Friday, May 29, 2015

Trading the News

Today, we wanted to post another question from one of our Maverick traders who wonders how to watch economic news announcements in real time. While our Head Trader, Robb Reinhold, provides the short answer, he also discusses whether having the exact economic data point is even important.*

-----Original Message-----

From: Michael N.
Subject: Hi from Mike

I am a new trader with Maverick. I want to tell you how refreshed I am when I hear your voice on the meetings.

It is so lonely at times with everything I’m learning. Then, as I am holding it all together in my thoughts while trading, I just lose it in my mind and seem to forget it all. :) Anyway, I look forward to all the meetings and your experience and knowledge.

My ears do burn at times when you are talking about bad habits, bad moves, amateur things, etc. I feel like you have been watching me. Ha ha! But, hey, I take the notes and do what you say and learn from my mistakes as best as I can. I try to progress forward as I, at times, feel the burn as I learn. So, thank you. I truly enjoy the work and process.

I was wondering if you could help with one thing, though, on announcements like today at 2:00 p.m. I hope this does not sound stupid, but I need to know.

When there is an announcement, I can see the little folders on Forex Factory, but how do I actually get to see and read or hear them as they happen immediately – or can I? I just want to be able to watch and listen as it happens live around the world. Is that possible? Am I missing something or doing something wrong? Today after 2:00 p.m. EST, the announcement was made and the market went mad a little and I was like, “What…how…who!?!” How did I miss it? I could not find it on Forex Factory or Maverick.

Anyway, thank you for everything. I look forward to meeting you one day. I could not make the Maverick Summit because my mother passed away – but next time!

Sincerely, Mike N.

-----Reply Message-----

Hi Mike,

Thanks for your email. I am so happy to hear that your ears are burning and you are becoming more aware of your faults. It's the one thing that you can't get out of books. I really believe it's our job to teach our traders the mental side of this business. I've always said that it takes about 3-6 months to learn enough "stuff" to trade correctly, but it takes years to master yourself. Take every loss/failure as a learning opportunity and you will speed up the process.

As far as trading news goes, I had a fantastic experience about 10 years ago when I was in a hotel room up in Canada trading the U.S. Payroll report. I didn't have any CNBC in my hotel room and I didn't have any other way to "get the news," so I just had to trade 100% price action. I ended up making a nice little trade for a profit based on price action, then and I shut down my laptop and went about my day.

Later that day, it dawned on me that I never even found out what the U.S. Payroll numbers were and I realized that the news didn't matter at all. Only the price action mattered! I reflected back on the times when I would hear/see the news, make an opinion and then trade that opinion. I realized that I was simply trading my bias of what I thought the number or news report meant and that sometimes the market didn't agree with my opinion. Without access to any news, I was forced to trade only the price action, which is the market's opinion/bias of what the news meant.

The Takeaway: As a trader, the market's price action (bias) is always more important than our bias!

One of our long-term traders and Maverick team member, Joe Jensen, had the best quote years ago and we have made it part of Maverick Trading over the years. He said, "I'd rather be profitable than right!" At first, I thought that didn't make any sense since if you are "right," then you will make money anyway. Then, I realized that what he was saying was that his ego didn't matter. He didn't need to be "right" so that the market action and his opinion were the same; rather, he just wanted to make money by being on the right side of the trade. It was an insightful observation and one that I have tried to remember every time I want to be "right."

Now, to specifically answer your question, ten (10) minutes before the announcement, a little, round, green icon will appear on the Forex Factory calendar next to the announcement. If you click on that icon after the news announcement is out, it will give you the number as soon as possible. If you want more than just the number, then you will likely have to wait for another minute or two to get a story available in the folders icon.

Hope this helps,

-----Mike's Reply to Robb's Message-----

Thanks, Robb, for the words. They make a lot of sense and I will keep on. My mentality has changed a lot in the last couple months. I am much more relaxed and have less anxiety and more trust.

I had a trade on the USD.JPY the last couple of days and it was just moving back and forth on my purchase around 121. I woke up this morning and noticed that it made a jump and I was happy. I had a respectable stop on it. I can tell you that even if had been stopped out overnight, while I would not have been as happy, I would not have had a bad breakfast this morning.

It is just my new mindset. I am learning better price action and to take consistent, little bites every day. I have also learned to be able to "let it go" for a while.

Trading was literally running my life for a bit. I was either at the computer or thinking about it. Now, I am able to, for instance, relax and enjoy this weekend. I think that this growth for me will make me a better trader. Thanks again and have good weekend.

* NOTE: Some original wording has been slightly modified for legibility.

Friday, May 22, 2015

Beating the Bell Curve

Today, we wanted to post a question from one of our Maverick Traders and the response from the original Maverick himself, our Head Trader Robb Reinhold.*

-----Original Message-----

From: Steve K.
Subject: Conflict

Robb, hope I'm not bugging you too much, but I respect your experience and talent. I have traded for years as you know, but I'm conflicted on a trade setup that has worked for me and want to run it by you. I have always been a trend follower, but use Fibonacci retracements to add to a winner or enter if missed the initial breakout. I also used Fibonacci extensions to take profit on a 50% or 61.8% gain.

Can I incorporate this in my overall trading plan as a condition for the passive trading portion? I usually wait for a 1 to 2 day confirmation before entering, but sometimes the number hits right on the money and I buy or sell with a tight stop. If I get stopped out, then I will reenter with follow through. Some of my best trades have come off the Fibonacci retracements.

Your thoughts?


-----Reply Message-----

Hi Steve,

Thanks for the email and don't ever worry about "bugging" me. I have shifted my responsibilities over the years to try to spend as much time as possible directly with our traders and less on administrative stuff.

I've literally read hundreds of books on technical analysis and, after all my years of trading, I don't think technical analysis is all that important. In fact, overdoing it can actually be quite counterproductive for a trader.

Now, don't get me wrong since I only use charts for trade entry decisions. What I'm saying is that whatever system, indicator, line, candlestick, etc., that you use, you will end up with a bell curve shaped distribution of trades where most trades will be mildly good/bad (68%), some great/poor (27%), and your outliers that are absolutely spectacular or devastating (5%).

If you followed your Fibonacci retracement trading system 1,000 times, then you would still end up with a bell curve distributions of results. So, I think you should use that system/setup if you like it, but understand that it is not the "Holy Grail" of trading. I say this to you as I have been convinced in the past that I had found the Holy Grail in a technical setup only to find out it didn't work that well in other/different market environments.

To me, charting is simply the mechanism to quantify your actions and eliminate the emotional, impulsive decisions that hurt trading results. Yes, there are some things that you can do technically to improve your bell curve distribution (Win/Loss %, for example) like trading with the trend, entering a breakout/breakdown points, etc. However, in the end, even these things will deliver some terrible trades.

So, without spot-on position management, position sizing and risk management, the technical setup really doesn't even matter since every trader will eventually pick that disaster trade or hit a statistically guaranteed losing streak – which puts them out of the game. Only once a trader has spot-on position management, position sizing and risk management do the intricacies of chart reading and things like 61.8% Fibonacci pullbacks matter at all.

Hence, I am for any strategy/setup that is well thought out, tested and based on time-tested principles (trend following, etc.) as long as there is a strong position management and risk management strategy behind it. Only then can you beat the statistics of the bell curve.


* NOTE: Some original wording has been slightly modified for legibility.

Friday, May 15, 2015

Dealing With Slumps

Our Maverick Trading team would like to share some thoughts and experiences that will hopefully help you out going forward. In our team's personal trading and from overseeing other traders, here are the common reasons that we see trading slumps:
  1. Personal Issues: Whenever we see a trader who has had good results all of a sudden get cold, this is the first thing that we think of. Many times, we have called up the trader and the first thing we ask is, "What’s different in your life?" They are always initially shocked that we asked, but then reply with a serious life issue such as, "I'm going through a divorce," "I started a new position at my work," etc. If you're going through a trading slump, take a look at your personal life and ask if this is a good time to be able to focus and spend the amount of time needed to succeed.
  2. Stops Too Tight/Volatility: This is probably the most common reason for trading slumps. Traders that use tight stops have terrible records during periods of volatility – which makes sense. They can easily go 0 for 10, which is frustrating. The way to see if this is the problem is to look at your last 10 trades and see if you would have had more than 50% winners if you didn’t get stopped out from volatility. If this is the case, then the fix is to either stay out until volatility decreases or take one-half or one-third initial positions with a much wider stop and leg in after that.
  3. Trying To Trade Your Opinion: Another common cause of trading slumps. We find this typically goes hand in hand with counter trend trading. For example, if you've been "convinced" that the FTSE Euro Top 100 Index (EUR) was going to go up over the last few weeks (April 2015) and all your trades were long EUR, then you probably had mostly losers. Instead of trading the market in front of you, you traded what you "knew" (believed) was going to happen. Throw away your biases and become a trader. Traders just trade price action. Nothing else. They have no bias.
  4. Wrong Market For Your Trading Strategy: Sometimes, the market just isn't conducive to your trading strategy. For example, the Maverick Trading team is mostly focused on trend trading and buying/selling breakouts, etc. So, when the markets aren't trending, this strategy just isn't going to perform as well as when the market is trending.

    We saw this last year in forex from March to August 2014, when we basically had to grind out minimal profits during these months. We cut back our trading volumes and traded more news announcements to compensate. However, as we predicted, the markets are cyclical and can't stay at lower than historical volatility forever. Eventually the volatility came back and we had a great second half of the year. Look at the market conditions and ask if there are some changes that you can make to adjust your strategy to the current market conditions.
We like to use a baseball analogy when we discuss trading slumps. All good hitters go through slumps in their careers. It's just part of baseball – and it's part of trading as well no matter how hard we try to avoid it. The key is to preserve capital during your slumps and make sure that you ready with sufficient capital for when the slump is over – and you are a rock star hitting almost everything coming your way. Just keep at it and you'll be fine.