5 Changes I Made That Had A HUGE Impact On My P&L.

JamesEM

JamesEM

So often, it's not the method that's letting us down...it's the way we think and frame things. Here are the changes I made to really turn things around!

1) Trade Higher Time Frames- I thought I was "safer" on a 15 sec chart- I could see more information and could be in and out quicker. What a lot of traders miss is the fact that you lose edge when dropping down to lower TFs. This is because the spread and commissions make up a larger %age of your gains/losses. You can make more money or, if you are a break-even trader, literally go from break-even to winning just by moving up a TF or three.

e.g. Trader 1= 5 tick stop (stp) and 13 tick profit target (pt). Assuming 1 tick covers spread + commissions... Net stp=6 ticks. Net pt=12. i.e. 2:1 R:R.

Trader 2= 10 tick stp and 26 tick pt (same gross R:R as Trader 1 but twice as big, i.e. higher TF). Net stp= 11 ticks. Net pt= 25 ticks. 2.27:1 R:R. Trader 2 earned himself 13.6% more reward for his risk simply by trading a higher TF.


2) Think Process Short-Term, Outcome Long-Term- The wider I make the gap between the two, the better I do. Every detail of the process counts now, but it's effect- the outcome- will only be seen after large N (which usually means a long time). Reacting to the outcome will throw you off the process.

I used to check account balances intra-trade (yikes!) at one point. Now I check at the end of the week.

3) Let Go Of Control- We don't control what happens outside of us (well, there is the Observer Effect..but that's another story). Sitting there hoping/praying/willing the price to go your way won't have the slightest effect on what does or doesn't happen so there's absolutely no point in doing it.

There are techniques that help achieve this: Meditation, leaving a trade on and getting in the shower etc. (you may leave the shower early a few times in the beginning!)

The energy you save will help you take that winning trade later in the day that you'd normally miss from lack of focus.

4) Embrace Losers- They are our friends. Trying to avoid a loser is like trying to walk on just your right leg. You don't get very far. Losers are an integral part of the winning process.

I started to treat losers as I did my winners. I stopped going through charts trying to optimize my way out of the would-be losers and catching mostly winners. Pushing them away breaks whatever edge you have.

5) Non-Ownership...Everything Is Borrowed- During my 3-4 year break-even phase, I was perplexed at the number of spreadsheets I had that showed the exact same pattern, again and again, over different instruments, TFs and strategies. Good, consistent, profitable trading for days/weeks, then a cliff-dive back down to break-even. I couldn't figure it out for the life of me.

Then it hit me. I started trading defensively when I "was up" a certain amount. I didn't want to lose what I had made.

This changed when I realised that we don't own anything, not even the house you think you own! Everything is on lease and the line drawn between things we "own" and what we "don't own" is subjective. This thought liberated me and allowed me to risk those intra-trade profits by holding to target.
 
...So what's the bottom line...what's your new % profit Return, vs your old one :banghead:o_O

And how long have you've been doing this new way...make sure it's the real deal, and not just a fluke occurrence,
 
JamesEM said:
So often, it's not the method that's letting us down...it's the way we think and frame things. Here are the changes I made to really turn things around!
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All good, solid points that can only be learned from experience. It tracks perfectly what I've learned over the years. Good job!
 
There is an analogy between trading and climbing mountains. Imagine that you get lost in a jungle and you don't have a clue where you are. The best way is to find higher ground so when you look down, you clearly know which direction you should take to go back. Similar to trading where you get lost easily while focusing on smaller time frames, bigger time frames will help you to figure out market direction, while you use smaller time frames to help you timing entry points and trading along with market direction so that you won't get washed out. Unlike some full-time traders who try to trade both directions within the same day, I stick with one direction which follows market direction and so far, I rarely accumulate any loss trade.
 
JamesEM said:
1) Trade Higher Time Frames- I thought I was "safer" on a 15 sec chart- I could see more information and could be in and out quicker. What a lot of traders miss is the fact that you lose edge when dropping down to lower TFs. This is because the spread and commissions make up a larger %age of your gains/losses. You can make more money or, if you are a break-even trader, literally go from break-even to winning just by moving up a TF or three.

e.g. Trader 1= 5 tick stop (stp) and 13 tick profit target (pt). Assuming 1 tick covers spread + commissions... Net stp=6 ticks. Net pt=12. i.e. 2:1 R:R.

Trader 2= 10 tick stp and 26 tick pt (same gross R:R as Trader 1 but twice as big, i.e. higher TF). Net stp= 11 ticks. Net pt= 25 ticks. 2.27:1 R:R. Trader 2 earned himself 13.6% more reward for his risk simply by trading a higher TF.
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This is one of these comments where it all really depends on the situation. First, it depends on what you need to see to enter a trade. Suppose you're a S&R trader, looking at the 5 min chart, and suppose your entry method allows you to buy above a 5 min bar. So now suppose you see the bounce off a key level, but you have to wait for the current bar to finish, since you know that your entry needs to be at least a tick above the bar that bounced off.

Is this is a case of trading a higher time frame? If all you'd doing is watching a 5 minute bar, then perhaps you're missing an entry point that could have happened much sooner. And if you're watching the PA, then you are essentially watching on a much lower time frame anyway, even if your charting platform just displays a 5 minute bar.

Furthermore, if you're watching the DOM for entry, then you also are operating on a much lower time frame because as your brain is watching the bids and offers get filled, or added, or pulled, you're perhaps almost watching a 1 tick chart going by as an equivalent.

Most people have a 1 minute chart up I'm sure, but to truly say you are trading the 1 minute chart or higher would mean that you can only look at your monitor once every minute. Anything more than this essentially means you are trading a faster chart because you are watching how price moves up and down within that 1 minute bar.

As for your example.. this makes no sense to me. Going from a 5 tick stop and 12 tick target, to 10/26 will vastly change the expectancy of the trade. Sure it looks nice from a commissions point of view because now, in the 2nd example, the commissions are a smaller percentage of the win, but if your new target of 26 ticks doesn't hit all that often, you got a big problem.

Its like this. Its like saying that making 30k per year is better than making 60k per year because when you make 30k, the government only makes you pay 10% taxes, but when you make more, you're in a higher tax bracket. So in order to save on the taxes, you choose the lower paying job.
 
lawrence-lugar said:
...So what's the bottom line...what's your new % profit Return, vs your old one :banghead:o_O

And how long have you've been doing this new way...make sure it's the real deal, and not just a fluke occurrence,
More...

There's no real way to "make sure" but 100% over 4 months and ~350 trades is better than break-even for 4 years!
 
Gotcha said:
As for your example.. this makes no sense to me. Going from a 5 tick stop and 12 tick target, to 10/26 will vastly change the expectancy of the trade. Sure it looks nice from a commissions point of view because now, in the 2nd example, the commissions are a smaller percentage of the win, but if your new target of 26 ticks doesn't hit all that often, you got a big problem.
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Of course this example is IF all things remain the same. I'm simply saying that moving to a higher TF makes more money. And I absolutely agree with "vastly changes the expectancy"- that's the whole point! Gross R:R is the same but net R:R is superior. Operate on as high a TF as you can and increase size if necessary to make up for the drop in N.
 
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