<![CDATA[Nick the Trader Guy - Trading Blog]]>Mon, 21 Mar 2022 04:09:00 +1100Weebly<![CDATA[tRADING vs iNVESTING]]>Mon, 04 Oct 2021 10:23:04 GMThttp://nickthetraderguy.com/trading-blog/trading-vs-investing
So I've been getting myself into a few discussions online lately which largely stem from a difference of opinion around different methodologies for engaging with the markets.
Before I start off let me be clear, I have nothing against any particular method of engaging with the market. Be it long term buy and hold, fundamental analysis, technical analysis, trend-following, chart patterns, fibonnaci numbers, all these methods have adherents and basis for them to be correct. Some would probably argue that they all can't work because some of them are mutually opposed, think fundamentals and trend following. And some would argue all forms of technical analysis are bunkam and voodoo and they shouldn't work. From what I've read and understood, this viewpoint is often based on the Efficient Market Hypothesis/Theory, and that there is no edge for an individual in the market, as it's all "priced in".

In my opinion, the biggest flaw in the efficient market hypothesis is that humans are rational participants in the market. They are not. If they were would things like the GME short squeeze happen, would pump and dump schemes work or would trend form? I'd argue not.

Anyway, I digress; I think when discussing different approaches to the market, the critical differentiator seems to be timeframes, activeness and goals. The comments below are intended to be general in nature and reflect my opinion. I don't recommend anyone use the below to decide how to approach their market participation 😊. I'm also only going to talk about 3 views here, basically to stick within my swim lane.

For someone who wants to have limited involvement in their "investment", has a long time horizon and just wants to see steady growth, perhaps buy and hold suits their goals and temperament. There is nothing wrong with buy and hold, it's got a proven track record, and it's relatively easy, even more so with index-tracking ETFs which remove a lot risk (company-specific risk) for an investor. To my mind, it's just not a terribly efficient way of using capital to grow your wealth. Essentially the edge for this methodology comes from the long bias of the markets overall. However, depending on your timeframe, this may or may not work in your favour. I.e. you need the capital invested when the market is down. However most proponents of this methodology will say only invest what you can afford to lose as a risk management technique, which is fine.

If someone wants to actively manage their investments, pick their stocks has some time and perhaps something like trend following might be suited. Mainly using daily and weekly chart bars. For me this method seems to be a good balance between managing your investments, managing risk and efficiently using capital. What I mean by this is that if you use a longer-term active system/method, you're likely to be using position sizing and risk management techniques.

​For many traders, including me, I think the starting point is as a day trader. I suspect this is for several reasons, among them that movies and tv shows that feature trading tend to focus on day traders and secondly, brokers want people to day trade. Why because most day traders over trade and generate lots of profit for the brokers. Anyway, this isn't to say that day trading can't be profitable, but in my experience it takes lots of time (both at the screen and learning the trade) and experience to make it work for you. It's certainly not going to make you rich quick.

Personally, I have chosen to build my methodology around trend-following, partly because Covel's Trend-following was the first trading book I read and partly because it just made sense to me. However, as I have gained skill and experience, I have realised that managing my investments requires less time in front of the screen with a longer term trend following system. As I've said before, my screening process takes around an hour to an hour and a half each weekend and maybe 20 minutes a night during the week. This is ideal for me currently as it allows me to work a job and to trade. I also include a bit of fundamentals in my analysis, essentially I just avoid trading around news events (particularly earnings).
So in my view, there isn't really a huge difference between a trader and investor, particularly once you move outside the realm of day trading, its around the level of involvement. Essentially as far as I'm concerned, we're all in this to extract a profit from the market via an edge, and some us do it over the short-term, some over the long term.

Anyway I hope you've found this rant interesting.

Cheers for now.

​Nick the Trader
October 2021]]>
<![CDATA[Is it Time to Panic Yet?]]>Mon, 20 Sep 2021 10:51:28 GMThttp://nickthetraderguy.com/trading-blog/is-it-time-to-panic-yetWell it looks like panic is starting to set in again - but is really time to panic? Well in my opinion its never time to panic, but it may pay to start being cautious.

To be clear, this post is not a recommendation to buy or sell anything, its simply my analysis and opinion. 

At the time of writing (The evening of 20 September 21 - AEST) the predominate reason for the ASX being spooked today (around 2% drop) seems to be indicated as the either the Evergrande situation or iron ore dropping (perhaps both as I'm sure there is a nexus). Although there is some thought that it could be the movement on the US index futures (although maybe they're being influenced by the same thing...). As for a trend follower and technical analyst such myself the reason is pretty much moot, that being said, it does pay to pay attention to some real-world signals.

I have observed that often after a string of red days (or a single big red day), you often start seeing lots of bearish sentiment appear on various financial media and social media pages. It seems that as soon as there is a bit of a drop, the bears come out and start spruiking the bear case. These posts/articles tend to suck people in and start to set up a bit of a negative mindset. 

So ignoring the big news, let us look at the charts and see what they are showing. Let us start with the ASX 200 (XJO).
From the above chart, it looks fairly apparent that a downtrend has started forming, starting from the most recent high of 13 August. The chart shows that following the open on 14 August, the market failed to make a new high and started trending downwards for the following week.

Fairly solid resistance was then found at around 7460 on 19 August, with several retests until around 9 September (between these dates, the market seemed to be trading in a fairly tight 60 point range). On 9 September, the support level was broken. For the following week (until 17 September), the previous support level provided resistance, with another support offered around 7360 (the close on 9 September). 

Today's movements seem to pretty clearly break through that resistance, but we'll need to see what tomorrow brings. 

Other things that I note on the chart are the 20 and 50 days MAs, the 20 days MA will likely cross the 50 day (a bearish indicator in my view). 

Overall, the chart doesn't look particularly good for long trades, and I'm certainly reducing my capital at risk. I may start taking a few limited short trades at this point, but I won't flip to a full bearish position unless I see a confirmed break of the 200 day MA (currently around the 7000 mark). 

I think as I said up front, it would be prudent to be cautious at this point and I'll be refraining from taking full-size positions. 

Anyway, I hope someone found this useful.


Cheers
Nick the Trader Guy
20 September 21


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<![CDATA[How I make Trading DecisionS (PART 1) - Instrument Selection]]>Sun, 12 Sep 2021 12:05:12 GMThttp://nickthetraderguy.com/trading-blog/how-i-make-trading-decisions-part-instrument-selectionPicture
First up, apologies for the long delay since my last post, life got in the way over the last couple of months. I'm still trading and growing my capital, so it's all good! 

As alluded to on the main page, in this post I am going to talk a little about my process (in broad detail).  I've got a few different entry methodologies that I use to identify trades. In this post I'm going to focus on my Breakout methodology. 

Part 1 - Instrument Selection (Breakout Methodology) .
When I first started trading, I'd simply choose a stock based on what was moving that day. There was no forward planning, no though beyond, "shit, that stock's moving today, I'll buy some shares and hope for the best." Needless to say this strategy was profitable in short term but horrible in the longer term 

These days, I plan all my stock picks in advance. Each weekend (usually Sunday night), I'll do a stock screen generally looking for stocks which have unusual volume and momentum. I then put this stocks on what I call my first cut watch list. I'll also do a similar screen of the futures markets, but I don't worry so much about volume with stocks, its more just momentum and trend.

Once I've populated my first cut watch list, I pull up my charts. I use a four pane set up in trading view looking at Monthly, Weekly and then 2 daily charts (one zoomed in and one zoomed out). I look for stocks which have been trending well in the past on the monthly and weekly charts and a clear trend on the daily (steady momentum in the trend direction). If I see this, the stock gets added to my Trade Watch List. From there I monitor the stock following the open on Monday and will generally enter a trade after the first hour of trade has passed. 

That it, I try and keep in simple with my instrument selection. All in all I spend about an hour a week reading the charts and determining trade set-ups.

​Here's an example of my chart set-up. You can see I keep my charts simple a few Moving Averages as indicators and a Bollinger Band for an indication of volatility.

Happy Trading

Cheers
Nick the Trader Guy
14 September 21


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<![CDATA[My Favorite Trading Books]]>Mon, 31 May 2021 10:34:14 GMThttp://nickthetraderguy.com/trading-blog/my-favorite-trading-booksBlog Post
What books have I found have influenced me most
 
Firstly, apologies to you, my readers, for how long it's taken to post this. I've been busy with life, and the blog has had to take a back seat for a week or so.
 
I've meant to write this post for a while, but I keep getting sidetracked
By current events or the like. So finally, I'm going to get down to it and write about some of the books that have most influenced my trading style.
 
Whilst I list a few in my trading resources section. I wanted to go into more detail about what books have really influenced me and why.
 
I'm going to start off with some of the most recent books I've read. The most recent books I have read which are the which are the Laws of Wealth and The Behavioural Investor by Daniel Crosby.
I'm going to talk about them together as:
  1. I read them consequently
  2. They cover a lot of the same ground.
Both books really study why the traditional investment model is flawed and why humans generally suck at making investment decisions. Hint, it's because we let our emotions get involved.
 
I've found both books fascinating, and there are many references to other greats of behavioural finance, something I've had experience in my professional (non-trading) career. One of the takeaways for me in both books is that trading is hard because we try and overcomplicate it. So for me, it has caused me to reduce the number of indicators and factors I use to analyse the market. So far, this has been yielding results, but we'll see what happens over time.
 
The next book I'm going to mention is Mike Covel's Trend Following. To me, this is really the bible for a systematic trader. It really changed my approach to the markets and broadened my horizons. Before reading this, I was a haphazard trader who tried to trade off daily momentum. My downfall was I had no idea about risk management and position sizing. I just took big positions and hoped for the best.
 
The most significant influence from this book was that systematic trading works, and that whole Efficient Market Hypothesis is complete bollocks. After reading this book, I stopped holding losers. I started setting stops and diversified into different markets (futures, FX etc.). The other key change for me was that I stopped listening to financial news and media for making my decisions. Ultimately I decided that fundamentals were irrelevant for my trading style. One of the things I like about Covel's book is that he provided real case example of people who have succeeded using trend following. I particularly would like to emulate John W Henry and Bill Dunn in my trading career. I'm a real convert to the model, as you can tell!
 
All in all, I'd credit Mike Covel's book with starting me on the journey to profitability, I still had a lot to learn following this, but it was really the thing that changed my approach.
 
The third major book for me was Trading in the Zone by Mark Douglas. This book was probably one of the best trading books I've ever read. It really walked me through the process of how to become a consistently profitable trader. I read this one after quite a few other ones, which allowed me to really appreciate the book and its message. This book was my primer to understanding the psychology that was driving my trading behaviour. It allowed me some introspective into my personality also. The real big thing that came from this book for me was how I manage my psychology and really outlined the importance of developing an approach that took me and my emotions outside of the decision-making loop. I still regularly do the quiz at the front of the book to track how I'm going.
 
A further great pair of books that have influenced me are Steve Burn's New Trader, Rich Trader (both one and two). To me these books are really good at explaining the journey that traders take on their way to success. I found myself thinking throughout the books, hmm that's precisely what I did or felt. To me these books reinforced some of the painful lessons the markets taught me and allowed me to improve on my trading style and technique. I'd highly recommend these books for a new trader. The biggest message from this book for me is that if you trade 1% risk each trade is only one of the next 100, it makes the psychology so my easier to manage!
 
The final big one for my is Alexander Elder's trading for a living. Dr Elder work is a really interesting perspective, he's a psychiatrist by background and provides some really valuable insights into trading. The thing that I really took away from the book is to use different time frames to analyse the market behaviours. This has improved my trading a lot as it helps filter out the noise and refine entry and exits.
 
Other books which have I've found useful are:
Jack Schwager's market wizards series. To me these highlights that being a successful trader can come from any number of methodologies and there is no magic formula for being successful (at least in terms of trading style). The magic formula is really how you approach the market and how you manage yourself.
 
Some more excellent books are any of Steve Burn's trading explanation books. These are usually nice short books that explain specific ideas and concepts such as Moving Averages, Psychology, Risk Management etc. I've found these books excellent for re-enforcing messages I've read elsewhere.
 
There are a lot of other books I have read, but these really are the summary. If you have any questions or want to know more, hit me up on insta or via email (or leave a comment below).
 
Once again, thanks for reading.
 
Happy trading.
 
Nick the Trader Guy
May 21 (just…).
Blog Post
What books have I found have influenced me most
 
Firstly, apologies to you, my readers, for how long it's taken to post this. I've been busy with life, and the blog has had to take a back seat for a week or so.
 
I've meant to write this post for a while, but I keep getting sidetracked
By current events or the like. So finally, I'm going to get down to it and write about some of the books that have most influenced my trading style.
 
Whilst I list a few in my trading resources section. I wanted to go into more detail about what books have really influenced me and why.
 
I'm going to start off with some of the most recent books I've read. The most recent books I have read which are the which are the Laws of Wealth and The Behavioural Investor by Daniel Crosby.

I'm going to talk about them together as:
  1. I read them consequently
  2. They cover a lot of the same ground.
Both books really study why the traditional investment model is flawed and why humans generally suck at making investment decisions. Hint, it's because we let our emotions get involved.
 
I've found both books fascinating, and there are many references to other greats of behavioural finance, something I've had experience in my professional (non-trading) career. One of the takeaways for me in both books is that trading is hard because we try and overcomplicate it. So for me, it has caused me to reduce the number of indicators and factors I use to analyse the market. So far, this has been yielding results, but we'll see what happens over time.
 
The next book I'm going to mention is Mike Covel's Trend Following. To me, this is really the bible for a systematic trader. It really changed my approach to the markets and broadened my horizons. Before reading this, I was a haphazard trader who tried to trade off daily momentum. My downfall was I had no idea about risk management and position sizing. I just took big positions and hoped for the best.
 
The most significant influence from this book was that systematic trading works, and that whole Efficient Market Hypothesis is complete bollocks. After reading this book, I stopped holding losers. I started setting stops and diversified into different markets (futures, FX etc.). The other key change for me was that I stopped listening to financial news and media for making my decisions. Ultimately I decided that fundamentals were irrelevant for my trading style. One of the things I like about Covel's book is that he provided real case example of people who have succeeded using trend following. I particularly would like to emulate John W Henry and Bill Dunn in my trading career. I'm a real convert to the model, as you can tell!
 
All in all, I'd credit Mike Covel's book with starting me on the journey to profitability, I still had a lot to learn following this, but it was really the thing that changed my approach.
 
The third major book for me was Trading in the Zone by Mark Douglas. This book was probably one of the best trading books I've ever read. It really walked me through the process of how to become a consistently profitable trader. I read this one after quite a few other ones, which allowed me to really appreciate the book and its message. This book was my primer to understanding the psychology that was driving my trading behaviour. It allowed me some introspective into my personality also. The real big thing that came from this book for me was how I manage my psychology and really outlined the importance of developing an approach that took me and my emotions outside of the decision-making loop. I still regularly do the quiz at the front of the book to track how I'm going.
 
A further great pair of books that have influenced me are Steve Burn's New Trader, Rich Trader (both one and two). To me these books are really good at explaining the journey that traders take on their way to success. I found myself thinking throughout the books, hmm that's precisely what I did or felt. To me these books reinforced some of the painful lessons the markets taught me and allowed me to improve on my trading style and technique. I'd highly recommend these books for a new trader. The biggest message from this book for me is that if you trade 1% risk each trade is only one of the next 100, it makes the psychology so my easier to manage!
 
The final big one for my is Alexander Elder's trading for a living. Dr Elder work is a really interesting perspective, he's a psychiatrist by background and provides some really valuable insights into trading. The thing that I really took away from the book is to use different time frames to analyse the market behaviours. This has improved my trading a lot as it helps filter out the noise and refine entry and exits.
 
Other books which have I've found useful are:
Jack Schwager's market wizards series. To me these highlights that being a successful trader can come from any number of methodologies and there is no magic formula for being successful (at least in terms of trading style). The magic formula is really how you approach the market and how you manage yourself.
 
Some more excellent books are any of Steve Burn's trading explanation books. These are usually nice short books that explain specific ideas and concepts such as Moving Averages, Psychology, Risk Management etc. I've found these books excellent for re-enforcing messages I've read elsewhere.
 
There are a lot of other books I have read, but these really are the summary. If you have any questions or want to know more, hit me up on insta or via email (or leave a comment below).
 
Once again, thanks for reading.
 
Happy trading.
 
Nick the Trader Guy
May 21 (just…).
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<![CDATA[Blog #8 - I ignored my own advice and what did I learn]]>Tue, 18 May 2021 11:14:20 GMThttp://nickthetraderguy.com/trading-blog/blog-8-i-ignored-my-own-advice-and-what-did-i-learnThis isn't quite the post I thought I was going to make, but I feel this is more interesting and probably useful. TLDR; I ignored my own advice but learnt from the experience.

So last week, I made a post about how the moves last week were just a pullback and nothing to be concerned about. Really just part of the standard procedure for the markets after the big run-ups we had.

​This week I have to admit that I didn’t completely listen to my own advice. By last Thursday, I became somewhat convinced that the markets were on their way to correction or worse. Even someone who has been trading for a while can be influenced by their emotions, despite being aware of them, guarding for them and generally trying to ignore them. In summary, managing emotions is bloody hard. And having a plan, knowing your emotions and trying to manage them isn’t always enough.

So what did I do? Well, I can say that I didn’t panic sell any of my positions or even adjust my stops (which for most of my US positions was great, as they recovered on Friday – 14 May).
So what did I do? I ended a couple of defensive option positions to hedge my positions. To some of you reading, your probably thinking, what’s wrong with that. Seems like a sensible precaution to an unstable market. And to some extents it was.
But what was wrong with the trade:
  1. It wasn’t in my trading plan.
  2. I entered the positions (put options) at the low point.
  3. I let fear get the better of my and let it over ride my trading plan.

At the end of it, I wasn’t too costly a mistake as I still ensured that I position sized correctly (always harder with options, on this occasion I used around 2/3 loss stop – which with options is not guaranteed) and didn’t over do it.

Let me be clear, despite my risk management they were still bad trades.

So what did I learn.
  • Don’t get carried away with your own analysis….
  • Even if you think your managing your emotions, they can still get the better of you.
  • Remember your trading plan and follow it; always, it is there to protect you from making dumb mistakes.

So what steps have I put in place to stop this from happening again?
  • I’ve reviewed and rewritten parts of my trading plan.
  • I’ve reframed how I look at open profits (more on that below).
  • I’ve put a note on my corkboard in my office to remind me that the only good trade is one in the plan.

So more on that second point. Recently I’ve been reading more on behavioural investing; specifically, I’m now reading Daniel Crosby’s first book. One point in so far that has really struck a chord with me is this. When you think of giving back open profits as a loss, it affects your mindset and emotions, which can and does impact your trading.

What Daniel recommends is reframing this. Most of us who are on the journey to profitability have no problem taking a loss when our stop is hit when we first enter a trade. But it seems very difficult to take that same hit when we’ve had a big open profit. Crosby opines that this is essentially due to we’ve already counted those open profits, as profits and mentally treat them the same a realised profit. Therefore it’s much harder to take the loss. This is a mistake that I (and I’m sure many other traders) have made over the years.

To deal with this, a trader can shift their view of open profits to not consider it a profit until it’s realised (however, I should say here don’t do the same with an open loss, just cut that sucker). Personally, this reframing has allowed me not to worry so much about the givebacks, as they were never mine in the first place. As long as my overall capital is increasing, I’m happy!

Anyway, that’s enough for now.

Thanks for reading, and I hope you’ve found this interesting.

Cheers,
Nick the Trader Guy
May 21
 
 

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<![CDATA[The Market as AT mid-may 2021 – No Time to Panic]]>Tue, 11 May 2021 12:48:53 GMThttp://nickthetraderguy.com/trading-blog/may-11th-2021Click here to This week's blog is a little bit different from the last couple of weeks posts. This week I'm going to focus a bit more on the current market.

I talked with one of my trading buddies earlier in the day around the US market declines over the last couple of days (on the evening of 11/5/21 AEST the US markets are down around 4% overall). It's a bit of decline, and you can see the tone of many comments across the various groups and forums I follow. There is a bit of panic setting in. My buddy made the observation that everyone seems to be looking for a reason to panic and sell because it's the expectation that the next big crash is around the corner. I suspect he has a point.

Anyway, I think this is a great observation and probably an insight into the psychology of the masses (I feel that I talk about psychology in every post, it must be getting a bit repetitive dear readers 😊). That being said, I think a pullback like this (at this point in time, there is nothing to suggest it's anything but a pullback) is an excellent opportunity to manage your positions and potentially open new ones. Keeping in mind the Oracle of Ohoma's wise words of "be greedy when others are fearful and fearful when others are greedy".

To keep things simple, I'm going to focus on my home market of the ASX.

The ASX (I'm using the XJO – S&P-ASX200) has just broken its ATH on Monday at 7172 (although I'm told if you add in dividends, we're actually quite a bit higher).

Todays 1% move down, essentially sees the XJO just slightly above Monday Open and around the high point of Friday. Nothing to worry about here.

In addition, the overall trend is still up and the Bollinger bands are starting to expand again after tightening last week.

To be honest, the ASX actually looks like it has broken out from a range it was stuck in over most of April.

All in all, I think these are pretty bullish markers currently. But I guess time will tell.
  
So what am I doing with this market.
You can see from my analysis that at least for XJO there is nothing much to be concerned about yet. I think today's (and likely tonights – 11 May 2021) will likely continue down, but unless we see a fall below the 50 day MA (currently around 6900) I think nothing to see here.

​Since last night, I have seen around a 2% pullback in my account. To be honest, I'm not overly worried about this; it's part of the game and to be expected as a trend follower. Even if the market continues to fall, I've got my stops set, so I'm not stressed. I know how much I'll lose, and I'm comfortable with that. I also trust the system that I have built and backtested.

I think, to be honest, the motto of a trend follower should always be, expect the unexpected!
Essentially trust your system, set your stops and let the system ride out the storm. If the decline continues, expect lots of stories about why it is happening. At the end of the day, this is just noise, often made up to drive readers/viewers/listeners etc.

So, in summary, I don't think there is anything to be worried about just yet. But I'd suggest that you check your stops and be prepared for anything.

Anyway, I hope you've found this helpful.

Happy Trading.

Nick the Trader Guy
May 2021
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<![CDATA[BLOG #7 Trading Pyschology]]>Mon, 03 May 2021 11:59:06 GMThttp://nickthetraderguy.com/trading-blog/trading-pyschologyThis blog post may well be a bit of a shorter one, but essentially I want to talk about trader psychology and some of things that I have learnt across my journey. In particular would like to share these with you my readers to hopefully help you avoid some of the pitfalls of trading psychology.

I’m mainly focused on this at the moment as I truly believe that most markets currently are in a bubble (and I covered off why in my thoughts and rambling post yesterday – see it here). While the post yesterday was focused on crypto, I think by the same analysis it hard to argue against other more established markets being bubbles.

So what do I mean by trader or trading psychology?
Essentially what I mean here are emotions and how these influence trading. Really what I believe and what I’ve read, there are two powerful emotions that affect a trader, and these are:
  • FEAR; and
  • GREED.

Both of these are some of the most powerful emotions that influence human behaviour, so it stands to reason that they would influence a trader. I’m not going to go too much into psychology itself, as it is not an area I’m qualified in. If you want to read more, I highly recommend Dr Alexander Elders book – Trading for a Living and Dr Daniel Crosby’s The Behavioural Investor. For a more generic book on the matter, have a look at Daniel Kahneman’s Thinking Fast and Slow.

Something else which I think is important for a trader to watch from a psychological aspect is:
  • EGO.

I think ego is one of those things which can really lead to a trader blowing up their account, so definitely something to watch out for.
So now I’ve got the context out of the way, on to my thoughts.

Fear
I’ve spoken about fear in a couple of posts, but I reckon one of the most common forms that fear affects traders is FOMO or fear of missing out. FOMO is dangerous as it has often caused me to chase a trade, usually too late in the cycle, which lends itself to a poor risk-reward ratio.
Fear in the past has also caused me to sell a position early, which usually results in the trend resuming, just without me along for the ride.

So really there are two types of fear, well at least as far as I’m concerned. Both need to be respected and managed if you want to continue on the trading journey.
So how do I manage fear? Position sizing, position sizing and position sizing, with a helping of backtesting and suitable stop placement. Essentially, I manage my fear by never taking a big position (always less than 1% capital at risk initially), setting a stop and knowing that I a trade which is non-profitable is a possibility. These steps have served me well, and I don’t feel as though I’m really beholden to fear any longer (look, I admit I hate seeing a position go against me, but I understand that it’s part of the game). In Steve Burn’s words, each trade is just one of the next 100. It is actually a potent sentiment!

​Greed
Greed is the second major psychological factor that gets traders into trouble, doubly so in a bubble.

Personally, greed usually manifests itself as taking too big a position or visualising what I’m going to do with profits before I realise them. The first form is the more dangerous one to account; the second one leads to poor decisions and early exits (see fear above).

How do I manage greed? I have a trading plan that I regularly review which guides me on when to enter a position, when to exit and how to work out my position size.

The other aspect of greed is often brought about from watching other ‘traders’ get rich quick from penny pump and dumps and crypto. I’ve personally felt these feeling quite frequently lately, and I manage them by remembering what happened to me when I traded without proper risk and money management techniques. In short, I had lots of big winners, but also lots of small winners.

Ego
Personally, my Ego has often tripped me up (shout out a whirlpool compatriot who keeps me honest on this one).

Why is Ego dangerous. Ego makes you trade in dangerous ways because you think you know better than your system, you think your more intelligent than other traders, and you think you’re a brilliant trader. That’s how I used to feel anyway. The market is great at humbling traders egos, but sometimes they creep back in.

So how do I manage my ego. Once again, I follow my plan, remind myself of the lessons I have learnt and remember that I’m not a shit hot trader. I make mistakes, and if I want to be successful, I have to keep these to a minimum.

Once again, thanks for reading and happy trading.

Nick the Trader Guy
May
2021]]>
<![CDATA[#7 So I made a trading mistake what next...]]>Mon, 26 Apr 2021 10:32:20 GMThttp://nickthetraderguy.com/trading-blog/so-i-made-a-trading-mistake-what-next As alluded to last night, this post is dedicated to a recent trading mistake I made, how I did and what I'm doing to prevent it from happening again.

Firstly in terms of context, I've previously mentioned that I've dabbled in many different types of instruments, ranging from micro-caps on the ASX to commodities futures. The markets where I have gained and lost the most is probably the futures markets. I like futures because they are easy to trade (neigh on 24/5), have an inbuilt margin, and understand from a technical perspective.

So over the last couple of weeks, I have been slowly building a position in the Corn Futures, compounding as the price moved in my favour. Over time this leads to a pretty hefty open profit, around 8 to 1 compared with initial risk (i.e. distance from my entry to initial stop). This was psychologically quite thrilling, as I haven't had such a big open profit in quite some time (through meddling with different systems and changing my approach, and generally not having a lot of confidence in my system).

Anyway, so what did I do wrong. You can probably see from the language in the para above, I let my emotions get hold of me. This created a bit of fear for the big open profit. This was then exacerbated by an email from my broker telling me that my position would be auto-closed soon as corn is a physical delivery contract. For some unknown reason, my broker doesn't want to receive several thousand bushels of corn at their office… I can't understand why. So essentially closed my position before my exit point based on the above, even though I had around 20 days until the autoclose. Why did I do this, I was scared of giving back the open profit, and I had the excuse of my brokers' email. I should also add that when I sold, the market was retracing a little, which also adversely affected my emotions.

So what was wrong with this decision:
  • I didn't follow my trading plan
  • I allowed emotions to my over-rule my process.
  • I gave into fear even if I disguised what I was doing.

​So what's happening now:
  • The market recovered and has now gone up around 60 cents a bushel from my exit.
  • I re-ended the trade on the following months' contract but at 1/5 the size of my previous position.
  • I have FOMO wanting me to chase the trade and open my full position back up.

So what have I done to stop me from doing this type of trading error again:
  • I've written this blog post :-p
  • I've updated my trading plan to include a new line about not being too concerned about auto-closes and also take contracts further out to avoid the issue for longer.
  • I've recorded what happened in my trading log.

The key thing that I keep telling myself though is to not dwell on the mistake but to learn from it. 

Anyway, I hope someone finds this helpful and can avoid a trading mistake themselves.

As always, happy trading and thanks for reading my blog.

Cheers,
Nick the Trader Guy
April 21

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<![CDATA[Blog #6 Key Take-Aways from designing my system.]]>Sun, 18 Apr 2021 11:50:08 GMThttp://nickthetraderguy.com/trading-blog/blog-6-key-take-aways-from-designing-my-systemSo you’ve probably noticed that these blog posts are a bit of a disorganised mess in some ways, so I hope you’ll forgive that and enjoy them anyway. I usually have some sort of plan on what I want to write, but the plans typically fall apart from something I see in the market or in the various groups and forums I follow; this week is no exception 😊.

This week, I planned to focus on some of the key lessons I have learned from designing my systematic trading system. However, I’ve seen much chatter on various forums around crypto, so bear with me. I think there is some valuable content that can cover that.
Firstly, before I start, I should say I do have exposure to crypto in my portfolio, but I have limited myself to an exchange-traded bitcoin back product, as it suits my risk management regime better. I believe that crypto assets will continue to grow and that the big names such as BTC and ETH will continue to hold sway over the crypto market, predominately, I think, because they have brand recognition. I liken many of the altcoins to penny stocks. They could make you rich or just as likely lose your entire investment, essentially because they encourage investors/traders to take moon shots on them – more on that later.

If you watch the crypto space, you no doubt would have been watching Doge, which I understand is essentially a meme-based crypto asset, with no particular use case or functionality, therefore no fundamental purpose. So effectively, the entire market for this coin can only be priced on technical and trader psychology, which makes it interesting to watch.
Specifically on Doge, if you look at the daily charts, it is gone from around USD$0.05ish on the 1st of April to approximately USD$0.48, a massive 700% increase in just over 2 weeks. This enormous increase has triggered several emotional responses, which range from FOMO, regret and, in some cases, anger. None of these is overly helpful for a trader or an investor.
There is nothing wrong with taking a FOMO trade, but a few of the points are worth remembering (see last weeks post for more):
  • if the rise has been rapid, the fall will likely be even faster.
  • Risk must be managed by both position sizing and setting a sensible stop
  • Know that risk-reward is more skewed against you.

​So to be clear here, I’m not saying buy Doge or sell Doge. I’m just saying if you want to trade it (or anything similar), do so carefully.

I also think that for many traders, particularly new traders, the reasons that these types of trades are attractive are that it’s the thought that one trade could make them rich, and you know YOLO. This is where many traders blow up, I think, and probably why sound advice on risk management is ignored. Basically, I think this because if you managing your risk, your likely to only take a small position in a massively swinging/volatile instrument, which makes it less likely to make you reach in one trade. TLDR; Risk management is not exciting and won’t make you rich with one trade, but it will push the odds your way long term!

Anyway, on with the post as I originally intended. In the way of introduction, I’ve been building my system on and off for around four years. I’ve experimented with a number of different ways and paid for several various programs and tools. All of them have involved some sort of systematic methodology, and all have been based on trend-following of one kind or another. Some have been less successful than others, and some have worked really well in specific market environments and not others. But I’ll now go through some of the common themes that I think are great take-aways from my experience to date (noting, of course, I am still on my trading journey here, and I certainly don’t want to portray myself as some sort of trading guru).
You’ve probably identified in a couple of my posts to date, but the critical thing to me is managing risk. For me, in all of my systems to date, risk has been managed via stops. Well, of course, aside from my initial trading ‘system’ where risk management was to panic sell a falling penny stock – I’m not really counting that though :-P.

In terms of stops, I’ve tried them at various levels, percentage, ATR multiples, Moving average levels, support/resistance, recent lows etc. All work to a different extent, but I think the most consistent I’ve found is ATR multiples. But that’s just me.
So to me, this is the first key take away. Regardless of how you trade, you have to have a way to manage your risk upfront, and to me, the cleanest way to do this is to set a stop. I know there are other ways, such as hedging or selling/buying options. But they’re not something I’ve explored – so I won’t comment.

I think closely linked to risk management is position sizing. As mentioned previously, I used to take big trades based on the hope that if they moved up one pip, I’d make enough to cover the commissions/brokerage fees (I was trading with a big bank, so it was expensive, lol). In my subsequent systems, I’ve refined my thinking away from how much I could make to how much I could lose if I’m wrong. This was a big shift! As noted above, all my recent systems use a stop, and I use this to define my risk and position size. I’ve tried various levels, but I think less than 1% is the way to go. I like what Steve Burns repeats throughout his books, with 1% risk; each trade is only one of the next 100. I personally use a lower percentage, 0.25-1%, but this suits my risk tolerance and allows me to aggressively compound if the trade goes my way. But that’s me.
The final point I’m going to cover in this post is around asset/instrument selection. I’ve tested several ways of screening stocks and instruments to find the right trade. Some have been complex, some simple. I’ve found the really simple screens give a lot of results which means lots of manual filtering. The more complex methods often give fewer results, but can be harder to apply consistently. Currently, I have two main screens that I use on tradingview.com to screen stocks; both have around 6 variables. For me, this is the happy medium, I often get a lot of results (50+), but I usually only do a screen once a week and then manually check the charts, which all up is about a 1-hour process. It works for me, but it may not for everyone.
S
o the TLDR version of this post:
  • If you’re going to FOMO a trade, do it carefully and know it will be ‘less exciting.’
  • Stops are important, and I’ve found ATR multiples work for me.
  • Setting a position sizing strategy with a meaningful risk level for you is essential.
  • Have a simple but robust system to chose trades, its easier to follow.

Once again, I find myself with a post that hasn’t entirely gone the way I thought it would, but hey, I guess that’s the creative process? Anyway, I hope you’ve found this interesting or useful. If so, I’d love you to leave a comment below and to share this page.

​Cheers
Nick the Trader Guy
April 21]]>
<![CDATA[Blog #5 - Advice I'd give myself]]>Sun, 11 Apr 2021 10:08:38 GMThttp://nickthetraderguy.com/trading-blog/blog-5-advice-id-give-myselfSo this one’s going to bit of a hypothetical and it’s based on a recent post on Whirlpool where a new investor was seeking advice about starting out. It’s also inspired by a recent tweet by Steve Burns asking this very question.

The two questions got me thinking, what did I wish I knew when I first started trading, what were my key turning points and what would I do differently.

So first up, what do I wish I knew before I started trading:
  1. I wish I knew that I didn’t need to win every trade, or even most trades to be successful. To me this is one of my key learnings. I spent far too long trying to make sure that each and every trade was right, when in the end that was just me trying to stoke my ego. Trying to be right in trading is a fast way to ensuring that your going to lose money.
  2. I wish I understood risk management and how position sizing worked. As I’ve said previously, I used to take big positions to try and take advantage of small moves, this worked a lot of the time, until I didn’t. If any of you have traded using momentum of penny stocks you’ll know what I’m talking about here, these stocks can fall as quickly as they rise, sometimes within minutes and if you’ve got big positions, they can lose you money fast, particularly when combined with point 3.
  3. I wish I really knew what cut your losses fast and let you winner run meant. My biggest trading losses were caused by a combination of points one and two. My ego wouldn’t allow me to accept that the trade was wrong and surely it would bounce back which when combined with a big position meant big losses.
  4. You can’t predict the future movements, so don’t try to. I think this ties back to point two and maybe also to be me being a bit of optimist, I always bought stocks on the assumption they’d keep going up, this wasn’t always the case, particularly with penny stocks.
For me those are the three biggest lessons I wish I’d known before I started trading.  Had I know those I think I have had a shorter journey. However that being said, I’ve recently been listening to the Behavior Investor by Daniel Crosby (highly recommend it and I’ve added to the resources page) and Daniel talks about how the brain is more wired to learn from pain. Given I had some pretty painful experiences which taught me the three lessons above, maybe they wouldn’t have stuck if I just known them in advance…

So what was the turning point for me.
Really it was reading a post on Whirlpool where someone had asked for recommendations for trading books and one of the recommendations was a book called Trend Following by Michael Covel. I thought that sounded interesting and went out and got a audible version of it (I can speak highly enough of Audible, it’s made it much much easier for me to smash through trading books). This book really changed my approach to the markets and trading (and enabled me to make some more painful mistakes – but that’s probably a whole other blog post).

From trend following, the biggest shift for me was really point three above around cutting losses fast. After reading the book, I cut a couple of positions I’d been holding for months hoping they’d bounce back (3 years later and I think they are still about the same level they were when I sold out, if not lower) and freed up my capital to deploy else where. There’s a lesson there too I suspect 😊.

I think one of the key take-aways for me from Trend-Following, beyond the above, whilst buy and hold does work, it can be optimised (to an extend, you’ve got to be careful to not over optimise) to work better for the investor. I think Covel sums it up nicely when he calls buy and hold, buy and hope.

So the TLDR summary of what I’d tell myself if I had a time machine:
  • Cut your losses and hold your winners.
  • Truly understand risk management.
  • Don’t be upset by losing trades.
  • Accept that you have no idea on what’s going to happen next.

Cheers for now,
Nick the Trader Guy
​April 2021

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