In day trading how to quickly recover from a drawdown…
The champagne corks finished popping. My friends started going home. Another great day had come to an end.
Then all of a sudden a computer came to life with a Skype call from my great friend, America’s pre-eminent trading mentor, Professor Quinto. He was checking up on our progress this week.
I explained to the Prof last night that we were closing our trading week (I only trade 3 days per week), with our short-term trading at new all-time equity highs, a fact which I wouldn’t even have noticed had not one of my members pointed it out to me.
To those of us in the group who had made almost $6,000 in the three days prior it didn’t seem like an especially great week.
But when going over the records with the Prof he reminded me of the valuable lessons contained within.
He reminded me that we should all be proud of the achievement of the week and encouraged me to share these critical messages with you.
We must always remember what our job is
He is right there are some very important lessons to be learnt from our activities this week so I am going to share these with you right now. It’s no secret that the last few weeks have been tough, very tough indeed for short-term traders. Consequently many of us have had to endure an unwelcome drawdown period.
In fact our short-term trading last made its equity high on February 14th, which after allowing for holidays, was six trading weeks previously. When we came into this week on Tuesday we were effectively at the low of the drawdown as shown by the following chart…
By the close of business on Wednesday we had nicely recovered the whole of the prior six weeks drawdown and having added to that again on Thursday we comfortably closed our week breaking new equity highs once again.
As my friends who take these trades with me in my Trading Den pointed out yesterday, recovering from a six-week drawdown period in just two days is significant. What it tells us is that we are doing at least two things right…
It means we are keeping our losses small on the losing trades which are inevitable when the market becomes so choppy.
It also means that we are pressing our winners to their full potential when they come along.
…and for those two reasons alone a handful of a very unexciting but profitable trades were all it took to make up for a long period of difficult and choppy market conditions.
It also reminds me of a fundamental principle of trading. That it is not our job to be right in our trading but it is our job to have a robust plan and to follow it with cast iron discipline. That is the mark of a professional trader – having a plan and following it without wavering. It is not about trying to be right on every trade as that is simply not possible for any trader. But following a plan should be possible for any trader who is really committed to a career in the markets.
But there is often a problem
Here is the problem – not every trader has that commitment and discipline to simply follow their plan. In the Den we have a simple plan to follow and for participants in this exclusive club all they have to do is to turn up for work and take the trades spelt out for them. There could not be a simpler way of trading.
Yet here is the strange thing – not all of our members participated in our $6,000 week this week. Some I know are taking a short break from trading for personal reasons or simply because they want to wait until the markets become really active again. That’s fine, in fact that’s a great idea.
But there are others who are supposed to be trading yet sadly do not for some reason have the discipline to turn up each day and take each trade in the simple mechanical fashion that they should be. Anyone with even limited trading experience, but with the discipline to stick to the plan, could have banked this week’s profit.
But if you casually turn up for work on some days and not others, or if you pick and choose between the trades that you like the look of, or if you flit like a butterfly between one trading plan and another – it is almost certain that you will miss out on the good periods. Life is just like that for some reason!
Here’s the proof
Therefore it was interesting yesterday to note that the members trading with me last week are all long-term professional career traders, people whose discipline is unshakeable and people who have survived long enough making their living in the markets to really understand the importance of sticking to the plan.
One of the things I find most frustrating in trying to help newer, or historically less successful traders, to get a rung up the ladder is the fact that everybody loves you when you are riding on the crest of a wave and making new equity highs week after week, they can’t get enough. Yet those are the times to be more wary. Winning runs don’t go on forever yet that is the time everybody wants to be in on the action.
Yet when more difficult times strike the numbers thin out, people drift away they don’t stick to the plan. So by the time you reach the end of a flat or drawdown period the numbers of people sticking to the plan have also reached a low.
So at the time of maximum opportunity the minimum number of people choose to participate!
Why is this? Are we just naturally wired to do the absolute opposite of what we should be doing? Because that certainly seems to be what happens. However those who can get their head around this principle, are those with long-term futures in the trading business.
That is why when I look at the traders who profited so well with me this week it proves this point. They are all the diehards in the group – the professional career traders who understand that our job is not to be right but it is our job to stick to the plan.
How is your own discipline?
Don’t misunderstand me. Discipline sounds like the simplest thing in the world to crack. But in trading discipline is by far the hardest skill to develop and every one of us struggle with it at times.
If you can follow a plan, a simple plan that could not be made easier for you, then you might want to consider joining this elite group of traders. Not as a substitute for your own trading. Not as a substitute for your own learning. But as a means of surviving difficult times and diversify your own trading activity, just like all of the pros in my Trading Den this week.
I do just about everything for you. All you have to do is to turn up to work for an average of 10 days per month and click your mouse button to take two or three trades each day. Those are the two things I cannot do for you. If you can do that with cast iron discipline, then please take a look at…
I have a handful of places available, but only a handful and I want those to go to traders with that discipline that is critical for success. The Den accommodates a maximum of 30 people, half of those seats are filled by the traders who are $6,000 richer this week than last. Another 7 are taken by traders who are on temporary breaks. So you can see there are a few places available, but not many. Have a think, have a read and maybe we’ll even see you in the Den next week.
Disclaimer, risk warning and copyright notice apply to all articles published on this site.
Copyright © Simon Townshend Ltd 2012, all rights reserved
Times are tough…but there is good news too
At the end of last week Bloomberg reported record low volumes in both the cash stock market and the S&P futures. I quote: “This is the lowest non-holiday trading day on the NYSEVOL since its data began a decade ago.”
If you are a day trader you wont need me to tell you that S&P Emini volume seems to be running at about half of that seen at the end of last year – and that was already pretty pathetic volume at that time!
Lack of volume of course leads to the listless random motion, lack of clear patterns and the nasty short-term spikes we have all been seeing lately. The odd thing is that so many diverse markets seem to be equally choppy and dangerous for short-term trading at the moment.
What should we do?
People regularly ask we what we should do about it. The answer is both simple and hard – be patient! We have no choice as there is nothing else we can do. It is our job to trade when the market offers us an edge and to sit it out when it doesn’t.
The truth is that many traders will be impatient and will get chopped to pieces as a consequence. Many will simply not survive patches like this. That is a sad but inevitable fact of life. Patience is the hardest discipline of all to develop as a trader, but times like this demonstrate why is it so critical for long-term success.
But there is good news too
As many people know I am a day trader but also a position trader. With the day trading my objective is to weather this storm and come out the other side without having lost any significant money.
With position trading the story is much better. Trading off larger timeframe charts keeps you away from the worst of the short-term noise and chop. So with the right strategy you can continue to make money even during times as difficult as this.
So that is what I advise people to do – focus on much larger timeframes at least until this storm subsides.
Even better news for you?
I have thought long and hard about doing this. But the number of requests has increased over the last three months, so I have finally decided to break my silence and once again accept a handful of serious people into my flagship position trading service…
www.SeriousInvestmentReturns.com
The reasons are obvious – this carries on making money while day trading is a bust for most people and most people are looking for something worthwhile to do while day trading is off the cards. Hence my agreeing to take on a few newcomers at this most difficult of times.
We now have 3 profitable years out of 3 since the strategy was launched and many great traders have quietly been using and enjoying this bolt on to their own trading for years now.
Before you ask, I know the question on your lips already! Yes we did make new equity highs again in January and again in February, despite all of the mess that the markets have been throwing at us.
Discipline to hold the positions?
Now as a day trader I too struggle at times with the discipline to hold onto these positions which often run for several days or over a week even at times. So I know it is hard to follow even a strategy as successful as this one.
Believe it or not, some people have not been able to stay the course even with an equity curve as amazingly smooth as this. There is always a temptation to fiddle with the trades intraday or to try and pick and choose which ones to take – neither of which improves performance else I would already be doing it!
So to take away these destructive temptations for those who struggle to stick with the simple clear instructions that the service provides, my great friend George Kleinman is also offering to execute and manage all of the trades for you, if that would make life easier. He has been doing this for a group of our members for the last couple of years and with great success.
Last night I also managed to persuade George to take on a few new people into his side of the service too. So if you are interested both options are now available again – execute yourself of let George handle everything for you.
You can read the whole story, dissect every trade, find out everything you need to know about S-I-R on the website…
www.SeriousInvestmentReturns.com
Hopefully George and I can handhold a few more people through these treacherous times as we have been with the existing members over the last few years.
Disclaimer, risk warning and copyright notice apply to all articles published on this site.
Copyright © Simon Townshend Ltd 2012, all rights reserved
If your work isn’t working…here’s a solution
I doubt many traders would disagree with me when I say “This is tough!” In fact this is about as bad as I have ever seen it for short term trading and understandably many traders are feeling disillusioned. There is every reason to feel disillusioned, it is our job to trade but the markets are not conducive to providing payment for our efforts.
But there are two reasons to keep our spirits up as much as possible:
- There is a simple formula for working through such times, and
- Better times are on the way
My survival formula
Those who trade with me in my Trading Den each week already know this formula for surviving times as rough as this. This is why we have been able to hold onto our equity highs throughout this taxing last few weeks.
But for those that don’t know my survival formula, here it is. The plan has three elements to it:
- Trade much less frequently
- Risk far less on each trade
- Be patient and have faith
Trade frequency
Lets say you are typically used to finding 3 to 5 trade opportunities per day, which is about what our short term trading provides us with. In this random noise environment there are actually far fewer real opportunities than normal. Maybe just 1 or 2 per day – if that even.
However noise has this wonderful way of tricking you into thinking you can see opportunities that in reality are totally fictitious. If you are not careful you will get lured into making MORE trades than normal rather then LESS. This is why such environments are so very dangerous and the long term fate of many traders is determined by these very periods.
So my simple logic says that if the number or real opportunities are fewer per day then our number of trades per day must be scaled back. So the solution is to go into the day knowing IN ADVANCE that your number of trades will me a maximum of 50% of the number you would usually expect. Instead of 3 to 5 plan on taking 1 or 2 only and certainly not the 5 to 10 or more that the noise will try to fool you into thinking exist!
When you think you see an opportunity, here’s what you do. Get up off your chair, walk to the back of the room and look at your chart from there. If you still see a nice clear trade set up, take it. If all you see from the back of the room is noise then that is exactly what it is! Sit back down and do nothing except watch the market quickly move to the place you would have put your stop! Trust me on this after years of gathering scars to prove how misleading noise can be, I have taught this crazy little technique to many people who all swear by using this “filter” to keep themselves out of trouble.
Trade risk
Over the years I have heard many people talk about the secret to trading noisy markets is to use wider stops – to keep the stops outside of the bandwidth of the noise. Sounds logical right?
Wrong! Absolutely dead flat out wrong! Try it if you like, but in practice you will find that for the very occasional trade that you might get away with without getting stopped out there will be ten that still stop you out just for larger amounts than usual!
The big mistake in the wider stop approach is that it assumes a degree of predictability to the noise and hence the argument that you can keep stops out of reach by assessing the bandwidth of the noise. But by definition noise is UNPREDICTABLE that is why it is just random motion.
So my solution, contrary to popular opinion, is to do quite the opposite. I use stops that are much tighter than normal. I give the market about half as much room to perform as I normally would.
You might be thinking “Simon that’s crazy, you are putting you stop right in the thick of the noise so it is certain to get hit!” Yes you are right, but only if your premise is based upon the need to stay outside the bandwidth of the noise. But that is where you and I would have to disagree. My premise has nothing to do with the bandwidth of the noise, I think that is a classic red herring.
My premise is quite different – If the trade is going to work it needs to work immediately. It isn’t going to hang around. Either it does what I expect and just goes, or else I don’t want it! So in a noise environment I give any trade far less room and far less time to prove itself. Because if it hangs around – then isn’t it true that we are still just in noise and the opportunity is in fact bogus?
If it is bogus why do I want to risk a full unit to find that out, let alone a larger unit than normal? Sorry but for me if it doesn’t do what I expect immediately I just want to get out for a tiny cost and be able to say I tried but it didn’t work.
Patience
The hardest part of my formula and the hardest part of all trading is having the patience to wait until a worthwhile opportunity materialises. Gaining the skill of patience is hard work, no question about it. But let me give you a couple of little incentives to think about when you are feeling the urge to click that mouse.
If you follow the guidelines above, i.e. cutting by at least half (if not more) the number of trades per day and the risk per trade, you reduce your daily risk by at least 75%, probably a lot more. Realistically your worst case risk per week in this dangerous environment is now no more than you would be risking per day in a decent environment.
This buys you time to ride out the rough patch without doing much too damage to your capital and this is before we even talk about the option of cutting back trade size (a topic maybe for another time).
Buying time and keeping losses under control is critical for the following reason, aside from keeping your sanity…
When it all changes and comes good again, would you prefer to spend most of the good time making up some dirty great drawdown which was largely avoidable, or would you prefer those new profits to be propelling your equity curve to new highs almost from the start?
I have done both, many times, in my career and I know which one I prefer. So when I look at my short term trading results over the last few weeks and say to myself “damn it we haven’t made any progress recently” I quickly remind myself “yes but we are only a couple of decent trades off of equity highs and THAT matters!”
These are the factors I think about more and more and as you engrain such principles deeper into your mind, the easier it becomes to summon up the patience that every single trader on the planet struggles to have.
Better times are coming
As I mentioned at the beginning we will see better times again soon. Quite when is anyone’s guess.
Every time we hit these patches it feels like “this time is different it will never improve”. Yet over history it always has. Every time we see these nasty markets there is a reason why it may never recover. Every time it does.
There is no getting away from the fact that we live in uncharted times in very many different respects and there is every reason to argue that “it will never be the same again”.
Personally I believe that it will be the same again at some time, but that even if it wasn’t I would still find a way to align myself to the markets to make steps forward once again. Half that battle is avoiding taking too many steps backwards during the tough times.
I suspect the timing of the pick up will be a lot to do with the turn down in equity markets. Historically that is when volume and volatility come flooding back into not just index futures but so many other markets too.
Of course when that will be I also have no idea. It will be when it will be and when it does ranges should expand again, volume should return again and those who have followed the guidelines above will be pushing new equity highs within the first few trades.
For what its worth our longer term model is now short the S&P from the 1350 area, which may offer a glimmer of hope but there is no knowing in advance if the trade will work out or not and if it does there is no saying that this will be any sort of turning point. But it just might be the first sign that the tide is turning as we haven’t had a short signal for a very long time now.
My great friend George Kleinman taught his “secret indicator” at our seminar last summer. If you were there you might like to take a look at the daily Nasdaq chart, which is rather tantalisingly also showing a short signal there.
Will either trade turn into anything more than a scalp? Who knows, certainly not me. It’s just my job to take the trades and the market gives us what it gives us. But one day the trend will change and my guess is that will be the time that the short term trading game will come back to life once again.
Take care of your capital, try not to be too frustrated and have faith that things will get better. We’ll all ride out this storm together.
Disclaimer, risk warning and copyright notice apply to all articles published on this site.
Copyright © Simon Townshend Ltd 2012, all rights reserved
Why I hate Mondays…and you should too
I typically trade about 10 days per month to a schedule laid out as much as 6 or even 12 months in advance. Some friends asked me recently how I decide upon my trading schedule. What is the formula? How did I arrive at it?
So I agreed to write an article explaining all of the ins and outs of a subject which is more important than many traders realise. Here it is, the answer, the formula and the logic underlying it…
The premise
We can’t physically trade every hour that the markets are open, so we need to decide how much of the available market time we are actually going to trade. We also shouldn’t want to trade every available hour. Aside from being intensive work that is tiring, the reason we are in this business is to provide flexibility for a better work / life balance. It is all too easy to lose sight of that fact!
So we need to set a plan that suits our personal needs as well as having us concentrate on the most productive trading days as far as possible, or at least those days that are most likely to be the best trading days over the long run.
My answer
First I will give you my own answer to this riddle and then work back through how this is arrived at. My conclusion is to trade no more than 12 days per month and no fewer than 8. These days must be selected and planned well in advance and not just drifted into based on how you feel when you wake up each morning!
That is why I know my trading schedule months in advance. I then stick to that schedule with cast iron discipline. There is no point having a well thought out plan if you don’t then stick to it, is there? The only deviations, which are extremely rare, are due to unexpected events.
As an example, here is my own schedule…click here
The formula
There are three items that go into this formula each of which results in eliminating certain days from the annual calendar and what we are left with is our personal trading schedule for the year. The three items that lead to days being eliminated are as follows:
- The days of the year that are least likely to be productive in general
- The days which statistically are less reliable for our own trading strategy
- The need to take regular breaks from trading, to rest as well as to enjoy life
Step 1
So first we eliminate the days each year when the odds do not favour success, or at best when profits can be expected to be below average making these days poor use of our valuable time. These tend to be days when we know ahead of time that volume is likely to be light. This is the list I like to use:
- The day of and the day preceding: Martin Luther King Day, Presidents Day, Memorial Day, Labor Day.
- The day of: Good Friday, Easter Monday, Columbus Day, Veterans Day.
- The day of and the day after: Independence Day.
- The day of, the day preceding and the day after: Thanksgiving.
- The whole period between and including Christmas Eve and New Years Day.
Step 2
The second step is to examine our own trading strategy to see if there are any statistical tendencies that we should be aware of and hence respond to. Some years ago I analysed no less than 5 years worth of short-term trading results to look for clues, somewhere of the order of 1000 days of data. I discovered something interesting.
When I broke the profit over the 5 years down by days of the week I found that profits were distributed approximately as follows:
- Monday -10%
- Tuesday +35%
- Wednesday +30%
- Thursday +30%
- Friday +15%
There is some powerful ammunition here. Until I did the analysis I had no idea that Monday’s were so bad. There were plenty of great Monday’s in the sample, clearly enough of them to disguise the long-term reality from me! Guess what – I never trade on Monday’s today and haven’t done for several years!
Friday’s are still profitable, but far less productive in terms of “earnings per hour” than the remaining three days of the week. Therefore as a general rule I tend not to trade on Fridays either. This is not as absolute as my hatred of Monday’s and I do trade a few Fridays each year – usually the first Friday of the month (Payrolls Friday). Fridays for me are used primarily to backfill my calendar to ensure I am able to trade enough days during months that are shortened by other factors.
Interestingly Mondays and Fridays also tend to be the lower volume days of the week, hence the findings here were consistent with the same logic for eliminating the set of days in Step 1.
Step 3
The final factor to consider is the need to take regular short breaks from trading. Quite apart from the importance of having a family life outside of the very intensive career we choose, it is extremely important to switch off, relax and recharge the batteries at regular intervals. Trading is extraordinarily tiring compared to any other occupation that involves sitting at a desk, staring at computer screens and swearing at them occasionally!
If you don’t get regular rest from this you slowly but surely lose your effectiveness. You can prove this to yourself by literally taking a week off and seeing how much more alert and attentive you are on your first day back. So this isn’t being lazy. This is a critical element in a long term and successful trading career. Yet you would be surprised how many traders try desperately hard NOT to take time off! We are brought up to believe that the harder we work, the better we will succeed. Well in my experience quite the opposite is true when it comes to trading. You need a razor sharp mind, absolute concentration and unshakable discipline – all things that start to be eroded as you tire from working too many days without a decent rest.
So my personal recommendation is to take off a good 7 to 10 days at least once per quarter, but ideally more like every other month.
Discipline
This formula is simple enough, logical and makes sense. But another value to having a schedule to work to is that it brings another element of discipline into your work. Unlike following a trading plan, avoiding over trading etc. this is a discipline that is much easier to stick too. Discipline in everything improves the more you are able to be disciplined in a few things. It becomes more of a habit and slowly becomes easier to be more disciplined in general. So it is constructive to have a few plans to follow that are easy! Working to a well thought out schedule each year is a simple plan to follow as well as having real value in improving trading performance.
Is my plan the right one for you? Maybe, maybe not. If you like the logic and it sits well with your view of life and your personal circumstances, by all means copy it. If not modify it to better suit your own needs. But I do urge every trader to have his or her own plan and to follow it. This is a serious business and the days you choose to trade deserve more thought than just how you feel each morning when the alarm clock goes off!
Disclaimer, risk warning and copyright notice apply to all articles published on this site.
Copyright © Simon Townshend Ltd 2012, all rights reserved
Happy New Year! (Let’s make it a great one too!)
Well what a year that was. I don’t know about you but I am so glad to be rid of 2011. From a trading perspective it was one of the harder years I can remember and I am not hearing from many people who had a great year. Errr I haven’t heard from anyone saying they had a great year in fact!
But I have heard a few horror stories. So if you generally held it together during 2011 then I think you deserve a pat on the back. Anything around breakeven on the year seems like a good outcome and certainly nothing to feel ashamed about.
Throw in the fiasco of the MF Global collapse and its immediate dampening effect on the markets and you actually complete the picture of a pretty ugly year all around.
The highlight
For me the highlight of the year was the Century of Trading seminar with my great friends George Kleinman and Jeff Quinto. We had a blast in Santa Monica and met such a great group of traders, many of whom have become good friends since the summer event.
You know, more than 9 out of every 10 people who attended have written saying how much they enjoyed and valued what was a very intensive learning experience. That is so rewarding for us to hear and makes all the hard work worthwhile. Who knows one day we might do another one, or maybe release the videos as a home study course. That is something for us to think about for 2012 anyway.
2012 will be a great year
I can just feel it! 2011 was sufficiently challenging that the cycle is overdue for change this year. When precisely that will be I don’t know, but I feel sure that 12 months from now we will be looking back on a really worthwhile year.
Fortunately we are entering 2012 from a solid position, despite the year just gone. Our daily swing trading strategy (S-I-R) is sitting here right at equity highs and the 5min strategy in the Trading Den is also right at equity highs. So not having a lot of ground to make up means we are in great shape to tackle the exciting year ahead.
But as I always say at this time of year – it doesn’t matter what happened last year, whether you were up, down or flat on the year, its time to wipe the slate clean and start all over again! Bank the profits if you made them. Forget the losses if you took them. Zero the clock and focus exclusively on leaving the starting line as constructively as you can. Which also means with a completely clear head and maximum discipline (New Year resolution perhaps?)
Projects for 2012
Every year I set myself the objective of tackling a number of projects. Every year I also overestimate my ability to do everything planned by a factor of 2 at least! Let’s see if this year I can get closer to delivering everything I hope to.
I plan to build upon our 3 out of 3 profitable years of running signal services by improving the existing services further as well as introducing 1, maybe even 2, new ones. These have proven to be great in helping traders through the inevitably long apprenticeship that trading success demands. I can’t make every member take every trade and similarly I make mistakes in my own execution at times just like everyone else. But having a consistently profitable strategy to start with is a critical foundation and this has really proved it can give many people the staying power that they otherwise might not have had.
More and more people ask me for training courses and/or simple strategies that they can learn and become experts in themselves. So in 2012 I will undertake to make more educational materials available than in the past. There are several suitable things in R&D at the moment that I know have the potential to help people improve their game significantly. So this will have more of my focus this year than in the past.
Finally this newsletter and several websites are due for a facelift and revamp which I think I can just about squeeze in too! I have loads of insights to share with you this year and you can expect articles to start flowing again more regularly in a couple of months time.
I am currently buried under a pile of admin, accounting system changes and a significant change of business model in the way I manage money for other people at the moment, hence more radio silence then usual in the last few weeks! This is my current priority and once it is all out for way I can set to work on some of these other projects for other people.
Let’s get cracking
So those are my plans for the year, what are yours? Have you made your own plans and set your own goals? Trading is a hard enough business when you have clearly thought out plans. Without a plan to follow and to hold yourself accountable against is like trying to cross a busy road blindfolded. So make sure you know what you intend to achieve in 2012 and you’ll have a far greater chance of actually achieving it.
It’s going to be a great year for many people. I intend to be one of them and I hope you do too. So what are we waiting for? Let’s get cracking!
Disclaimer, risk warning and copyright notice apply to all articles published on this site.
Copyright © Simon Townshend Ltd 2012, all rights reserved
Confucius was right…but forgot to factor in time!
“Feed a man a fish and you’ll feed him for a day. Teach a man to fish and you’ll feed him for a lifetime.”
We all know the Chinese proverb and we all know it to be true. But what if it takes a year to learn to fish? Or 3 years, or 5 years?
That’s the chink in the armour and the reality is that learning to trade successfully takes that sort of time. It’s not like a quick fishing lesson and hey presto you can feed yourself, despite what all of those classified ads would have us believe!
As a result so many would be and could be traders never quite make it. Before they reach the point where they can feed themselves, they run out of time or run out of money (sometimes both!).
The solution is simple of course – feed that man a fish each day until he develops into a competent fisherman!
Then time ceases to be his enemy. He can take as much time as he needs to learn to be not just any old fisherman but a fishing expert.
The Trading Den
For about 3 years people have been asking me to put together a service providing low risk, short term trades using my highly profitable, time proven strategy. Well now I can reveal that over the last year I have secretly been running such a service, quietly providing a fish a day to a dozen other traders.
Interestingly all of these great people are professionals, mainly career traders, successful in their own rights. They are already fishermen and fisherwomen (is that a real word or one I just invented?). But they have been enjoying the Trading Den trades in addition to their own trading as a means of boosting profits without increasing leverage. So even though the idea is to feed a man a fish to buy the time needed to become an expert fisherman, that doesn’t mean it can’t also benefit veterans seeking to increase their earnings without increasing risk!
During this year we have honed this service to the point it is now running like a Swiss timepiece. It is about as good now as we can ever hope to make it. So now I am ready to invite up to 10 newcomers into this secret little club to join us in landing typically around $7,000 per month trading only half time and with no overnight risk.
If that sounds like it would help you in your own trading evolution, novice or veteran, 1-lot trader or 10-lot trader, then you can read the whole story at…
What John thinks about it…
“I have been a member of Simon’s Trading Den since the inception and have witnessed first-hand, on a daily basis, Simon’s keen abilities trading the futures markets. The posted results are genuine, as is Simon himself. Finding someone with Simon’s skills and integrity in the trading arena is like finding a needle in a haystack, and I consider myself very fortunate indeed to have met him and to be trading with him.
Besides the trading profits, the other big benefit to the Trading Den is being able to watch Simon enter, manage and exit trades live. Every day trading in the Den is an enjoyable learning experience that adds greatly to my own trading skills.”
John, San Francisco
You can meet John and the rest of gang, in my private Trading Den this week. All you need to do is to read about the service, make sure it fits within your current trading portfolio and grab one of these 10 new seats. We look forward to seeing you next time we convene in the Den to wage war on the markets once again!
Disclaimer, risk warning and copyright notice apply to all articles published on this site.
Copyright © Simon Townshend Ltd 2011, all rights reserved
This is what you asked me for…and its on its way!
For two and half years now I have been trading a strategy that has also been made available to a tiny group of professional traders. Many of these people have made big money in this time, where big means 6-figures for some of them – in addition to their own trading returns.
However, this has one particular limitation and that is the fact that the signals are taken off daily charts and actioned in the most part at the end of the day. This was deliberate as it made it ideal for more passive traders and investors who had lives outside of trading and who did not want to follow the markets during the day.
But daily charts by definition mean a relatively small number of trades and relatively large initial risk per trade. This is perfect for those more “passive types” but during this 2-3 year period many more active traders have asked me…
“Isn’t there a way to trade this intra-day, off smaller charts, with lower risk trades?”
There wasn’t.
A moment of madness!
But more and more people asked which got me thinking. Then one day, in the summer of 2010, I woke up one morning and decided to do something completely crazy. I decided to start trading the same strategy intra-day off much smaller charts.
What’s crazy about that you might ask? Well nothing in principle. The bit that was a bit off the wall was doing the whole thing before a live audience!
Yeah that’s right, no quiet development in the basement late at night. Just straight in at the deep end in the live market with my most loyal and closest clients watching every damn trade in real time!
OK, lets be honest, I didn’t take that leap of faith without a pretty good idea that it would work. But it wasn’t perfect. It took a bit of refining and developing as we went along.
A little help from my friends?
We have been quietly trundling along making about $7,000 a month with this. Then last month with the help of some of the gang also watching out for the sort of things I look for on my charts, we increased our number of trades and our profit on the month exploded to $15,248!
I should point out that we are not scalping for a handful of ticks here and there, but seeking 2 to 3 high probability trades per day each worth a decent chunk of cash. Oh and we only trade 2 to 3 days per week too, so this is about as low key laid back day trading as you can find!
Well a year down the road, with a tidy old profit under our belts and having really found the groove in our weekly activities, I have decided to admit just 10 new members to this exclusive group. This is the chance for those who have been asking for such a service to finally receive exactly what they have been looking for.
Work is underway finalizing everything and I hope to release those 10 new spaces in early October. So if this sounds like your kinda thing, watch this space and I’ll let you know the moment those places become available.
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Copyright © Simon Townshend Ltd 2011, all rights reserved
The power of the close…worth waiting for?
Most of my trading signals are triggered at the close of a bar. I have also noticed that the close is an important factor that many successful traders insist upon before entering a trade.
Yet for most of us there is a real temptation to want to jump is as quickly as possible when we see a setup forming. This seems like the natural thing to do. After all we have been waiting all day perhaps for this moment, so we don’t want to miss it and why wait to enter at what will probably be a less good price by the time the bar actually closes. So let’s just jump straight in!
But hold on a minute. If the bar close is the official trigger to enter the trade, that was probably selected for very good reason, wasn’t it? If so than we need to be patient and control our urge to just get in.
What’s the big deal?
Instinctively we know about the importance of the bar close after years of observation. So what is it about the close that is such a big deal?
Well there are several reasons to consider using the bar close as an entry trigger. These include – noise, stops and sometimes volume.
Markets are full of noise these days. Quick sharp spikes that spontaneously reverse as price gets straight back to where is was a few minutes earlier. These can be caused by all sorts of factors – big orders exceeding available liquidity, reactions to news or rumours etc.
Think of stops as food!
Markets also thrive on volume. That is what they are always hunting for. That is what the industry relies upon. Obvious areas where people place stops are therefore targets. If the market can probe such an area stops get triggered and, well, that creates volume doesn’t it? Volume is how the market feeds itself!
So when traders always say that “they” are gunning for our stops, there is a degree of truth in that statement! It is also a reason why in my trading own I try to (a) identify those areas where the market is likely to be stop hunting and (b) not to place my own stops in obvious locations!
Gaining another little edge
Now if trade rules require entry on the close of a bar rather than just at an entry price, to some degree it is possible to avoid getting trapped by such spikes. For example imagine a quick spike that lasts for say one minute. By entering on the close of a five minute bar, rather than at a price level, the risk of entering on a spike rather than a valid trade is reduced. It is not eliminated, but the chance is reduced from 100% to 20% in this example. Its not perfect but if the price of avoiding 4 out of 5 such traps is a little patience, that might be a virtue worth developing?
In the case of daily bars there is an additional factor to consider. If a market is able to hold onto a price level attained during the day, after the heaviest volume of the day has already been transacted, the likelihood that that price level is significant is greatly increased, and this is important information (whether most traders are aware of it or not!).
These are just a few of the reasons why professionals often utilise bar closes when developing trading strategies. It isn’t some earth shattering revelation, but just one of the many tricks a trader can use when seeking an edge in the markets. Ultimately in a business where there is no certainty, no right and no wrong, gaining an edge in any and every way we can is a route to better performance.
Disclaimer, risk warning and copyright notice apply to all articles published on this site.
Copyright © Simon Townshend Ltd 2011, all rights reserved
The hidden power of writing…don’t underestimate it!
After my “Evolve or Die” webinar in March with Linda Raschke and FuturePath Trading, Linda mentioned something really interesting. She said that she often finds a real benefit of running such events is that it forces you (the speaker) to gather your thoughts and reinforces concepts for you personally as well as helping others with the insight provided.
I have long been a believer in writing things down, as I have always found this does exactly the same thing that Linda was alluding to. It forces you to think things through in a very structured and rigorous fashion. It also makes you think through the finer details very carefully of what you are trying to communicate and these can often contain surprising revelations. Finally, the act of writing things down somehow seems to help commit them to memory much more fully than not doing so.
So you could say I am a believer in committing things to paper as there are often much deeper benefits to be had as a result, over and above the obvious purpose of simply capturing information.
My Eureka moment
Well this week something startling happened that I had never anticipated. I was working on my slides for our summer seminar. In one of my sessions I will be revealing all 6 of the trades in my behind the chart strategy. Previously I taught just 2 of these setups.
Anyway there I was marking up some charts with the entry points, initial stops etc. Suddenly something amazing just hit me as I was drawing on those charts. For years I have followed these trades and simply never noticed it before. Yet the simple act of preparing some slides suddenly opened my eyes to something quite incredible.
What did I discover?
Well, have you ever noticed how you always seem have your biggest positions on losing trades and conversely never seem to have enough on the best winners? For many traders this is in fact the case. But even for others who use a fixed unit size – this still feels like it is true!
OK so how would you like to turn that on its head? How about having only half as much on the losing trades as you have on the winners? Wouldn’t that be quite something?
Impossible you say? I hear you. In most cases I would agree with you. However what I discovered quite by accident really does allow you to have twice as many contracts on the good trades as you have on the bad ones!
I shared this with Professor Quinto later that day. He was stunned.
I shared this with some of the traders in my chat room this week and they thought this was really cool. We watched a real trade unfold in real time as I talked them through the strategy. It was spectacular.
Just to be clear what this profit magnifying technique does is to provide 2 units of your chosen trade size on the best winning trades, yet never to lose more than 1 unit on the losing trades!
I am really excited by this as it makes a massive difference to the overall performance of any system. You only need 33% winners like this to breakeven and let’s be honest even the crappiest of strategies can do better than that. We will be teaching setups that often deliver 70% to 80% winners where this can be applied. The only drawback is that I can’t apply this trick to every setup in my toolkit. But you can be sure from now on I will be applying it to every trade where it can be used.
Join in the fun
If you would like to take my newly discovered profit magnifier and apply it to all the setups I will be teaching or to apply it to many of your own trade setups, then do join me at the Century Of Trading seminar on June 25th.
This profit magnifier was never planned for the seminar, so I am really excited to be adding yet another amazing technique to the already bursting agenda. I am really excited to be sharing all of this, period. I do hope you can join us for what will be a spectacular event – the first live appearance I have made in 4½ years!
Disclaimer, risk warning and copyright notice apply to all articles published on this site.
Copyright © Simon Townshend Ltd 2011, all rights reserved
“Evolve or Die” – LBR webinar replay
I was swamped with feedback after the webinar I recently gave with Linda Raschke and have tried (!) to respond to everyone in the days since this took place. Thank you to everyone who took part and I’m delighted so many people found it so thought provoking.
If you missed the live event or would like to watch the replay, here is a link to the video archive. Just click on the picture below…
Enjoy it, let it percolate in your mind for a few days and see how you start to think differently about the markets and start to find ways to simplify what you yourself are doing each day!
Disclaimer, risk warning and copyright notice apply to all articles published on this site.
Copyright © Simon Townshend Ltd 2011, all rights reserved
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