goal of any serious trader.

To be consistently profitable, I need to…

To move from profitable to consistently profitable is a more significant jump than it sounds.
How do we manage to do that?


Specialisation, focus and discipline are key.


We are trading the same market during the same session with the same strategy day after day.

Specialisation

Why the same market?

We get very familiar with its movement, size, and how it might react to specific news announcements.
Each market has a DNA—the subtle differences in structure and how it often changes from one form to another.
Knowing this movement—intimately—is necessary to be able to execute a setup successfully regularly.

Focus

Trading the same session day in day out helps us focus.
Day trading when you’re on it is intensive and exhausting.
We need to be on our game to win.
We can realistically maintain such intensity for limited periods.
A few hours a day.
So we use that to our advantage and dedicate ourselves to a single consistent trading session each day.
The graph below—provided by Nick—shows the volume for the Pound/Yen. UK time (UTC+1).
The graph shows the highest volume period is from pre-New York open and for the following few hours. We trade that session.

Discipline

Sticking to a tried and tested setup is, ironically, one of the most challenging things for a trader to achieve.
It is for me!
And is, I conclude, why I’ve been good but not consistently profitable.
The best setups are often not crystal clear.
Therefore, by design, each entry needs to follow a clear set of rules.
But at the same time, each setup is unique in detail.
I need to ignore off-script early and late entry opportunities.
Unlike algorithms, our minds see patterns everywhere.
Algorithms, however, make instant binary decisions needing only the smallest of price movements. Way too quickly for us. Minimum size also dictated by spread and commission costs.

Our edge

Our edge is reading the algorithmic price movements of risk and reward within a contextual market structure. And when these movements get to an appropriate size, we join in with proper context and price action criteria.
How will I make this necessity for discipline a strength?
I take every trade with James. I’m the snipper—and he’s the watcher.
That combination (militarily anyway) has always worked better.

A simple, focused trading plan

What would I say to my younger self about how to trade?

I’d start by explaining how financial trading works.

In essence, financial trading is no different from any other exchange—buy and sell higher or sell and repurchase it at a lower price.

And the concept of opening a ‘short’ position and repurchasing it at a lower price to make a profit would take some convincing.

So, let’s assume I understand anything that is googleable and get down to what matters.

What matters most is the risk—because the risk is under the trader’s control.

I control risk through overtrading awareness, trade size and my take profit and loss plan.

Each element of the above has to be a thoroughly ingrained and practised habit.

As part of the loss plan, I look at it for what it is and let it go—because every trade has its discrete outcome.

Detachment means the outcome of a trade does not define me. It does not mean separation from risk—as that would be foolhardy.

My goal when I trade is to find my alignment with the market.

I take every setup opportunity. However, if I’m not happy with either the market or myself somehow, I reduce my trade size—but I must take the trade.

I grab small definable chunks in repeatable rotations of the market in a timeframe that’s comfortable to me.

I take one or two trades a day—win or lose. But I often go a few days without a setup and, therefore, without an entry.

I’m interested in the statistical probability of something continuing after a specific event.

That event is defined by price action, zones of support and resistance and bar by bar momentum.

I focus on one currency pairing and one market session.

The pairing is the British pound to the Japanese yen (GBP/JPY). And the market session is a couple of hours on either side of the New York open.

Yes, my approach has become significantly more focused recently. I ought to have had this conversation a couple of years back!

The fund—what’s happening?

Fund results, once posted, are guaranteed. Therefore, I only put them out there at intervals of about nine to fifteen months.

On the other hand, investors can enquire ‘how goes it’ often, weekly if you like.

The fund is up a bit on my last report.

Though I mostly day trade (very occasionally holding a swing overnight), the fund’s object is risk management first.

My experience is that trader’s misfortune is due to improper risk management (over-risk) or over-trading (or both).

Since realising this, my trading style has matured, even recently from the New Year until now.

In that time, we have had success and maintained that position by reducing the currency pairings I trade (actually down to one). A pairing that I, therefore, get to know exceptionally well.

Patience and discipline are crucial to trading this way.

My trade entries these days are decisive but at the same time incredibly selective. Much more so than previously.

I also now trade with more attention to the momentum generated by the market sessions. Namely the London and New York open and their subsequent pre- and post-periods.

Moreover, I am now more risk and goal orientated with my trading—based on one trade, on average, a day. And only one entry per market session, whether that be a win or a loss.

Our losses have to be smaller (much smaller) than our wins—that is an imperative aspect of my approach.

I will keep you apprised regularly on ‘how goes it’ with this subtle but significant change—maybe it will prove to provide a cumulative low-risk bumper boost?

Which trading broker?

Once we’re settled on a particular way of trading and are profitable, we don’t want to mess with it too much. 

That’s not the same with the preferred platform and brokerage. We need to review these from time to time to see if we still have the best setup.

We’ve given both—mainly ‘which broker is best for us’? —a lot of thought recently. 

Each trader has their requirements depending on style and trade frequency. 

As a discretionary day trader, my own needs include:

  1. Low spread (the difference between the bid and ask price).
  2. Speedy and reliable execution.
  3. An intuitive dealing platform. 

Recently I wasn’t getting the first two points from our current broker. The market (the GameStop story) has caused some brokerage turmoil. However, getting trapped in a trade two days running was not calming. Nor was their excessive increase in the spread at any slight adverse change in volatility.

I want to say a thank you to Chris Lee (Pipmaven blog) for his recommendation of IC Markets. 

IC Markets and Pepperstone fit our needs. I particularly liked their associated ctrader web platform. 

Our analysis is via TradingView with the broker’s platform only needed for trade execution. 

TradingView have various brokers that allow entries directly on the TradingView chart. Oanda, for example, who in the last few days were given on-chart trade access for UK residents via TradingView.

(Nick’s preferred option as it more suits his systematic approach). 

For me, it’s IC Markets with their very low spreads. However, anyone following my path should look at Pepperstone and Oanda—as they provide UK regulated account protection.

IC Markets, Pepperstone’s and Oanda’s prices are direct to market—no broker’s dealing desk in the way. And the indication is that Pepperstone will link to TradingView shortly too. 

Some traders (those with larger accounts) might like to have more than one brokerage, which is also useful if they employ different strategies and different timelines. 

Personally, I aim to get as good as I can be at one clear strategy and with the same broker and platforms. 

Data continues

The algorithm data continues at pace. Now at nearly 60% profitability with a 2.88 profit factor or reward/risk ratio for EURGBP. But that is not the whole story.

The above is the figure for our best pairing. The one on which Nick has focused. However, a dozen others (majors and a few significant minors) run a close second.

Each pairing is individually tested, and the algorithm adjusted as needed. For example, best market entry timings are specific to each currency and its pairing based on volatility look back.

And determining the market cycle has been improved by introducing a Japanese line break chart—a movement chart rather than a time-based chart.

A minimum Euro VIX (volatility index) is incorporated in the algorithm which—being USDEUR based—will require testing as to its applicability (if any) on other FX pairings.

Nick’s test is designed for an hourly chart and looks for entry/exit solutions over the past 750 days—figures above are providing trades (tested yesterday) on 223 days. In other words, we’re seeing trade entries from one to three days on average.

This delicate balance of ratios provides the best net profit. However, Nick can make adjustments to the algorithm (in the VIX and others) whereby per cent profitability increases significantly and the reward/risk balloons, amazingly, to well over five.

However, in this instance, the number of trades closed and the net profit achieved decreases substantially. In this instance, we could increase each transaction to a higher average per cent per entry (currently trading at one per cent of account), but we know that to do so is not sustainable or practical in the real world—drawdown for some trades could go through the roof for one.

I do remain a discretionary, rather than a system, trader—for the time being at least. But Nick has brought a quantifiable aspect and improvement to our methodology. This week, I found that taking trade entries from Nick’s quantified indicator system and transferring them to James’ subjective value drawings (rather than the other way around) have worked very nicely thank you.