I’ve been investigating dozens of ea’s this year and they’ve all been jokes imho. For example there is a managed program that has been doing 50-100% per month for the last 6 months. I’ve been following it with interest. Last week they had a 50% drawdown. (That means that they lost 1/2 the account).  Of course they justify it by saying that it’s doubled a few times already, everyone is still up. Nonsense!!

Just like when you’re a kid and someone twists your arm – we all have a point where we yell Uncle!  Is that when you’ve lost 50% of your account?!  I think that is ridiculous.

Here’s another system that’s listed on MyFxBook which I’ve been watching, its’ an automated system which has done over 200% the last 2 months: Spytrader – Yesterday I was watching it and at one point he had 5 trades open on his 750$ live account and I saw it down 150$ (600$ equity), luckily the euro turned back up and he got out with a small loss but what if the euro would have gone another 30 pips south, would he have let his live 750$ account go to 500$,  400$ ?  Where’s the Uncle point?

AND – what’s up with MyFxBook’s drawdown statistics, it still shows the DD as 3.43%, I witnessed the account go down 20%.  Maybe that’s because the account is already so far in positive it’s not affected. This statistic is not good for me anymore. I don’t know about you but if I saw my live 10,000$ account which has been gaining nicely is all of a sudden down to 7000$ equity in one day’s trading session I would flip.

Introducing: Quantified Risk.   “You know exactly where your Uncle point is for each trade”.

Think about it, who cares if you win 98% of your trades if the 2% losers blow up your account?

In betting language there’s a concept called Flat Betting and an old saying that “no system which doesn’t work in flat betting is worth its salt”. I really like this and if you can get back to simplicity you’ll see that you just need to have an edge. I’m confident after my research years ago on gambling that there is no edge to be found at the casino except for maybe card counting which is not my thing. With Forex you lose some edge everytime you get in a trade by paying the spread to the broker. However, it’s so open-ended that you CAN find a system which has a 60 or 70% win rate. Once you’ve found this and a way to execute consistently you are set.

I’m also testing a 3 step martingale at the moment but here’s the difference: I know that on step#1 I’m risking 1% of my account and then step#2 I’,m risking 2% of my account and step#3 I’m risking 3% of my account. So if I lose the 3 step series I’m down 6%.  Then I can look at how often statistically will I lose the series. Let say for every 30 wins I get 1 series loss, I still have a profit of 24% for that round.  This is Quantified Risk.

It’s possible also that -25% of your account is your Quantified Risk level, but in this case you will have probabilities and statistics in your favor.

Another factor is Risk of Ruin – at 6% loss each time for the mini martingale series, I would have to lose a dozen or so times to ruin my account. Important to factor this in also, It might end up not being worth the risk of ruin and I will stay with flat betting.

I”m so shocked at how many joke systems are out there, is it because the internet is full of scammers who just want to sell broken shovels to unsuspecting gold diggers? Or, is it because few of us take the time and energy to really understand the game.

This diagram comes from an amazing book I’ve been reading: The 3 Skills Of Top Trading – by Hank Pruden. I highly recommend this book. Hank has been trading for over 20 years and has a ton of experience. He was fascinated by the psychological aspects and really went deep into it. For you Wyckoff fans out there, you’ve probably already been learning from him.

I love that phrase “mental state mangement”, that’s powerful stuff - I would add emotional as well, “mental and emotional state management” – this is the key to being on top of your game. Just like top athletes us traders need to be in the zone and to do this involves knowing our strengths and weaknesses and how we play our game best.

On the left is the Black Box forex system, that’s the buy when green – never deviate. If you have zero discipline (and it’s ok to admit, be real with where you are now) then that’s for you. Then progressing towards the right each stage requires more discipline and better mental/emotional state management.

I couldn’t imagine being all the way on the right though! Ruthless/Outlaw lol, sounds like staying up all night in vegas donating your green to a bad cause.  : D

This book is such a great read, my blog post barely scratches the surface, Hank teaches us how to rate our system and to know its strengths/weaknesses individually and also as they relate with our own very unique selves.

I highly recommend this and if you’re like me you will probably really appreciate the audio-book version ; )  My eyes are busy enough thankyou, lol.

Here’s a synopsis of what this book is about:  If you haven’t heard of Richard Dennis yet, he’s the guy that turned 400$ into over 200 Million by his mid thirties. He got an early start as a runner on one of the smaller exchanges in his late teens and became known later as “the prince of the pits”.

In 1983 Richard and his high school pal Ed were in Singapore visiting a turtle farm where there were thousands of turtles in a huge vat. They were having a longstanding argument about whether trading is something that can be learned or something you have to be born with the right skills.

Richard was so confident that he told Ed, “there’s one way we can settle this, we’re going to raise traders like they raise turtles in Singapore”.  The following year they put an ad in the Chicago Tribune advertising for traders and that each successful trader to go through their program would get 1 million dollars in trading capital.

They received 1000 applicants and broke it down to just 40 and then began interviews. 13 traders were accepted into the first training in 1984, the best and brighest was the author of this book Way Of The Turtle.

So how did it turn out?  You have to read the book to find out…

Just kidding, no cliffhanger – not everyone was successful from the beginning after the 2 week training period, only the author of the book Curtis M. Faith who was and remained the most successful turtle for the whole 5 year period. The others except for 3 who were cut all went on to average 80%/year gains for the next 5 years.

In my opinion Curtis is a very smart guy and I really appreciate his understanding and incites into trading psychology and irrational human behaviour. This book beautifully articulates cognitive biases that stop us from acting logically. In my opinion it is emotional trading which causes failure.

The title of this post is Today Everything Changes, the other night in my hammock as I was listening to the book and Curtis talked about his views on trading and the techniques used in Dennis’ strategy something totally clicked. I leaped up and turned on my computer and 6 hours later had manually backtested my new strategy for the last 8 months on the euro. The results?  Pure Magic!!  I’m not sure yet if I will be publishing this or not. (sorry a real cliffhanger, lol).

Ok, here’s a little something, what really clicked was when Curtis said that friends would always ask him what his view of the markets was and he said that he didn’t have any. And he really meant it, to him it was impossible to predict what would happen, the only thing that mattered were the probabilities.

That was part 1 of “the big click”, part 2 was related to the actual strategy that Dennis taught them which is basically a trend-following system that starts after a breakout. I see how that can do amazing for commodities and daily charts of currencies but I am interested in intraday trading. My intuition translated their long-term strategy into a brilliant short term strategy.

From now on, I am putting Ichimoku on the side. My energy is best when it is highly focussed and I will become a master of one thing. My new style means I am trading 90% mechanically and only 10% discretionary, no emotional-rollercoasters, just complete confidence in the probabilities with each trade.

Making the step from being a gambler to a trader is  HUGE.  If you’re a bit stubborn like me you probably have blown up a few accounts along the way, the gunslinger approach =)  I blew up 4 micro accounts in my first year.  All I knew is that I wanted to trade and so I took a bunch of video courses learning various indicators and techniques. Trying system after system with limited success, day after day, month after month, it was equally humbling and frustrating. Feeling a bit stupid that I hadn’t mastered this in a few months  : ) 

My feeling at the time was that the majority of the “systems” I found were mostly scams which didn’t work, but looking back I see that it was also that they either didn’t match my personality or that they were only for good for certain types of markets and I wasn’t yet aware of if the market was trending, range-bound, on a pull-back or retracement, etc.

 Like Jesse, I wanted to understand this game really well and master it, become a great trader… Well it has been an amazing journey,  learning and re-learning (and un-learning!), making mistakes sometimes the same one again and again and still moving forward. I realized that I was 100% committed to making it and trading to win and there has been no question of if, just when.  If you’re 100% committed then you will make it.  The only word you need is: Further.

This year I have found Ichimoku and for me it is the perfect methodology. I’ll be sharing how I trade Ichi soon as there are a few strategies under the main methodology. Ichi is a trend-following method, you don’t get to sell the tops or buy the bottoms but you get in good part of the move with high probability. You know when to get in, when to exit , which markets to trade and why. That’s one of the best parts in my opinion, I don’t want to be an emotional trader, I want to be an experienced aware mechanical trader with attention to the details that matter.

Most of us lack two aspects that are crucial to successfully learn day trading: patience and discipline. In our “high-stimulus” modern society we demand instant gratification. Cunning advertisers make a lot of money selling “get rich quick” schemes and in the trading world often these are called “trading systems”.

Most successful traders will agree that trading is at the most 50% trading system/method and 50% mental/emotional. It is very easy to underestimate the mental/emotional aspects. Every smart advertiser understands that as humans we make decisions emotionally and then justify the decisions with logic. The two most prevalent emotions in trading are fear and greed. For the majority of people who are losing money consistently, this is why!

Fear makes us get out of trades too early or not get in at all, greed keeps us in trades too long or gets us into trades we should never be taking. Impatience works well with greed and fear overshadows are efforts for discipline.

What a viscious cycle! Trading is tough!

So, you still want to be a trader? Like most things in life, we learn what we want from experiencing what we don’t want. After you’ve lost enough money trading you realize how important patience and discpline really are. You find a trading system or method and become so confident in it that you don’t have to experience fear anymore. When you master risk management then you don’t need to be greedy. Your account starts to grow and your trading life becomes happy.

Warning! This won’t happen overnight and if you’ve ever learned a new language or musical instrument you know there is some major effort involved. But hang in there, persistence and committment baby!