» A Reader Asks for Help Blog for Trading Success: Ray Barros

Published in January 25th, 2011

BarroMetrics Views: A Reader Asks for Help

A reader asked a question that many have asked before. Generally with this sort of problem, the trader is seeking a solution to a psychological issue. I tend first to look to see if the plan is clear and then see if the trader has looked at the problem from a statistical viewpoint. Only if both of those are answered in the positive do I look for a solution from a psychological perspective.

You’ll see what I mean from my answer to D.

By the way, D replied to say that he had not approached the issue from the perspective I suggested and would implement the suggestions.

D wrote and asked:“On average, I capture ~ 58% of model trades, miss ~ 30% model trades and returns matching ~ 8% of model returns…Interestingly though missed trades is smaller (i.e., 30%) relative to capture rate, the miss trades account for 80% of profitable trades. This happens each day with high consistency predictably. The reasons for my missed trades seem to fall often in 3 buckets - (a) Recognized setup but felt setup is weak and passed or (b) Good setup but passed last minute because of market action (like too strong counter momentum) or (c) Missed trade by few ticks. (Note: I enter in anticipation i.e., like buy a long pull back while market coming down before bounce so that I can move to break even quickly).

I thought if a result happens with high consistency predictably each day then the cause for that result also likely be consistent and simple. But I just can’t seem to figure out any common pattern in market action that makes me miss high % of profitable trades but capture most of scratch or loss trades that my methodology provides.”

I replied: “If your stats are right, then….

1. (a) Recognized setup but felt setup is weak and passed or (b) Good setup but passed last minute because of market action (like too strong counter momentum): this is the hindsight bias. It seems to me that both (a) and (b) are good reasons to bypass the trade. Since we don’t know what will happen next, we can only do the best we can. I suggest you tag all the trades you elected to ‘miss’ and catalogue all ?their results. Did they all fall into (a) and (b)? Weren’t there trades that you were right in missing?The stats will probably show that both sets are about equal. If after doing the study, you find that you are having a high rate of missed profitable trades, go over those and see if you can find a common pattern that differentiates them from the ones where missing the trade turned out to be correct.
2. (c). Do a study of by how much you are missing. Increase your zone by mean minus 1/2 std. Then check to ensure that the new zone still provides an adequate reward:risk based on your Expectancy Return.

3. I sense you believe this is a psyche problem. Perhaps it is but then again, perhaps not. I take the view we solve the planning aspects first before we tackle the psyche.

4. As far as books are concerned: one of the best package on achieving success is Jason Garcia’s “Shift the Balance”. http://www.motivation123.com/”

Refer this blog post to a friend or colleague…

8 users responded in " A Reader Asks for Help "

barktrader said, in January 25th, 2011 at 11:31 pm

stumbled upon your blog accidentally while ‘googling’ “initial balance”. I was looking for what other ES traders use for their IB timeframes. After reading your ideas from back in 2008 I clicked ‘home’ and came upon today’s post. I have a suggestion for your reader that is missing trades. Does every trade have to be “take” or “not take”? How about “take smaller”? If your normal size is 5 contracts, why not take trades you are unsure of with 2 contracts? Trading need not be all or nothing. There’s room for maybe.

ray said, in January 25th, 2011 at 11:38 pm

Hi Barktrader

Thanks for your comment.

I agree that there is room for ‘maybe’.

But in his case, he needed to first establish what is a ‘yes’ or ‘no’- since at this stage he still had not done that.

Paul said, in January 26th, 2011 at 12:03 am

Hi Ray,
If your student who has no psyche problem followed what was taught during HOS 2010 faithfully, would he/she face the same problems as D?

Could it be that D’s trading strategy is not robust enough, which are supported by back-testing and forward-testing, that he has no confidence in his setup?

ray said, in January 26th, 2011 at 12:37 am

Hi Paul

Thanks for your comments and questions.

Q1: He should not. I have been following the method and I’d say that what the HOS student would be facing is probably a dearth of opportunities.

The HOS 2010 method is a monthly time frame, trending method, and most instruments have been in congestion.

The real question would be whether the HOS student has had the patience to wait out the congestion or whether he has been forcing the trade; and that would be a psyche issue.

Q2: Actually no. D’s problem was not thinking through the issues I outlined in my response.

For example: he missed out on many trades by a few ticks. One way of solving that problem was the route I suggested.

D said, in January 26th, 2011 at 5:42 am

Barktrader, as Ray mentioned I am currently @ binary stage with trades i.e, YES or NO. Also I get several opportunities in a typical day to make 3-5 trades so I just pass setup unless I feel setup matches very close to what I am looking for. (My time frame - 233 tick).

Ray, thanks again for valuable suggestions. Given your deep experience I am wondering if you can cover in one of the future blogs following 2 questions.

Q1) How do professional traders typically measure and track quality of their trading? I mean the trading process like prep/quality of analysis, mgmt etc part. Or is it assumed via deduction from analyzing end results like Avg Win, Win% etc.

Q2) How do professional traders typically try to improve their skill or trading quality on a daily/weekly basis.

Most likely these vary from trader to trader and methodology but the information available on net is surprisingly low (even as specific cases) on these aspects.

Thanks,
D

ray said, in January 26th, 2011 at 7:11 am

Hi D

Good to hear from you.

Re your questions….I can’t tell you what all professionals do; but I can tell you what I do.

Q1) I use two types of journals: a qualitative (psyche) and a quantitative. I’ll post a fuller answer in the blog today.

Q2) It depends on what I am seeking to improve. If it is a new skill, I use the ‘gap learning’ approach mentioned in Coyle’s book with a simulated learning process.

If seeking to improve established skills, I rely on my journals and reflections for awareness and processes; I then execute; finally I record and review the results in my journals to see what mid-course adjustment I need to make to attain my aims.

baz said, in January 26th, 2011 at 9:44 am

Hi Ray,May i say the quality and honesty of the questions and comments are extremely good.
For my 2 bobs worth,i found that what helped me pull the trigger is i went back over every set up and gave it a percentage of probability.
I used to hand draw the charts which also gave a good feel.(80’s). For me once the stop loss is set,i feel a sense of calm knowing i can only lose so much. I use Rays suggestion of range plus 20% initially. This i found can take a lot of heat. I found i had to make definate rules or i just went to water.
I tried to mechanise my weakness based on my own studies,then have faith in my research.
Plus i read this this excellent site:) cheers Baz

ray said, in January 26th, 2011 at 10:17 am

Hi Baz

Thanks for dropping by and your comments.

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