Three Steps To Improve Your Trading

Posted In Day Trading Blog | Rockwelltrading.com/blog

Estimated Reading Time: 5 min.


Many traders struggle to make consistent profits. And so they keep looking for another strategy, another course, another trading robot, .... just ANYTHING that might improve their trading.
And that's why many traders spent more time and money on strategies, eBooks, indicators and courses, until they have no funds left to trade.
But as you know, it doesn't fix the problem!
In the following article I want to show you three steps to improve your trading. In fact, I believe that by following these steps and you can dramatically improve your trading in the next 24 hours!

Step 1: Record Your Trades

Whether you are trading on a simulator or already trading with real money: You MUST record your trades.
Successful traders treat trading as a business and they know their numbers.
Just think about it: If you are running a business, you want to know whether you make money or lose money. And if you are making money, you want to know WHY you are making money, e.g. what products or services provide the highest profit margin, what products and services sell best, etc.
And if you lose money in your business, you need to figure out why, too!
Same in trading. You MUST keep accurate records of all trades that you placed, whether you took them on paper during backtesting, in a simulator or live in your account. Here's the information that you need:

• Date: Just enter the date on which the trade occurred.
• Market / Symbol: Record the symbol of the market you are trading, e.g. ES, YM, AAPL, EUR/USD
• Long / Short: You need to record whether you entered a long or a short trade.
• Entry Price: Record the entry price.
• Entry Time: Record the entry time.
• Exit Price: Record the exit price.
• Exit Time: Record the exit time.
• Profit / Loss: Record the profit or loss that you made on this trade.
• Strategy Used: If you are trading multiple strategies, record which strategy you used for this trade.
• According to Plan?: Record whether you took the trade according to your plan or not.
• Comments: Write down any comments about this trade, e.g. "Great trade. Followed all my rules" or "Forgot to check the calendar and traded right into a report."

The best way to record your trades would be in an Excel spreadsheet, because then you can sort your trades for the next step.

Step 2: Analyze Your Trades

Now comes the fun part: You need to analyze the trades to see which trades are making you money and why you are losing money.
Here's what you should analyze:

• Are there certain markets in which you MAKE money? Are there markets in which you consistently LOSE money?
• Are there certain times of the day when which you make/lose money?
• Are there certain days of the week when you make money? What days of the week are you losing money?
• Take a look at your profits and losses. Are there any BIG losses that stick out? If so, take a look at your comments. Could these losses have been avoided?
• Are there certain strategies that LOSE you money? Any strategies that MAKE you money?
• Do you trade according to your plan? Do you notice that whenever you don't' follow your plan, you have more losses than normal?
• When reading through the comments, do you notice any particular pattern, e.g. "moved the stop too early to b/e" or "took profits too fast"?

When using Excel, you can quickly analyze your trades according to the criteria mentioned above.

Step 3: Modify Your Trading Plan

Based on the analysis you did in Step 2, modify your trading plan.
As an example, if you make money during the morning session, but you lose money in the afternoon, just focus on trading in the morning.
If you make money trading ES, YM and NQ, but you lose money trading TF, stop trading TF!
If you make money Tuesdays, Wednesdays and Thursdays, but you lose money on Fridays, stop trading on Fridays.
If you make money with Trading Strategy #1 and Trading Strategy #2, but you lose money with Trading Strategy #3, stop trading strategy #3!
You get the idea, do you?

A Personal Experience

When I moved from Germany to the US to become a professional trader, I struggled in the first few months. But then I started to analyze my trades exactly as outlined above. And I found out a few things about my trading:

• I made money on the trades that I placed during the morning session, but I had an unusually high amount of losing trades during the afternoon session. So I stopped trading in the afternoon, and even today I'm just trading in the first two hours after the US stock markets open.
• I had an unusually high amount of losing trades on Fridays. As a result, I usually don't trade on Fridays.
• I discovered that I had more losses than normal when trading the e-mini NQ. Therefore I stopped trading NQ an focused on the markets that made me money: e-mini S&P, 30-Year Bonds, Gold, Crude Oil and EuroFX

To date, I am surprised how many traders don't keep accurate records and don't even know what's causing their profits, and what's causing their losses.
If you have been placing ANY trades, whether on paper, on a simulator or live, then you are sitting on a gold mine of information. If you follow the steps above, you can dramatically improve your trading in a matter of hours!

• Do you keep accurate records?
• Do you know your numbers?
• Have you ever analyzed your trading like this?

High Frequency Trading HFT

This is the period that neither FA nor TA able to work. Professionals applying TA and FA cannot compete with AI using high speed computers. 

High frequency trading (HFT) is putting on and taking off positions so rapidly that it’s really only made possible by using current technology

The practice of HFT would disrupt the normal market activity by investors with high volume trading without consideration of fundamentals of a company, and that could be the main reason of the high volatility the past two weeks, and professionals like fund managers had been blaming on this trading practice for the volatility as it was claimed that about 60% of volume was generated by such HFT practices. Such trading practice ignores the basic concept of investing in a company basing on fundamental analysis and long term investment to reap capital gains as a company grows its value with time. 

High frequency trading ignores all fundamentals, and disrupts technicals. The high frequency trader may start the day with zero invested and ends the day with zero invested, but with gains. All that has been done is manipulation of the market for personal gain. There must be ways to curb or regulate such disruptive practice in the stock exchanges and foreign exchanges.

For more reference, read Wikipedia:
http://en.wikipedia.org/wiki/High-frequency_trading

Manual vs Automatic Trading - Forextopten.com

http://forextopten.com/manual-forex-trading-vs-automatic-forex-trading/

The Forex market is always evolving. In just a decade, it changed from a “private” market where only some special participants were allowed to take part to be an open market that can be traded from anywhere in the world.?

But the changes didn’t stop here. We evolved from manual systems where traders would have to look at their charts during the entire day to the automatic Forex systems, where you just need to leave your computer on and a robot does all the work for you.

Both manual and automatic systems have advantages and disadvantages and you should choose the best one for your own needs.

Let’s start by the manual systems. By using a manual system, usually a trader must understand some concepts about technical and fundamental analysis, about the market itself, among others. This makes you have a longer learning curve but this is what helps you make better decisions.?

Usually, when people say bad things about manual trading they refer to the time spent in front of the computer, just waiting for the right trade. This is in part true; but nowadays, some manual systems already tell you the best hours to trade and they even tell you that if you don’t see one good opportunity in 1 specific hour, then you can turn off your computer for the day. This isn’t a reality for all systems but it’s becoming more common every day.?

The best advantage you have when you’re trading using a manual system is that you’re in control. You control your account, your money, the money you place in a particular trade.

And what about automatic Forex trading systems? If you have a full-time job and just can’t be one hour in front of your computer, that’s probably the best solution for you. But still, you need to be careful with the one that you choose. There are many robots out there that simply don’t have a stop loss placed, or have a bad risk/reward. This may lead you to lose a lot of money fairly quick.?

One of the things that I personally don’t like on certain automatic systems is the fact that they don’t even explain us how they work. The basic assumptions made by the robot to enter in a particular trade may be wrong and may lose money. But not all of them are like this. Some are already stating in what the robots are based (if its only the price, some indicator, etc.).?

Automatic trading systems best advantage is the fact that they don’t require a learning curve. You just install them and they’re ready to do all the work for you.

Choosing between a manual trading system and an automatic trading system may not be easy but it’s essential. No matter which one you choose, don’t forget that you always have free demo accounts to test them and to be sure they’re profitable and consistent before you commit your hard-earned money.

Manual vs Automated Trading - Winner's Edge

http://www.winnersedgetrading.com/manual-trading-or-automated-trading/

Manual Trading vs Automated Trading

Written by NathanTucci on June 1, 2012 23 Comments

These days, there is a lot of discussion about automated trading vs manual trading.

One of the main things that has caused these discussions is the flood of automated trading systems that have come into the marketplace. There are THOUSANDS of Forex trading robots out there, and almost every one claims to turn tiny accounts into millions of dollars overnight.

Now, hopefully we are beyond the point of believing these ridiculous claims; however, we shouldn’t let these EA scams steal the validity of real automated trading systems. The truth is that automated trading can work; many major investment institutions use highly optimized trading robots to pull money out of the market, so there is a way to make money using these robots… BUT…

Is a Good Robot better than a Good Trader?

Like in any good argument, there is certainly advantages to both. For me, it is impossible to say one is better than the other, but let us dive into the argument and see what we may discover.

We will look at automated trading first.

The first advantage that jumps out to me about automated trading is simply the nature of having a robot trade. It is exact, perfectly disciplined, and doesn’t make mistakes (if programmed correctly, of course).

One of the biggest problems that a trader faces is his ability to be disciplined and stick to his plan. With automated trading, you can be assured that the robot will be completely disciplined and stick the the plan you set up. Often times, it is the ability to stick to the plan that makes the difference between a profitable trader and an unprofitable trader so that is a point for the robot. (+1)

Not only will a robot stick to the plan and be disciplined, but a robot will always execute correctly. A robot won’t take a buy when it should be taking a sell, it won’t enter the wrong lot size and it won’t misplace the s/l or t/p. This is a huge benefit in trading, because mistakes like the ones mentioned are killers to your overall success. That’s another point for the automated trading. (+1)

Robots can also take in more data than a human trader. That means, if your strategy applies to a whole bunch of different currency pairs, you can probably only monitor a few at a time. With an automated system, you just plug it into however many charts you want it to monitor and BAM, it won’t miss a signal. Another point for the robot…(+1)

But wait! There’s More!!

Not only will the Robot trade with better discipline, better execution and more range BUT ALSO, a robot doesn’t get tired. While you pick the few hours that work best for you, the trading robot will be plugging away at the markets 24 hours a day. That is 3 , 4 maybe 10 times as much as a manual trader trades the market… Yet another advantage point for Mr. Robot trader. (+1)

Okay, Okay. The human trader has been beat enough; time for him to fight back.

The main thing that a human trader has that a robot doesn’t is a brain. Where a robot can only execute decisions based on the scenarios that programmed into him, a human can take into account everything that is going on and process it together.

A human can take into account fundamentals that are occurring unexpectedly (like a hurricane in Japan). (+1)

A human can see that the market is moving awkwardly slow or unreasonably erratic and pull out his trades. (+1)

A human can decide when he has enough profit and when he thinks the momentum will continue in his favor. (+1)

A human can get a feel for the market–he can get “in the zone.” (+1)

So there are actually a lot of bonuses to being human–who knew?!

 But there are also bonuses to not having to think, not having emotions, not having a limit to the information you can process.

So which one is actually better? Which one has the potential to be a more profitable trader?

Do you side with your own kind?

The Human?

….

Or the Robot?

Algos vs Human - BORIS SCHLOSSBERG

i FEEL you! - BY BORIS SCHLOSSBERG

"The more I trade, the more I am convinced that the cowboy-seat-of-the-pants-discretionary style of trading is done. Algos are the future, although not necessarily in the way you think. Pure algorithmic trading is actually starting to lose its value. Everywhere you look -- in equities, in FX, in futures -- algos as percentage of volume are peaking. That’s because we’ve pretty much reached the limits of front running. Most black box algos are nothing but brute strength machines that simply cheat the average investor by scooping up the order a millisecond ahead. Now that machines are fighting each other, margins have collapsed and HFT is no longer as lucrative as it once was.

However, there is a new class of software called “grey boxes” that are actually producing real value in the market. “Grey boxes” act a decision support software tools for traders. By taking an objective measurement of the market, they provide traders with valuable insight, anchoring discretionary decisions with solid quantitative support. Just like card counting at blackjack -- they help traders to put the probabilities on their side. That doesn’t mean they always produce winning trades. Just ask any card counter about “bad beats”. Having higher probability simply means that over a long period of time you stand a better chance of winning. In the immediate present you could still suffer massive losses -- and this doubly true in an open ended game like the financial markets where are odds are constantly shifting versus card games like blackjack and poker where the number of possibilities is fixed.
Still although “grey boxes” may be the next wave of trading, I still firmly believe you need to allocate a small part of your capital to purely discretionary trading. You should do this not because it will make you money -- in fact its very likely you’ll lose -- but rather because it will help you understand the price patterns of the market. As human beings we are highly tactile creatures and by actually “feeling” the market you get to discover new ideas, new patterns, new behaviors that a regimented computer program will never pick up.

So in the end, I believe success in trading lies in both computer assisted decisions and good old human speculation."

Five Major Mistakes in Trading

First of all, ignorance is the main key to failure in trading. In this arena, we refer to many aspects of ignorance such as being oblivious to risk factors, uninformed of fundamental changes, unknown market features of an instrument, unfamiliar to trend behavior etc. Hence, if you are ignorant to your own business product when you try to promote it, this is equivalent to trying to make profits from the market when you do not know the instrument well!



Next, trading with no game plan is like going into the deep jungle trekking without a compass and map. Never think trading is just about hitting a blue and red button. The price swings of the trend might effectively wane the fighting spirits and confidence of a newbie easily if no mental and trade preparation were properly done. In fact, a trading plan refers to the proper criteria of finding a new entry coupled with risk management and exit level. Do not depend of luck as no professional in any field can survive for a life-time in their respective career if they do not know what they are doing every day.



Averaging on losses is the fastest way to bankruptcy! If you think this is a joke, it will take you no time to start auctioning your assets for paying your losses. By nature, averaging on losing positions are easiest way to break even in trading stock markets though this "foolish" act has proven to be futile in every market crash. But if you try doing this in margin trading in futures market, most stubborn traders will find the market will come back to their entry price only after months or years later, when all their assets have been whipped out.



The fourth mistake is the habit of sitting on random losses. Even if one thinks he does not average but simply sit on 1 single losing position. Beware the "cow" may take an uncertain period of time to dawdle or perhaps, it will never come home to your favor. Most ignorant new traders think they have enough margin buffers to sit and wait randomly for the losses to be neutralized by reversing trend. Unfortunately, the time opportunity they have lost on the price fluctuation has proven unproductive in the purpose of leveraged trading.



Lastly, over-leveraging is a fatal act due to either greed or ignorance. Margin trading requires an amount of deposit relatively to the full face value of the traded instrument. In other words, the other partial value that is uncovered by your margin is actually the exposed risk! Thus, high leveraging factor offered by the broker may not be a good trading term to traders. Simple speaking, if the margin deposit is 10 percent of the face value and margin-call will activate when the collateral reaches 50 percent losses, that means a floating losses of 5 percent from the face value of the financial instrument would have kicked you out of the game! Therefore, have at least three times the margin deposited as required by your broker.



Of course, there are thousand and one reasons why traders lost monies. But it needs only one reason for a trader to make profit from making a trading transaction. That is, to eradicate the above 5 mistakes in trading and re-develop the good habits of a consistent trader.

13 Stocks for 2013 by Goldman Sachs

Goldman Sachs Group Inc. pointed out a number of stocks that could provide some easy money for investors by virtue of what the Wall Street bank calls a “social contract” — a combination of earnings appreciation due to expected share buybacks along with dividend yields. It could be easy money, provided shares remain stable or rise, for investors looking for as close to a guarantee as equities can offer

Assurant Inc. AIZ +0.03% is a specialty insurer offering everything from property coverage to prefunded funeral insurance. Trading in the mid-$30 range, it has the highest potential earnings accretion due to share buybacks at 13.8% and a dividend yield of 2.6%, putting its total at 16.4%, according to Goldman. Target price now is at $45

Paper miller Domtar Corp. UFS -0.73% is second on the total yield list with 15.6% due to a potential 13.5% earnings accretion from share buybacks and 2.1% from dividends. Upside on the mid-$80 stock is roughly 3%,

Validus Holdings Ltd. VR +0.33% is third with 10.6% earnings accretion and a 3.3% dividend yield, for a total combined 13.9% payoff. Based in Hamilton, Bermuda, the reinsurer is trading in the mid-$30 range and has a Goldman price target of $44.

Coca-Cola Enterprises Inc. CCE +0.52% is fourth on the list with a combined 13.7% earnings accretion plus dividend yield. The Atlanta-based bottler of Coca-Cola KO -0.11% is now trading in the low-$30 range and has an upside of about 19%

Offering the top dividend yield of all the companies on the list puts energy firm HollyFrontier Corp. HFC -0.28% in fifth place. HollyFrontier boasts an 8.4% dividend, more than twice that of any other company. But its relatively low 3.5% buyback earnings accretion keeps the total payout at 11.9%. Trading in the low $40s, HollyFrontier also is considered to have the highest price upside of more than 50%, with a target of $69.

Wyndham Worldwide Corp. WYN +1.02% has a potential 11.8% combined earnings accretion and dividend yield, according to Goldman, making it sixth on the list. Trading in the mid-$50 range, the stock’s price target is $62.50.

Home-improvement retailer Lowe’s Cos. LOW +0.33% takes the seventh spot with a total payout of 10.2%. Lowe’s could yield up to 8% in share-buyback earnings accretion, Goldman says.

Marathon Petroleum Corp. MPC +0.88% is the second energy company on the list, and eighth overall with a combined 8.6% share accretion and dividend yield. The company has a relatively large potential share payoff as well, with shares in the $61 range and a price target of $87, for a 36% upside

Ameriprise Financial Inc. AMP +0.58% now is trading in the mid-$60 range, near its price target. But the combined dividend-share accretion yield could reach 8.5% this year, Goldman says, putting it in ninth place. The asset-management company is based in Minneapolis.

Railroad operator and freight hauler Norfolk Southern Corp.NSC +1.41% comes in at 10th, with a combined yield of 8.4%. Goldman says the company should have a dividend yield of 3.3% as well as accretion payoff of 5.2%

Insurer Axis Capital Holdings Ltd. AXS +1.46% is 11th, with a combined yield of 8.2%. Based in Pembroke, Bermuda, it offers everything from catastrophic insurance to medical malpractice, as well as reinsurance to other providers. It also has a 21% potential upside to its price target of $43.

Fifth Third Bancorp FITB +0.07% is tied for 11th at 8.2% in total yield, Goldman says. The Cincinnati-based financial-services firm could see 5.2% earnings accretion from share buybacks, according to the Wall Street firm.

China Applied Materials Inc. AMAT +1.00% concludes the list at No. 13 with a potential 7.8% yield. The chip maker is the only tech firm among the top 13. The Santa Clara, Calif.-based company now is trading between $11 and $12, with a Goldman price target of $13.