Tuesday, May 13, 2008

My psychological trading setup

The best way for getting profits for me is to be in structured goal oriented mental mode. By that I mean that when I have a plan and it's now of getting around 50 pips per week than I go and deliver that. I go and try to deliver it first and than it really happens. It's concept that is main idea in various Ari Kiev books which I highly recommend. When you have a goal and put yourself out there to accomplish it you commit and things go where they suppose to go.
I'm not much different trader when I don't trade like that, I take as many trades but in the end result is so different. When I'm in goal oriented mode I do what is most natural for me to get and lock the profits. For me personally it's scalping in times of strong momentum, just when the move is started or is about to continue. I like to have gratification very fast and so when I have profit I take it. It's in the line with my current goal of 50 pips/week. That goal is small enough so scalps when add up accomplish that goal.
I got to say here that sometimes I get too money oriented or percentage oriented with my goal. But it's not intend of it. That figure is just a figure and helps me to get orientation where I am and where I'm heading. Nothing else. But when mind have figure and a goal it's much easier to stay focused and not to astray in who knows which idea that comes daily or hourly.

In my current goal structure one more element is implemented and that is quiting as early as possible for the day. Again, that's here because it fits me well. When I'm in that time restrained mode I tend to be more concentrated and can more easily grasp current situation in the market. I can see on time what is going on, I can notice slight changes in ways things develop and can get an early clue about direction and beginning of the move.
On the other hand if I just trade for whole day or as many hours I have free than I prolong things. I don't take some setups, I wait to long. Than I regret on missed opportunities and maybe enter some other just because of regret. Or I don't trade at all, just watch and surf the net. So I don't use that time and don't have good trades in it. Or maybe I enter some swing trading ideas and wait in them for too long and get nothing but bigger risks if I average down.

Another thing is that when I trade to quit as early as possible I lock the profits if I have them. I just feel that it's enough for the day. It looks that if I stay in longer I can get 5X more later but I never do. So why to kid myself and risk losing gained profit for the day in some more trading. The point is that my concentration is limited and later I'm not in the peak as before. My aggressiveness for profits is spent on profits gained before. When I don't have the profit for the day I'm aggressive and on the watch to get some for a long time until I see opportunity. With profits there isn't that element any more. Last thing is that now I'm in changed emotional state. Maybe profits give me feeling of strength and invincibility and on next trade if it start to go against me emotions violently swing in opposite directions and I have fear and anger. Emotional swings are easier to have if you are not in balanced state. So anger, regret in losing trades are much bigger after good emotions that came from profits than when losing trade come first in the day.

So, all can be distilled to few words. My current setup is organised around goal of 50 pips per week. I aggressively enter and exit trades in scalp mode. Small profits daily are enough to accomplish weekly target. I try to finish the day as early as possible to maintain myself emotionally balanced and to lock gained profits.


Now when I'm all psychological I would like to add one more theme that's going on. That's about the size of the trades. My current setup is that full size trades have leverage around 6. When I have bigger loses I cut that leverage to around 4.
For that full size trades I risk about 15 pips in another words in range of 0.7-0.9% per trade. I tend to average in my trading. So it's better for me to take half size trades and have less risk if I average and be more emotionally calm. Other aspect in my trading is that I cut my trades too fast. It's hard to change it so it's better to adapt. When I have half size trade I count my profit as half size, so it's easier to stay longer for meaningful profit. I don't get out with 3-5 pips profit often which I would do if I trade in full size. Profit side came to even out either way. But when I'm losing it's far easier to stay mentally and emotionally calm with half size trade on. If it's full size emotions are so strong that they take over and I do bad trading choices and can't grasp objectively what's going on in market and with the trade. So with half size trades I can exit with a loss or average down and manage more easily my position and stay emotionally enough sound till the end of that trade.

Maybe I should just cut my leverage in half and call things with real name. I now trade 90% half size so it's my size. But I'm afraid that than I would get used to the idea that it's my now regular size and again take profits too, too early and lose myself emotionally when I average or have bigger unrealised loss on. So I stick to that little manipulation of my mind and it works. I don't want to fix it if it ain't broken. I know that in my mind getting 100 pips a week would be too big, so I aim just for 50 but full size pips. It's the same thing, it looks stupid, whatever. I don't mind to pretend, if I need that simple mind manipulation and trick on myself so be it.

That is now the base of my psychological setup for trading. I think that it's harder to setup that than pure technical analysis trading method. I know that now when I have it I trade more in the direction of the trend which is imperative in trading. Readers who follow me for some time now know that before my trading was counter trend with big risks and averaging. Sometimes I would get saved by averaging and get few pips of profit, other times I would get blowup and lose big time.

My trading method is discretionary and based on my screen time. I developed understanding of movements just by watching them. Now I try to exploit that understanding. I can easily spot right moments for scalps. It's in line with my nature so I try to stay with that and commit to it as my niche. For longer term trading I spot too many opportunities to really be on right track. For me everything looks like beginning of 50-100 pips trend. When I enter I can see it just like that, but I try to exit quick because I don't have capacity for many b/e and small loss trades to get few big winners. I don't stay in winners any way, so why bother with trying.


4 comments:

ORION MACHINE said...

I am proud of you! You know more about yourself and your own tolerances than most people ever try to understand. You and I have pretty much the same style of trading. Same broker, same goals. I try to get about 10 pips a day. I think the only difference is that I don't see you trading support and resistance like me. There is high probability when big money goes stop hunting!

FX said...

Thank you on your kind words. Well I decided to write about it because it's so little said about it anywhere. Everybody is talking setups and nobody is talking about their psychological makeup. It's impossible for two different persons to trade the same, even if they have same trading system.
Understanding yourself is equally important as understanding markets. You can't get far without both of them.

Yeah, maybe I don't see support and resistance as clearly as you do. For me it's never so clear where exactly it is. There is big tolerance for error in my understanding. Sometimes it surprises me, I think that it's on some level and it's not but 10-20 pips away.

Anonymous said...

very nice, keep it uo. btw, r u using only bb for making trade decision ?

FX said...

Thanks.
I don't use it at all, it just gives me the context. I mainly trade by let's say reading the tape. So if price start to show the bias with strong ticking in some direction that's my signal. So it's not so TA based trading but mix of things learned with long screen time.