Here's a something from my trading journal that may be helpful to you:
Statistical analysis provides the information necessary to create a profitable price action trading plan. If you test a setup that looks promising by analyzing, say, 500 consecutive appearances of the setup, noting maximum favorable and adverse price swings off various entry methods, describing the price action context surrounding each trade, and identifying contextual filters to exclude trades under certain unfavorable conditions, you are quite likely to end up with a positive expectancy trading plan at some point.
Thatâs the easy part.
The difficult parts are learning to identify the valid setups in real time, and trusting the positive expectancy of your plan by trading all appearances of your valid setups according to your rules.
A humorous analogy of this is offered by Dave Barry in his book Stay Fit And Healthy Until Youâre Dead:
âAnd remember how, in Biology Lab, you were supposed to take an actual dead frog apart and locate the heart, the liver, etc. as depicted in the elaborate color diagrams in the textbook? Of course, when you cut it open, all you ever found was frog glop, because that is what frogs containâ¦â
Well, your positive expectancy setups as seen in real time, at the moment when youâre supposed to actually initiate a trade, often look like âfrog glopâ compared to the perfect after-the-fact chart annotations provided in trading books and on-line resources everywhere.
As a result, itâs tempting to second guess the trade signal, hesitate, miss the proper entry, watch the trade working nicely, and find oneself in a state of mind that is not conducive to disciplined trading.
If you havenât yet screen-captured various forms of your setups at the hard right edge (before) and following a successful result (after), do it now and memorize those âbeforeâ patterns until they no longer look like âfrog glopâ.
When you see a valid setup forming and you find yourself thinking âYeah, butâ¦â, have those screen captures handy to remind you that this is exactly how itâs supposed to look. Then look at the âafterâ picture*, take a deep breath and place the order.
*Of course, the positive "after" result will not always transpire, but you don't want to look at pictures of the failures when your goal is to inspire yourself to put on the darn trades!
Another thing that may be helpful is to talk out loud about what you see in real time, as if you're teaching a class of traders. That helps keep me focused.
