Holy Grail of Financial Trading

Holy Grail of Financial Trading

Holy Grail of Financial Trading
Holy Grail of Financial Trading

Lets face it, this is a hard fact to swallow that 95% of traders fail. Only 5% of traders make money consistently. Unless a traders is making money consistently he/she is still in 95% of unsuccessful traders. One of the main reasons why traders fail is because they are always searching for a Holy Grail system. A strategy which will some how make them rich and famous. They hop on to strategies one after another. As soon as one strategy stops working, they are on the look out for another one. So what is is Holy Grail of Financial Trading and where is it?

Van K. Tharp’s Trade Your Way to Financial Freedom
book gives a complete account of Trading Holy Grail and where it can be found! He was able to unravel this mystery once and for all.

A trader’s Holy Grail is within himself. It is not some system or strategy. There are thousands of strategies used by successful traders. They do not use the same one. So what makes them successful? It is they themselves. So question is how to find this Holy Grail of Financial Trading? Well, here are some clues:)

  1. Trader’s Psychology is the biggest part in Trader’s success. It is not strategy or system. It is the person inside the trader. A trader should be disciplined to follow strategy day in and day out. There is no strategy which gives 100% results and there will be losses/draw downs on the way. That is when trader’s psychological strength is tested. If the trader understands that losses are part of the business  and treat them as cost of running business like any business, he/she will excel. Small acceptable predefined losses must always be welcomed. They are better than losing capital and accumulating losses. A small loss in a trade tells the trader that it is time to get out. Fail Fast and Move On to Next Thing. Trader must run trading as business. It may be small to start with like any other startup.
  2. Trader must remain calm, objective and indifferent to successes or failures of trades. It is the process which is more important than outcome. A process with positive expectancy repeated over time automatically produces good outcomes. But trader must follow the process objectively. An example will be a machine which has certain fixed input and certain output.  A machine stays objective and keeps on processing. If there is a positive expectancy in the machine processing to produce output, it will generate output. But machine must conduct processing else there is no output.
  3. There is no such word as BIAS in trading world. If trader is biased towards something in a market, the analysis will be biased too. This goes against the objectivity of the process (point 2 above). Biases hurt objective processing and can be deadly. (Read more about biases.)
  4. There is no EGO in markets. Markets represent collective decisions taken by millions of buyers and sellers at a given time. A trader can not fight that. Market runs and can not be controlled by a single trader. There is no point in fighting it. However you can stay with it. A trader must learn to read what market is saying and act upon it.
  5. Have a tested rule based trading plan. Traders mistake trading with trading strategies. Strategies are just one part of trading plan. Strategies tell a trader how to enter and exit positions but plan contains rules which have been developed based on experience while using those strategies. It contains a whole lot more than just strategies. A trader’s trading plan is what a Business Plan is for a business. It must contain all aspects of trading business. For example: Money Management, Risk Management, Position Sizing, Trading Rules, Market Portfolio, Contingency Plans, Equity Withdrawal Plan and lot more.
  6. Traders must have Money Management and Risk Management in their trading plans. They are key to success and grow the business. Traders are often confused between Money Management and Risk Management. Risk Management is about how to protect the capital. Like any other business trading can not survive without cash in the bank. Protecting capital is number one priority. Money Management is all about how to make use of capital in most effective way without increasing risk of losing capital.

Here are some DON’Ts to help along the path to finding Holy Grail of Financial Trading:

  1. Never accumulate losses. Never add to losing positions for averaging.
  2. Never risk more than predefined limits on a single trade. Limits must be well defined and tested.
  3. Never trade without a protective stops.
  4. Never exit a position without a good reason. If there are reasons to enter a position, there must be reasons to exit too.
  5. Never fight the market. Once a position is in the market there is nothing a trader can do about it other than early exiting which will stop the Process which we talked about in point 2 above.
  6. Never enter a position without your own analysis. A trading plan is trader’s personalised business plan. Follow that. If a trade fulfils all rules of trading plan, enter the trade else must not.

Good luck with trading. I welcome your comments and suggestions.

-TradeYodha

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USDCAD Bat Pattern Butterfly Pattern Fibonacci Retracement Confluence Flat Candle Long Forex Trading Position

USDCAD Bat Pattern Butterfly Pattern Fibonacci Retracement Confluence Flat Candle Long Forex Trading Position

Snapshot:

USDCAD Bat Pattern Butterfly Pattern Fibonacci Retracement Confluence Flat Candle Long Forex Trading Position
USDCAD Bat Pattern Butterfly Pattern Fibonacci Retracement Confluence Flat Candle Long Forex Trading Position

Reasons For Trade:

  1. Fibonacci confluence of 78.6 of overall impulse leg, 61.8 of another impulse leg, 161.8 fib extension of recent retracement.
  2. Flat candle in zone suggesting new orders started from there which has fibonacci confluence with 88.6 Fibonacci retracement level and Fibonacci extension of recent retracement. This makes an area very string due to bat pattern formation.
  3. Level on Level demand area. So we will have to combine.
  4. This impulse leg has string ERC candles which broke previous structure.
  5. Due to 161.8 extension of recent retracement this zone also has completion of Butterfly Pattern too which coincides with flat candle and bat pattern completion on the same point.

Stop Placement:

Below flat candle

Targets:

First: 38.2 fibonacci retracement
Second: 61.8 fibonacci retracement

Trade Execution:

  1. Wait for confirmation in the zone.
  2. As there are 2 fibonacci confluence levels creating level on level demand zone take multiple positions using zoning technique.

Concerns:

None

Planned News/Events Expected:

Whole next week is packed with USD CAD  news

MonOct 26 10:00am USD New Home Sales 468K 546K 529K
TueOct 27 8:30am USD Core Durable Goods Orders m/m -0.4% 0.0% -0.2%
USD Durable Goods Orders m/m -1.2% -1.1% -2.3%
10:00am USD CB Consumer Confidence 97.6 102.5 102.6
11:20am CAD Gov Council Member Lane Speaks
WedOct 28 8:30am USD Goods Trade Balance -58.6B -64.9B -67.2B
10:30am USD Crude Oil Inventories 3.4M 3.7M 8.0M
2:00pm USD FOMC Statement
USD Federal Funds Rate <0.25% <0.25% <0.25%
ThuOct 29 8:30am CAD RMPI m/m 3.0% 1.2% -6.8%
USD Advance GDP q/q 1.5% 1.6% 3.9%
USD Unemployment Claims 260K 264K 259K
USD Advance GDP Price Index q/q 1.2% 1.5% 2.1%
9:10am USD FOMC Member Lockhart Speaks
10:00am USD Pending Home Sales m/m -2.3% 1.1% -1.4%
FriOct 30  8:30am CAD GDP m/m 0.1% 0.3%
USD Employment Cost Index q/q 0.6% 0.2%
USD Core PCE Price Index m/m 0.2% 0.1%
USD Personal Spending m/m 0.2% 0.4%
9:45am USD Chicago PMI 49.5 48.7
10:00am USD FOMC Member Williams Speaks
USD Revised UoM Consumer Sentiment 92.6 92.1

 

Post Execution Review:

Pending

View it on TradingView

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Please do your research, analysis and take your decisions. You must not rely on my actions or analysis.
Please see the Disclaimer page.
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GBPAUD Bat Pattern Psychological Number Long Trade

Trade: GBPAUD Bat Pattern Psychological Number Long Trade

Snapshot:

GBPAUD Fibonacci Cluster Bat Pattern Psychological Number Long Trade
GBPAUD Fibonacci Cluster Bat Pattern Psychological Number Long Trade

Reasons For Trade:

  1. Bat Pattern
  2. Psychological Number 2.0800
  3. This zone has been a strong demand zone in past

Stop Placement:

  1. Below Bat pattern’s X point

Targets:

  1. 38.2 Fib Retracement back up
  2. 61.8 Fib Retracement back up

Trade Execution:

  1. Wait for confirmation because the stop loss level is too wide and there have been few spikes in the zone previously.

Concerns:

  1. Price may touch 78.6 fib level of previous impulse leg XA and go back up as there is also fib confluence and ABCD pattern completion

Planned News/Events Expected:

TueOct 27  5:30am GBP Prelim GDP q/q
8:30pm AUD CPI q/q
AUD Trimmed Mean CPI q/q
WedOct 28 8:30pm AUD Import Prices q/q
ThuOct 29 5:30am GBP Net Lending to Individuals m/m
8:30pm AUD PPI q/q

Post Execution Review:

Pending

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Please see the Disclaimer page.
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NZDUSD Fibonacci Confluence, ABCD Pattern, Demand Area Long Trading Idea

Trade: NZDUSD Fibonacci Confluence, ABCD Pattern, Demand Area Long Trading Idea

Snapshot:

NZDUSD Fibonacci Confluence ABCD Pattern Demand Area Long Trading Idea
NZDUSD Fibonacci Confluence ABCD Pattern Demand Area Long Trading Idea

Reasons For Trade:

  1. Fibonacci Confluence of 38.2 of previous impulse leg, 0.886 of recent impulse leg, 1,272 fix extension of recent retracement.
  2. ABCD Pattern forming
  3. Good Demand Area as price shot up from this zone in multiple ERC candles.
  4. 200sma reaching the zone
  5. Price is reaching over sold territory
  6. Psychological round number 0.6600 in zone

Stop Placement:

Below Psychological round number 0.6600

Targets:

  1. First target at opposite Supply location where 50sma was crossed by 10sma.

Trade Execution:

  1. Partition entries. First entry using limit orders and second to wait for confirmation in the zone to have better R/R ratio. This is because the price may come deeper in the zone to touch round number 0.6600

Concerns:

None

Planned News/Events Expected:

MonOct 26  10:00am USD New Home Sales 546K 552K
5:45pm NZD Trade Balance -822M -1035M

Post Execution Review:

Pending

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What Really Drives The Market? How News Affect The Market?

What Really Drives The Market? How News Affect The Market?

There is always a struggle between fundamentalists and technical analysts about the relevance of news on markets. News event tend to impact markets but what drives them and how they affect trading?

I stumbled upon a great video by Jason Stapleton which gives insights into this topic.

-TradeYodha

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Please do your research, analysis and take your decisions. You must not rely on my actions or analysis.
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How To Minimize Trading Risks With Stop Losses – Part 1

How To Minimize Trading Risks With Stop Losses

Like any other financial instrument, trading is also game of managing risks. When we put our money into a process to gain profits, there are risks associated with it. Managing this risks the biggest part of trading.

Risk Taking

I trading, traders use stop loss levels to limit their risk exposure in a particular position. However at time we have opportunities which demand extra bit of risk for a major gain. Depending on what is their in our individual trading plans, we usually have few options:

  1. Pass that trading opportunity
  2. Manage risk by either taking an entry at a better level in our favour or placing optimal stop loss levels.

However in certain cases optimal stop losses can not be determined. This series of posts on How To Minimize Trading Risks With Stop Losses is about how to manage risks in these conditions.

Method 1: (Limit Trade Risk By Reducing Position Size)

Lets say I trade with one contract and you have set risk appetite of 50 pips in my trading plan. The trading opportunity that I have demands for 60 pips. I can reduce my position size from 1 lot to a lower contract size to reduce my exposure in that trade.

However this method has one disadvantage. If lets say I was supposed to gain 120 pips in the trade and my trade was successful, I will not profit as much as I could. The over all dollar (cash) profit will be smaller because of reduced position size.

Method 2: (Take a Better Trading Entry in Our Favour To Reduce Risk)

Lets say I want to short a currency pair. It is demanding 60 pips of risk instead of my usual 50 pips risk appetite because I trade with 1 lot. I do not want to follow the method 1 above as it does not give me good dollar profit in my bank.

In such cases, I can wait for the market to come into the zone and wait for a confirmation. Because the price is already there in my risk zone against me, I can take a better entry reducing my overall risk. My stop loss level will still be there where I planned but because I entered the trade late, I will have lower risk.

Wait For Confirmation To Get A Better Entry Price And Reduce Risk Exposure
Wait For Confirmation To Get A Better Entry Price And Reduce Risk Exposure

This method also comes with its disadvantages. The price may just touch the zone and start moving immediately. So I may never get a chance to be in the trade as I planned. It may also never come deep enough into the zone to give me better risk profile that I was looking for.

Method 3: (Adding to Trade Position To Average Down Overall Risk)

Traders also call it Zoning or Average Down/Up or Adding to Position.

This method works with Method 1 and Method 2 above. Initially I will reduce my position size to ensure that I have lower risk profile on the trade but have a guaranteed entry.

Once I have trade running and if it comes deeper in to my zone against me, I will wait for a confirmation and take another trade to average down my overall position. This averages down my overall risk exposure because I took second part of trade at a better price level.

Average Down Your Risks With Multiple Trade Positions Inside The Zone
Average Down Your Risks With Multiple Trade Positions Inside The Zone

This method is only effective if your average of multiple positions is actually reducing risks/reward ratio. So it is essential to set entry levels and position sizes in advance.

Of course as it has few characteristics of Method 2, it comes with disadvantages of Method 2 too. However it comes with advantage of being in the trade of Method 1.

Method 4: (Tail Stops To Actively Reduce Risk)

This method is a very common method and is used by a lot of traders to protect their profits as well as their overall risks. We can use it in conjunction with any methods mentioned above.

I can take an initial position in a trade depending what method I used for my entry. I also have an initial stop loss level set. Once I am in the position, and the price action has started moving in my favour, I start moving my stop loss level too. Moving stop loss level is usually done in certain conditions only. (Moving stop loss levels when trade is going against us, is strongly discouraged as it increases your risk exposure.)

These conditions are:

  1. If the price action has reached our predefined target I can take part of my profits and move stop loss level to a break even position. This allows to me have no loss (break even) if the trade reverses and goes against me.
  2. If the price action goes in my favour and creates a new zone where I can safely my put my new stop level. For example, in a short position if my initial stop loss level above previous swing’/structure high, I can move it a new swing high/structure if price action has created that for me. This allows me to have much safer risk exposure.
Move Stop Loss Level To Reduce Risk Exposure In Trading Position
Move Stop Loss Level To Reduce Risk Exposure In Trading Position

More to come on this series of managing trading risks. Please feel free to leave me a comment or your ideas. I would love to hear from your experiences and techniques.

Have a great trading time.

-Trade Yodha

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USD Forex Trading Mistakes of The Day

USD Forex Trading Mistakes of The Day

Another day, another mistake and more learning.

I took a trades based on 2618 shorting style. I made 3 trading mistakes today:

USD Forex Trading Mistake of the Day
USD Forex Trading Mistake of the Day
  1. First Trading Mistake was that there was psychological price 1.3200 level just above which I should have included in my stop loss calculations. That would have meant bigger stop which leads me to second trading mistake.
  2. The second trading mistake was to wait for a confirmation in the zone to take an entry as stop levels were supposed to be high.
  3. Third mistake is the one which caused all this mess to start with. I missed/ignored the fact that there was a news expected on USD today.
    FriOct 23 9:45am USD Flash Manufacturing PMI

All these are there in my trading plan so moral of the story again is remember to remember your trading rules. One deviation from it can be costly.

-TradeYodha

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Why Rules and Trading Psychology Matter – AUDUSD Example

Why Rules and Trading Psychology Matter – AUDUSD Example

I wanted to post a review of my previous AUDUSD trade but I thought it will be a good post to record my experience on that trade. EURUSD trade last week humbled me and reminded me of my mistakes which I am glad that I did not do in this AUDUSD trade.

I initially planned for this trade as below:

AUDUSD Bat Gartley Patterns for Long Short Forex Trade
AUDUSD Bat Gartley Patterns for Long Short Forex Trade

But it turned out as below:

Why Trading Rules and Trading Psychology Matter - AUDUSD Example
Why Trading Rules and Trading Psychology Matter – AUDUSD Example

Soon after entry, the market started showing bearish signs but my stops were in place with acceptable losses so it was ok. The market then turned in my favor. And then again turned bearish. It was going completely against me.

It was quite a roller coaster in its behaviour. Honestly at several times, thoughts of cutting my losses and getting out of market for a little profits came to me. But then last week’s lessons reminded me to stick to my plan and rules. Once a trade is in, it is in. There is nothing I can do to control the market. I can only work with it. So I stuck to my plan and accepted that it will probably hit my preplanned acceptable stop loss.

I guess for my patience and discipline luck also favored me by few pips. The market came very close to hit my stops but due to spread it did not.

The out come was great. It hit my first target making this overall trade a break even now and is still going strong in my favor.

Trading Psychology is the biggest factor and that is what differentiates Winning Traders from Losing Traders.
-TradeYodha

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Please see the Disclaimer page.
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EURJPY BAT PATTERN FOREX TRADE IDEA LONG ENTRY

EURJPY BAT PATTERN FOREX TRADE IDEA LONG ENTRY

Snapshot:

EURJPY Bat Pattern Long Forex Trading
EURJPY Bat Pattern Long Forex Trading

Reasons For Trade:

  1. Bat Pattern forming.
  2. Due to sudden drop EUR is reaching oversold area. On H4 it is already oversold but on H1 it is not.
  3. Spikes close to red zone in chart show a Demand area. So price may come back to retest this that is when H1 will be oversold. This can give is a Double Bottom formation.

Stop Placement:

  1. Below point x of bat. Looking left I see another demand area on previous impulse leg. So including that too.

Targets:

  1. First: 38.2 Fibonacci Retracement
  2. Second: 61.8 Fibonacci Retracement

Trade Execution:

  1. At 38.2 close half of the trade and move stops to break even.

Concerns:

Demand are on previous impulse leg is wide and is beyond stop loss limits.

Planned News/Events Expected:

MonOct 26  5:00am EUR German Ifo Business Climate

Post Execution Review:

Pending

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Leave a comment: I would love to hear your thoughts, suggestions on this topic. Please leave a comment.
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Disclaimer: This web site is just my financial trading log and is for educational purposes.
Please do your research, analysis and take your decisions. You must not rely on my actions or analysis.
Please see the Disclaimer page.
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EURJPY Bat Pattern Short Trading

EURJPY Bat Pattern Short Trading

Snapshot:

EURJPY Bat Pattern Short Trading
EURJPY Bat Pattern Short Trading

Reasons For Trade:

  1. Bat Pattern

Stop Placement:

  1. As the 1.618 Fix extension is close to point A, and previous structures are also there we need to have bigger PRZ.

Targets:

  1. Take 1:1 target
  2. Extended target at 38.2 because we have 50sma and 200sma there which may not let us go below 38.2.  See concerns below.

Trade Execution:

  1. Take 1:1 target and  close 50%
  2. Move stop to break even

Concerns:

  1. Price has been consolidating. This may invalidate the pattern as what happened in EURUSD few days ago.
  2. SMAs are just below so possibility of having extended targets is low.

Planned News/Events Expected:

ThuOct 22  7:45am EUR Minimum Bid Rate
8:30am EUR ECB Press Conference
FriOct 23 3:00am EUR French Flash Manufacturing PMI
3:30am EUR German Flash Manufacturing PMI

Post Execution Review:

22-Oct-2015: Closed this order. I was waiting for confirmation to take position. Today’s price action has invalids this trade idea. So orders cancelled.

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Leave a comment: I would love to hear your thoughts, suggestions on this topic. Please leave a comment.
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Disclaimer: This web site is just my financial trading log and is for educational purposes.
Please do your research, analysis and take your decisions. You must not rely on my actions or analysis.
Please see the Disclaimer page.
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