Adventures of a Trader

I don’t get it: It seems that I am back to square one. I’m moving one step forward and two steps back. I have already been profitable, but now I’m losing money again. And the one-year deadline is around the corner.

The clock is ticking…

I’m staring at the charts, but I don’t see what I’m missing!

In the meantime, I get more emails inviting me to another webinar “revealing a profitable strategy”. Another email invites me to watch free videos explaining “a trading strategy with a 90% winning percentage” and a “sure-fire way to make money in the markets.”

The Dark Side is calling again, and I’m tempted to attend the webinar…

watch the videos….

and then buy more stuff.

But this time I resist. I MUST find out what’s wrong, and why I’m losing money – again.

I want to compare the trades that I am taking to my plan to make sure I’m following my trading plan to the dot – and I realize I don’t have a written plan! I know when I should be trading the Ping Pong Strategy and when to trade the Simple Strategy. It’s all in my head. But I decide to write down my rules anyhow. Can’t hurt, can it?

It takes me only about 30 minutes to write down the exact rules of my day trading strategies, and when to use which strategy.

All I need to do now is comparing my trades to my plan to find out if the trading plan is flawed, or if my execution of the plan needs improvement. Trading LogI create an Excel sheet with 11 columns:

  • Date
  • Symbol (e.g. e-mini S&P)
  • Long / Short
  • Entry Time
  • Entry Price
  • Exit Time
  • Exit Price
  • Profit / Loss
  • Strategy (e.g. Ping Pong or Simple)
  • According to Plan (Yes / No)
  • Comments

It takes me several hours to enter all the trades from my statements.

It’s a tedious task. Not fun at all. I’d rather look at charts and place trades. Or test new trading ideas. But I decide to capture at least 80 trades to see what I’m doing wrong.

The first revelation: It seems that I am quite disciplined (no surprise here – I’m German!). Most of my trades are according to my trading plan. So what am I doing wrong?

I decide to sort my trades by profit and loss. I display all the losses on top of the Excel spreadsheet, and all the profits towards the end. Somewhere I read that you should take care of your losses, since your winners usually can take care of themselves.

After sorting my trades by loss, I noticed that most of my losing trades occurred in the afternoon. Could that be true? I added a few more filters and sure enough: I discovered that I made money in the mornings, and then I gave it back to the markets in the afternoon.

Well, THAT is an easy fix: I just need to stop trading the afternoon session.

This discovery blows me away! Could it really be that simple?

I enter more trades into my Excel spreadsheet – just to get more data.

After entering 200 trades I run another analysis of my losing trades. Here are some findings:

  • The Simple Strategy worked great when trading EuroFX, Crude Oil and Gold, but it underperformed when I traded the e-mini S&P.
  • The Ping Pong Strategy produced the best results when traded on the e-mini S&P between 9:30am and 1:00pm Eastern Time.
  • Fridays were my worst trading day of the week: I experienced more losses than usual on Fridays

Based on these findings, I modify my trading plan:

  • Trade only between 9:30am and 11:30am Eastern Time.
  • Trade the Simple Strategy only on EuroFX, Crude Oil and Gold.
  • Trade the Ping Pong Strategy only on the e-mini S&P.
  • Don’t trade on Fridays.

Since I was running out of time I couldn’t test this modified trading plan on a simulator. I had to trade it life! Well, at this point it was anyhow all or nothing, since my wife kept reminding me of the deadline and already forwarded me job postings from various companies.

So I traded this modified plan with a live account for a little more than a month – and my trading improved. I was able to convince my wife that I finally figured out what I did wrong over so many years: I seriously thought that somebody would hand me the “magic trading system” on a golden platter, just like Jake got the magic beans from the old man on the market. I was looking for a shortcut. I did NOT realize that trading could actually be quite simple if you follow a simple concept:

  1. Do NOT believe anybody! Stay away from the snake oil salesmen who tell you that they have “the secret sauce” – and that you can get it for only $97 (or something like that).
  2. Do NOT try to become somebody else. Do NOT start trading “The Simple Strategy” or any other strategy with real money! Try to understand the logic behind it, and if it makes sense to you, test it on a simulator to see if the strategy actually makes YOU money. Keep in mind: A simulator is NOT the real market, but if you can’t make money on a simulator, your chances of making money in the real market are VERY slim.
  3. Create a written trading plan! Over the past 10 years I’ve talked to many traders and found out that most profitable traders have a written plan, while most traders who lose money don’t have one. Interesting, isn’t it?
  4. Analyze your trading logs! Of course this assumes you have a trading log. Whether you are trading on a simulator or live, analyze what’s working and what isn’t. You can use a simple Excel Spreadsheet as I did, or you can use specialized software. It doesn’t matter. But you need to know your numbers, e.g. your profit per trade, winning percentage, number of winning trades in a row, number of losing trades in a row, profit factor and other key indicators.
  5. Improve your trading! Always, always, always analyze what works and what doesn’t. If you make money trading the EuroFX, but lose money trading the e-mini S&P, then stop trading the e-mini S&P. If you make money in the mornings and give it back in the afternoon, then stop trading after lunch. If you make money trading options, but you lose money trading futures, don’t trade futures. And if you consistently lose money with a strategy, then try the opposite: Instead of buying you sell, and you take profits at your former stop loss. That’s how I discovered the Ping Pong strategy. Always remember “Tom’s Strategy”: If you lose money, try to do the opposite from what you are doing. You might be surprised

Is it really that simple? What about all the fancy indicators that you already bought? The systems that are supposed to make you rich? The signal service that’s supposed to “double your account in less than a year?”

I don’t know about you, but they didn’t work for me. Trading is a business. It’s a profession. There’s only ONE shortcut: Analyze your own trading and determine what works and what doesn’t! And yes, you can still attend webinars, download eBooks, attend seminars and even buy courses. I still do. But I don’t make the same mistake as I did years ago. I’m not looking for the Holy Grail. I’m listening to other traders and try to understand their IDEA. And then I test them for myself, and if it improves my trading, I add it to my trading plan. Otherwise I dismiss it.

Final thoughts: I’m sharing my story to show you that trading is not as glamorous as some people want you to believe. It’s hard work! You have to spend many hours in front of your charts and on the simulator, testing ideas and analyze your trades.

But based on my experience THIS is the only way to make it as a trader. Analyze your trading logs right now! – Oh, you don’t have any trading logs? Then fire up Excel and start typing NOW! If you have been trading for a while then you are already sitting on a gold mine, you’re just digging in the wrong spot!

Remember Thomas A. Edison? – “If I find 10,000 ways something won’t work, I haven’t failed. I am not discouraged, because every wrong attempt discarded is another step forward”.

By now you know what you need to do, right? Take action now! – Stop reading and start doing! Here are two great quotes:

  • “Action is the foundational key to all success.” – Pablo Picasso
  • “A real decision is measured by the fact that you’ve taken a new action. If there’s no action, you haven’t truly decided.”  – Tony Robbins
  • Decide to change your trading results NOW – and take action.