Mirror lake

Fighting a continuous market bias

After using a trading journal for a while, I noticed something remarkable. For one specific reversal strategy I trade, around 75% of my trades were sell orders. Unknowingly, I seemed to have a bearish market bias.

 

 

Have you ever experienced something similar?

 

 

You might think that this sounds very similar to what people call a “permabear”, an investor who continuously acts in the expectation that stocks will fall. However, I don’t believe this is the same thing. In contrary to these investors, I don’t have a strong overall bullish or bearish feeling to any market. I will buy just as easily as I will sell. I do, however, have a harder time “seeing” certain bullish reveral setups.

 

I found this a bit unusual, so I looked into it. I found it easier to discover the bearish setups on my charts. I would often look over bullish setups that are exact mirror images of their bearish counterparts, but fail to either spot them or don’t find them convincing enough to trade. After I started monitoring this more closely in my weekly reviews and watchlists, I decided to do something about it.

 

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Five whys of trading

Use the 5 Whys to become a better trader

A while ago, I read an excellent book called The Lean Startup by Eric Ries. The Lean Startup describes a new approach for startups, using concepts like building a minimum viable product (or MVP) as soon as possible, innovation accounting, pivots and more. It’s based on lean manufacturing, a production process pioneered by companies such as Toyota and Ford. A highly interesting read if you are interested in starting your own business.

 

The book also details the use of 5 Whys, a technique to explore cause and effect relationships when particular problems are faced. Its primary goal is to find the root cause of an issue, by repeating the question “Why?” five times. Each answer forms the basis for the next question. It takes about 5 iterations on average to get to the root cause of the problem.

 

Here’s an (fictitious) example. Suppose a machine stopped functioning:

  1. Why did the machine stop? There was an overload and the fuse blew.
  2. Why was there an overload? The bearing was not sufficiently lubricated.
  3. Why was it not lubricated sufficiently? The lubrication pump was not pumping sufficiently.
  4. Why was it not pumping sufficiently? The shaft of the pump was worn and rattling.
  5. Why was the shaft worn out? There was no strainer attached and metal scrap got in.

 

The root cause was that there was no strainer attached. If you didn’t ask the 5 whys, you might not ever fix that problem, but instead just try to patch up the resulting issues it caused. The idea is that you make proportional investments to fix each of the 5 whys. This way, the total investment in time fixing the issue won’t be too big but you should still see valuable improvements afterwards.

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5 things holding you back as a trader

Top 5 things holding you back as a trader

I’ve been trading for almost 10 years now. Over the years, I’ve spoken to many traders who are on the verge of making it. Almost there.

 

Technicals or fundamentals knowledge, check.

Willingness to be consistently profitable, double check.

 

Still.

 

These traders are about 80% in their journey to become a consistently profitable trader. Even here, the Pareto principle is doing its magic.

 

They’re like a semi-pro football player almost making it to the Champion’s League. Or the aspiring actor trying to get that big breakthrough role. The trader is missing some essential, but not always obvious elements, and here’s the thing: without proper guidance, some of these traders will be stuck in this state forever. If nothing changes, the next step is gradually losing money and/or giving up.
Which is a shame. These are the traders that have put in considerable effort already, but are somehow missing that something to pull them over the edge of consistency. Do you recognise yourself in this profile? Keep reading. See, once you are at this level, it’s not about knowing how to draw a trend line. It’s not about chart patterns and price action. Most traders in this state of limbo usually even have some trading system.

 

But something’s holding them back.

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Take profit exit strategy

4 take profit exit strategies to make you a better trader

Every day, you spend hours looking for the best setups. Analysing the markets, looking for price action patterns, cross-checking fundamental news, drawing support and resistance on the charts.

 

Finally, you find the perfect trade. It’s a beautiful, triple-A setup! At exactly the right time, you enter an order.

 

But what happens when you’re in a trade? Is your work done?

 

Start on the trade

 

Of course not! It has just started! Trade management and exit strategies are an overlooked part of trading, but so important. I believe it’s even more important than your entry.

 

Exits can make or break your trading strategy.

 

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Forex FOMO

Battle Forex FOMO, the fear of missing out

FOMO – Fear Of Missing Out.

(Go straight to the 5-step battle plan)

 

Wikipedia says that FOMO is “a pervasive apprehension that others might be having rewarding experiences from which one is absent”. In other words: the nagging feeling that other traders are making big profits and you’re letting the trading opportunities slip through your fingers. To counter this feeling, you enter trades way too quickly.

 

Afraid to miss the next big move.

 

 

Stanford research has shown that what investors fear the most is not the risk of a loss per se, but the risk that they may do poorly relative to their peers.

 

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Thinking

How cognitive biases will affect your trading

More than anything, trading emotions can hurt your account balance.

 

Or, as the famous trader Jack D. Schwager said in Market Wizards:

The key to trading success is emotional discipline. If intelligence were the key, a lot more people would be making money.

 

The wave of trading emotions

Emotions make us enter the markets at the wrong time. Exit at the wrong time. There’s the fear of missing out (FOMO). Emotions probably make us take wrong decisions in between as well. It is the reason we lose out, even when our trading strategy is solid. We are bound to make the wrong errors over and over again, unless we are aware of what’s working against us.

 

Trading cyclus

 

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