Plan, Brief, Execute and Debrief

The quality of our trades depends on the quality of the decisions we make. We are not born with this ability, we learn it. Strategies guide and define our choices. Therefore, based on sound principles, a good plan is a vital step for us to produce right decisions.

Once we have a clear understanding of each part of our strategy, we can invent our own way of recalling its sequence (as an ex-military pilot I like the plan, brief, execute and debrief order of things)

  1. Plan (News and Market Cycle)
  2. Brief (Backtest and Probability)
  3. Execution (Valid Entry)
  4. Debrief

Our ebook has many pages, but the simple block above helps collapse all our work into a process that allows, more often than not, to provide a profitable solution.

The margin is a changing!

The margin on spread bet and CFD accounts are about to increase significantly. Why?

Many (and indeed any accountants we’ve spoken to) consider spread betting in the same light as a sports betting app.

They couldn’t be more different. Financial spread bets and CFDs demand a different level of consideration to sports betting. The difference between a CFD (contract for difference) and spread betting – apart from a grown-up name – is in detail.

Beginners ought to start with CFDs as losses are deductible and then move to spread betting once profitable as profits on spread bet accounts are not taxed. Most do it the other way round.

In both the trade is an agreement rather than a purchase of a security. They are traded as a derivative of the market. That is why they can be traded both long and short either as a stand-alone trade or as a hedge.

This sports app miss conception possibly fuels the increase across the board of margins in CFDs and spread bet trades.

Not too long ago margins were calculated at 0.5% of the potential risk, it is mostly now 1% of the risk and soon to increase to 5% of the risk.

If we take the currency pairing of Sterling versus the Dollar the market as we write is at 13,962. To spread bet this at say £10 per pip (a pip, in this case, is the final digit). The risk is 13,962 x £10 = £139,620

Probably not the same as a sports app bet! The margin required to trade at 5% is £6,981. If we consider that a suitable maximum margin of our account at any one time is not more than 10%, then we would require £69,810 to trade. Many serious retail traders trade up to four times this amount.

So, yes the margin increase ought to make many traders reconsider.

Day trading

As Jack Welch told us: “change before you have to.”

Beginners are attracted to day trading because, most of us when we start out, only consider one thing: risk.

With day trading we’re offered a low-risk and the beginner takes this (usually unsuccessfully) with low probability entries.

The professional counters by (mostly) taking high probability opportunities.

This often requires close attention for long periods followed by quick and decisive action.

Like all the best games, day trading is easy to learn but hard to master.

As Seth says, “if failure is not an option, neither is (the) success.”

A traders engine is….

What best helps us make money as a financial trader?

Is it:

  1. a fantastic strategy
  2. time on our hands to be able to trade
  3. enough money to trade at the level we desire
  4. an environment without distraction
  5. the correct equipment and support software
  6. to be able to trade objectively, all the time

The list could go on. And of course, we could argue that all the above have a part to play, to some degree or other.

However, from our lessons, it is the final item that takes the biscuit.

To trade objectively (or in the zone, or from a ‘now’ moment perspective) is the engine of the whole process.

I have read ‘Trading in the Zone’ by the late Mark Douglas several times and it was only the last read where, for me, the so-called ‘light’ came on.

This may mean that I’m a bit slow in this regard. Or it could be that we need to gain a certain level of traders experience before we can properly grasp what Douglas was telling us.

Slow Trader Fund

Our Slow Trader fund has sat on the fence for a few months waiting for me. Not being a boom and bust trader, I have traded small whilst developing our ‘probability trading’ technique.

A level of profitability through consistency has to be achieved before increasing trade size. The technique provides that, now it is up to me.

It may seem a bit odd that I’ve moved away from trading a market, US stocks, that has increased this year as an index 20 percent or so. UK shares not so much at 6 or 8 percent as an index.

To day-trade profitably I need to give it (day trading) all my attention. Having trades open in other areas and time frames were definitely a distraction for me.

Why have I chosen day trading despite the many stories that tell us not to trade this way? Bizarrely, it is control. As a ‘probability’ trader, we accept that we are trading a market that is random. In other words, we accept that anything can happen.

If we except that anything can happen, then we accept the risk. We accept that the market is only about a price that can go either up or down. In ‘probability trading’ we also accept that certain effects happen when lots of traders trade. Things happen that can give an observant trader an edge.

Despite the simplicity described, it has taken me a couple of years to combine price action trading and money management, specific entry and exit techniques, and group it all together, test it exhaustively and call it probability trading.

Fund contributors that think the share market, and particularly the US stock market, are to continue climbing throughout 2018 ought to withdraw their funds from Slow Trader and head that way.

After all, that is the market, with you, that Slow Trader originally entered.

If you stay in the Slow Trader fund, and to do so you don’t need to do anything else, you become part of a probability day-trader fund. Our advantage: we are not concerned about a good or a bad year for stocks and shares; we trade a currency pairing in the short-term, with an edge; with (to quote Mark Douglas) rigid rules and flexible expectations.

We have developed a day trading strategy that allows us to take money consistently – day in, day out.  We scale-up though when we’re ready.

Risky

Readers will know that our chosen trade method is day trading a currency pairing.

People that are not familiar with how we go about our business will think ‘gosh, that’s risky’. And of course, to a large extent, they are right.

As with many disciplines that require a great deal of skill and practise (to simply achieve mediocrity), it comes across as risky because most don’t take the time and effort to learn.

Ironically a principal draw for us to day-trading is the control of risk.

Our e-book on the subject to be released within the first quarter of next year shows, we think, in some detail how this is possible.

Day trading, if done well and with practice, can provide a consistent daily or weekly return. So unlike other more traditional trade or investment methods.

With all worthwhile disciplines, it does not come to us overnight.

As Seth Godin said:

“The hard part is ‘steady.’

Anyone can go slow. It takes a special kind of commitment to do it steadily, drip after drip until you get to where you’re going.”

The NASA effect

From mid-January, James and I will again trade together, full-time. His contribution is to: (1) reduce mistakes made and (2) maintain our focus.

Of course, there is more to it than that. Each trader has to similarly trade competent and knowledgeable. When that comes together, however, trading together really helps.

Mistakes:

In the pilot world, it is known as crew resource management or CRM. During the late 50’s too many Comet aircraft were crashing and too many of those were due to pilot (or crew) error.

NASA had a look and devised CRM; its success, throughout aviation’s history since then and the space program, was staggering. CRM is a method that prevents egotism.

The movie ‘Sully’ quietly shows CRM in operation. Each move by either the captain or the co-pilot is confirmed and checked by the other. It’s an accepted way in the aviation world.

So much so that it has made its way, under different names, into the hospital operating theatre.

Concentration

Distractions clearly affect performance on the job. In a recent essay, Dan Nixon of the Bank of England pointed to a mass of compelling evidence where constant interruptions accustom (us) to distraction, teaching us, in effect, to lose focus and seek diversions:

Conducting tasks while receiving e-mails and phone calls reduces IQ by about ten points relative to working in uninterrupted quiet.

That is equivalent to losing a night’s sleep and twice as debilitating as using marijuana.

By one estimate, Nixon says it takes nearly half an hour to recover focus fully on the task at hand after an interruption.

The day-traders world (not as dramatic as aviation – our feet are on the ground for a start) very much demands our total attention.