THERE IS NO PERFECTION IN TRADING

2 июн. 2023 г.

Today, I want to provide with you an essay that will clarify just how far you should push your trading perfectionism.

There is no ideal trading technique, to put it succinctly and painfully. Losses will be a part of life. Yes, there are High Frequency Trading (HFT) outfits that have been producing successful days after successful days for the past five years, but let me let you in on a little secret: you are not an HFT outfit. Additionally, these HFTs lose money; it's only that because they execute a million trades every day, their advantages soon disappear.

Therefore, give up hoping and begin understanding that you will lose. The ideal trading strategy is one that generates profits over the long term; a strategy that generates profits on each trade would be utopian. Additionally, you won't begin making money until you acknowledge that you will also lose money. I know it's an old story, but this is one of the factors to consider if you aren't yet profitable. You still believe you are superior to the market, and you are still searching for a trading method that guarantees a 100% win rate, deep inside your reptile brain.

Curve Fitting Is Asking For Disaster
If you still want to develop your trading strategy after it has proven to be profitable, you must proceed with extreme caution. Your winrate and reward:risk ratio will change whenever you alter a parameter in a trading system because it is such a delicate construction. Your variance, average drawdowns, average updraws, and so forth will all increase.


A trading system should only undergo subtle, gradual changes based on reliable data. If you keep trying to improve, curve fitting is what you'll finally do. As a result, there will be no room for any future changes in market behaviour because your approach will be too firmly tied to the past. However, markets are alive and continuously changing, as we all know.

Every backtest faces the very real challenge of costing a lot of money by designing a system that is too tightly based on historical data. In addition, if you have three years of data, create your system on the first two years then test it on the third year without making any alterations, regardless of the third year's results. This is why you should always utilise an outsample while backtesting.

You must eventually decide where you stand as a trader and prepare to lose.


You may already be using a winning trading strategy, but are unaware of it since you constantly try to make adjustments to your system in an effort to minimise losses. This will, however, need a change to your current setup and expose it to new risks of loss.

You will eventually just have to accept that your trading system will occasionally make bad trades because that is how trading works. Nobody would ever think consider trying to win every hand they play in poker; it is a stupid and insane idea.

Most traders ruin good systems by striving to turn them into perfect systems.

Accept this as who you are and your trading strategy, with all of its advantages and disadvantages. Accept that losses are a part of it and learn to love it. What more could you ask for when you know that you have a good outlook on life and that the system generates income for you? You already outperform around 95% of everyone who has ever entered this industry.

You must aim for excellence rather than perfection.

If you cannot fulfill your dream of creating the “Magic Strike Rate Trading System”, what is left? Excellence! It is your job to make sure to follow your system 100%. Not even the slightest deviation is allowed. Make sure you are always trading at the peak of your performance. Strive for excellence and make every trade count!

Every trade that you take outside of your trading system is an insult to yourself, to the time and effort you put into trading, and to your self-respect.

Excellence really comes down to respecting yourself in the end. Once you come to respect yourself and trust your abilities and your system, it will become easier and easier for you to follow your system.

If you go on a losing streak, find out if you completed each trade well, and if so, whether the market conditions changed or something else occurred. When you are on a losing streak, it is crucial to keep going and stick to your plan while also comprehending why you are losing. It's good if there is nothing to be done. This is how a process-oriented approach should be adopted by every professional trader.

You can weather the storm if you take pride in your losing streak, preserve your money, and trade expertly every time.

Instead of endlessly optimising one setup, focus on mastering another setup or the market.

It's really quite simple: If you follow your method perfectly for a time (let's say 50 transactions) and you are still losing money, you can say with a high degree of certainty that the system is the issue. You can then make adjustments, but if you don't use your system in the first place, you won't ever know if it works or not. Demo accounts and backtests are used for just that.

And believe me, the more focus you place on strictly adhering to your system, the quicker it will become a winning system that complements your lifestyle and personality, which is crucial.

But wow, if all of a sudden you are outperforming a sample of 50 trades. This might be it. You might have a successful strategy. Why make a change now? You are getting paid. Trade the system till you can follow it without thinking every day while doing flawlessly. Go for it if your trading log indicates that there is a LOT of potential in a particular location. Naturally, test the modified system first on a demo. If you are successful, though, and you can't locate any significant leaks, leave it alone. Don't curve fit once more.

It's fantastic if you get bored! Monotony is a sign of successful trade. Congratulations, you have mastered your setup. You can now create a different configuration using the same technique to smooth your equity curve and diversify your revenue sources.

Your equity curve will appear virtually perfect over time if you master 2-3 setups to locate trades in all market conditions, but there will still be a lot of losers among your winners, of course. Your strike rate, average risk-to-reward ratio, and risk tolerance are all important factors.

Be disciplined
Be flexible
Never stop learning

I would also love to know your charts and views in the comment section.

Thank you

2 июн. 2023 г.

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Hello traders, today we will talk about THE COMPLEXITY OF TRADING

THE FIRST DECISIONS ABOUT YOUR TRADING STRATEGY
People who are unfamiliar with the financial sector may find it daunting to have to respond to several questions before they can even make their first trade. However, because each element and idea is interconnected with the others, leaving out even one will cause your otherwise flawlessly constructed trading strategy to fall apart.

Each and every one of the financial markets is significantly dissimilar from the others and requires a completely unique skill set and perspective. Do you prefer trading less leveraged equities that require a larger account to the 24/5 forex market where leverage allows traders to potentially make large gains with as little as a few hundred dollars? Are you more interested in trading on the simple spot market or the more complicated.
If you have to balance trading with your everyday life, time and time horizon are the main determining elements, and this directly relates to questions regarding your trading approach. The question of whether you want to be a day trader or a swing trader who holds positions for a longer period of time is related to the timeframes you want to trade and affects how long you keep positions. If you don't currently trade full-time, you will also need to figure out how to fit trading into your daily life. Additionally, you must choose your trading instruments, such as price action patterns and/or indicators. Which one you like is a matter of personal preference, but the fact that there are thousands of self-described trading experts

TRADING DECISIONS BEFORE YOU TAKE A TRADE

You are prepared to proceed to the next level once you have provided answers to the questions above. Once your trading strategy has been determined, you should be extremely clear about the entrance criteria, the significance and order of each entry condition, and whether or not the various entry criteria have an impact on your win rate.

Then, be completely honest with yourself and determine if you actually possess an advantage. Have you backtested your trading method without lying to yourself or cheating? If it's even conceivable, did you demo trade and handle demo trading as you would real money trading? Are you able to gauge whether markets have altered and are you ready to respond to them?
Additionally, you will need to have an organised and well-considered risk management strategy. Your trading performance is significantly impacted by the size of your account alone. If your account is too huge, fear and greed will dictate your trading choices, as opposed to your trading being very sloppy if your account is too small. What is your position sizing strategy, secondly? Do you utilise a fixed % amount for each trade, or do position sizes change depending on the strength of setups? Last but not least, how much exposure are you ready to take on for all open trades, and do you take correlations into account when making new trades?

TRADING DECISIONS WHEN YOU ARE IN A TRADE
You are prepared to make a deal once you have answers to all the previously asked questions. However, once you enter a trade, you are forced to handle a completely different set of issues while feeling the strain of actual market exposure. As a result, it's crucial that you have all the answers before making any transactions so that you can carry out your trading strategy without having to think too much.carry out your trading strategy without having to give it any thought.

Scaling in and scaling out, increased risk, and having to deal with comparable trading decisions if you have open positions in linked instruments are some of the ideas connected to risk management that come up in the questions. Do you also monitor how your risk-to-reward ratio changes throughout the course of a trade? Your risk management strategy will also influence how you respond to challenges like news events, unforeseen political and geopolitical developments, and making trades over the weekend.
The principles of risk are very intimately related to issues of trade management. Stop loss and take profit management are the two most crucial aspects of trade management. When a trade goes in your favour, do you actively move your stop loss order? If the answer is yes, develop a complex and tried-and-true stop loss technique rather than hopping around stops. For your take profit orders, the same is true. The reason why most traders take profits too soon is because they confuse a small pullback with a trend change. In order to improve, write down your stop loss and take profit management rules, test them, and evaluate their results.
Furthermore, non-chart events are just as significant as your active trading choices on your price charts. The difference between a competent, lucrative trader and a continually losing amateur trader is a sound trading strategy, where you map out potential trading scenarios beforehand and prepare your trades before they take place. His trading journal is the trader's second-most crucial instrument. A trader keeps a record of all of his previous trades in a trading notebook in an effort to identify weak points and improve his edge. Because it takes a lot of discipline and effort, yet will mean the difference between continually losing and making profits, it is surprising how few traders have neither of the two.

CONCLUSION: BEING A TRADER MEANS MAKING DECISIONS
Despite the fact that trading initially appears to be relatively straightforward, being a successful trader demands a very professional mindset and approach. A trader has to come up with sophisticated and tried methods to manage his deals before, during, and after they occurred. He must deal with a number of extremely difficult issues on a regular basis.

This article's objective is not to scare you away, but to inform you of the complexity of trading and provide you with a rule to follow in order to maximise the effectiveness of your trading strategy.

Be disciplined
Be flexible
Never stop learning

I would also love to know your charts and views in the comment section.

Thank you

3 июн. 2023 г.

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Hello traders, today we will talk about 5 TYPES OF ELLIOTT WAVE PATTERNS



( FIRST SOME BASIC INFO )

What is Elliott Wave Theory?
The Elliott Wave Theory suggests that stock prices move continuously up and down in the same pattern known as waves that are formed by the traders’ psychology.

The theory holds as these are recurring patterns, the movements of the stock prices can be easily predicted.

Investors can get an insight into ongoing trend dynamics when observing these waves and also helps in deeply analyzing the price movements.
But traders should take note that the interpretation of the Elliot wave is subjective as investors interpret it in different ways.

(KEY TAKEAWAYS)
The Elliott Wave theory is a form of technical analysis that looks for recurrent long-term price patterns related to persistent changes in investor sentiment and psychology.
The theory identifies impulse waves that set up a pattern and corrective waves that oppose the larger trend.
Each set of waves is nested within a larger set of waves that adhere to the same impulse or corrective pattern, which is described as a fractal approach to investing.
Before discussing the patterns, let us discuss Motives and Corrective Waves:

What are Motives and Corrective Waves?
The Elliott Wave can be categorized into Motives and Corrective Waves:
1. Motive Waves:
Motive waves move in the direction of the main trend and consist of 5 waves that are labelled as Wave 1, Wave 2, Wave 3, Wave 4 and Wave 5.

Wave 1, 2 and 3 move in the direction of the main direction whereas Wave 2 and 4 move in the opposite direction.

There are usually two types of Motive Waves- Impulse and Diagonal Waves.

2. Corrective Waves:
Waves that counter the main trend are known as the corrective waves.

Corrective waves are more complex and time-consuming than motive waves. Correction patterns are made up of three waves and are labelled as A, B and C.

The three main types of corrective waves are Zig-Zag, Diagonal and Triangle Waves.

Now let us come to Elliott Wave Patterns:



In the chart I have mentioned 5 main types of Elliott Wave Patterns:
1. Impulse:
2. Diagonal:
3. Zig-Zag:
4. Flat:
5. Triangle:





1. Impulse:
Impulse is the most common motive wave and also easiest to spot in a market.

Like all motive waves, the impulse wave has five sub-waves: three motive waves and two corrective waves which are labelled as a 5-3-5-3-5 structure.

However, the formation of the wave is based on a set of rules.

If any of these rules are violated, then the impulse wave is not formed and we have to re-label the suspected impulse wave.

The three rules for impulse wave formation are:

Wave 2 cannot retrace more than 100% of Wave 1.
Wave 3 can never be the shortest of waves 1, 3, and 5.
Wave 4 can never overlap Wave 1.
The main goal of a motive wave is to move the market and impulse waves are the best at accomplishing this.




2. Diagonal:
Another type of motive wave is the diagonal wave which, like all motive waves, consists of five sub-waves and moves in the direction of the trend.

The diagonal looks like a wedge that may be either expanding or contracting. Also, the sub-waves of the diagonal may not have a count of five, depending on what type of diagonal is being observed.

Like other motive waves, each sub-wave of the diagonal wave does not fully retrace the previous sub-wave. Also, sub-wave 3 of the diagonal is not the shortest wave.

Diagonals can be further divided into the ending and leading diagonals.

The ending diagonal usually occurs in Wave 5 of an impulse wave or the last wave of corrective waves whereas the leading diagonal is found in either the Wave 1 of an impulse wave or the Wave A position of a zigzag correction.




3. Zig-Zag:
The Zig-Zag is a corrective wave that is made up of 3 waves labelled as A, B and C that move strongly up or down.

The A and C waves are motive waves whereas the B wave is corrective (often with 3 sub-waves).

Zigzag patterns are sharp declines in a bull rally or advances in a bear rally that substantially correct the price level of the previous Impulse patterns.

Zigzags may also be formed in a combination which is known as the double or triple zigzag, where two or three zigzags are connected by another corrective wave between them.‘




4. Flat:
The flat is another three-wave correction in which the sub-waves are formed in a 3-3-5 structure which is labelled as an A-B-C structure.

In the flat structure, both Waves A and B are corrective and Wave C is motive having 5 sub-waves.

This pattern is known as the flat as it moves sideways. Generally, within an impulse wave, the fourth wave has a flat whereas the second wave rarely does.

On the technical charts, most flats usually don’t look clear as there are variations on this structure.

A flat may have wave B terminate beyond the beginning of the A wave and the C wave may terminate beyond the start of the B wave. This type of flat is known as the expanded flat.

The expanded flat is more common in markets as compared to the normal flats as discussed above.




5. Triangle:
The triangle is a pattern consisting of five sub-waves in the form of a 3-3-3-3-3 structure, that is labelled as A-B-C-D-E.

This corrective pattern shows a balance of forces and it travels sideways.

The triangle can either be expanding, in which each of the following sub-waves gets bigger or contracting, that is in the form of a wedge.

The triangles can also be categorized as symmetrical, descending or ascending, based on whether they are pointing sideways, up with a flat top or down with a flat bottom.

The sub-waves can be formed in complex combinations. It may theoretically look easy for spotting a triangle, it may take a little practice for identifying them in the market.

Bottomline:
As we have discussed above Elliott wave theory is open to interpretations in different ways by different traders, so are their patterns. Thus, traders should ensure that when they identify the patterns.


This chart is just for information
Never stop learning
I would also love to know your charts and views in the comment section.

Thank you

5 июн. 2023 г.

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