This category contains 53 posts

Exiting a Winner Early at a “Good Price” Is a Mistake

One of the mistakes I used to do is to exit a winning trade early at what I thought to be a “good price”, i.e. a price at or higher than the Ask (for longs), or a price at or lower than the Bid (for shorts). The Process Here is how it usually went: I … Continue reading

Maintaining Awareness During Trading

Whenever I make mistakes in trading (i.e. did not follow my trading plan), I like to deep dive to figure exactly why that happened, why did I take a certain action? What was I thinking? Why was I thinking that way? Was what I was thinking correct? Should my thinking be changed? How should I … Continue reading

The Psychology of Countertrend Trades

This post examines the psychology of impulsively taking countertrend trades in violation of one’s trading plan, as opposed to the psychology of adhering to a logical trading plan to take countertrend trades. Types of Countertrend Trades During my trading journey, there are two types of countertrend trades that I find myself taking that I logically … Continue reading

Dan Gilbert on Synthesizing Happiness (Producing Sour Grapes)

I came across a very entertaining TED talk by Dan Gilbert, titled The Surprising Science of Happiness (watch the video here). The point made in the talk, I believe, contributes to a common trading problem of taking countertrend trades. I’ll write a bit more about that in my next post. Some quick points from the talk: The prefrontal … Continue reading

Trading Breakouts and Failed Breakouts

Here’s some quick points on trading breakouts / breakdowns and failed breakouts / breakdowns. For this article, when I write ‘breakout’, most of the time it applies to both breakouts and breakdowns. H, L = Swing High, Swing Low. HH, HL = Higher High, Higher Low. LH, LL = Lower High, Lower Low. Trading Breakouts … Continue reading

Synonymous Trades: Countertrend vs. Exiting Early, Breakouts vs. Flipping

One interesting thing that I would like to point out is the linkage between different trade types. Recognizing this linkage helps with the issue of re-entry if exiting a trend trade early, and also ensuring consistency between the trading rules for trading a breakout / breakdown vs. flipping a trade. Countertrend vs. Exiting Early Say … Continue reading

A Quick-and-Dirty Way to Time an Entry for a Position Trade

For position trades, you may not want to be too involved in the intraday timing for your entry. Nonetheless, rather than just buying at a random time, e.g. at the open or at the close, your entry price can be improved by taking note of the intraday trend using some quick-and-dirty methods. A quick-and-dirty way … Continue reading

Why It Is So Difficult to Trade With the Trend: Pulling the Trigger, and Riding the Winners

Many people have no problems identifying the trend with their own methods, yet they have difficulties in pulling the trigger to capitalize on that trend. Why is that? And for those with no problems in pulling the trigger, they find themselves exiting too early (too early = earlier than what their trading plan dictates). Again, … Continue reading

What Happens in Your Brain When Your Market View Is Completely Wrong

Eric Barker has a new article (link here) on how to win every argument. The article had a point which made me think whether the same situation happens in trading. So it quoted an experiment by psychologist Drew Westen, which showed to supporters, footage of their favorite candidates completely contradicting himself. The experiment found that … Continue reading

Basic Factors in Evaluating a Trading System

Statistics Win rate Average winner / Average loser Profit factor (gross winnings / gross losses) Number of consecutive losers (needs to match with your psychological ability to handle) Expectancy (i.e. P/L of an average trade) Maximum drawdown Annual return t-statistic > 2 Robustness Markets: The system should be tested across all market environments, e.g. bull, … Continue reading

Why People Chase Prices and What You Can Do to Fix It

Why People Chase Prices Many times, you know that you should not be chasing after runaway prices, you know that you are far away from a logical stop, you know that the further price has run the worst the risk/reward, and you logically know from experience that you tend to enter at the worst time just … Continue reading

How to Tell a Distribution Range From an Accumulation Range

Almost by definition, the only sure way of telling whether a range (sideways market) is a distribution range or an accumulation range is when there is a conclusive breakout or breakdown from the range. The range is where the battles took place, and whoever emerges from the battle is the victor. When there is a … Continue reading

Using Momentum to Identify Turning Points at Retracements

I have been thinking about how best to identify turning points at retracements of a trend. The Source Material To do that, I find it best to throw away the concept of price bars or charts because it is an unnecessary restriction, and just think of a stream of transactions occurring at different prices (i.e. … Continue reading

Trading Around High Volume Areas

When there is a bout of heavy fighting between bulls and bears, characterized by high volumes being transacted at a particular price area or level, here are some points to look out for. These are from my observations trading the Nikkei in the T session, but most of it would be applicable to other markets. … Continue reading

The Market Does Not Care About Your Entry Price, but Should You?

This post deals with some ‘philosophical’ aspect of trading, so for those who don’t have a habit of thinking deeply into why they do things so as to take the most optimal action (which is totally fine), you might want to stop reading. The Market Does Not Care About Your Entry Price There is this … Continue reading

You Don’t Get a Profitable System by Flipping a Losing One

I came across this blog post (link here) yesterday, which reminded me of the same point made by Andrea Unger during one of his talks: you can’t just flip all the trading decisions of a losing system to make it a profitable one. The blog post noted that if a system has no edge, commissions … Continue reading

Pitfall in Reading Individual Bar Patterns on Intraday Bars

I came across an interesting video by Rob Mitchell (link here). He confirmed something that I have felt for a long time on reading too much into intraday bar patterns. You can find many resources or educators that tell you things such as Pay attention to what the individual bars tell you (e.g. where the … Continue reading

Using Moving Averages: Slope or Crossovers?

Another issue that I was thinking of recently was when using moving averages (MAs), which is more important? The slope? or the crossover condition (i.e. is price above or below the MA)? The recent book I reviewed from Anne-Marie Baiynd showed that she uses the slope. Barry Burns uses the slope (especially with his rubber … Continue reading

Anticipatory versus Confirmatory Entries: Which to Use?

As I was trading and thinking over my trading plan, one thing that cropped up was whether my entries should be anticipatory or confirmatory. Some of the considerations that I had were the following: The Benefits of Each ‘Style’ The benefit of anticipatory entries is that you enter earlier, your risk is tighter, but it … Continue reading

Trading Discipline and Prada Knockoffs: The Slippery Slope of Bending Rules

Last week while I was trading, I hit my day stop during the morning because I neglected to put a stop and wanton selling spiked the market down. I knew that I should stop trading, but my limbic system took over the steering wheel and I did 4 more trades, losing more money, before I … Continue reading

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