reviewing trades – 2nd Skies Trading

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The 4 Components of A Trading Process

I recently read a post by Brett Steenbarger called ‘The Four Pillars of Trading Process‘. In this article he outlines and details what is a trading process, isolating several components of any trading process. They are;

1) Preparing
2) Performing
3) Reviewing
4) Revamping

Before I get into the spice and flavor of these four points, I’d like to state this commentary on Mr. Steenbarger’s post is both praise and critique. I appreciate his work on trading psychology and would suggest checking out his blog.

In this post, I found useful components to his description of the trading process. However, there are a few ingredients I would amplify/expand on, meaning I felt they could have been cooked a little more.

Let’s get into the four components and how he describes them. I will go over one at a time, discussing what I found valuable, along with what I’d change/adjust/or add to.

I will also give suggestions how you could get a greater understanding of the trading process and how to leverage this to increase your trading skill set.

#1 Preparing

Mr. Steenbarger defines this as the following;

“Preparing – What you do to identify and exploit opportunity in markets, including observation, research, idea testing, trade structuring, portfolio construction, and trade planning.”

To me, this first one falls short, because it only covers what you do once you sit down in front of your trading station.

Preparation (in my book) begins with the mental game, and that has to start before you actually put your butt in your chair.

You’ll see this in professional athletes who are getting themselves mentally ready before they even get to the stadium.

Aaron Rogers (quarterback for the Green Bay Packers, 1x Super Bowl Champion & holder of several Quarterback records) actually spends time the night before thinking about the game and what he is going to do.

Trading has to be approached in a similar way, and the successful traders I communicate with regularly employ the same tack.

Hence, we have to include mental preparation in this part of the trading process.

Even though Brett (Mr. Steenbarger’s first name) does a good job outlining what you do when you are in front of your trading station, I think this definition of ‘preparation‘ needs to be amplified.

#2 Performing

Here Mr. S. defines this as follows;

“Performing – What you do to initiate and manage positions in the market, including sizing, risk management, entry and exit execution, and adjusting to the ongoing stream of news, data releases, and market movements.”

Here I think Brett covers (by and large) all the ‘mechanical’ actions you as a trader will execute and engage on a daily basis. I do feel there is room in here to discuss ‘mental management‘ which is a large component of ‘performing‘ during your trading day.

However, I will cover this in the near future.

#3 Reviewing

Mr. S. here writes;

“Reviewing – What you do to examine individual trades and overall trading to learn from successes and mistakes and to reexamine ideas about markets.”

Not much to say here – he pretty much nails it, other than reviewing one’s mental performance & trading journal.

Note: For a great article on how to review your trades, read Reviewing Trades: Two Crucial Tips)

#4 Revamping

Brett here states;

“Revamping – What you do to translate your reviews into concrete goals and actions that make you more prepared and aid your future performance.”

Here I also feel he gets it right, although I think we can bring this into #3 above and make them one whole component of the trading process.

Now he also states in this article how the main issue for traders is not letting their emotions affect their trading and discipline. He feels the big issue is how they neglect the last two elements and spend most of their time working on #’s 1 and 2. Does this ring a bell?

While I certainly agree traders are less likely to review their trades, performance, process, etc., I find most revamping their methods all too frequently without ever digging deep into any one process, system or skill set.

On top of this, I find without a doubt many traders let their emotions affect their trading and discipline. I hear about it all the time, and even see it in their trading journals.

My experience is both are a major issues. Any trader not controlling their thought processes or emotions is the least likely to succeed. Hence I see it as a both-and scenario, not an either-or.

In Summary

I think Mr. Steenbarger does a good job of breaking down specific components of the trading process, and giving them a more detailed look.

I personally feel there needs to be more emphasis on preparation & reviewing, along with managing one’s mindset and emotions in real time.

I do see other components besides these four, which I will cover in the near future, but overall, he does a good job of bringing a greater discussion on the subject.

Those traders without a well developed trading process beyond the vanilla a) take a trading course, b) learn a trading system, and c) start trading in the markets, will find themselves struggling to trade consistently, missing key components, and not building their skill set.

Unfortunately this is the path most traders take, and it simply won’t get you from here to consistent profits. Hence why this is an important article and discussion.

With that being said, what parts do you see as critical to the trading process? Do you agree with my sentiments here?

Please make sure to share your thoughts, comments and feedback, particularly why and what you see the same/or differently.

Trading Strategies

Don’t Trade Forex Unless You Are Doing These 4 Things

You might have had a few profitable months trading live this year, but if you are like 92.5% of all traders out there, when the clock strikes 2015, your account will be negative.

In almost all endeavors, the dividing line between success and not making it is a fine one. Likewise, such a dividing line is drawn daily by what you do, and what you do not do.

Another way of putting this would be – those who will be profitable at the end of 2014 will generally do the things consistently others will not.

The great thing is, you can be one of those in the green at the end of this year. To get there though, you’ll likely have to make a few changes to what you are doing.

Here are some simple steps you can take to put yourself in the 7.5% who will be green at the end of the year. These are the 4 things you should be doing (minimally) if you are trading forex.

1. Being Mentally Prepared

Ever go to a professional sports event 1-3 hours before the game started? Besides empty seats and reporters giving up to date info, you’ll see one constant every time. The athletes themselves are preparing.

All professionals simply know you have to prepare before each game/event/match. Keep in mind, these professional athletes are already successful, yet they prepare regardless. In trading it is no different, although most of our preparation is mental.

Being mentally prepared, means knowing what you are going to do during your trading day, and how you are going to do it. It is tuning your mind to give yourself the greatest mental edge possible.

Ask yourself do you prepare mentally each day? Do you have a routine you go through before you hit the buy and sell buttons? What do you do to build a successful mindset?

Interesting Story: I had a student who started off his first month of live trading in the red. The next month, he upped his game gaining +11% for the month, mentally prepared for each day.

Ironically the following month, he stopped his mental preparation, and as suspected lost money.

After doing his private follow up session with me, we got him back on his mental preparation routine. Where is he at for the month of May? Up almost 7%.

2. Have A Trading Plan

One of the most important documents you will have as a trader will be your trading plan. This is what you will follow each day from the beginning to the end of your day. It is to guide your actions, along with helping you measure habits and patterns of behavior, to see what is working (or not).

There are generally two types of trading plans:

1) Day-to-Day Trading Plan (actions to do/follow daily)
2) Business Trading Plan

Most ‘authorities’ and ‘masters’ of price action promote only the first one, and they do so in a highly limited way.

Generally such freshman trading plans cover the typical vanilla things, such as;

1) Price Action Signals to Trade
2) What instruments you will trade
3) % Equity Risk Models
4) Stop Loss and Take Profit Rules
5) Rules for Entry & Exit

Look familiar? These plans are completely inadequate by themselves. They myopically focus only on the mechanics of an actual trade.

What about mental preparation? What about reviewing your trades? How you will treat trading as a business, and measure properly if your business trading plan isn’t working?

Just like the CEO has a business plan, or the NFL coach has a game plan, you should not be trading without a trading plan.

NOTE: For a really good article on How to Build a Proper Trading Plan, click on the link.

3. Have a Way to Measure and Review Trades

Most traders in the red come end of the year do not measure their trades. The irony is, usually a small adjustment to what you are currently doing will help you trade consistently profitable. One of the best places to find this information is in measuring and reviewing your trades.

Measuring your trades is initially done through a trading journal and performance worksheet. The former notes all the details about each trade, while the latter analyzes the performance of each pair, strategy and time frame.

Have you considered the fact you may do really well with a few pairs, yet consistently lose money with others? How would you know without measuring your trading performance?

Reviewing trades is probably one of the hidden secrets you’ve overlooked to boost your performance and skill set. Sometimes looking at charts of past winners and losers will help you spot patterns and price action context you missed before.

NOTE: For a good article on reviewing trades, visit the following link: Reviewing Trades – Two Crucial Tips

I actually have a folder full of screenshots for winning and losing trades. I also have a folder of screenshots whereby the charts show great examples of a price action pattern working out. By reviewing these charts at the end of the week, I am wiring into my brain to look for these patterns, thus being more likely to spot (& trade) them in real time.

For more information on end of the trading week review, click on the link here.

4. Continual Training

Most developing traders seem to think that once they are profitable, the training ends. Does a concert pianist ever stop training? Do high level martial artists ever stop training? Do Buddhist monks ever stop training?

No. So why would you think that training ends at some point?

Do you have two hours set aside to trade each day, but no trades available with your set and forget strategies? Don’t walk away and be a lazy trader – study, practice, or best of all – do live simulation trading.

Is it a holiday and the markets are closed? The answer is the same.

Anytime I am not trading for the day (for whatever reason), I Use Forex Tester 2 to Accelerate My Learning Curve. FT2 allows you to do live forward simulation trading on any pair or time frame, with at several years of data available.

Need help with your pin bar trading? Use forex tester 2. Having trouble trading support and resistance key levels? Jump on forex tester 2.

It’s like the golfer going to the driving range – but for trading.

This is a great way to build your skill set and get real practice time executing trades in with live forward simulation. You could literally do 50-100 trades in one hour with forex tester 2, which may take you an entire year to do on your own.

I could spend a day talking about the benefits of this as the list is long, but for those trading daily and 4hr price action strategies, you’ll need to increase your trade/rep count to build a sufficient skill set. FT2 is the best way to do this.

You Will Need This Though…
One might think that having a strategy with an edge is one thing you shouldn’t bother trading without.

I agree, but I think this should be a part of your trading plan. If it’s not, then your trading plan is incomplete.

In Summary
All high level professionals do a minimal amount to perform well in their chose field, and that minimum amount they do is often more than those who are not successful. Trading is no different.

If you decide to trade anyways without doing these 4 things above, expect sub-par performance. More importantly, don’t expect the best out of yourself.

With that being said, what things would you add to this list?

Forex Strategies, Trading Mindset & Risk Management

Set and Forget Trading – How to Really Maximize It

Let’s face it – not everyone has the ability to sit down for hours a day building their trading skills. Many of you have full time jobs, families, etc., yet still want to participate in the market.

If this is you, I generally recommend using forex set and forget trading strategies to trade the market. This is done by using rule based systems for to find your entries, exits, stops, & take profit levels. The ‘rules’ save you time as you just have to spot the conditions for a legitimate setup, then put in your order.

The problem is, the more popularized version of this ‘set it and forget it‘ investing style is to set your trades and then ‘walk away’. Perhaps you go read a book, golfing, or hang out on the beach. This is a completely ridiculous idea which actually harms your learning curve.

In this article, I’m going to share the major flaw in set it and forget it forex investing, then explain how you can accelerate your learning curve.

Walking Away – The Major Flaw

Let’s say you only have 2 hours per day to analyze & trade the market. According to the more popularized version of ‘walking away’, you spend say 30 mins to find your setups, put your trades in, then do something else.

Why does this harm your learning curve? Because you already have two hours set aside for trading. If you walk away after 30 minutes, you are missing out on 1.5 hours of screen time and an opportunity to build your skills.

I know what you are thinking – if you have no more trade setups, why sit at the charts?

Wow – great idea. So if I’m not actually in a golf tournament – I shouldn’t practice my golf swing? If I’m not playing a live baseball game, I shouldn’t go to the batting cage, or work on drills, or throws? Ridiculous – and I hope you can see this as well.

What You Can Do Differently

Perhaps your strategy trading pin bars with trend. You have no more setups for the day as you’ve put in your one trade. Does that mean you cannot increase your screen time or learning process? No, have two hours, so USE IT. How so?

Get Trade Interceptor or Forex Tester 2 where you can go back historically to any point in time & trade price action doing live forward simulation testing. Trading pin bars with trend, open up a daily chart several years back on your favorite or weakest pair. In testing mode, it will move the actual bars at a speed workable for you & of your choice.

Anytime you have a pin bar setup that meets your qualifications – trade it the way you normally would your real system. This will give you both increased reps and screen time – both of which will enhance your learning curve. In an hour of live forward simulation trading, you could actually trade 30-50+ pin bars.

What will this do? It will;

a) Enhance your pattern recognition skills
b) Build neural networks in your brain to recognize high probability setups using your strategy
c) Give you more practice and execution using your method, which will
d) When it comes to live trading, increase the chance you just pull the trigger with less emotions or analysis paralysis

By Comparison

What does the person who ‘walks away’ from their computer, gain during their remaining time? Nothing! They build no screen time, have weaker neural circuits for making trading decisions or pulling the trigger, let alone pattern recognition skills.

Yet the trader who practices that extra 1.5 hours doing live forward simulation trading will improve at a much faster rate.

A Top Professional

Just recently, I got a perfect reinforcement of this from a top professional. Peyton Manning is one of the best quarterbacks in this generation – perhaps top 10 of all time. He’s 37 and is still playing at a top level.

Yesterday he was in a high intensity back and forth game that went down to the last two minutes to decide the winner. He’d score – then the other team would score, quarter after quarter, both taking the lead at some point. He just scored the 4th touchdown of the day to take an 11 point lead. What was he doing right after this? Take a look at the photo below.

Is he ‘walking away‘ watching the time go by till his next drive? Nope. What is he doing?

Looking at the plays they just made on the winning drive. He’s looking at the formation of the opposing defense, analyzing what he could exploit, what mistakes they are making, etc. This is maximizing your time.

He’s one of the best ever, yet he’s not ‘walking away‘ from the game. He’s engaging in it every moment he can, looking for patterns, reviewing plays, looking to spot what he missed earlier.

This is what you should be doing if you are trading set and forget strategies – using every moment you have. Each practice trade you do on Forex Tester 2 is like an extra lap on the track. Who do you think gets faster and more conditioned? The person who does 2-3 laps per week, or the runner who does 30+ a day? Rhetorical question – but had to ask.

So don’t be a ‘lazy trader’ and just ‘walk away’ as you’re just losing valuable screen time to do more laps. Utilize your time to the max. Trading, is just like any skill as you need practice, lots of screen time, & a successful mindset.

By doing using your time doing live simulation testing and reviewing trades, you are accelerating your learning curve, creating stronger neural networks for trading, and building screen time which is critical to trading success.

Forex Strategies, Trading Mindset & Risk Management

Reviewing Trades – Two Crucial Tips

Being a huge football fan, on Sunday my monitors are littered with NFL action. Since I don’t have a TV, I watch all the games online. Before or in between games, I’m glued to the NFL network which is both highly educational + entertaining.

Yesterday I heard a great example of a player who went to a team building exercise on a non-practice day. They went bowling. With 4 on each bowling team, plenty of down time before tosses. What was this defensive lineman doing in between tosses? On their iPad reviewing plays. That is someone who recognizes the value of reviewing their work.
In the NFL & Trading
Reviewing your work is critical because it helps you to see where you are trading well, what you need to improve on, and how to direct your energies going forward. All great professionals review their work, both in the NFL, and especially in trading.

Those traders who do not review their work (+ prepare mentally each day) are what I term ‘Trader Philanthropists‘. I call them that, because they are donating the money to the market. Traders who make money come prepared, are passionate, work hard and are well trained. You have to do the same.
Below I will share 2 crucial tips for reviewing your trades.
Review Tip #1 Catalog Each Trade via Screenshot or Video Recording
For the traders in my private members forum, I teach them to minimally take a screenshot of each trade showing the actual entry and exit points on the chart.
Why?
Trading is a highly visual process, and having the actual charts of the trade we took gives us a lot of data to work with. Seeing those trades with the green arrows (winning trades) time and time again builds confidence while increasing pattern recognition. Below is a typical screenshot saved for a trading journal.

Yes we get experience from making actual trades, but reviewing them is like doing an additional trade. This is because the mind doesn’t differentiate much (from a learning perspective) between real trading, and reviewing your trades. Every time you review a trade, its like doing another lap around the track. Each lap builds those trading muscles in your trading brain.

My two suggestions for doing this are via screecast (screenshots) and camtasia (video recordings).

*NOTE: Here’s a cool trick in MT4 for getting screenshots of your trades; 1) go into your trade history, and find the actual trade, then 2) drag the trade onto the pair and chart. You’ll then see two arrows with a line showing your entry and exit, SL & TP (example below).

Review Tip #2 Journal Each Trade At a Set Time
I know journaling trades may not seem like fun. That is because you haven’t tasted the value in it yet. 13 years ago I started practicing yoga. Within the first year, I was practicing it daily, along with meditation. Why?
Because I had a taste of the benefits. I felt stronger, more flexible, relaxed, creative, energized, and healthy. When things got challenging and I wanted to slow down, I just remembered the benefits outweighed my temporary discomfort.
Journaling & reviewing trades is the same.
I recommend journaling at the same time each day. By building habits and these mind programs around trading, you build the neural networks to become disciplined.
Being disciplined builds confidence and communicates something important to your self-image.

It builds confidence because when you stick with it during tough times, you get through them faster in the future knowing you’ll keep moving forward.
It communicates something important to your self-image by strengthening the feeling that ‘I will do what it takes to be successful at trading‘. That belief becomes empowering to your successful trading mindset.
I fill in my journal at the New York Close being a natural impasse in my trading day. For you, try to find a low activity moment, or at the end of your trading day. Try not to do it when you are exhausted, or you’ll likely imprint the idea of ‘exhaustion‘ with ‘journaling‘.
Just like my dentist suggested brushing my teeth while doing something fun – by association, you are more likely to do it.
In Summary
If making more money trading, increasing your consistency, and getting better at something that can last you your life is not inspiration to review your trades, then I’m not sure what will be.
We all know plenty of people who played an instrument for a while, but eventually gave up even though they showed promise. Don’t be that person. Be the one who plays guitar at gatherings and wow’s an audience.
Life wants us to be skillful, to be good at things, to be professionals at life. Be that football player who in between turns at bowling, is reviewing their work to see how they can improve. The learning process of a trader never ends, and requires some ‘sweat capital‘. The rewards are far worth the effort, especially in trading.
Now it should be noted these tips are ‘mechanical’ in terms of process, meaning they are sharing with you the ‘what to do’. In the following article, I will share with you the ‘how to’ in filling out your journal to enhance your trading mindset.
*Please make sure to share your comments, whether you agree or disagree. And if you do disagree, please make sure to share why as I value different points of view on this.