I've had a day or so to have a good think about what i'm doing with my trading. Some of you might think that's not long enough at all, but I really needed to start getting some thoughts down on paper. Virtual or otherwise.
If there's one thing that you'll always get on this blog, it's honesty. I've always been brutally honest with myself and with everyone that has commented or read the blog. I've posted every trade and given my thoughts, feelings and emotions connected with that post. I've posted charts of my progress, good or bad and I have in no way fiddled the numbers. I'm not here to get a reaction, i'm here to be true to what i'm doing, approach it whole heartedly and log everything that I do along the way. The added bonus has been commenting on, reading and contributing to other trading blogs that i've found along my travels. Through doing this i've met some like minded people who happily contribute constructive comments to my blog in the hope of furthering my trading knowledge. I hope i've returned the favour.
It's this support network that has contributed to and encouraged me to write this post. I feel it's going to be a long one so I've decided to break it up into two parts. The first part concentrating on my trading and the second concentrating on me. I'll try to be coherent as I type!
My Trading.
Yesterday I posted a trade that I took on Tuesday as well as results for the year up to the end of July. Let's be honest, they're pretty bad. There is no denying this. I've been in a significant draw down for quite a while now. If you look at it on a trade by trade basis there has been no decent pull back where i've had a string of positive trades. To make things worse I took another losing trade yesterday, which I posted about this morning, this further fuelled the thought process.
These few posts brought out the people I have been talking about and I was fortunate enough to receive several encouraging posts and ideas from the likes of The 1Lot Trader, Trin Café and Rogue Traderette. I was already thinking about how to further approach my trading but these comments really made me think and start seeing things in a new light.
So where to from here?
"It's not about making money, it's about learning to trade"- The 1Lot Trader. I love this quote and it's simplicity. I think i've been a bit wide of the mark. Perhaps even a little cocky once I did string together a few good trades at the start of the year. I had it cracked, I was well on my way to those Lamborghinis, yachts and easy trading days by the pool.
Jess (Rogue Traderette) suggested it would be an idea to back test my strategy. I think this is the best place to start. Back to basics. With Sierra I have tick data and therefore volume data back to December 2007. So the plan for the month of August, (or as long as it takes) is to back test. Go right back to December 2007 and start implementing my strategy. Bar by bar, day by day. It wouldn't hurt to have a look over some of the VSA literature and videos I have at my disposal as well. A refresher course if you will.
Back Testing.
As I've mentioned before, I adopted the strategy i'm using from another trader. He has been somewhat of a mentor to me through the past couple of years. I know the basic underlying idea works very well for him so I have that confidence behind me but I think I need to go back in time and test it for myself. With my own little changes, twists and quirks that i've added to make it my own. I'll be using my strategy as outlined here with a view to gaining a large data set of trades. I'll do my absolute best to be as honest as possible whilst performing this exercise. Otherwise i'll only be fooling myself. I'll also keep detailed accounts of wins / losses / pips / percentages and so on. I'll cover a week at a time and then create a blog post for that weekly period with annotated charts showing the set ups I took. Thinking about it now, I may just start in January 2008 to avoid the usual Christmas lull at the end of December 2007. I've also been thinking that i'll use the forum i'm part of to post "live" set ups. Post a chart and reasons why i'm taking a trade whilst i'm on the right edge of my back test. This will make it as real as possible and give me the chance to really analyse and make a decision on whether to take a trade or not.
Risk.
The 1Lot Trader suggested that i'm risking too much. To be honest I have to say that I agree with him. I wasn't able to cope with the losses when I was risking 3% of my account. Changing to 2% helped a little bit, but I think I still have too much of an emotional attachment to the money involved. I often think that it bothers me more that I was wrong and the monetary side doesn't matter to me as much. It's becoming evident to me that this isn't the case. I look at the equity curve and it doesn't make me feel very positive. That's what I need to change.
Talking about risk has also got me thinking about my trading platform. I'm based in Ireland so I have a spread betting account. I've often wondered about the pros and cons to having such an account or whether I should be trading with a "real broker". I often think about it, but I always come to the same conclusion - which was backed up by what 1 Lot said. It's about learning to trade first. It doesn't matter what account type I have if I can't trade consistently in the first place. With this in mind, spread betting companies do tend to have larger spreads on their pairs. This is the main difference between the two.
Other Studies.
VSA is based on the teachings of Richard D.Wyckoff. A while ago I was given some interesting videos on the subject. I began watching them but neglected to finish them. It would be very beneficial for me to start watching these videos again and study this area of volume analysis.
I've talked about Point and Figure charting quite a bit over the duration of this blog but never in any real depth. To be honest i've struggled to find a system that really works for me. Granted, I haven't put a great deal of work into developing anything but this is something I feel I have to do as well. There is a lot of potential to marry both Point and Figure and volume analysis. Wyckoff was also a great believer in PnF charts so this adds weight to the idea. I've largely concentrated on 1hr charts up to now, so maybe I need to look to higher time frames, 4h, 8h and maybe even daily. Even if it's a case of creating a separate strategy to work with alongside the volume zones / fib strategy i've been using up to now.
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That'll do for part 1! I'll get to part 2 either later tonight or tomorrow some stage. I'm in work this morning so I hope to make a start on back testing tomorrow morning.
Any comments on any of the above would be appreciated as always.
Cheers,
Liam
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