Is there really such a thing as "The Perfect Storm" of trading? At first I wasn't sure. But after talking to Shane Daly, coach at Netpicks and writer for "Evil Genius Cheats" newsletter, my mind was changed. We spoke for a while and that's when I asked him to write a blog post so I could get the pulse and opinions of the Trader's Blog readers! So he got to writing and put together the article below. I'd like to get your thoughts and opinions as Shane will be reading and answering questions and comments. If you also find the article useful then I recommend you check out the newsletter "Evil Genius Cheats" that's put together just for
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Back in 1991, several conditions occurred that created an unusual storm that not only took some lives, but also had caused over $200 million in damages. Most famous, are the 6 lives that were lost and highlighted in the movie “The Perfect Storm”.
The act of trading also adds in some conditions that, if not prepared for, will not only cause you loss of money but also perhaps life as you know it. Trading is also “A Perfect Storm”...
It is a storm that brings up two of the largest fears that people have:
1. Losing money
2. Being wrong.
I want to cover “Being wrong” in this article simply because each and every one of us has an ego. You have done your homework. You have scanned the news. You have used a handful of technical indicators to pinpoint when you are going to enter the trade. Soon enough, your trade gets triggered, teases you a little with some profits and then turns 180 and takes you out. It was a small loss but it appears all your efforts to put on the perfect traded didn’t make a difference.
No problem you say. Next time when you see the profits, you are going to click out and that is what you do. You were in a long position, a red candle shows up and you click out. Whoops. The market continues in your direction. You stand there with 15 pips and now the market is up 60.
Frustrated, you decide you are going to either let the trade play out to your profit target or let your stop get triggered. You do your homework. You enter the trade. Boom. Stopped out. Bruised, battered and deflated.
Now for the next trade, you see price action at a strong support level. You just KNOW it is going to bounce because that is what people said it would do on those levels. You buy. It breaks. You lose.
You go back to the drawing board thinking that if you just learn more, you would win your trades. You now decide that you are going to make sure several factors are in line with your trade. Now, a trade sets up. You check the higher time frames. You check oversold/overbought. You check the news. You check retracement levels and stochastic hooks. You phone a friend. Too late. The trade is triggered and gone to target. Frustrated at not getting it right, you either pack it in or spend money looking for a new system.
It isn’t the system. It is you. If each of us has the same system, why is it that many still struggle while others are doing well? It is because the ones that are doing well understand, through back testing and live trading, that they have an “edge”. They know that on a larger scale that, much like Vegas, they will end up on the winning side. They know that it is not about being wrong or right, it is about winning. They understand that on a micro level, on an individual trade level, that the outcome is random. That each moment in the market is unique and all the “confirmation” will never change that. They understand they have a trading edge and do not micro manage that edge. When their edge shows that the variables that make up that edge are present, they take the trade. Consistently. End of story. Those that lose, do not.
When successful traders put on a trade, they do it with a “let’s see” attitude. They have fully accepted the risk that this trade may not work. Or the next one. Or the next. They don’t look at it as “being wrong”. They are not handcuffed by the fear nor are they ready to celebrate if the trade wins. It is business as usual. Their success on the micro level is if they followed their plan..win or lose.
Losing…being wrong…and doing it properly is a skill that must be ingrained in every trader. You will have the losses. A multiple of times. How you deal with that shows your maturity as a trader. You have nothing to prove. Commit to trading the next 20 trades as your trade plan states. Do not add anything nor subtract. Don’t go on gut feel. Celebrate each win or loss the same way. The only thing you will ever control is 1. if you trade and 2. how you deal with the outcome. Make the word “next” part of your trading vocabulary.
By Shane Daly
NetPicks Coach for the High Velocity Market Master System
Thanks for all the great comments! They are much appreciated.
Trading, at the basic level, is such an easy thing to do. See your setup. Take the trade. Manage the trade until it is over. It is amazing how we all, at one time or another, make is so complicated. Human nature I imagine. It is no different than the pro ball player who has talked himself out of a successful hitting streak. The race car driver that has lost his "edge".
The mind is such a powerful thing..it can make you sick and heal the sick. It loves repetition. That is why when Douglas suggests 20 perfect trades, regardless of the outcome, he is on to something. Making it a habit. Taking your setups REGARDLESS of what a talking head, a forum or any other "analyst" says. Know your variables and ignore the rest.
I completely agree with it except for the gut feel part as my understanding is it comes from yr trading experience. Second part is the money management that is very importanant in trading that i would like to highlight.
-KAN SINGH
Yes. Very much agree. Successful traders must have an "edge". I believe that "edge" is a confidence based on experience and an appropriate balance of healthy greed and healthy fear ( as opposed to pathological). I see it in terms of "belief" because there are few "facts" that I can know in the market. Bottom Line: I enter every trade believing I am RIGHT until I am WRONG.
This
Hi Shane,
The trader you described on your blog perfect strom is me, you don't even know me. The word next is now hard wired in my brian, I will keep you posted
Kiran
Taking losses is the cost of doing business in the market.You can afford 3,4 or 5 5% losers in a row if you stick to your position and let one trade reap 30-40-50% returns.The key is not to let losers wreck your confidence and make you a miser on profits.If you take 5 or 10% profits after several losses in a row you're going nowhere fast.Losses,kept small,are how you eventually find the big winners.
Nice article. I think traders may struggle to realize that they only have to shift about 1% in their thinking and they'll see huge differences in their results.
Very good article. This is like a knife - sharp cut, no nonsense.
Thanks.
Good article Shane, Makes sense. Everyone that trades has gone thru a few bad trades and then some they start changing their indicators and strategies. Losing a few is part of the game. Get back on the horse, providing, you have back tested and paper traded your strategy and know it has worked before. However don't think your
strategy works well if you have back tested it only in a "bull" mkt. No, it must be tested in all mkts.
Excellent article! I have developed an eMini day trading system and the results are very good, but am having trouble taking the trade... I "watch" as a valid signal zooms to a 6 point profit and then berate myself for not taking the trade... I have been successful with longer term trading but something about this "day trading" makes it hard for me to take the damn trade! I am now reading a book "The Disciplined Trader" which I hope will cure me on this indecision.
That article made me smile. I have been there many times. And yes, it was me, not the system.
totaly agree by taking the emotion from the situation and using only computer generated numbers you can be right more of the time and also dont let greed consume you take a reasonable profit and enjoy it
A great article Shane, I am a newbie and going thru that same process right now. It is as if you wrote down my thoughts the last few weeks. It is amazing that you remember what it feels like getting started.
Great article, my only question is have you been looking at my monitor, I appreciate your comments about the next 20 trades I do that then think.
Best Regards
Greg
Fully agree... you can only control yourself, your actions and your reactions, everything else is secondary.. nice article
Your article sounds like a summary of the book "Trading in the Zone" by Mark Douglas.
Jim
That book, along with the writings of Van Tharp, has influenced the thought process of countless of traders. Sticking with a system, your own trading plan, that has proven itself and not tossing any other untested variables, is a very common attitude amongst traders.
Hi Shane,
Great article! I agree with what you are saying because "there's always a next time"
That's what makes the trade triangle system so great. When you are down and your mind is clouded from a loss. You just have to look for the next trade triangle and get back on the horse. The next win could be the start of many wins to come.
Cheers,
Dan
ARE YOU CANVASSING FOR MR ADAM HEWISON
Thanks Dan.
I'm glad you enjoyed it, sounds like you have a system you believe in which is key.
Cheers,
Shane
Dan, the entire thought process can apply to any edge any trader has in the market. That is why psychology is probably the most important aspect for any trader. Whether it is taking trend line breaks, fibo setups or any host of other strategies, trading your edge when it appears has a way of keeping you on the "right" side of the "storm" in each of us.