Stop trying to be a home run hitter

In Baseball there are home run hitters and there are players who get a lot of hits. Usually the two are not synonymous meaning the players who hit the most home runs are usually not the same players who get a lot of hits. However , in baseball getting on base 3 out of 10 at bats could get you into the hall of fame. Hitting home runs is great of course and something many people strive for but , some people are just not home run hitters. In fact , your chances of getting into the hall of fame are greater by getting hits than they are getting home runs.

This same concept applies to trading as well. When people first start out they tend to try and go for those "home run" trades. Trying to turn $1,000 into $10,000 in a month. While this is not impossible to do it is HIGHLY improbable to achieve.The problem here is that a new trader who is trying to turn a little into a lot will usually take on excessive risk and poor money management techniques in order to try and improve his bottom line. Sure he may get lucky a few times and have some good winners with this but eventually the market will teach him a lesson and he will likely lose all his capital.

  If you think about it another way and go for the "base hits" you will more than likely achieve greater results over a longer period of time consistently which is really the name of the game. Anyone can have a few lucky trades but being able to stay the course for the long term is something very few can do.

Here is an example to illustrate this point:
A trader with a starting bankroll of $1,000 going for a 5% weekly goal  will have turned that $1,000 into $12,643 by the end of year one.

If the trader were able to consistently maintain this strategy for 2 years he would have transformed his original $1,000 into $159, 843( due to the power of compounding) ....not bad for 1% a day right?

The problem is that the trader wants the $159,843 RIGHT NOW! Not in 2 years.....hence why 90% of traders lose over time. 

To do this the trader must set a daily goal of 1%. 1% of $1,000 is $10  a day . That should be fairly easy to do. $10 is a 2 point movement in the YM , NQ  or 6B ( $6.25 )  contracts. ( not including commissions.) This is also is a little less than a 1 tick move in the E-mini S&P futures contract ( $12.25 per tick)

The issue is that traders get greedy , they win one they keep going , they win another one they keep going even after they have hit their targets until evetually they hit a streak of losers and give it all back to the market. When you hit your goal for the day you are DONE for the day.

Discipline , money management and controlling your emotions are the keys to the trading kingdom while strategy plays a very small role.

1% is easy to do but the catch is it is also easy not to do. If you want to make it in this business you have get consistent in order to be successful.

Happy Trading!

The Holy Grail of Trading

Hello Friends,

              As I said in my last post I have a new baby boy in the house ( who is now almost 10 months old!) so it has become increasingly hard to find time to write new posts. Nevertheless I felt that this topic needed to be addressed as it seems that many of the forums , postings and websites that I come across throughout the trading week all seem to be looking for , or advertising the "Holy Grail".

   Now one must understand first what the meaning of this Holy Grail is. I do not think there is a standard definition for it , at least from a trading perspective , but as I understand it it is a system , indicator , trading method or mentality that is supposed to yield you 100% success no matter what. Well in the 7 years that I have been trading stocks and Forex I have never seen nor come across such a thing. Does that mean it does not exist? Not necessarily.
Although the idea of something never having a loss seems a bit impossible to me. 


My thoughts on this is that there are systems , methodologies and indicators that probably come pretty dam close to being always right but I feel the only way to be 100% correct in the markets is to go find Doc Brown and ask to borrow the DeLorean for a few days.

My point is that every one's own definition of the Holy Grail is going to be different than others. For some, their Holy Grail is money management  for others it is psychology. There is no limit to what the Holy Grail is or can be for each individual. The other problem is that most traders who search for something that works well tend to find something , use it for a few trades and when it does not show instant success they move on to the next thing not giving the other thing a chance to show what it can do. They keep searching and searching hoping to find that "thing" that will show them instant success all the time. It is a fallacy , it does not exist. There are no 100%'s in life.

For me I believe I have found my own "Holy Grail" . It is a combination of 2 indicators and psychology. In my recent trading I noticed something about myself. I started not caring. When I say not caring I mean if I lose , that's OK and if I win that's OK to.I learned to trust myself and my system and understand that there WILL BE LOSSES!  My psychology has changed  for the better where I am no longer nail biting as soon as a trade gets put on. For example yesterday right at the open of the New York session a signal was generated. I took the trade and was stopped out in less than 5 minutes for a 15 pip loss. I did not care. I said to myself " Oh well , there will be other signals"  and sure enough there were many more. With a total of 5 winners and 2 losers for a net gain on the day.

My point is that a few years ago after that first loss I would have stopped trading for the day trying to figure out the flaw in the system or the market because the trade "should have" worked out. What I should have been doing is trusting the system and realizing that it was me who was flawed and not the market or the system. The market has no bias it is just there. It does not care if you win or lose it just is.

You cannot become a successful trader until you trust in your own system. That is why most people fail with a system they get from someone else. They did not create it , test it or have any part of the process , they just received the finished product. The problem is that every time there are signals generated they will more than likely either not take them or always question them because the psychology of the person who created it is different from their own and then when they have a loser they claim "scam" or "fraud".

In closing the only way , that I see , to find your Holy Grail  is to first find out what style you are comfortable with , what indicators or methodologies you like and try to create your own system based on those and get you emotions in check and understand that losses happen, ALWAYS .   Only then can you start down the road of becoming a successful trader.

Until next time,

Happy profit hunting.


Pip meister.

You must be willing to pay the price......

Life has been crazy the last few months with out 6 month old ( which is why I have not posted in so long ) but something happened to me the other day that I felt deserved to be posted on.

As you know I belong to many forex rooms all over the net , as I am sure many of you do to, where strategies are talked about , politics are discussed as it relates to trading and anything else you can think of that might affect the markets. Here is what else lurks in the trading forums......people who want something for nothing.

Let me explain what I mean. About a week ago on one of these forums someone had taken notice of a posting I made in which I accidentally forgot to cut off my profit on the screenshot I posted so everyone was able to see how much money I actually made off the trade. Normally I am pretty diligent in keeping such things private because the amount of money is not what is really relevant it is whether or not the trade works.

So I got a message from a person on there saying " Wow nice trade! I am new to forex trading can you please share your strategy with me so I can make money to? Well I replied a simple , Sorry no , sent it and believed I was done with this conversation.  Well I a day went by and I happened to be on the forum again and this person made a comment to the room abotu how greedy successful traders are that won't share their strategy with everyone.

This upset me quite a bit but I took a step back and thought about it from his point of view because I was once a new trader as well looking for the "Holy Grail" .  So after thinking about it I relied to his post so everyone could see and here is what I wrote :

" Hello XXXXX

                I understand how you feel and many others have felt the same way but here is the fundamental problem with your request. Recently I was approached by a colleague who noticed that I have had pretty good success trading over the last few years as well. He then asked me  " What is your secret? , please show me how you do it"  I refused and told him that there is "no secret" to trading, there is no "Holy grail" , EA  or system that works all the time.

I have also noticed this on many other websites where brand new , or fairly new , traders find someone who is successful and ask him to show them how and when they refuse the new trader gets pissed off and says they are greedy or selfish.

Now I do know about the rest of you but I did not become a successful trader overnight. It took me many years of research , study , losses and gains back testing , forward testing and everything else under the sun to get where I am today.

I spent COUNTLESS hours ( just  ask my wife ) in front of the computer studying and analyzing charts  until my eyes were ready to pop out. I read many books  and studied psychology and behavioral finance and tinkered with A LOT of different methods and systems  and I have blown accounts up more times than I care to mention before finding a consistent method that works for me.

For anything in life there is some  price that HAS TO BE PAID . Whether it is monetary through losses  , physical or emotional is up to each individual. To many people want others' hard work without having to pay the price for it. ( I am not talking about price in the sense of "buy my system for $XX , I am talking monetary in the sense of actual trading capital)

I learned everything on my own and for someone to just ask me to give them everything I have and have worked so hard for so they can "quantum leap" to success without the hard work that I put in   is insulting to me. I am sure there are  people who can and do give out their successful methods for free I just do not know many of them......  One thing I heard many years ago is that " people do not sell a profitable business, if it is making money they would not sell it"

I am not claiming to be a millionaire or anything like that, I am a successful trader , now what being successful means to me is something completely different to the next guy. If I have a goal of making $50 a day and I do it then I am successful . Same applies if it is $75 , $100 etc. 

Bottom line is that you cannot " Quantum Leap " success in anything in life period so before you embark on something that you want make sure you ask yourself .... " AM I willing to pay the price? " 

It's a Marathon not a Sprint

When we were infants and first learning how to walk , even though we do not remember , we probably spent more time falling over then we did actual walking. The first time we fell over when trying to walk did we say to ourselves " well I guess this walking thing is not for me , guess I will crawl the rest of my life." Of course not! Ever time we fell down we would get discouraged but we would work up enough strength and then try again and again. No matter how many times we fell we eventually put one foot in front of the other continuously and then after a while of practice we were walking!

The same is true in trading. Often times , and I am guilty of this to , traders search for systems that others say they have used to make money. They like the way the system works , they pay for it or create it themselves then they put a trade on and they lose money.  They think to themselves that they were scammed or it will not work for them or the system just does not work at all so they give p and move on to the next system.

What many people do not realize is that no system , at lest none that I have ever come across, ever works 100% of the time.  Even if you have a system that shows it will work about 60% of the time that means that 40% of the time it will not work.  The problem is that you do not know when the 60% or the 40% will happen. It could be 6 winning trades in a row and 4 losing trades or a combination of the two. So what if the system you are currently using was experiencing one of the losing trades? What if had you kept using it a little longer you would have seen great success? Would you be mad at yourself for giving up on it ? Of course you would . In  this day and age our society is always looking for the quickest , easiest and cheapest way to get do anything what with our cell phones with internet , email , text messaging and such it is no wonder that people try a system and give up the first time it fails.

Being a successful trader is a marathon and not a sprint you just don't wake up one day and decide " I think I will be a successful trader from this point forward" That's like going to take your drivers test without ever learning how to drive a car first. Is it possible? Yes Is it probable? No. Sure winning the lottery is possible to but it is also not probable.

Success in anything takes time it is not something that happens overnight. They often say practice makes perfect and that repetition is the mother of skill. I would like to add something to that: perfect practice makes perfect skill you have to be practicing something the right way in order for it to actually work.


Good trading ,

Pipmeister

r

Some of the Scariest words in the English language.....

      This past week the United States was in a frenzy over the Mega Millions lottery that had reached over a half a billion dollars. Yes that's billions with a B.  Reports were coming in from all over the internet about lines of people waiting to buy their tickets at a chance to hit it big. I will admit I bought a ticket to but  I only spent $5 on a ticket. That purchase is the first time I have bought any lottery tickets in the last 5 years at least. I hardly ever play the lottery basically because I do not like to give me money to a game that has ALMOST the same odds of winning if I choose not to play at all , not really something I enjoy doing.

As I was standing in line their were 3 people in front of me and each one of them bought tickets to. The first lady spent $50 , the second 30$ and the third was over $100. Now I did not stop to ask them if they were all for themselves or if they were part of a pool at work or something like that  but more than likely it was for themselves.

The thing that I realized was that there is nothing stopping these people from doing this with whatever money they have. Basically you could withdrawal  your entire life saving if you wanted to and spend it all on lottery tickets should you choose to do so yet most Americans are not allowed to invest in hedge funds if they wanted to because they do not meet the governments criteria for doing so. They are not "accredited investors" meaning the government feels that hedge funds are to risky for the general public and they are not smart enough to make they decision for themselves so the government will make it for them.

Now here is where my problem is....... The odds of winning the lottery are worse than most , if not all , Las Vegas casino games.  Now say you are an average Joe and you make have an annual income of say $40,000 a year . One day your grandmother passes away and leaves you with an inheritance of  $500,000. You are not financially savvy enough to invest it yourself because you feel you all do the wrong thing and lose it all so you get a hold of a hedge funds number and give them a call and upon speaking with them , although they would be happy to take your money , they must turn you down because you have to at least have a net worth of $1,000,000 or more according to Uncle Sam's guidelines that he set for you. Saddened by this news you think to yourself  " Well the government says I am not smart enough o give my money to a hedge fund until I have $1,000,000 so I guess I will have to go to Vegas and turn this $500,000 in $1,000,000 then I can invest with the fund!"

Where is the government now? Nowhere. They do not care if you want to go to Vegas and waste all your money. Instead of letting you invest in the fund where the odds of it going to zero are pretty slim they have no problem letting you throw it all down on roulette or craps or whichever game you wish.  Perhaps while you are waiting for the Blue man group to come on stage you decide to spend $10,000 on Keno . No problem!

My point here is that laws like this that written have an adverse affect than what they were originally intended to. The problem is that the people who play the lottery , go to Vegas or gamble in general are the same people LEAST able to afford to do so. Either let anyone invest in hedge funds if they wish too or pass a law capping the amount of money you can spend in Vegas.

These laws that were written remind of some of the scariest words in the English language which are : "Hello  I am from the government and I am here to help"


Pipmeister

Perhaps simpler is better....

There is an age old saying that I have heard many times throughout my life so far , especially when it comes to business, and it goes something like this .. " Keep it simple stupid! This saying has been told to me many times in my life so far. I have heard it , read it and even witnessed it on television a few times. This saying K.I.S.S. I believe has some relevance in many areas and trading is one of them.

How many times have you looked up and trading system , indicator or methodology that you were curious on about the markets only to see t a video on you tube where the host has a chart that looks like it could be a schematic for a nuclear bomb or a very sophisticated house? Often times when I watch these videos I cannot help but see the vast array of indicators and lines on their charts. We have many different ones to choose from so people must think that since there are so many they must work right? Should you have stochastics, Fibonacci retracements, moving averages , Bollinger bands , ADX , MACD , Andrews pitchfork and trendiness all on your chart at the same time? My opinion is no. While I believe confluence is important in trading I think to many indicators on a chart can actually make things a lot more confusing.

Many of us are looking for that "Holy Grail" indicator that will tell us exactly when to get in and when to get out. Sadly , at least in my experience, there is no such thing. There are probably many things to get close to perfection but there really is no secret unless you own a flux capacitor and have access to a Dolorean.

I have also seen many studies and theories that rely on simple systems that produce equally if not more impressive results than a system with a ton of indicators.  For example I have seen a simple moving average system produce quite impressive results using just one moving average plotted on a candlestick chart.

My point here is that sometimes less is more when it comes to trading, yes confluence is great to have but when you are waiting for all the traffic lights of the market to turn green at the same time , you are going to be stuck in the driveway forever.


Pipmesiter.

Trading systems work .....until they don't.

       As a person who is an active trader you can believe that I have come across my share of "systems:" that are for sale from so called "experts" in the forex , stock , futures and any other markets you can think of. do a simple Google search anything relating to trading and you will be hit with an overwhelming array of advertisements promising you vast riches for a mere $29.95 a month or $900 one time.

They all say something like " This system has earned 1000 pips in the last month and you can have our SECRET trading strategy delivered right to your email!" The problem with something like this is it  reminds me of and old business saying that I heard many years ago and it goes something like this..... "no one sells a profitable business. If they are trying to sell it they are not giving you the whole story and something is wrong." The same method can be applied to trading strategies sold online or elsewhere. Now I am not saying that ALL systems sold online are bad in fact , some of them can be quite profitable if they are managed correctly. 

Using the above example even though this system has supposedly generated 1000 pips in a month it does not tell you how many pips were LOST in the last month. What was the draw down for this system? IF you have a $1,000 account and you were trading mini lots , 1000 pips would be good unless you also lost 2000 which  would bring your account to a nice big fat goose egg. 

On another side of this are systems that actually do work but are so old and so well known that they cease to be profitable anymore. The best example of this is one of the best known systems that I have ever read about and that is the Turtle trading systems developed by 2 traders in the early 1980's. I am not going to go into the logistics of how the system works , you can Google it for more info , but basically it was a simple trend following systems which made a group of ordinary people become very successful traders. The problem became that once everyone learned about this system and started using it it seemed to not be as profitable as it once was. This happens because the thing that the system exploited in order to be successful suddenly was known by everyone and turned around into and unsuccessful system. Behavioral finance kicked in an people took notice.  The same thing could be said for systems that are sold online. If everyone knows about it and everyone is using it eventually it will fail. 

The best approach , at least that I have found, is to take bits and pieces of systems and create your own.  Make sure you run sufficient back tests to see how it will do over the long term even though back testing has its limitations also but that is for another blog. 

Make your own success! 

Pipmesiter.