A few of us, in our Skype Trading Group, took this trade yesterday, with various degrees of profit taking. It's a fine example of how a top-down analysis with entries from the M1 time frame, can give terrific R:R.
We have had strong upside targets on the monthly/weekly/daily time frames, that we've been aiming for over the past few months. The "tea leaves" have been spot on and I am still expecting DOW to reach the 40K level, sooner or later.
M15 showed a very strong impulsive move up and the day of the trade was a very clear corrective wave. During the NEO session, price had broken the overnight high then retraced for much of the session before the London Close. The ABC123 indi showed FE127 just above a kick-start gap, that had preceded the break of the overnight high - a fine area of demand to be looking to buy; all discussed in the Skype chat so everyone had a chance to prepare.
With a strong price magnet of M15 TZ1 to aim for, there was no question that we'd be looking for the next impulsive move up; we just had to wait for the correction to complete and press the ATM 'buy' button.
I have uploaded annotated chart pictures to the Training Course - in the section at the bottom with lots of other examples of successful trades done by Skype Group members. It's worth taking a look - you only need a few of these a year to be very happy, but you'll likely see such examples every week, if you know what to look for.
Trading made simple with eWavesHarmonics and the ABC123 indi ...
Another year over, and we end the year with the indices at all time highs - who'd have thought that was possible, when the year started and so many global issues ? Well, we did get a clue with eWH, a few months before the end of 2022 - good "tea leaves" (some of you will know what I mean by that).
Once again, many many thanks to you all for your support and success stories throughout 2023 - particularly to my many friends in our Skype Trading Group who have provided such great company. Big CONGRATULATIONS to those of you who have passed prop-firm challenges after doing the course. I hope to be able to work with more of you, this coming year, to help you improve your trading and see more of you achieve your dream of becoming prop-firm funded traders; or any other kind of trader for that matter.
All the very best for the festive season and may 2024 be your best trading year yet; and let there be peace on earth for everyone.
If you’re diligent enough to keep a journal, or at least review your trade history on a regular basis, you will know what your ratio of winning to losing trades is. When you know this (rather basic) information, you’ll have a pretty good idea of what sort of R:R trades you should always be aiming for; avoiding trades that don't offer at least your minimum required returns.
I recently received an email from a wonderful lady, who is a long-time customer, asking if I could make a change to ATM to place automatic stop losses; effectively making the stop loss wide enough to reduce the number of stop outs / losing trades. ATM can already do stop loss placements using custom indicators, as well as auto-entering a trade, so of course the request could be accommodated. However, such a request begs the question: is it a good idea to go with a wider stop loss, to reduces stop-outs whilst also reducing the potential profitability of a trade? That’s assuming you’re risking a percentage per trade, rather than fixed lots, of course.
As I’ve discussed in previous blog posts, I’m a big fan of looking for very low pip/point risk (VLPR) trades, with the goal of achieving at least 5R but seeking 10R or more; this really isn’t hard when taking trades on the lower timeframes. This approach allows for more losing trades but, in my experience, greater profitability. It also makes trading that much more interesting – and challenging – although it might not be everyone’s cup of tea. I’ve done some calculations, to compare profitability based on average win-rate – over 10 trades – compared with average R:R per trade. This table assumes 1% risk per trade on a constant balance of £10,000; in reality that balance would fluctuate after every trade, but I’m trying to keep it simple. (click on the table to enlarge it).
With my average R:R per trade being 5, I need only be right once in every 5 trades to make a profit. If I’m right 40% of the time, I can make a healthy 14% profit with 10 trades.
On the other hand, by widening your stop loss you’ll reduce your R:R. So, let’s say I’m now looking for 2R trades … I would need to be right 50% of the time, just to make 5% profit from 10 trades; or find 80% winners to make 14% profit. Making 8 profitable trades in every 10 is a very big ask – not impossible, but extremely challenging. Personally, I’d much rather feel comfortable about having a losing trade: it’s no big deal when you’re always aiming for a 5% return on a trade.
Something to think about but at the end of the day, every trader needs to find their own comfort zone with win/loss ratios and average R:Rs.
Just yesterday, I discovered a small 'feature' (aka a bug or glitch) with the Advanced Trade Manager, where it wasn't doing the half / quarter of percentage risk - where that was selected previously - on first use after loading MT. It also wasn't remembering when the Test mode button was pressed, under the same circumstances. They work fine when selected before placing a trade though, which might explain why it's taken so long to discover the glitch.
Both of those have been fixed, for the MT4 and MT5 versions - you can download them from their respective installation pages, if you're an ATM user.
Apologies if this has previously caused you any problems but I've received no reports of such, so am hoping all has been good.
If there’s anything more that you would like from ATM, please get in touch (email or use the contact form). I’m happy to consider anything that is likely to have a broad appeal. I am still busy, when not trading, with writing and testing robots – the one mentioned in a previous blog post is still in forward-testing – but am happy to add ATM enhancements to the agenda.
Trading psychology is the study of how your emotions, thoughts, and beliefs affect your trading performance and decisions. It's a crucial aspect of trading that many traders overlook or neglect, but it can make or break your success in the markets.
In this post, we'll explore what trading psychology is, why it matters, what are some common psychological biases that traders face, and how to overcome them with practical tips and strategies.
What is Trading Psychology?
Trading psychology refers to the mental and emotional state of a trader and how it influences their trading behaviour. It involves understanding the impact of emotions, cognitive biases, self-control, discipline, and mental states on trading outcomes.
Trading psychology recognises that traders are not purely rational beings but are influenced by a range of psychological factors that can lead to biased thinking, impulsive actions, and suboptimal decision making.
Trading psychology emphasises the importance of self-awareness, emotional regulation, risk management, discipline, and resilience to make more objective, consistent, and successful trading decisions. By addressing psychological barriers and developing a balanced mindset, traders can improve their ability to navigate market volatility, manage risk, and achieve long-term profitability.
Why Does Trading Psychology Matter?
Trading psychology matters because it directly affects the quality of your trading decisions and performance. Here are some reasons why trading psychology is crucial:
• Emotions Influence Decision-Making: Trading psychology recognises that emotional biases can influence a trader's judgment and actions. For example, fear can cause traders to close out positions prematurely or to refrain from taking on risk because of concern about large losses. Greed can cause traders to take on excessive risk, chase losing trades, or overstay in winning trades. Regret can cause traders to enter trades after missing out on them or to exit trades too early or too late. These emotions can interfere with a trader's ability to follow their trading plan and execute their trades effectively.
• Discipline and Consistency: Successful trading requires discipline and consistency in following trading plans, risk management rules, and performance evaluation methods. Trading psychology helps traders to develop these habits and stick to them regardless of market conditions or outcomes. It also helps traders to avoid distractions, temptations, and impulses that can derail their trading process.
• Managing Risk: Trading psychology helps traders to understand and manage the risks involved in trading. It helps traders to assess their risk tolerance, set realistic goals and expectations, and use appropriate risk-reward ratios and position sizing techniques. It also helps traders to cope with losses, drawdowns, and uncertainty without losing confidence or motivation.
• Learning and Improving: Trading psychology helps traders to learn from their experiences and improve their skills and knowledge. It helps traders to adopt a growth mindset that embraces challenges, feedback, and mistakes as opportunities for learning. It also helps traders to avoid overconfidence, confirmation bias, hindsight bias, and other cognitive errors that can hinder their learning process.
Psychological biases are systematic errors in thinking that affect how we perceive information, process information, and make decisions. They are often unconscious and automatic, but they can have significant impacts on our trading performance.
Some common psychological biases that traders face: -
• Confirmation Bias: This is the tendency to seek out or interpret information that confirms our existing beliefs or hypotheses while ignoring or discounting information that contradicts them. For example, a trader who is bullish on a stock may only pay attention to positive news or indicators while ignoring negative ones. This can lead to overconfidence, missed signals, or false assumptions.
• Illusion of Control Bias: This is the tendency to overestimate our ability to influence or control events or outcomes. For example, a trader who believes that they have a special skill or system that gives them an edge over the market may ignore the role of luck or randomness in trading. This can lead to excessive risk-taking, overtrading, or failure to adapt to changing market conditions.
• Loss Aversion Bias: This is the tendency to prefer avoiding losses over acquiring equivalent gains. For example, a trader who is reluctant to close a losing trade because they hope it will turn around may end up losing more than they initially risked. This can lead to poor risk management.
Emotional intelligence is the ability to identify and manage your own emotions and the emotions of others. It is generally considered to include three elements: self-awareness, motivation, and self-control.
Emotional intelligence can help you improve your trading performance by enabling you to:
• Recognise and regulate your emotions: Trading can trigger a range of emotions, such as fear, greed, euphoria, panic, and despondency. These emotions can cloud your judgment and lead to impulsive or irrational decisions. By being aware of your emotional state and how it affects your trading behaviour, you can learn to regulate your emotions and avoid emotional trading. You can also use positive emotions, such as confidence, optimism, and curiosity, to enhance your trading performance.
• Understand and empathise with others: Trading involves interacting with other market participants, such as brokers, analysts, mentors, peers, and competitors. By being able to understand their emotions and perspectives, you can improve your communication, collaboration, and negotiation skills. You can also gain insights into the market sentiment and psychology, which can help you anticipate market movements and trends.
• Solve problems and make decisions: Trading requires constant problem-solving and decision-making under uncertainty and pressure. By applying emotional intelligence, you can improve your cognitive abilities and analytical skills. You can also avoid cognitive biases, such as confirmation bias, illusion of control bias, loss aversion bias, and overconfidence bias.
How to Improve Your Emotional Intelligence for Trading
There are many ways to improve your emotional intelligence for trading. Here are some practical tips and strategies:
• Practice mindfulness and meditation: Mindfulness is the practice of paying attention to the present moment with openness and curiosity. Meditation is a technique of focusing your attention on a single object, such as your breath, a word, or a sound. Both practices can help you cultivate self-awareness, emotional regulation, and mental clarity. They can also reduce stress, anxiety, and negative emotions that can interfere with your trading performance.
• Keep a trading journal: A trading journal is a record of your trading activities, including your entries, exits, profits, losses, strategies, goals, and emotions. By keeping a trading journal, you can track your progress, evaluate your performance, identify your strengths and weaknesses, and learn from your mistakes. You can also use your trading journal to reflect on your emotions and how they affect your trading decisions.
• Use positive self-talk: Positive self-talk is the practice of using affirming and encouraging words to yourself. It can help you boost your confidence, motivation, and resilience in trading. For example, instead of saying "I'm a bad trader", you can say "I'm learning from my experience". Instead of saying "I'm afraid of losing money", you can say "I'm prepared to take calculated risks". Positive self-talk can also help you cope with negative emotions and overcome challenges in trading.
• Take breaks and relax: Trading can be mentally and emotionally exhausting. Therefore, it's important to take breaks and relax regularly. This can help you recharge your energy, refresh your mind, and restore your emotional balance. You can also use relaxation techniques, such as deep breathing,
PS. I used AI to help me write this post - I hope you got something from it.
In my book “Predicting and Trading the News” (ref previous blog post), there is a chapter on trading a certain type of gap, that’s often seen around big news events, as well as during normal trading hours – eWavesHarmonics highlights these gaps very nicely (there was a super one on DOW M1, earlier today).
I’ve spent the past month writing an Expert Advisor to trade these specific gaps and back-testing has confirmed just how useful they are. Obviously, like all things to do with technical analysis, nothing works 100% of the time. However, with a good average R:R, you don’t need to have that many winning trades, as can be seen from the above picture. In reality, the win rate from manual trading would be significantly higher but it’s much harder to code a computer to analyse as efficiently as the human brain.
The above picture shows the back-testing results for NASD on the M15 chart with a 10k account: 128% return for 2023 to date, with a maximal draw-down of 16.69%. We’re about to start forward-testing now, with a reasonably high degree of confidence that similar results will be seen. Similar returns are being seen on some other instruments, such as DOW, but there are far fewer trades on the main FX pairs, that tend to see less of these gaps.
Now you know why I love trading these gaps so much, and why they should play an important role in every trader’s life.
It’s too early to say if EA will be made public, when the forward-testing has completed (that needs at least 3 months; ideally a whole year). If you are interested, please subscribe to my mailing list so you don’t miss out. If you want to know what gaps I’m trading, you’ll need to get my book or do the free trading course 😉
I have recently published my first book: ‘Predicting and Trading the News’. It’s really more than just news trading, it shows how you can read the price action, at key levels, for some super R:R trades, on almost any instrument and timeframe, using whatever charting software you prefer.
Whether you use my trading tools or not, or have done my free course or not, you should find there’s something for every trader in this book. There are some great examples of trading gaps and how you can use them for predicting where price will go to. There is so much more to gaps than waiting for them to be filled.
The book is available on Amazon Kindle and Google Books.
I hope you enjoy reading it as much as I enjoyed writing it and, more importantly, that the simple techniques help your trading to be ever more profitable.
As most of you know, eWavesHarmonics with the ABC123 add-on, does a superb job of identifying potential reversal zones and high-probability price magnets, long before price gets to these levels. With thoughts for those who can’t trade all day, I’m looking at Options trading as a good alternative to regular day-trading.
I would really like to hear from the Options traders out there, to get your input and thoughts on this subject; I’m also very interested in your choice of broker (I’m trying a couple out at present) Please get in touch.
Regarding the ABC123 indi: v7 is available. The main change is that it identifies, what we call, golden FE levels. Say, for example, you have an ABC simple correction with the FE100 at 50% retracement – this will be highlighted as golden; same for FE62 and FE127. These levels are highlighted well in advance and often provide a great opportunity to ‘buy the dips’ and ‘sell the rallies’ for very low pip risk and thus great R:R - as per the chart example from Cable.
We've had countless good trades, since the last blog post, but this was particularly nice - not because it was tremendous RR, although 10 isn't to be sniffed at, but because it was called in advance and worked out exactly to plan. Knowing exactly where to enter and take profits, before price has got to the turning point, obviously makes for better trading than waiting for randomly-produced signals and not having a pre-determined strong price magnet to aim for.
I posted this in our Trading Skype Group, one minute before London Open, that tells you why this was a good trade; good as in well planned and executed, not just because it was a winner ...
As the old adage goes: if you fail to plan, you plan to fail. Or put it another way: each and every trade needs a good plan or your chances of success are greatly reduced.