Only The Brave

Trading has many ups and downs, but its the downs that are really painful to chew on. Drawdowns while trading have led many a people to bang their heads on the wall, and in some cases had led to folks taking their lives. So as you prepare to get into the battle of trading bonfire, make sure that you have put on the right armour.

The wildfire firemen (or people) serve as a good illustration of the mindset, armour and approach that you need to take when getting into the trading arena.

Van Tharp’s (I don’t get paid for this link) Peak Performance Home Study course provides a very good foundation of things that you need to focus in your trading journey. There are probably other resources on the interweb youo can use e.g. https://www.youtube.com/user/igniteyourspark from Rande Howell who is a trading psychology coach.

Or if you prefer a biblical motivation then Ephesians 6 v 14 – 20 sounds suitable, with suitable replacements for references to the spirits 🙂


The Full Armor of God

10 Finally, be strong in the Lord and in His mighty power. 11 Put on the full armor of God, so that you can make your stand against the devil’s schemes. 12 For our struggle is not against flesh and blood, but against the rulers, against the authorities, against the powers of this world’s darkness, and against the spiritual forces of evil in the heavenly realms.

13 Therefore take up the full armor of God, so that when the day of evil comes, you will be able to stand your ground, and having done everything, to stand. 14 Stand firm then, with the belt of truth buckled around your waist, with the breastplate of righteousness arrayed, 15 and with your feet fitted with the readiness of the gospel of peace. 16In addition to all this, take up the shield of faith, with which you can extinguish all the flaming arrows of the evil one. 17And take the helmet of salvation and the sword of the Spirit, which is the word of God.

18 Pray in the Spirit at all times, with every kind of prayer and petition. To this end, stay alert with all perseverance in your prayers for all the saints. 19 Pray also for me, that whenever I open my mouth, words may be given me so that I will boldly make known the mystery of the gospel, 20 for which I am an ambassador in chains. Pray that I may proclaim it fearlessly, as I should.

So don’t be caught with your pants down.

Ebb and Flow of Trading

I know what this phrase means but let’s get an academic reference. According to the Cambridge Dictionary this means the way in which the level of something regularly becomes higher or lower in a situation.

Photo by Pixabay on Pexels.com

When you start trading, you will find yourself having this ebb and flow thingy in your mind. This can be due to any of movements/non movements of the markets, stagnation or movement in your equity curve etc. I thought you only get these feelings when doing manual trading but alas even when doing automated trading you feel like what the heck.

So you need to remain grounded so that you don’t end up doing silly things while you wait for the market/equity curve to go your way. Having a structured workflow should help overcome any risks from knee jerk reactions to the ebbs.

Trading Advice from the Bible

I am a Christian and I use some of the beliefs to give me different perspectives in my trading. This passage from Ecclesiastes: The Book of Ecclesiastes (biblehub.com) illustrates various facets we need to be aware of in trading.

Ecclesiastes 11
Cast Your Bread upon the Waters

1 Cast your bread upon the waters,
for after many days you will find it again.

2 Divide your portion among seven, or even eight,
for you do not know what disaster may befall the land.

3 If the clouds are full,
they will pour out rain upon the earth;
whether a tree falls to the south or to the north,
in the place where it falls, there it will lie.

4 He who watches the wind will fail to sow,
and he who observes the clouds will fail to reap.

5 As you do not know the path of the wind,
or how the bones are formed in a mother’s womb,
so you cannot understand the work of God,
the Maker of all things.

6 Sow your seed in the morning,
and do not rest your hands in the evening,
for you do not know which will succeed,
whether this or that, or if both will equally prosper.

My Commentary

verse 1: You need to put your money into the market to make anything

verse 2: diversify your portfolio and use many different asset classes or currency pairs.

verse 3: noone can guarantee market returns but the market will give where it wants to give.

verse 4: don’t just observe the market and how it’s moving. Get off the side-lines and get stuck in.

verse 5 – 6: we cannot foretell which asset class or strategy will make money, just get stuck in and work hard on all things if you want to succeed in your trading.

Mobile Trading Research

I am doing a lot of driving around. Almost everyday I am driving to one sporting practice or another. So I thought let me use the ‘dead time’ in between to do something useful. Now I should be focusing more on physical exercising, riding my bike or walking but I have chosen to spend more screen time looking for trading ideas or something along those lines.

I got the Microsoft Surface 6 Pro tablet on Ebay, the lap desk and Microsoft Bluetooth mouse on Amazon. With this setup I get to follow my trades if need be or I just get more cosy with my favourite tool at the moment. Strategy Quant X.

Automate Trading – Mistakes

I am laughing right now, and I thought someone might benefit from this. In the Day 5 meeting I asked RJ how someone could make a mistake doing automated trading, lo and behold I got an answer today.

scenario: I switched trading servers over the weekend. I use MT4 for forex trading and I trade the EURUSD on the 1 hour time frame.

mistake: during setting up my MT4 trading software it seems I toggled the wrong timeframe to 4 hour instead of 1 hour. So this means I have been trading the strategy on something it was not designed for. I should have picked it up on one of the trade which did not set a stop loss and a take profit but I erroneously (in hindsight) blamed the broker software and or the market.

outcome: I came up with a few victim statements, but after the accountability practise I have realised (again) that I am responsible for this.
At least I did not pay an expensive lesson (gratitude). Maybe I should create a checklist for setting up my servers or software.
What helped me was (1) my trading non-tharp principles buddy suggested yesterday that twice a day I should check the server is running (2) I was going through my (I have to own them) top tasks of trading and trying to find ways of applying the steps.

way forward: the stuff we have learnt absolutely work (my beliefs anyway), I had already used some of this woo woo stuff from Trading Matrix book (which you can get free as an ebook from VT website). But going through the things in a live format cements the lessons.

Suffering a Bereavement while Trading.

I write this blog post after receiving some sad news from back home, my maternal uncle has passed away. I got the news while I busy on my computer trying to get into the zone for some chart analysis and studying for automated trading. This is the second close person bereavement I have suffered this year. The first one was in first week of January in this Covid ravaged year.

Regarding trading, a lot of emotions go through my head as I sit at the computer. Should I still continue trading? Should I still do my analysis?

I find it hard to focus on trading. In January when I heard the sad news I sat at my desk totally blank. I am currently a discretionary trader so I depend on having a good emotional balance when I analyse the charts. So in January I just switched off my screen and walked away to find other things to occupy my mind.

Now, I have been looking more into automated trading. These two events have cemented the idea in my head that automation of my trading ideas is very key for my future.

What I have learnt is:

  • If an event occurs that messes up your emotional balance, walk away from the screen.
  • Sometimes there are other things more important than trading.
  • Automated trading is essential to have in the pocket.

The Scientific Method in Trading

One of the building blocks to creating consistency in trading is to have consistent processes. Traders can gain leverage by using the scientific method to analyse and assess their trading strategies. I think when we start trading we see it as this whole mess of emotions and as such we might scoff at methods like the scientific method as think they are too restrictive.

I will give the method a go and see how well I do. As with all things trading that I learn, I will probably merge it with something else I have picked up from the myriad of books I read, Kevin Davey has a very good book on algorithmic trading as do other good authors.

For the content below, I generously copied from the very good article here: thoughtco.com/steps-of-the-scientific-method-p2-606045

The scientific method is a systematic way of learning about the world around us and answering questions. The key difference between the scientific method and other ways of acquiring knowledge are forming a hypothesis and then testing it with an experiment.

The Six Steps

The number of steps can vary from one description to another (which mainly happens when data and analysis are separated into separate steps), however, this is a fairly standard list of the six scientific method steps that you are expected to know for any science class:

  1. Purpose/Question Ask the question. In trading, I suppose this is how to I make the profit (I am being simplistic here)
  2. Research
    Conduct background research. Write down your sources so you can cite your references. In the modern era, a lot of your research may be conducted online. Scroll to the bottom of articles to check the references. Even if you can’t access the full text of a published article, you can usually view the abstract to see the summary of other experiments. Interview experts on a topic. The more you know about a subject, the easier it will be to conduct your investigation.
  3. Hypothesis
    Propose a hypothesis. This is a sort of educated guess about what you expect. It is a statement used to predict the outcome of an experiment. Usually, a hypothesis is written in terms of cause and effect. Alternatively, it may describe the relationship between two phenomena. One type of hypothesis is the null hypothesis or the no-difference hypothesis. This is an easy type of hypothesis to test because it assumes changing a variable will have no effect on the outcome. In reality, you probably expect a change but rejecting a hypothesis may be more useful than accepting one.
  4. Experiment
    Design and perform an experiment to test your hypothesis. An experiment has an independent and dependent variable. You change or control the independent variable and record the effect it has on the dependent variable. It’s important to change only one variable for an experiment rather than try to combine the effects of variables in an experiment. For example, if you want to test the effects of light intensity and fertilizer concentration on the growth rate of a plant, you’re really looking at two separate experiments.
  5. Data/AnalysisRecord observations and analyze the meaning of the data. Often, you’ll prepare a table or graph of the data. Don’t throw out data points you think are bad or that don’t support your predictions. Some of the most incredible discoveries in science were made because the data looked wrong! Once you have the data, you may need to perform a mathematical analysis to support or refute your hypothesis.
  6. Conclusion
    Conclude whether to accept or reject your hypothesis. There is no right or wrong outcome to an experiment, so either result is fine. Accepting a hypothesis does not necessarily mean it’s correct! Sometimes repeating an experiment may give a different result. In other cases, a hypothesis may predict an outcome, yet you might draw an incorrect conclusion. Communicate your results. The results may be compiled into a lab report or formally submitted as a paper. Whether you accept or reject the hypothesis, you likely learned something about the subject and may wish to revise the original hypothesis or form a new one for a future experiment.

When Are There Seven Steps?

Sometimes the scientific method is taught with seven steps instead of six. In this model, the first step of the scientific method is to make observations. Really, even if you don’t make observations formally, you think about prior experiences with a subject in order to ask a question or solve a problem.

Formal observations are a type of brainstorming that can help you find an idea and form a hypothesis. Observe your subject and record everything about it. Include colors, timing, sounds, temperatures, changes, behavior, and anything that strikes you as interesting or significant.

Variables

When you design an experiment, you are controlling and measuring variables. There are three types of variables:

  • Controlled Variables: You can have as many controlled variables as you like. These are parts of the experiment that you try to keep constant throughout an experiment so that they won’t interfere with your test. Writing down controlled variables is a good idea because it helps make your experiment reproducible, which is important in science! If you have trouble duplicating results from one experiment to another, there may be a controlled variable that you missed.
  • Independent Variable: This is the variable you control.
  • Dependent Variable: This is the variable you measure. It is called the dependent variable because it depends on the independent variable.

Helmenstine, Anne Marie, Ph.D. “Six Steps of the Scientific Method.” ThoughtCo, Aug. 27, 2020, thoughtco.com/steps-of-the-scientific-method-p2-606045.

Using Neural Networks for Trading

I have long been fascinated by using AI to help with stuff. My vague memory from final year software project was working on a fuzzy logic credit rating system. Unfortunately at the time my supervisors didn’t seem to have a good appreciation of how all this stuff hung up together.

Now I am trading and from manual trading I am observing some patterns where I say “oh hang on, that looks like a pattern which I can get a computer to do for me”. The problem though as if often the case is either I am time poor to go through the development and test or I need more skills than I have to code the strategy.

So I was pleasantly surprised when I discovered someone had done the hard work of writing a book called Neuronet trading system Meta Trader 4 and MATLAB. Step-by-step development written by Andrey Dibrov. and it even has a 2nd edition or you can buy on the ubiquitous Amazon (Russian copy). The book at the time I bought it is going for 480 Russian Rubbles which comes to about £4.90 on the non Amazon website, not bad. A warning though, the books doesn’t come with all the scripts and you have to source then from Andrey. My only problem at this time is that it’s in Russian but thanks to the wonders of the computer + internet I can use the translation services which abound to go through what Andrey is on about.

So here is “God speed” to the Holy Grail seeker, I hope I have found one of the tools that will help me in my grail quest.

Check Higher Timeframes

So I took a trade on the M5 chart for Fiber. I got a somewhat good Setup 1 signal but I did not check the higher timeframe.

I got stopped out of this trade. On reflection and checking if there was anything I could have done, I then saw that I could have checked the higher timeframe other than the M30 chart that I was using. I should have also checked out the length of the last up move to adjust my confidence.

The M30 showed me that the prices were in a range going towards the Alligator.

When I checked the H1 chart, it is even clearer (in hindsight) that the prices were in a range so my Setup 1 entry even though it was a valid setup was not the best entry position.

Lesson learnt: Check other timeframes before entering positions.