Posted by: Bevan | March 3, 2010

Update March 2010

I’ve been very quiet on the blog for a few months now – this seems to be a sign that trading is going well!  I tend to vent and philosophise on here when times are tough – its a useful way of thinking rationally about my trading and reminding myself of good habits and ideas.  Its also interesting reading back months later.  In the trading game recency bias means that current results, and the feelings they generate tend to dominate, and its very easy to forget your thoughts and feelings previously.

I’ve found a mechanical system which is currently producing good results, which I have been trading since the beginning of November.  The Triple Screen system, which I traded for the whole of last year produced an expectancy of £-3 per trade for me.  In fact I think its sound system in principle – I was probably applying it too mechanically, and should have been using a more diversified portfolio.  It certainly taught me the benefit of trading in a consistent, disciplined way day after day – almost holding my own in equity for a year and trading in a disciplined and consistent way was important for me to learn.  It was really phase three in my journey.

Phase One was my first year, comprised of a few months of ill disciplined luck, followed by a few months of ill disciplined bad luck.  Needless to say this cost money.  It lead to phase two, which was when I believed the markets were totally random and that there was no way I could trade them successfully, that it was only a game for brokers and market makers.  Phase three only occurred because my wife gave me a good shakeup and encouraged me to try again – she could see the potential I couldn’t.  Luckily I read some good books, did some thinking and realised that I needed to control myself and approach trading methodically instead of rushing from method to method desparately searching for an answer.

Van Tharp’s book Trade Your Way To Financial Freedom was really useful.  Although the system development and expectancy stuff informed my trading outlook, leading me to the approach I’m using now, what really made the difference was the psychological stuff in the early chapters, particularly the section on identifying objectives.  I achieved a breakthrough when I realised that my objective thus far had actually been action and excitement, rather than making money.  I think this is probably true for 99% of people who start trading, and its vital to wake up to this desire.  It still rears its ugly head occasionally at weak moments (a bit like an ex smoker when out for a few drinks) however I’m finding with time my lapses are becoming less frequent, and expensive.  Refocusing on more rational objectives (building wealth for my family and potentially achieving financial independence), along with almost nightly reading from Trading For A Living which kept me thinking about winning habits rather than those of losing traders led me to gradually develop a steady trading technique and discipline day after day, not losing much, not winning much.  Having become convinced that mechanical trend following was a profitable technique which suited my personality (and which would mitigate my action-seeking shortcomings!) I researched a number of commercially available systems, beginning to trade one in November.  Its far too soon to make any long term judgements, but so far I have to say that its nice to be consistently trading, and also making a profit at the same time!  My trading has achieved a profit factor of 1.54 since the beginning of November.  There is some luck involved in that my strike rate of 50% is above what I would expect to achieve in the long run, so I think realistically that over time that will fall.  That said though, there is good historic testing which shows that I should win in the long run.

Although I trade mechanically based on a technical approach, I love reading economic discussions of the fallout from the ‘credit crunch’.  I’d hate to have to make trading decisions based on what I read though!  I particularly recommend The Big Picture blog as well as subscribing to Larry Levin’s newsletter (he runs a trading coaching programme for day trading on the S&P, I can’t vouch for that at all but he does have an interesting macroeconomic perspective!)


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