Merry Christmas and Happy New Year everyone! Wishing you better and more disciplined trades for the fresh year ahead!
It has been a long time since I put up any charts or trades online, but I thought there's one pretty good one to share this time round - The USDCAD.
In a nutshell:
Long Entry : 1.0300 (If it gets there.... :P )
Stoploss : 1.0150 (150 pips)
1st Target : 1.0650 (350 pips)
2nd Target : 1.0970 (670 pips)
Reasons for Trade:
1) 1.0300 is a strong support resistance level. (would have been great if I saw this in Oct! But USDCAD is not a chart I often look at)
2) 1.0300 is the point where wave C equals to wave A.
3) There's a very nice MACD Divergence.
Adsense Leaderboard
Friday, December 25, 2009
Sunday, December 20, 2009
Congitive Biases
In a previous post, I talked about the Trend Volatility Line (TVL), one of the gems I gleaned from the Gold & Forex Masterclass 2009. Here's another interesting tidbit that I didn't have the time to write about until now - Congitive Biases.
One of the most important aspects (that I'm still working on) for trading, is self-awareness. Naturally, this means that one should also be aware of various cognitive biases that influences one's judgement and decision making. Here are some of the biases that Mr William Purpura shared during the masterclass. For some of these, I've taken the liberty to do a little desktop research to elaborate alittle more on some of these biases.
Sunk-Cost Bias: Acting to justify money already spent.
Sunk-Cost Bias doesn't just influence our trading decisions, it can affect most of any decision we have made. For example, if I had already started on a course of study, and about 20% through the course I realise that it was the wrong course to take. I might continue with the course and pay for the rest of the course even though it is not what is useful, that is called sunk-cost bias. One good way to mitigate such bias is "Zero Based Thinking". As Brian Tracy describes, you can help yourself by asking “Is there anything in my life that, knowing what I now know, I would not start up again today, if I had to do it over?”. For trading, you can ask yourself "IS there any trade that, knowing what I now know, I would not enter into if I had to do it over?" If there are such trades, and you refuse to take a loss, you know that you are under the influence of sunk-cost bias.
Anchoring Bias (or focalism): Focusing on an anchor rather than market action.
This is what Wiki says: "Anchoring or focalism is a cognitive bias that describes the common human tendency to rely too heavily, or "anchor," on one trait or piece of information when making decisions." My interpretation of this is that if one focuses only on one aspect of trading, instead of the trading system as a whole (You do have a trading system right???) then you have subjected yourself to Anchoring Bias. How to overcome this? I guess... write down your trading plan and stick to it!
Confirmation Bias: The tendency to search for and interpret information that confirms our preconceptions.
I think this is fairly common for many traders. When you take a particular position, say LONG EURUSD, and tend to look for news or price actions that supports that trade, and totally ignore all other indicators or news....
Outcome Bias: Valuing a decision based on its outcome.
This is a good one to remember whenever you make a trade according to your system, but it turns out to be a loss. The book "Fooled by Randomness" touches on this topic, and actually I highly recommend reading that book. Basically, imagine that there was a bet where you had 90% chance of winning $100, and 10% of losing $50. You took that bet and you lost $50. Does that mean that the decision was bad? The expectancy of that bet was positive ($85), so the decision to take it was a good one, regardless of its outcome.
Bandwagon Effect: Believing something because the crowd does.
Loss Aversion Bias: Natural tendency to prefer to avoid loss over acquiring gains.
Disposition Bias: The tendency to lock in gains and let losses run.
One of the most important aspects (that I'm still working on) for trading, is self-awareness. Naturally, this means that one should also be aware of various cognitive biases that influences one's judgement and decision making. Here are some of the biases that Mr William Purpura shared during the masterclass. For some of these, I've taken the liberty to do a little desktop research to elaborate alittle more on some of these biases.
Sunk-Cost Bias: Acting to justify money already spent.
Sunk-Cost Bias doesn't just influence our trading decisions, it can affect most of any decision we have made. For example, if I had already started on a course of study, and about 20% through the course I realise that it was the wrong course to take. I might continue with the course and pay for the rest of the course even though it is not what is useful, that is called sunk-cost bias. One good way to mitigate such bias is "Zero Based Thinking". As Brian Tracy describes, you can help yourself by asking “Is there anything in my life that, knowing what I now know, I would not start up again today, if I had to do it over?”. For trading, you can ask yourself "IS there any trade that, knowing what I now know, I would not enter into if I had to do it over?" If there are such trades, and you refuse to take a loss, you know that you are under the influence of sunk-cost bias.
Anchoring Bias (or focalism): Focusing on an anchor rather than market action.
This is what Wiki says: "Anchoring or focalism is a cognitive bias that describes the common human tendency to rely too heavily, or "anchor," on one trait or piece of information when making decisions." My interpretation of this is that if one focuses only on one aspect of trading, instead of the trading system as a whole (You do have a trading system right???) then you have subjected yourself to Anchoring Bias. How to overcome this? I guess... write down your trading plan and stick to it!
Confirmation Bias: The tendency to search for and interpret information that confirms our preconceptions.
I think this is fairly common for many traders. When you take a particular position, say LONG EURUSD, and tend to look for news or price actions that supports that trade, and totally ignore all other indicators or news....
Outcome Bias: Valuing a decision based on its outcome.
This is a good one to remember whenever you make a trade according to your system, but it turns out to be a loss. The book "Fooled by Randomness" touches on this topic, and actually I highly recommend reading that book. Basically, imagine that there was a bet where you had 90% chance of winning $100, and 10% of losing $50. You took that bet and you lost $50. Does that mean that the decision was bad? The expectancy of that bet was positive ($85), so the decision to take it was a good one, regardless of its outcome.
Bandwagon Effect: Believing something because the crowd does.
Loss Aversion Bias: Natural tendency to prefer to avoid loss over acquiring gains.
Disposition Bias: The tendency to lock in gains and let losses run.
Labels:
Trading Psychology
Friday, December 11, 2009
Idea Incubator - Risk Exposure Table
I've decided to create a new label "Idea Incubator" for all post related to some idea I'm testing out. This time round, it is a method for tracking my current exposure to the markets.
We are aware that how organise information will affect the way that we trade. A person that constantly has only profit targets in sight can easily incur huge losses on the down side. If you had been trading long enough, you will realise that money management and trade management is a huge part of trading. So I thought.... let me test out a new method of tracking my current open positions (i.e. exposure to the markets) and see how that influences my trading.
It is probably something that most people do intuitively, or subconsciously. But for a information junkie like myself (not necessarily a good thing), here's a an idea to incubate - The Risk Exposure Table.
It is actually a fairly simple table. What you do is simply add in the respective boxes how much you can potentially lose (based on your stop loss) if your trades for that currency pair goes against you. I put my values in SGD because I do my money management in SGD terms, but any currency will work as well.
The Currency Exposure Column then tells you have much cash you exposure you have with that particular currency. So if I have a 100SGD Stop loss for AUDUSD, it will reflect $100 for AUD and $100 for USD.
The Total Exposure field tell me how much I stand to lose if ALL my currently open trades hit my stop-loss. A painful scenario if it occurs, but one I think as traders we need to keep in mind. This serves as the basis for money management as well. If I set a rule to risk no more than 2% of my total capital at any one time, this helps me to ensure that I follow my risk management rule.
On updating it, you only need to update it each time you enter or exit a position , or shift a stop loss. So if I tighten my stop-loss, this will reduce my exposure to the markets. Using my money management rules and this table, it tells me if I can enter another trade.
This is very useful since I sometimes get carried away with trading, or can end up trading too heavily on one currency. Test it out and see if you find it useful. Feedback and comments greatly welcomed!
Once again... here's the link : Risk Exposure Table
We are aware that how organise information will affect the way that we trade. A person that constantly has only profit targets in sight can easily incur huge losses on the down side. If you had been trading long enough, you will realise that money management and trade management is a huge part of trading. So I thought.... let me test out a new method of tracking my current open positions (i.e. exposure to the markets) and see how that influences my trading.
It is probably something that most people do intuitively, or subconsciously. But for a information junkie like myself (not necessarily a good thing), here's a an idea to incubate - The Risk Exposure Table.
It is actually a fairly simple table. What you do is simply add in the respective boxes how much you can potentially lose (based on your stop loss) if your trades for that currency pair goes against you. I put my values in SGD because I do my money management in SGD terms, but any currency will work as well.
The Currency Exposure Column then tells you have much cash you exposure you have with that particular currency. So if I have a 100SGD Stop loss for AUDUSD, it will reflect $100 for AUD and $100 for USD.
The Total Exposure field tell me how much I stand to lose if ALL my currently open trades hit my stop-loss. A painful scenario if it occurs, but one I think as traders we need to keep in mind. This serves as the basis for money management as well. If I set a rule to risk no more than 2% of my total capital at any one time, this helps me to ensure that I follow my risk management rule.
On updating it, you only need to update it each time you enter or exit a position , or shift a stop loss. So if I tighten my stop-loss, this will reduce my exposure to the markets. Using my money management rules and this table, it tells me if I can enter another trade.
This is very useful since I sometimes get carried away with trading, or can end up trading too heavily on one currency. Test it out and see if you find it useful. Feedback and comments greatly welcomed!
Once again... here's the link : Risk Exposure Table
Labels:
Idea Incubator,
Thoughts
Wednesday, December 9, 2009
Get Your Free Report: How to Use Bar Patterns to Spot Trade Setups
Our friends at Elliott Wave International, the world’s largest market forecasting firm, have just updated their free report, How to Use Bar Patterns to Spot Trade Setups. With thousands of downloads, Bar Patterns has always been a huge hit with traders. But now it's been packed with even more ways you can use common bar patterns to spot high-probability trading opportunities: 30 charts across 15 pages!
Don't miss out on this opportunity to learn simple new ways to spot valuable trade setups in the charts you view every day.
Download Your Free Bar Patterns Report Now.
Don't miss out on this opportunity to learn simple new ways to spot valuable trade setups in the charts you view every day.
Download Your Free Bar Patterns Report Now.
Labels:
Elliott Wave Theory,
Recommendations
Subscribe to:
Posts (Atom)