Great lessons from Anton Kreil (from Billion Dollar Day)

Some good lessons, particularly in parts 3 & 4

Part 5: "They will tell you things you want to hear, all the time. What people want to hear is that everyone can do it, its easy and you can make $10,000 a month trading the international forex markets...if you follow this line on a chart, yeah? (laughs) Complete nonsense. ... A lot of these people with conflicts of interest will tell you that stuff, but its obviously a lot more difficult than that.

Trading can be straightforward, but you've got to take an approach where you've got to be very cynical and a little bit angry at the world, because the rest of the world is there to take your money, right? (laughs)

So, if you're a little bit cynical and a little bit angry, it's a good basis to start trading. Because you're going to question everything. .... That's a very good basis in life anyway, but especially in trading."

So what went wrong last night?

I went to bed spewing for at least the next 2 hours.  Woke up this morning feeling 70% better, with residue shittyness still there. Why? What went wrong and how to fix this?

Simple answer is that I lacked the confidence (to perform) that comes with proper preparation.

My attention was half focused during the trade (and the whole day leading into it), and I should have put in at least a few hours of proper thinking & research and played out the potential scenarios and my responses to them.

My money management was fine. My trade logic was OK but could have done with more homework. My entry levels were (in retrospect) fine. If I did my homework, I would have had the confidence to increase size when ECB said they were open to further cuts, instead of getting scared out.

Note to self to do some trader psychology reading in Samoa: http://www.traderslog.com/trading-psychology/

Last week

...was a decent week, going:

0/1 Monday
2/2 Tuesday
2/2 Wednesday
0/0 Thursday
0/0 Friday

Mondays are often my worst days in hindsight, because I always seem to be a bit slow off the starting block most of the time because nothing done on the weekend reading or thinking about the markets, and always too keen to jump into a trade.

No trades Thursday or Friday last week, this was smart because I "felt funky" waking up on Thursday morning, and could not really get a handle on market sentiment at that stage.  It felt particularly dangerous because I was able to trade with confidence only 24/48 hrs before, and I dunno....it seemed by Thursday midday like there was too much 2-way interest in terms of the news & technical picture.  As it played out, Thursday was choppy as hell, and Friday was less volatile but not much better.

Cant say I'm really feeling the vibe today either, as expected EU did not come up with a solution over the weekend.  Asia session edging up all day towards the 3900 handle, which should prove attractive sooner or later...but I'm on the side lines for now.

Update

Yes, I blew yet another account since the last update, all that +$13,000 went up in smoke over 2 days which is what happens when you trade without stop losses...!  Basically I haven't been updating this blog for the past 2 months as there's nothing good to report -- I've been stuck in neutral gear since then, it's like I've completely lost my touch of the markets and lost my trading mojo for the next 6 weeks.

Presently I've recapitalised the account with another $2,000 and obviously still in a fragile state I'm not wanting to lose that in a hurry.  My experience so far has shown it is possible to turn $2,000 into $13,000 quite quickly, but you really have to be selective in your trades.

At the moment, I'm doing more reading than trading, which can only be a good thing after going on such a wide ride.  Thinking more broadly about market sentiment and orderboard updates through news outlets like Forexlive.com, FXMA, MNI, Ransquawk....seeing how news &/or rumour filtering out throughout the day affect the market, thinking a bit more about trader expectations in relation to these events, thinking about orderflow and liquidity issues and basically trying to get into what is described as the orderflow mindset -- an ever elusive concept.

For example, today I took a simple 30 pips gunning the stops beyond the well-reported option barrier at 3700, which was due for expiry on Friday in 3 days.  I'd lost 30 pips yesterday making this play by the way, so the results netted off.  But the difference is that, once the barrier broke, thin markets resulted in a rush upwards to 3800, and offers eventuated near 3840-50.  Could have held on perhaps? But it's still a new experience to me.

Calm waters do not a good sailor make

Three months into the new trading year and it could not have started off any worse.  I've been forced to trade 0.1 lots for the moment after blowing up the entire account over the past month or so, and have been reflecting on the lessons to date.

It definitely seems like I've been trading as if I was drunk over the past few months -- tunnel vision with blinkers on.  I was clearly going down the wrong track for various reasons, and the gambler's need to recover profits keeps me going down this track until the track hits a dead end with the blowing up of yet another trading account.

The approach of taking multiple tight stops with huge leverage was highly successful in December, and I think that was attributable to half luck, and half patience/discipline/good trading sense.  My practice was to aim for a conservative 20-30 pips daily, it was a simple method and it worked.  All of this went out the window when a chink in the mental armour failed (trading in Xmas which I promised myself not to do), which subsequently cascaded into a downward spiral of bad trading.

Problematically, having an episode like this ingrains terrible trading patterns which will need time to be worked out.  For example, one bad habit is I picked up is that I repeatedly jump in front of the train before price action has confirmed a reversal.  Result is multiple stop outs, and psychological collapse.

Another related example is that I am now prone to cracking the shits when a trade hits -6 pips, and in that moment I become captive to my emotions and cannot respond quick enough to clock out the trade....minutes of fuming and indecision pass and finally the trade is -50 at which I then am forced to capitulate.  Happened to me again last night when I was caught short during the NY session even as I was trading tiny 0.1 lots.  This automated behaviour (inaction/indecision/paralysis) is NOT professional, it is like a tumour that must be removed at all costs.

It is clear to see these bad trading habits did not exist back in December, and now trading at 0.1 lots helps me see a bit more objective what is going on inside my head throughout the live trade process.  When I first caught myself cracking the shits at a -6 pip i.e. $6 loss trading per the same process used, I realised this was madness.  Completely disproportionate to the preceding technical analysis and I should never be acting like this.

But yet, it was this very same faulty emotional reaction that dictated my behaviour when trading 1 lot, 2 lots, 3 lots.

I will continue to trade small and where I am most likely to go on trading tilt.  At some stage this weekend I will review my losses from the last 3 months to work out what went wrong.  I've also got to rebuild my boat (i.e. capital) before I go sailing again so that will take some months to achieve.

A tribute to those suffering in Japan:

A little bit of dust yourself off and harden the fuck up

If you can keep your head when all about you
Are losing theirs and blaming it on you;
If you can trust yourself when all men doubt you,
But make allowance for their doubting too;

If you can wait and not be tired by waiting,
Or, being lied about, don't deal in lies,
Or, being hated, don't give way to hating,
And yet don't look too good, nor talk too wise;

If you can dream - and not make dreams your master;
If you can think - and not make thoughts your aim;
If you can meet with triumph and disaster
And treat those two imposters just the same;

If you can bear to hear the truth you've spoken
Twisted by knaves to make a trap for fools,
Or watch the things you gave your life to broken,
And stoop and build 'em up with worn-out tools;

If you can make one heap of all your winnings
And risk it on one turn of pitch-and-toss,
And lose, and start again at your beginnings
And never breath a word about your loss;

If you can force your heart and nerve and sinew
To serve your turn long after they are gone,
And so hold on when there is nothing in you
Except the Will which says to them: "Hold on";

If you can talk with crowds and keep your virtue,
Or walk with kings - nor lose the common touch;
If neither foes nor loving friends can hurt you;
If all men count with you, but none too much;

If you can fill the unforgiving minute
With sixty seconds' worth of distance run -
Yours is the Earth and everything that's in it,
And - which is more - you'll be a Man my son!

~Rudyard Kipling, 1895

Gah!

Gah.  Been a whole month since my last update.  This is what happens when you go off the rails and lose discipline.  I went off the rails in the next sessions following my last post when another round of mental capitulation led to the wiping off over $3k from my account – in the space of less than 24 hours (the worst episode being $1,900 in about 10 minutes).  Recently, I was fortunate to speak to a large retail trader who said that he, similarly lost the plot once resulting in over-trading, and capitulated to the tune of –$78k in one day – so at least in a perverted way it makes me feel relatively better.

However, I needed the time had to step away to reevaluate what went wrong.

From a technical perspective, firstly, I realised I was making an excessive number of trades – about 15-25 per session.  I mean, that is just ridiculous for what I was trying to achieve.  Not only was the success rate was merely 40 to 50%, I was taking way too many losses to begin each session and booking profits way too early in order to climb back to break even.  Too many trades, need to cut out that rubbish.

Secondly, this led me to realise the main problem with my trades over the course of December and January was that they were all, generally speaking, poorly timed counter-trade trades.  The fact that I had price action trading success in December was more of a beginner’s luck than anything.  Even if the goal of a price action trader is to read and react at perceived cluster levels, it is unacceptable from any trader’s perspective to be trading against the trend.  If I can’t follow this simple golden rule – trade with the trend – then I should not be trading at all, period. 

In order to counteract this, I have incorporated the 200EMA (multiple timeframe approach).  This alone has greatly cut down my natural tendency to over-trade.  Banks have a tendency to act at, or stop hunt, 200 moving averages in all time frames.  And certainly at times price action reacts to different 200 MAs (simple, exponential, linear weighted, etc) on the same time frame.  So which one to pick?  I was unsatisfied at the arbitrary nature of this but settled on the 200EMA for the purpose of determining the trend bias.

I also brought back an old favourite, the Robby DSS Bressert momentum indicator (multiple timeframe approach).  Being an oscillator, it is necessarily imperfect in all the ways we are all familiar, but again, the point is that the bias it provides is crucial in stopping me from over-trading and jumping in at any and every 5 pip S/R rebound spike.

I am also experimenting with the HAPPs indicator, which the author alleged breaks up the market into binary phases.  This results in the computation of static support and resistance levels, incorporating Fibonacci principles.  So far, the price action playing off these levels have been surprisingly promising.

Thirdly, I realised after having a small break that I was not actively dealing with the insidious onset of trading tilt as each session progress – and particularly when I suffer losses.  As soon as a trade got stopped,  I’d immediately “feel” a strong and reckless urge to jump back into the market and at times, this urge was so strong that it was as if there was a complete disconnect between what my mind was saying (“DO NOT TRADE”) and what my hand was doing (“AH FUCK IT, DON’T CARE, ENTER AGAIN – MARKET SURELY GOING TO REVERSE NOW – oops entered already, shit shit shit”).  If anything, this emotional “urge” was the main driver behind the reality of my over-trading.  My behaviour was clearly falling into the unhealthy compulsive gambler mentality, and the account paid dearly for it.

The biggest improvment in this area is my realisation that, yes, I can just let it go.  Let the opportunity go if its not quite A+ right; let the market take my stop loss; let whatever happens happen.  I think this was the mindset I began with at the start of December, but this got lost somehow along the way.  The ongoing challenge is consistently maintain this state of serenity, and be aware and ready to act when the spinning top starts to topple.

The other improvement is the realisation that I can do a number of things to reduce the likelihood of tilt.  Simple things such as mindful breathing, only trading with the trend, accepting reality and letting it go, cutting out all rubbish trades and only betting on A+ setups.

Wednesday

Tuesday

Monday

The Brain on Trading (Randy Howell)

An Emotional Braking System Failure

“I left money on the table yesterday, and I’m not going to leave money on the table this time!” Harry silently declared, “I’ve missed out too many times – I’m going to ride this one and clean up.” Harry could feel the excitement pulsing in his veins – he could hardly contain himself. He pushed beyond his exit point, knowing that this one was going up. What a rush! Harry could feel the surge of energy. He almost became giddy as he saw the numbers climb even higher. That triggered even more excitement as he thought, “I’ve hooked a big one – I’ll show them who’s a trader!”

In the blink of an eye, without explanation, the trade went against him. Harry kept waiting for the downward spiral to right itself. It didn’t. Harry moved the stop because he knew in his gut that it would go back up again. It didn’t. Finally Harry pulled the trigger and accepted that he had another draw down on his trading account. He felt frustrated because, in his irrational exuberance (some would call it greed), and he let a perfectly good trade go bad. He had sabotaged himself yet again. Now Harry felt shame and wondered, “What made me think that I could trade for a living?”

You Trade Your Psychology

What happened to Harry? How did he get suckered into bad trading practices? From the sidelines, it is easy to say that Harry neglected to trade his plan. This assertion misses one big point about humans (and particularly the ones who trade) – emotions rule mind. Out of your emotional states comes the kind and quality of the thinking of which you are capable. In Harry’s case the state of mind that he needed to trade effectively was swept away by a fear of missing out. Once this fear triggered and accelerated, his thinking became clouded and his rational evaluation process was blown out of the water.

Like many traders, Harry did not have the skill sets to keep his emotions regulated as he entered the trade. Consequently, a guy who had diligently done his charting and was ready for the trading day got ambushed by unseen forces. His trading plan did not also include a psychological plan for managing emotions. This was a big mistake for Harry and for many traders. And until he learns how to make visible the unseen forces that hijacked his rational mind, his trading will suffer.

The problem is age old. Since the rise of Descartes’ rationalism, people (traders included) have attempted to separate body (emotions) and mind. Today, even Western medical science is concluding that this separation is impossible. The mind and the body (emotions) are woven together life a garment. They are inseparable. Maintaining awareness of your emotional nature as a trader is, in fact, the first step to developing a peak performance state of mind specifically for trading. Before this is explored, let’s take a look at what just happened to Harry.

The Anatomy of a State of Mind Hijacking

Harry experienced the trap of an undisciplined trader’s mind. As he moved into the trade, he was not attuned to what his hardwired and primitive emotional brain was biased to sense – nor how to manage the impulse. He did not notice the excitement of emotional arousal of the hunt that evolution had programmed into him. The thrill of the hunt (and its companion – the fear of missing out) was mobilizing Harry to pursue the prey before it could get away.

From a resting place where a calm, observant state of mind prevailed, Harry began to pursue the “hunt”, not noticing that his thinking was being compromised. (Remember, thinking is emotional state dependent.) The arousal of conquest or greed came to dominate his mind. He could no longer think rationally. Then he pursued his “prey”, consumed by the passion of taking no prisoners.

In this emotional stupor, Harry overtraded and lost. This trait of Harry’s (a single minded pursuit of winning big and being the best) had served Harry well in many areas of his life. It had helped him achieve many goals in his life, particularly in his career before trading. What he was beginning to recognize was that it did not serve him well as a trader though. What is different about trading?

Peak Performance and States of Arousal

In this discussion we are focusing on the component of an emotion called arousal. Arousal is preparation for action that happens in your body as an emotion prepares us for action. Powerful levels of adrenaline and cortisol are pumped into Harry’s body as he becomes excited by the trade. That excitement, as the arousal increases, becomes fixated on the object of pursuit – bringing down the home run trade.

This is called a high arousal and is a great component to some peak performance states of mind – particularly ones that more physical exertion and less cognitive functioning. Foot ball would be a good example of where peak performance demands high levels of arousal and reliance on instinct that has been trained into the athlete.

A peak performance trading state of mind requires low arousal. Impartiality, discernment, dispassion, and calm states of mind are the emotional components sought after for trading success. This is because cognitive functioning is what is necessary for trading peak performance, rather than physical exertion. The moment that high arousal states become apparent in trading, the trading has lost his capacity to take a step back emotionally and think impartially. You can be passionate about trading, but you cannot be passionate while trading.

Managing Arousal

Until a trader learns how to manage their emotional arousal levels, trying to use the mind to manage emotions often creates more (not less) stress and fixation. As an example imagine a chocoholic attempting to talk themselves out of wanting the warm fudge just coming out of the aromatic oven. The more you try to talk yourself out of the fixation, the more you want the chocolate. The arousal has already kicked started the desire to acquire.

Fortunately our breathing is both automatic and volitional – this is key to emotional regulation. If let on automatic, your breathing style will accelerate the arousal of an emotion as it triggers. In Harry’s case, his fear of missing out lead to the arousal of pursuit based on greed. He both held his breath and he then would breathe rapidly and shallowly. This excited breathing style accelerated his heart to beat faster adding to the excitement. The emotion greed and its motivation to grab all the profit he could, then took over Harry’s capacity to think impartially. And out of this emotional state, his thinking became compromised which lead to his over trading. It did not have to be this way.

Breathing is both automatic and volitional. With training, Harry has learned how to stay in a calm, impartial state of mind, in part, by managing the kind of breathing he does throughout a trading day. Once he understood that peak performance trading requires low arousal state of mind, he began using diaphragmatic breathing to manage his emotions while trading. He has much better control of his overtrading. He does not wait to feel arousal kick in. Instead, Harry using diaphragmatic breathing to help kept his emotions in check.

The moment he senses the triggering of arousal, he volitionally uses his breathing to cut off the gasoline supply to the fire of the aroused emotion. Rather than fear of missing out, greed, or a desire to pursue hijacking his mental faculties, he now is consciously able to calm the excitatory process of the emotional brain. Having learned how to manage the levels of adrenaline and cortisol in his body by managing breathing style, he is much less reactive in the management of his trading days. Harry now maintains a calm, impartial, and disciplined state of mind from which to trade.

In the process, Harry has learned how to change himself. His focus is on developing the skills and tools that allow him to trade at peak performance levels. And to let go of habitual historical practices that hinder his progress. His first step was becoming aware of the power that breathing has over emotional nature to influence states of mind.

Rande Howell MEd, LPC

http://www.traderslog.com/the-brain-on-trading/

Trading in Anger: lessons from Buddhism (selected readings from the internet)

“Holding on to anger is like grasping a hot coal with the intent of throwing it at someone else; you are the one who gets burned.”

The Buddha

All humans are susceptible to anger.  Buddhism in general teaches that anger is a destructive emotion and that there is no good example of it.  The Buddha taught that there are 3 evils:

• greed (attachment);
• hatred (anger);
• delusion (ignorance).  

The basic problem is that emotions like anger and hatred are based on projections and exaggeration, not on objectivity or wisdom, and thus basically incorrect.  It is therefore in our own self-interest to purify and transform them.  To completely eliminate these negative emotions from our mind is a lengthy psychological process, requiring study, mindfulness, reflection and honest observation of one's own mind.

When you express your anger, either verbally or with physical violence, you are feeding the seed of anger, and it becomes stronger in you.  Only understanding and compassion can neutralize anger.  Remember that compassion takes courage. 

Do not confuse aggression with strength, and non-action with weakness.  Buddhism teaches that the opposite is true.  

• Weakness: giving in to the impulses of anger, allowing anger to hook us and jerk us around.  
• Strength: it takes strength to acknowledge the fear and selfishness in which our anger usually is rooted.  It also takes discipline to meditate in the flames of anger.

How do you channel angry energy into something positive and constructive?

Meditation can be the ultimate cure to completely eliminating anger from your mind. In the beginning, one can do analytical meditations, but also meditation on compassion, love and forgiveness reduce anger as well.  Ultimately, the realization of emptiness of inherent existence eradicates all delusions, like anger.

“Conquer anger by non-anger. Conquer evil by good. Conquer miserliness by liberality. Conquer a liar by truthfulness.”

The Buddha

Step 1:  Be Mindful 

This means being aware of anger as it arises.

The cultivation of the state of ‘mindfulness’ is considered as the best guard against anger and all other unwholesome states of the mind.  Mindfulness is "pure awareness"; the presence of mind; realizing and knowing clearly any happenings at that moment of time.  Persistent meditative practices to note the arising of anger can eventually lead one to detect the arising of anger before it arises (and erupts).

Step 2:  Stop

Stop everything;  breathe deeply and sit still with the heat and tension of anger.

Step 3:  Patience

Practice patience.  Patience is the main antidote to anger.  This means waiting to act or speak until you can do so without causing harm.

Step 4:  Acknowledge

Acknowledge the anger objectively and dispassionately; accept its presence but do not run away from it or suppress it.  Honestly identify the cause of your anger.

Step 5:  Accept

Accept reality (i.e. the situation) for what it is.  Realise the Noble Truth of Suffering; that problems and frustration is a basic fact of life, nothing is perfection so you should not expect perfection (i.e. be self-delusional). 

Get a relative sense of perspective: ask yourself if this situation is that important to be upset about, in a life where death can arrive at any moment?

Step 6:  Forgive (and move on)

Quiet the internal voice of self-blame (and other-blame) by meditating on forgiveness.

• Forgiveness is a form of realism. It doesn't deny, minimize, or justify what others have done to us or the pain that we have suffered. It encourages us to look squarely at those old wounds and see them for what they are. And it allows us to see how much energy we have wasted and how much we have damaged ourselves by not forgiving.
• Forgiveness is an internal process. It can't be forced, and it doesn't come easy. It brings with it great feelings of wellness and freedom. But we experience this only when we want to heal and when we are willing to work for it.
• Forgiveness is a sign of positive self-esteem. We no longer identify ourselves by our past injuries and injustices. We are no longer victims. We claim the right to stop hurting when we say, "I'm tired of the pain, and I want to be healed." At that moment, forgiveness becomes a possibility – although it may take time and much hard work before we finally achieve it.
• Forgiveness is letting go of the past. It doesn't erase what happened, but it does allow us to lessen and perhaps even eliminate the pain of the past. By letting go the pain from our past, it no longer dictates how we live in the present, and it no longer determines our future.  It also means that we no longer need resentment and anger as an excuse for our shortcomings. We don't need them as a weapon to punish others nor as a shield to protect ourselves by keeping others away. And most importantly, we don't need these feelings to identify who we are. We become more than merely victims of our past. 
• Forgiveness is no longer wanting to punish those who hurt us. It is understanding that the anger and hatred that we feel toward them hurts us far more than it hurts them. It is seeing how we hide ourselves in our anger and how those feelings prevent us from healing. It is discovering the inner peace that becomes ours when we let go of the past and forget vengeance.
• Forgiveness is moving on. It is recognizing all that we have lost because of our refusal to forgive. It is realizing that the energy that we spend hanging on to the past is better spent on improving our present and our future. It is letting go of the past so that we can move on.

We all have been hurt. And at one time or another most of us have made the mistake of trying to run away from the past. The problem is that no matter how fast or how far we run, the past always catches up to us – and usually at the most inopportune time. When we forgive, we are dealing with the past in such a way that we no longer have to run.

The Anger-eating Demon

Retold from an ancient Buddhist Story, by Nyanaponika Thera

Once there lived a demon who had a peculiar diet: he fed on the anger of others. And as his feeding ground was the human world, there was no lack of food for him. He found it quite easy to provoke a family quarrel, or national and racial hatred. Even to stir up a war was not very difficult for him. And whenever he succeeded in causing a war, he could properly gorge himself without much further effort; because once a war starts, hate multiplies by its own momentum and affects even normally friendly people. So the demon's food supply became so rich that he sometimes had to restrain himself from over-eating, being content with nibbling just a small piece of resentment found close-by.

But as it often happens with successful people, he became rather overbearing and one day when feeling bored he thought: "Shouldn't I try it with the gods?" On reflection he chose the Heaven of the Thirty-three Deities, ruled by Sakka, Lord of Gods. He knew that only a few of these gods had entirely eliminated the fetters of ill-will and aversion, though they were far above petty and selfish quarrels. So by magic power he transferred himself to that heavenly realm and was lucky enough to come at a time when Sakka the Divine King was absent. There was none in the large audience hall and without much ado the demon seated himself on Sakka's empty throne, waiting quietly for things to happen, which he hoped would bring him a good feed. Soon some of the gods came to the hall and first they could hardly believe their own divine eyes when they saw that ugly demon sitting on the throne, squat and grinning. Having recovered from their shock, they started to shout and lament: "Oh you ugly demon, how can you dare to sit on the throne of our Lord? What utter cheekiness! What a crime! you should be thrown headlong into the hell and straight into a boiling cauldron! You should be quartered alive! Begone! Begone!"

But while the gods were growing more and more angry, the demon was quite pleased because from moment to moment he grew in size, in strength and in power. The anger he absorbed into his system started to ooze from his body as a smoky red-glowing mist. This evil aura kept the gods at a distance and their radiance was dimmed.

Suddenly a bright glow appeared at the other end of the hall and it grew into a dazzling light from which Sakka emerged, the King of Gods. He who had firmly entered the undeflectible Stream that leads Nibbana-wards, was unshaken by what he saw. The smoke-screen created by the gods' anger parted when he slowly and politely approached the usurper of his throne. "Welcome, friend! Please remain seated. I can take another chair. May I offer you the drink of hospitality? Our Amrita is not bad this year. Or do you prefer a stronger brew, the vedic Soma?"

While Sakka spoke these friendly words, the demon rapidly shrank to a diminutive size and finally disappeared, trailing behind a whiff of malodorous smoke which likewise soon dissolved.

— Based on Samyutta Nikaya, Sakka Samyutta, No. 22