How do YOU trade?

Hey Don this is a pretty good post. Agree with you 100%.... markets are markets, and they all trade the same. All markets are driven by emotion, supply and demand, and other economic forces, so it only makes sense that we as traders would feel the similarities.

The only thing that changes from market to market, imo, is the drivers and the tactics. By drivers I mean the fundamental issues that move the market, and to what degree. By tactics I mean the operational strategy, like what are the best times of the day to trade, who are the best brokers to use, instrument mechanics (options, future, spot), what order types work best, seasonality, etc etc.

Thank you very much Goat...

I am finding however that many of the poster on this thread seem to have an extremely good grasp of combining fundamentals with technical analysis. I envy their patience and balance to be able to read, and wait, and wait, and enter, and wait, and wait...etc.

My patience is not at that level (yet), and often times when I don't see that my theory proves correct is a very short period of time, I begin to doubt it and then start doing stupid things...Stop And Reverse (SAR) or think that my assessment is "right" and the rest of the entire world wide market is "wrong". I then get stubborn and start pounding one direction even though it moves against me...or worse yet (and the epidemy of my stupidity) I will add in to a losing position and keep moving my stop farther and farther out.

Thus my short term trading "mind set" I may lose but I lose WAY less.

I don’t want to sound like a nutjob and I want to avoid offense even more but I have a tip for you: Try a meditation routine.

Seriously, I meditate for 20 mins almost every day and it really helps take emotion out of decision making and increases patience. Once you accomplish that you’ll stop sabotaging your trades

Thanks for this simple and easily employed technique. I actually discovered this many years ago. The logic is inescapable. By focusing your thoughts you return your brain to functioning in the frontal lobe (where analytical thinking occurs) and away from the amygdala (where emotions occur). There was actually a study done with nuns who where very devout and they did cerebral scans of their brains while they prayed and found this effect. The research was repeated with Buddhist monks and the same effect was found.

I also do the same thing every day but (for me) it takes the form of prayer and I find my spiritual mind is always more centered. However there are those days when my basal human greed just seems to come out of nowhere. Even worse it is vastly more difficult to just walk away and stop.

This is why, as I mentioned before, shorter term trading has yielded greater consistent success for me. I have a clearly defined stopping point.

I think the good sub-topic would be "When do you not trade?"
I believe not trading is also trading... if part of the strategy...
For example today it seemed like a "school-case" trading... but since one of the vital parameter (in my prediciton model) is not in the "right" conditon, it is still too risky to enter the trade... because as we know market can turn in a split of a second, reverse a trend... I had many (entered) trades over the years when I entered at the PEAK/BOTTOM or (local) extreme... It is just unbelievable.. so I found best to do is check the parameters while also checking the chart.. just to be sure, because market (charts) can be sometimes so tempting but deceiving.. Trading the plan is the best thing you can do.. if it becomes the habbit/mantra... it can help you with all the temptations, specially the emotional ones.

Funny you bring up prayer because I was just reading about how useful it is even if you're not religious. If nothing else it forces you to put your problems into words... A little introspection does a lot of good!

This is true!! What I found most interesting was the study. I'll try to find it again. I think it was in psychology today. One of the things brought out in the study was how deeply the participants believed in their activities. The Nuns in prayer, and the Buddhist monks in their meditation each had many years (decades) of devout conviction in their respective beliefs. And it was this belief that (it is theorized) caused the transition to frontal lobe activity.

At the risk of sidetracking the discussion, I find that spiritual beliefs have paralleled my market beliefs. Yet another reason I think "the market is a mirror". There are many proclaimed "truths" about the market just like spiritual beliefs. And all have a different point of view because each of us is unique. But our unique point of view does not change the actual truth of the market. Only in how we see it and then acting of our beliefs, enter or exit positions. Is that not exactly how your spiritual faith works? The many "truths" do not change the actual truth. And it is our belief that prompts action - is there a better explanation of "Faith"?

Trading based on faith in your market beliefs? Who would've thought? Yet ask the most successful among us and while they will not express it in those terms I have found from speaking with many that this is the actual basis for consistently profitable speculation.

**Edit**
While I failed to find the article I originally read, I did find a summary link to the researcher's (Andrew Newburg) conclusions: http://www.andrewnewberg.com/research/ If nothing else I find it very interesting and it allowed me to be more "conscious" of how the market make ME react.

In my experience faith in your own market beliefs is critical. When you've got a lot of money on the line, its hard to ignore the intelligent sounding analyst on CNBC who's on the other side of your trade. Having a solid trading plan and the conviction (or faith) to follow it makes all the difference. It probably took me 5yrs to really get to that point.

It is a very funny curve on how people trade over the time... it begins with coin flip and ends there for many
There were some discussions about this on "Squawk Box" I think and one guy said that in the longrun, coin-flip strategy outperforms any model...
I think that there are some models... that work... they might work for 40years.. untill they don't (J. Taylor - cycles.. for example)..
There is one famous mathematic model.. that outperformed... many.. untill some conditions changed (or some massive central bank interventions).. and it went of...
I believe we must be aware of this... AND exploit/harvest as much as we can.. as fast as we can
Some faith is good but I also think doubt can keep as alert and safe Reasonable one at least... Trust/faith but verify quote...

I wanted to add to my earlier post to maybe clarify how I approach the markets. If nothing else, it'll help me organize my thoughts.

Tomorrow we have a very important economic data release. I study most of them, do the research, look at the history and how the data impacts the instrument I'm trading. Usually it's gold, outside of some China data. For important Chinese data, copper can be the better play. I almost never carry positions into a release unless there is a compelling reason to do so.

I research everything from what the market is expecting, what the likely actual might be, where the risk is related to any surprises, etc. If the data has a history of either moving gold enough to take a little profit on a big move I continue. If the data has a history of causing a move that tends to continue I continue. Basically, if I don't think it's viable to trade, I usually limit the time I spend researching the different scenarios.

To be clear the main purpose throughout all the steps I've mentioned is to identify where the risk is. Many times, the risk will be heavily skewed to either gold moving higher or lower, but not both. In those cases, the only trade I'd take is if the actual data release comes out in line with where I thought the major risk was associated with the event. Those are the events where you can usually make some profit. The big downside to doing this is that for every 5, maybe 10 events I research, there might be one with good trading potential.

The reason I continue to use this strategy is because when it works, it's easy. People say trading events is risky. Some say it's dumb to even try to trade the releases. Well, I agree in that it is risky, but if you identify the risk it's pretty easy to get a handle on what not to do.

Tomorrow's NFP data isn't the best example, but I'll use it. Please read the preview if you have some extra time. After I wrote the preview, it became pretty clear that while this is a more important than usual NFP, there's still more risk associated with a weaker than expected report. The only way I'd trade the event is if the employment data was weaker than expected. Any better than expected figures could also move gold, but there's two reasons why I won't trade that scenario. First, I don't believe there's enough risk associated with it to present ample trading opportunities. Second, I'm not confident enough even if there might be. I stick to my gameplan. I am confident in trading a weaker than expected report. Let me explain a little further.

The probability of the July rate hike is about 70/30. 30% of the market think the Fed will cut by 50 basis points. A stronger number would mean the market is going to start pricing in a probability of a 0.25% cut to higher than 70%. There's just not that much room there. I see the impact as limited. However, if the data comes in weak enough and the market starts pricing in a greater probability of a 50 basis point July rate cut, that my fellow trader is where the risk lies and where the opportunity is. Gold would rally big time on that. It takes a little experience to understand how much of a deviation to look for, or when a rally is likely to continue. But it definitely isn't rocket science.

To summarize what I intended to say, I eliminate risk related to trading certain events by deciding I will not take certain risks, and will enter the market at times during moves are likely large. I always try and be ready for the bigger events. It's not the only way I trade, but it might be the most exciting. Thanks for reading and if tomorrow happens to work out in my favor, remember this:

Thanks for reading!

Please excuse that I am a bit dense, but I really want to understand how you determine the "risk" as you put it. So If I read you correctly, you determine the risk as a weak or contrary data point compared to what the majority of analysts anticipate by virtue of their publicized reports...is that correct?

Example: NFP data is expected to be 162K and if it is weak or negative that constitutes risk? Do I have that right? Would today's better than expected number (as a pleasant surprise) also constitute trading risk? In so far as your decision to execute or not?

I am "reading between the lines" here but is your risk assessment based then on the probability of a rate hike, and therefore a fall in gold prices? I'm really foggy on how this relates to how your assessment of risk in the gold market applies here...I ask this because I am very interested in your evaluation of "risk" going into an unknown data point.

My head is spinning!! I used to think I had a firm grasp of fundamentals, at least on the basic level...but you have schooled me as if I was still in kindergarten. My admiration to you sir. I would really like to learn more but I have to sit down before I fall down from the intellectual height of your thinking process...I doff my cap..

Well done...so did you trade or was this even as expected?

I'm happy to try and answer any questions. Anytime. There are entire books written on this stuff, so I'm going to try and explain it best I can. There are several ways to determine risk, define risk, and relate risk to market data. Identifying risk is one of the most important skills, but one of the most time consuming. I've been trading based on these assessments of risk factors related to data releases for almost 20 years. There are many ways to approach this topic. I've evolved over time and will continue to improve. I'm one trader, with one approach. I always try and emphasize to be cautious because it's easy to be wrong.

When a data release has a forecast, it comes from many different places. Bloomberg surveys economists at banking institutions and their forecast comes from the median. Many services to offer forecasts. Entire companies can be dedicated to making predictions about market data. The forecasts are usually in line with each other and don't vary much from different services.

A forecast is not intended to tell traders what the upcoming data release will be. Forecasts serve as a guide. They tell us what is mostly expected. The market will price-in the expected forecasts prior to releases. That's why there's risk. If the market has already priced in an expected outcome, there's risk if the new information is different from what was already priced in. When the data deviates from forecasts there is potential for prices to adjust. The bigger the surprise, the more prices tend to move. When an important data release comes out as expected the market won't react. That's because there's nothing to do, it's already been factored into the price.

Every economic data release is different. Some carry a lot of risk. Others have no risk. The amount of risk usually relates to how important the market thinks the data is, especially to the central bank, central bankers, and policy decisions. Today, the market was in agreement that this NFP release was very important. We all thought it was going to influence the Fed decision later this month. Risk is related to many other factors. This was the best example. It's what we saw play out today.

Risk is related to the potential impact that weaker or stronger than expected data might have. There are other factors to consider. How important is the data right now. Certain data can have more significance during expansions, some during contractions. Data can gain significance because of the current economic environment. For example, if there are fears about a weakening housing market, data related to housing such as building permits or new home sales could impact the markets more than they otherwise would.

My decision to trade event is related to many factors. How confident I am in identifying the risk? That's a major one. The best scenario for trading economic data is when there's an important upcoming release and risk is heavily skewed. Prices might be heavily impacted, but only in one direction. Sometimes, it's easy to pick up on the market sensitivity to possible outcomes. If that can be identified, you can reduce your risk by only trading in one direction. There are instances when only a big surprise to the upside, or only a much weaker number will have heavy impact. That's where you can reduce your risk and plan your trade based on profit potential. It's not an exact science, and sometimes I miss trades. But, it's a conservative approach. It's proven to pay off in the long run.

Risk assessments are not always, but can be based on the probability of a rate hike. Risk assessments that are made based on the data's impact on rates are usually the major events. In terms of how that impacts the price of gold, the most important thing to remember is that gold has an inverse relationship to the US dollar. If the assessment is made based on a higher probability of a rate hike, that would normally mean the dollar goes higher and gold lower. On lower rate expectations, the dollar drops, and gold will rise. There are always exceptions, but when moves in the dollar are large, gold will always be inversely impacted.

My evaluation of risk going into an unknown data point is only my best assumption. I'm not always right and I also always try and reduce my risk. I try and prevent any possibility of taking losses where I can. Even if it means missing out on a rally, I will always lean towards preserving capital. Also, if I'm not confident in my assumption or there's little information to make one, I won't trade. If I determine there's a chance of a whipsaw, I'll usually stay out. I've made the mistakes and learned from them. Still learning too.

I appreciate the kind words. We bring different things to the table. I've enjoyed reading your posts and always have value. Mostly though, I'm impressed by your understanding of order flow along with your chart indicator. You've made some pretty good calls. I've tried to learn order flow a couple times. It's not easy and I still don't know how to apply it to my charts, or comprehend it.

I did pretty good this morning after NFP. I shorted the aussie prior to the data. I didn't believe the market would price in a greater chance of a 50 basis point rate cut. I rarely take a position prior to major data releases and would always advise against it. I felt confident enough and luckily it worked out.

DISCLAMIER: My view(s) only.. if anyone doesn't agree, great, well hey, that makes the market If we would all-agree market would go to the ground or sky too fast Just sharing my view(s) after 10+ years of rather profitable trading overall and some extraordinary profit (in %, not absolutely) bursts over in this period... (Some sample even in this rather recent/sample TE in my signature)

So here it goes:
I have many strategies for trading, for different (risk) accounts, but I personally like the CHEETAH (wild cat) mode the best...
It consistent of RESTING, observing... planning (and knowing when NOT to trade, retract etc)... but when you see the opportunity, you HUNT for the KILL. I find this high-volume trading very exhausting. I do not like it at all, specially because markets are not "learnable", they are not even remotely the same... Some people
assume the market will stay as it is.. But in reality.. even if they get some edge.. they might be profitable for some time but when conditions change..
they get wiped out and request for account to be deleted or they just hide/disappear.. I am sure we have all seen this.

For example, we had/ve a market for some time.. that was/is pretty lazy... so BOTH type (bears/bulls) of traders could harvest good profits, in many trades, it wouldn't matter if they would enter BUY or SELL.. because markets were going up-down and if they had high-exposure (large turning radius).. they could wait for -200PIPs to come to +10PIPs... and claim they knew where it would go... (whicg could be true... also... since there is a lag, temp-correction/intervention many times)..

I think we will see market parameters change (soon), and if traders would miss the trend, they would be wiped-out eventually... For some time... the right trend-conditons was not that relevant for mentioned reasons...

I also like (I)B - (Investment) Banking style trading... SETING long-term trades... that are basically about the TREND prediction if there is/will be one.. and wait.. But you would either have to have large capital or trying to set the peak/bottom at the exact time with as little error as possible and wait for the profit build-up (passively).. or you could sell/use this info to some players that rely on this information. Trend is very valuable to some players, even big(est) one.. if in fact not the most valuable thing... At the same time it could be completely useless to high-leverage (day)traders...

So yeah... Specially for "burners" (high-leverage opportunity traders)... I absolutely love THE CAT strategy...
Cats sleep almost all day, but when they hunt, they are one of the most efficient/brutal hunters there are...
And BTW, I do not like LION that much for some reason. I much prefer PUMAs etc... And domestic cats are awesome too.

In fact, my ideal trading would be to trade only 3months a year... or like 20-30trades a year... but with BRUTAL force/leverage, when all the parameters are in proper set-up (which is still not true right one when many just wait for what FED/ECB will do) or when everything is aligned well... just GO FOR IT.. and than rest... watching others over-trading the previous profits etc...
I plan to post this kind of TEs in the future... For example, dedicated TE(s)s with let's say 25% goal, 10% DD (to initial deposit)... When it reaches 25% in a year, STOP... And maybe some BURNER also... 900% goal... 100% exposure.. when it reaches.. STOP.. Or some continuous (trend-surfing) IB style account, max 5% risk but 10%/year (stable) return etc... Or some FEARLESS/LIMITLESS, 100% exposure, unlimited return target... time-target: 12months etc.. All those goals were achieved before and they could be again.

ATM this high-leverage full-account in "hunting" seem to work up to 200:1 (at least for me)... 50:1 seem to be the sweet/optimal spot, just in case there are some surprises...

My "dream" would be able to trade with surgeon-precision at 500:1.... about 10PIP precision, 20PIP max space at 10% margin/stop.
If successful you would need only 10 20TP (profitable) trades (in a row) per year for massive profits (100USD->60k)... or 20 20TP trades in a row...
ONCE in your lifetime... to get from 100USD->35mio

Here are some inspiring videos about PUMA trading
time=1:43 for example


And Cheetah (they are not the most aesthetic wild cats to me, but I love their speed and how optimised they are for that


My favourite ist a good compromise/optimum between SPEED, STRENGTH and STEALTH: (BLACK) LEOPARD
They go ALL-IN.. HIGH-LEVERAGE EAT, REST.... and all the other things that follow... Until the next (golden) opportunity

EventsTrader: I thank you for such a thorough and well thought out response. I am still digesting it and am reminded once again why I trade the way I do, even though I'm sure you and others who trade as you do, would consider it "riskier". I honestly don't think I could come up with a trade theory that I feel reduces risk in the same way you do. I think I better understand your premis and it would appear you have had many years of doing this successfully. Again I congratulate you because I'm quite confident I would easily become confused.

Auricforecas: I have often heard many use the same analogy of trading like "a hunting cheetah"...where you wait, and stalk your trade. I agree with this to a certain extent. And to add to this parallel, I have studies how my "prey" runs and in particular when it looks like its getting tired and about to turn or stop. This is where I pounce, but I am still often wrong. However I believe that this is improving.

I think we can all learn from each other's different approach in trading and feel it is a shame that we cannot combine our efforts to produce something truly inspired. Perhaps sometime in the future we will have a chance to meet at an event like "the money show" or some other trader's conference and really dig into things without having to publicly lay bare our particular edges.

As for me, I have found order flow the best method because it takes away (in my mind) the uncertainty that remains in my mind as to whether or not I viewed the fundamentals correctly or misinterpreted a particular report. By watching how participants are actually transacting and watching for tell tale signs of exhaustion, I am able to anticipate changes in direction in "real time" quickly enough to participate very near inflection or swing points in price.

And this brings me to my view of risk. I think it is fair to say that risk management is perhaps the biggest dividing factor between profit and loss in the long term. As EventsTrader likes to put it he likes to eliminate as much risk as possible. I think it fair to say also that Auricforecas also accomplishes the same thing by "stalking" trades waiting for the right moment, knowing with a mathematical probability model that risk it at its lowest.

My attitude toward risk is very different. I firmly believe that risk can never be eliminated or even reduced and is always a constant in the trading environment. Like a motorcyclist can never completely eliminate the risk of crashing, and even the best riders eventually end up going sideways across the pavement. Just like this rider, we prepare for the worst: (1) Safety Equipment, (2) Defensive and competitive riding courses, (3) Safe riding habits, but those are only adjuncts to lessen the impact of the inevitable eventuality. Sooner or Later that crash WILL come. To avoid it entirely means do not ride. (and of course THAT's not the point).

Risk in trading is the same way. That risk (simply put) is that price will move against your position and either lessen your profit, or eat away your capital. This can happen at any time during an open trade, and in my view can never be eliminated. Of course I prepare for this risk. I limit the amount of capital I expose to this risk, and I set limits on my participation. When it comes to events I usually don't participate in short term position during those days, and/or have much longer term positions that create very little short term risk during those times. It has been my experience, that even during big surprise fundamental analysis, once the "drama" and shock of the announcement is over the overall market returns to the condition that preceded it. So my risk exposure is limited by protective safety orders (stop losses, hedges etc) and then I just wait a day or two to review the position assuming it is still open.

Yeah, if possible, I would make only 10 CHEETAH style trades per year and be done
Also one of the reasons why there is rather large percentage of negative (return) traders here is that they/we have to roll the snow-ball from very little capital..
like few hundred (in most cases I believe) or thousands (in much smaller cases)... So many get serious profitable but then market changes or they lose focus, unexpected event(s) or just overtrading... and then (if) the "chasing the loses" mode activates and they are done...

I think most of us agree that getting, even if you gamble a little... 5% (annual return... can be ONE TRADE) is not much of a return... with the help of the leverage of course... But in "real" world... comparing to bank interested rates etc... this would be GOLD

But getting 5% from 100USD is NOTHING... Hence traders trade further.. Majority of them would need 20.000% return to get somewhere
But at LARGE capital... You would be able just to be SELECTIVE as a 10/10 girl when picking up trades.... and be more profitable (I believe)...
Confirming saying.. money makes money...

My dream would be to get semi-out of trading as if having a lot of money out (in the dry; CASH, GOLD, BANK)... (never completely out for real trades. and be satisfied with DOUBLING (that would be a safety limit) some chunk of capital per year and that's it But also having this "burners"... Much smaller capital/(sub)accounts for high-leverage trades.. that have basically limitless potential...