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EURUSD Day Trades – Front-Running Breakouts
January 6 was an interesting day, as it directly related to several articles written recently.
As the US session began today the EURUSD was moving within a triangle pattern, following a trending move down. The expectation based on the trend was that the price would break lower out of the triangle. Therefore, using the strategy discussed in How to “Front-Run” Triangle Breakouts, two trades were take near the top of the triangle in order to get advantageous pricing for the breakout lower. On both attempts lower the price failed to follow-through and the trades were exited with a small profit.
Even though the expectation that the price would drop, it ultimately has to do it. If it doesn’t, get out. By front-running the triangle breakout, two profitable trades were made. Had only the actual breakout been traded, it would have resulted in a loss, since the price didn’t end up going lower. It had a false breakout and then proceeded higher.
Figure 1 shows the first two trades. Arrows mark the direction of the trade and approximate time; the little horizontal lines represent the entry price and exit price.
Figure 1. Front-Running a Triangle Breakout
After the failed breakout the price proceeded to rally quite aggressively. While I wanted to get in on the rally, the price didn’t pull back quite far enough to reach my order. Figure 2 shows this.
Figure 2. No Fill
The price pops higher, pauses then pops higher again. It then pulls back to the same low as the prior pause (rectangle). I placed a buy order near those lows (in the rectangle), because it was now apparent that this was likely just a consolidation before another move higher. My order went unfilled and the price moved up. On some days I would just market buy once I saw I was right, but since it wasn’t a very volatile day chasing the price would have likely eaten up too much profit.
As the price action continued to unfold, another familiar pattern emerged–the Head and Shoulders Continuation Pattern. While the head and shoulders is often viewed as a reversal pattern, it can also signal a continuation. Notice the strong rally heading into the H&S pattern, and also that the pattern isn’t very big. In other words, it’s likely just a complex consolidation before the price proceeds higher.
Figure 3. Head and Shoulders Continuation Pattern Trade (front-run)
Even though expectation is higher, a high probability entry is still needed. For me, that didn’t occur until the small rectangle marked “Entry.” With the price making higher lows, and the overall expectation higher, the price is getting wound like a spring. Once is starts moving back up after making another higher low the odds are very much in our favor. A Fibonacci Extension tool was used for the exit. Good locations for the stop were just below the higher lows, or just below the horizontal black line which marks the overall bottom of the pattern.
Paying attention to overall price structure and managing expectations is far more important than any trade signal. I try to “front-run” and get great price with very little risk by thinking about what I expect the market to do, and then figuring out the best entry strategy. Usually that is not right at a breakout point. If the expectation doesn’t work out, and the price doesn’t follow-through, I get out. With the advantageous pricing the trade has good chance of being profitable, or only a small loss, anyway. Pay attention to strong price moves, and in which direction they are moving. This will help manage expectations even when the price seems to be moving in rather complex formations.
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Front-Running Chart Pattern Strategy For High Profit Trades
Front-running a chart pattern increases the reward:risk of the trade significantly, gives us more options for a profitable exit, and leaves us less exposed to false breakouts compared to the traditional chart pattern trading approach.
Trading chart pattern breakouts is one of the first strategies I learned when I began full-time trading back in 2005. Even though it took time to determine which ones to trade, which ones to leave alone, and which ones were high probability, if you’ve read my eBook Forex Strategies Guide for Day and Swing Traders you know that I like chart patterns.
Always looking for ways to improve on trading methods, predicting chart pattern breakout direction–I call it “front-running”– is an advanced technique for trading these types of patterns. It’s recommended you have trading experience before attempting these methods and have a good sense of market direction and strength. Basic directional guidelines are provided below.
I originally published this article in early 2020. Traditional technical analysts provided some backlash. Yet this is a great method for getting some astronomical reward:risk ratios, the price doesn’t need to have a big move to make a profit (like the traditional approach), and we also don’t get caught in as many false breakouts…which are the bane of the traditional approach.
Charts patterns don’t always need to traded this way. Sometimes the old-fashioned way is fine too, but “front-running” is definitely a method you want in your trading tool belt.
Which Patterns to Front Run
Use this strategy on triangles, ranges, and consolidations. Consolidations may not have a particular shape, but are still a pattern in that they are identified by a lack of volatility relative to the price moves around them. While the pattern occurs less frequently, we can also front run head and shoulders continuation patterns.
Instead of waiting for a breakout, which is the traditional approach to trading chart patterns, if we’re able to read the price action and come up with an expectation for the direction of the eventual breakout, we can greatly reduce risk and increase potential profit by getting a better entry price.
The method generally applies to all markets and time frames, as the examples below show.
Predict Chart Pattern Breakout Direction
Figure 1 shows a triangle chart pattern in Apple (AAPL) stock, along with the traditional way to trade it.
Figure 1. Triangle in Apple Stock, Daily Chart
Once the pattern is drawn, the traditional method requires waiting for a breakout. In this case we enter when the price breaks below the lower trendline of the triangle. A stop loss is placed just outside the opposite side of the triangle, and a target is achieved by taking the height of the triangle (widest point) and subtracting it from the breakout price (add it in the case of an upside breakout).
This method is fine, but we don’t always need to wait for the breakout. Figure 2 shows another triangle in Apple. The stock was in an uptrend and the price was rallying aggressively prior to the triangle forming. Therefore, we can anticipate the trend will continue and the triangle breakout will be to the upside.
Figure 2. Predict Chart Pattern Breakout Direction Strategy
Based on the prior rally, as soon as we can draw the bottom line of the triangle (need two connection points or more) we have an approximate entry area. Since we’re anticipating an upside breakout and the price isn’t moving lower (it is bouncing off support), we go long near the bottom of the triangle. Our stop loss is still placed just below the triangle–although give it a bit of a room.
Using this method we get a better price than if we waited for the breakout. Our risk is reduced (difference between entry and stop loss) because the stop loss is in the same spot as using the traditional method, and our profit potential has also increased (difference between entry and target) because the target is still based on the breakout point (traditional target method).
Figure 3 shows a head and shoulders continuation on a 1-minute EURUSD chart. There’s a strong price run leading into a head and shoulders pattern. The head and shoulders pattern is commonly considered a reversal pattern, but if you look closely, you will often see small head and shoulder patterns that act as continuation patterns. The price rallies, forms a small head and shoulders continuation, and then moves to the upside
Figure 3. Predict Upside Breakout on Head and Shoulders Continuation Pattern, 1-Minute Chart
Given the prior move higher, the expectation is that the price will continue to rally following the pattern. Once the right shoulder forms, and then makes a higher low, it’s a strong indication our expectation is correct. Following that higher low, we are looking for any opportunity to get in. The price drops a little again than starts to move higher–that’s the entry. A stop loss is placed below the lows of the head and shoulders pattern, or below the recent low. In this case, our entry is slightly better than waiting for an actual breakout higher, which would have been a rally above the descending trendline connecting the head and right shoulder. The earlier entry reduces risk and increases profit potential.
For this example I have provided another target method, using a Fibonacci Extension tool. By running the tool from near the start of the prior run, to the top of the head and shoulders pattern, then to the low of the pattern, several price targets are provided by the tool. By using the 100.0 level I was basically anticipating that the move higher following the breakout would be roughly equal to the move higher priot to the pattern. This tool is not a requirement. I don’t use often use it, but it is something you can play with and see if it helps you.
Novice traders hate false breakouts. A false breakout is when the price fakes us out, typically resulting in a quick loss. New traders don’t like false breakouts for two reasons.
- The false breakout typically results in a loss or the price doing something they didn’t expect/want.
- They lack the confidence to take another trade based on what the false breakout is saying to them.
When I see a false breakout, even if causes me to lose, I’m not upset. Rather, I immediately look to see if the false breakout provides me another trading opportunity. It often does…and a good one!
With front-running, we are only concerned with buying near pattern support in uptrends, or selling near pattern resistance in downtrends. Therefore, the false breakout that is typically going to result in a loss, and potential opportunity, is when the price breaks through these levels and then quickly moves back in our expected direction.
Figure 4. Front-Running After False Breakout, Daily Chart
This chart shows a stock in a strong uptrend. It then moves into a ranging period. In November the price stalls in the support area. This was an intriguing area to get long for a front-running trade. The trade quickly resulted in a loss as the price dropped below support. Not a big deal, losses happen.
Within a couple price bars the stock was already back in the support zone and moving higher. Once we saw that, we could assume the breakout lower was false. Remember, we were originally expecting a move higher because the overall trend is up. Because the move lower ended up being false, that upside premise is still intact…and is now actually stronger because the price tried to move lower and couldn’t. Buy again, once the price starts moving back above the support zone.
Many traders would be looking to enter on a traditional breakout up near $55, or even near the major high close to $58! The front-running entry gets us in near $49 to $50. That’s a huge difference. Getting in near $50 gives us more options for a profitable exit, because if the price falters at $55 and doesn’t break higher, we can still get out for a decent profit.
False breakouts are powerful and typically occur before strong moves…especially when all the other analysis lines up, such as a strong trend and the price trading near a key pattern support/resistance level.
Guidelines for Predicting Chart Pattern Breakout Direction
In order to predict chart pattern breakout direction, there needs to be a strong trend underway that the chart pattern is a part of. We expect the breakout will occur in the direction of the trend. As a general rule, I want to see trending movement prior to any chart pattern–whether I end up trading it in a traditional way, or front-running it. Without a strong move prior to the pattern, there’s no evidence that traders care about the price, and therefore, breakouts are more likely to fail or not reach the target(s).
For the entry, we want some minor confirmation of our expectation. In the event of a predicted upside breakout, we want to see the price hold above the support of the pattern, as it did in the examples above. In the event of a downside breakout, we want the price to hold below resistance of the pattern. I then typically wait for the price to start moving up off pattern support before buying or wait for the price to start moving lower off pattern resistance before shorting.
To front-run a pattern, it should be relatively small compared to the waves around it. Look at all the examples. There were strong price waves followed by the patterns…and the patterns were smaller than the price wave leading into them. This is key. Very big patterns (relative to the waves around them) signal too much indecision. Smaller patterns indicate the trend traders are just pausing. That’s a big difference in psychology. The more you watch price action, and the more charts you look at, you’ll get a feel for what an ideal front-running pattern looks. We certainly won’t be right all the time, but because our reward:risk ratios can be so big, we don’t have to be. Pattern size, in this case, must only be measured against the waves around it. It is a relative measurement, not an absolute one.
Sometimes we can’t front-run. The market doesn’t give us the opportunity. Refer to back to figure 1. By the time we draw the triangle (we need at least two price swings) the price breaks lower before pulling back to the top of the triangle. Therefore, sometimes trading chart patterns in the traditional way is the only option.
Use traditional targets, Fibonacci targets, or “active trade management.” Fibonacci targets provide multiple prices to look for an exit at. The traditional method for calculating a target only gives one, and doesn’t account for strength prior to the pattern (it only factors the height of the pattern).
Active trade management is an advanced technique which involves adjusting your stop loss (only reduce it, never expand it) and/or target level once a trade is underway. The benefit of active management is that if the price goes to breakout in your direction, but fails, you can still get out with a small profit. For example, you could create a front-running rule that if the price tries to break out in your expected direction but it doesn’t happen, then you exit right there for a small profit. You still capture the profit of the price moving to the other side of the pattern. With the traditional approach, this is not a possibility.
Just because the trend was up prior to the chart pattern doesn’t mean the breakout will be in that direction. Consider other factors, such as strong support and resistance levels, whether the trend is slowing down, or if the price is bucking up against trend channel support/resistance.
Like any strategy, this one takes time to get good at. It requires analysis skills, because it is those analysis skills which aid us in determining which chart patterns to front-run. Not every chart pattern is created equal.
Predicting Chart Pattern Breakout Direction – Final Considerations
No matter how we trade, losing trades will occur. While some may argue that waiting for a breakout is safer, breakouts can fail and result in losses too. With this front-running method you may have a few more small losses, but the reward on the winners more than makes up for it. Anticipating chart breakout direction reduces the size of the stop loss required, and increases profit potential (relative to the traditional method).
Learning how to read the market will take time. This method is recommended for advanced traders. If you try the method and find that your expectations are often wrong, or you’re unable to capitalize on the opportunities that come along, more practice is needed on reading price action. This is only a strategy, and like any strategy it must be combined in an overall trading plan for it to be successful. It’s your trading plan and analysis that will help you determine which trades to take and which to leave alone.
By Cory Mitchell, CMT
If you are interested in learning how to trade the stock market, check out my Stock Market Swing Trading Course. I guide you through 17 videos and more than 12 hours of instruction on how to swing trade stocks effectively and efficiently whether prices are rising or falling. Download and learn at your own pace.
Day Trading Stock Picks – US and Canadian Lists
Day trading stock picks likely to move big (up or down) during the week of April 7, 2020. See lists and statistics for both US and Canadian day trading stocks.
These day trading stocks have a strong history of percentage or dollar volatility. That means these stocks are highly likely to move big (up or down–trade the intraday trends) each day for the next week.
The list is broken down into three sections.
The first section looks at stocks that typically have high percentage volatility each day. These are the criteria for these volatility-based day trading stock picks:
- Greater than 4.5% moves intraday, on average.
- More than 4 million average volume (typically more).
- No leveraged ETFs.
- Priced between $5 and $150…although this screen typically tends to produce stocks that are on the lower end of that price range.
The second section looks at stocks that tend to move big in terms of dollar movement. Here are the criteria for those types of stocks.
- The stock moves more than $2 per day.
- The stock does more than 6,000,000 average volume daily.
Since these sections look at different criteria, they also produce different stocks.
The third section looks at Canadian day trading stocks. The Toronto Stock Exchange is a much smaller market, so the above searches don’t work as well. Instead, when searching for volatile Canadian stocks, the following parameters are used:
- Greater than 1 million average volume.
- Price greater than $5.
- 70th percentile of volatility for all stocks on the exchange. In other words, if all stocks on the TSX are ranked by volatility, only the ones that rank in the top 30% will be included in the results.
These lists are not recommending a specific trade or direction. For some guidance on day trading the stock picks discussed below, see How to Day Trade Stocks in 2 Hours or Less which discusses how and where to enter trades, how to exit trades, when to trade, and risk management.
Pick a few stocks and trade them; don’t try to trade all of them.
Trading volatile stocks isn’t for everyone. It takes quick reflexes and fast execution to take advantage of the large moves in these stocks. Make sure you have a stable high-speed internet connection. Your broker should execute trades instantly. If there is a lag or delay between when you place your order and when it reaches the exchange (is confirmed), that presents a potential issue as you may end up missing your entries or exits.
If you are more of a do-it-yourself person and like to look for stocks that are moving a lot each day, I recommend getting a Finviz Elite subscription. Use it to see what is moving aggressively each day in the pre-market and during the day, look for stocks that are gapping pre-market, and run technical filters for stocks breaking out of ranges or other chart patterns. This is ideal for people who don’t like waiting for trades and instead like to actively seek out trades all day long.
Day Trading Stock Picks for Week of April 6, 2020
5-minute charts provided by TradingView. Charts may take a moment to update. Charts show BATS only transactions (BATS provides free trade data, which isn’t the same as official real-time data of all transactions).
Carnival Corp. (CCL)
Average day range (30) is 18.38% and average volume (30) is 67.1 million.
CNX Resources (CNX)
Average day range (30) is 18.36% and average volume (30) is 7.5 million.
Hertz Gloabl Holdings (CCL)
Average day range (30) is 17.5% and average volume (30) is 10.7 million.
EQT Corporation (EQT)
Average day range (30) is 16.81% and average volume (30) is 13.3 million.
Virgin Galactic Holdings (SPCE)
Average day range (30) is 16.28% and average volume (30) is 18.1 million.
United Airlines Holdings (UAL)
Average day range (30) is 15.65% and average volume (30) is 20.7 million.
Average day range (30) is 15.6% and average volume (30) is 31.7 million.
Moderna Inc. (MRNA)
Average day range (30) is 14.78% and average volume (30) is 22.7 million.
Rite Aid Corp. (RAD)
Average day range (30) is 14.64% and average volume (30) is 6.2 million.
L Brands (LB)
Average day range (30) is 13.38% and average volume (30) is 11.8 million.
Other Good Day Trading Stocks and ETFs
Another option is to look for stocks with large daily moves in dollar terms (for example, the price typically moves $2 a day and does at least 6 million in volume). This type of screen also tends to produce stocks that provide ample volatility for trading the intraday price moves. These stocks are typically higher-priced or have experienced a recent price shock. Average True Range is a common indicator that measures daily average movement (in dollars).
Nvidia (NVDA): ATR (14) is $21.6 and Average Volume (30) is 18.6 million.
Apple(AAPL): ATR (14) is $14.17 and Average Volume (30) is 67.7 million.
Facebook (FB): ATR (14) is $9.90 and Average Volume (30) is 27.8 million.
Microsoft Corp. (MSFT): ATR (14) is $9.37 and Average Volume (30) is 71.4 million.
Roku Inc. (ROKU): ATR (14) is $8.48 and Average Volume (30) is 12.1 million.
Got a stock you like day trading/found? Let me know in the comments section.
Canadian Day Trading Stocks
Daily charts are provided for Canadian stocks.
Canopy Growth (WEED): ATR (14) is $2.03 and Average Volume (30) is 3 million.
Eldorado Gold (ELD): ATR (14) is $1.12 and Average Volume (30) is 2 million.
First Quantum Minerals (FM): ATR (14) is $0.87 and Average Volume (30) is 4.6 million.
Tech Resources (TECK.B): ATR (14) is $1.32 and Average Volume (30) is 4.3 million.
Remember Risk Management
Losing trades WILL happen. Don’t risk more than 1% of your trading account on a trade (risk = difference between entry price and stop loss price, multiplied by the number of shares). Slippage is likely in these stocks. Make sure the stock can support the position size you wish to trade. Failing to do so could result in further slippage.
See the video: How to Find Volatile Stocks for Day Trading (in 20 minutes a week) for the method used to find these stocks.
By Cory Mitchell, CMT
21 thoughts on “ Day Trading Stock Picks – US and Canadian Lists ”
I am curious if you have a recommendation on one or two stocks for day trading without changing the stock every week? Thank you
If you monitor the list each week you will notice it changes very little. The stocks generally stay the same and the stats are just updated. Which is the point of this list/screen! They move well most of the time.
Therefore,as recommended in the article, pick one and stick with it. Look at a 1-minute chart of each (or whatever you use) and see which one suits your strategies best. All are acceptable…once you pick one there is no reason to look at anything else unless the conditions in the stock you are trading dramatically deteriorate.
I decided to try out day trading US stocks, for the simple reason that, altough i’m doing ok day trading Forex, i like the idea to be able to choose stocks that are more likely to trend in any given session. Shaping my trading skills after yours, i can say that i became mainly a trend trader, and trends are where my skills really shines. I followed your stock picks for a while, and examining charts of the stocks that you provide i can see that they move FAR better than an average day on EURUSD (or should i say, i see more reliable opportunities on average, since Forex trends are usually far more choppier than stock trends, for what i see). I am not yet very familiar with things like monitoring the Level 2, or using market orders to remove liquidity fast when needed, but i think it’s something i could get a grasp on easily with a bit of practice. I see that hotkeys are widely used by stock day traders for rapid execution, which is something i never had to worry about trading Forex.
It is my understanding that stocks data are not free, and brokers only provide a time limited trial of their platform, so paper trading becomes an issue without an account opened (free data on TradingView is pretty broken and full of gaps on the 1m, i don’t find it reliable for testing purposes). Do you have a solution for being able to look at some reliable charts without having to deposit with a broker just yet? If not, i guess i will have to open a small account with a Bahamas broker and practice trading with very low share size.
Another question i want to ask you is, why do you only consider stocks priced at 5$ or more? Any reason why you don’t pick stocks in the, let’s say, 2-4$ range, or is it just to narrow it down to a handful of stocks?
And again, how do you choose the one stock that you will trade for the week from the list that you publish? Do you look at recent sessions and see which one moved the better on average, and trade it all week?
I will definitely play around with the scanners to see if i can find stocks that i like by myself, in the meantime i will keep following your picks.
And thanks for publishing your picks every week, i can see how valuable this is for stock traders!
By the way, when i look at the larger cap stocks (big companies), i can definitely see the institutional prints (chopped up and more unpredictable trends, many false breakouts targeting stops, all the stuff that i see daily on the Forex charts but i don’t see on the smaller stocks).
It looks like trading smaller stocks is “easier” for experienced retail traders, probably at the cost of less available liquidity (not a problem for most retail traders).
I’m not in any way saying that trading smaller stocks is easy, it’s just that the competition is a bit more fair than playing with the “big boys”.
I agree with that…in many cases.
There are big volume stocks that move cleanly, though. It is just a matter of finding them. Most of the stocks on the list, with big volume, are there because they have nice enough movement to trade.
Nothing is ever easy in trading, but there are stocks that are easier. I liked the smaller caps for a long time. I still do trade them occasionally, but if I can get a clean mover with lots of volume, that is even better.
As for brokers and practicing, Patrick posted this in a comment elsewhere. Basically, by depositing $50 you can get access to everything ThinkorSwim has to offer. This will give you enough to start practicing…you can use a simulation account within your live account.
“ThinkorSwim also has an “OnDemand” button that allows you replay a day in the simulator. For those who have the demo platform, you’ll sometimes have delayed data or limited features which might not unlock this for you. So I’ve found that depositing the minimum of $50 in a TD account grants you full access to the platform – well worth it IMO and cheaper than other simulator alternatives. The downside to ToS is although it is very robust, it has a steep learning curve and a bit of a resource hog.”
I would agree that given the wide range of stocks out there, it is typically easier to find something that suits your eye. I wouldn’t say trading stocks is easier, but there is more option. The down side is that it can overwhelming deciding which stock to trade. Narrow it to one, and trade if for the week. I have been trading the same stock for the last 4 months, everyday.
I actually prefer stocks over $20 or so. With $5 stocks, they may move 3% a day, but that is 15 cents over the course of a day. Each wave may only be 5 or 6 cents. By the time you get a consolidation, punch into the stock, and then get out, that doesn’t leave a lot of margin for error. You for sure have to give the stock at least a 3 or 4 cent stop, and then you try to make 6 or 8 you are trying to capture a huge portion of the daily range.
Now, a $20 stock, that moves 60 cents. It is much easier to pop in and out for 10 or 20 cents gains, while only risking 5-10, or whatever. You don’t have to be as precise, because the price is moving more.
Yes, the stock I trade is just one that suits my eye. It has good trending movement usually, but also it tends to have clean transitions (can see the trends slow, reverse, and breakouts aren’t usually choppy). Once I find one I like, as long as it stays “nice”, I will trade it forever. If the movements become harder to trade, I find something else. No stock is perfect. I still have lots of losing trades and the odd losing day, but for the most part me and the stock have to get along.
It is funny (and sad, very sad) how many times I read Cory’s articles, know what the right thing to do is and completely ignore it anyway. I tried stocks in play, then I went to trying to trade 5-6 of these stocks at a time (6 charts on my screen, trying to get every move in each one), narrowing it down to 3 or 4 that I traded better, narrowing again down to 2 and here I am, down to one stock that I trade well. It took me months to figure this out – checking previous trading results, trying to find consistency and pulling out some hair in the process. The whole time Cory has said over and over, just pick one. Luckily one thing I’ve listened to from the beginning was to trade small.
I’m not sure if it’s just sort of human nature to “trial and error” the unknown (but kind of knowing the results from others who have experienced it anyway) or if I’m just that thickheaded and stubborn. Regardless, I look at it positively now and as much as I tell myself I’m going to follow or listen to someone experienced to the T, there’s always that part of me that wants to go against the grain. So, again, I think it’s crucial to keep size small through all of these moments of honing the process to later, hopefully, learn for yourself what you already knew and continue to develop.
A big takeaway I got from this specific process was how greedy and FOMO-ish (I know, that’s not a word) I really am. I don’t see myself as a greedy person in the day to day and definitely not FOMO driven. But the fact that it kind of irked me emotionally that I would be limited to 1 stock and it might not have the big move I want and that another stock in the realm of thousands would make that big move and I’d miss it. If you think about it, it’s absurd. It leads to overtrading, mis-sizing risk (stocks in play can be $200 or $2 with crazy slippage) and just an overall sense of getting lost in the whole process.
So, how many more months is it going to take for me to know what I already know? I don’t know but I hope to continue to develop positively in this way and come to realize all of my misgivings and bad proclivities.
You have captured the essence of some very common problems.
It becomes a bit easier after you see consistent results from doing the same thing over and over again. For example, let’s say you only trade 1 stock (like I do typically). Most days are pretty uneventful (but still fun) and you make some money. Most days are like this. Then one day, that stock has crazy moves and you have a massively profitable day. Then the next day you go back to making your normal profit. Maybe several months or a year later you have another massive day. You do well most of the time, and extremely well a small portion of the time.
Once you do something consistently, you get to see that doing something consistently you will actually end up in the right place at the right time every so often. If we continually try to change things all the time, we will likely never be in the right place at the right time. Also, if we are changing things all the time we probably won’t be able to capitalize on a good opportunity even if it slaps us in the face because we have no consistently profitable method for doing so. By changing all the time we lose everything–the consistent wins and the big wins.
So we need to stick with something to see the benefits. And of course, we all know this, but that doesn’t make it easy. The continual stream of new exercise equipment and diets let’s us know that sticking to something is very hard and is a major problem for most people. It’s another reason trading is tough.
In regards to trial and error… no one wants to be good by chance. What that means is that people like to feel like they are good at something because they are actively involved in the process of being good. If I tell you a method and you just follow it and make money, you are not engaged in the process and it feels unrewarding. You want to forge your own path, and try to replicate the results in on your own terms. Also, it is only through trial and error that you really get to see how something works. If we just copycat, we never find out how a thing works which means we haven’t mastered it and will likely lose money when any small variable changes. I think we all know this, and that is why sometimes we test out so many things only to end up back at what we agreed with in the first place. We had to get the experience of what doesn’t work we can stick to what does…which relates back to the first point.
To help with the second point, since most of us want to feel like we are good at something (and want to take credit for it) we need to adopt a mind frame that removes that element. For example, I try not to think of myself as a good trader (ego). Rather, I am just a trader who uses a good system (no ego…I am just a button pusher for the system). It is a small shift, but a massive and profound one. As a button pusher we there is no bias or fear or greed. We are just executing a profitable system that we have thoroughly tested. Related to the point prior, though, most people don’t want to give credit to their system, and therefore they don’t stick to it. They want to think of themselves as a great trader, which in their mind is making on-the-fly trades and trying to outsmart the market and even their own systems. …and of course, we know that doesn’t work.
So our quickest path to consistency is humility in realizing we are just a button pusher for a good system. In order to stick with the system, we need to trust that system and know how it works. This is what the practice time is before we start live trading. Practice doesn’t need to be a journey into testing out every system and variable imaginable, rather is about trading a few strategies and practicing how they can be adapted to most market conditions (and also learning when not to trade).
Some food for thought
I love your line: “So, how many more months is it going to take for me to know what I already know?”
While I feel I have a hold of my trading (most of the time), this question does still apply in many other aspects of my life. As I am sure we can all relate haha.
Hi Patrick and Cory,
a great comment with a great answer!
I had the same problem (actually, i didn’t completely eradicated it), i was always thinking of doing more, changing things, finding the “perfect” solution to my trading problems. For example, from day one i knew that i shouldn’t let losing trades affect me BEFORE having collected enough data to gauge the validity of my approach. And yet, every 2 or 3 losing trades i was changing bits and pieces, trying to “fix” something and probably ending up breaking it more. Cory knows, i would e-mail him periodically asking for his opinion on things like day trading multiple Forex pairs, day trading multiple timeframes, how to change my active trade management, and even changing markets (here i am, a Forex day trader reading an article about day trading Stocks, lol). A few weeks ago i started day trading Futures, now i am back to my old beloved EURUSD, and i found that when i try to change something instead of keeping it nice and simple, i always underperform.
I became pretty good at analyzing the markets (after months and months of studying and practicing), and yet i was still letting losing trades affect my concentration and ability to stay cool. I started having several winning days, followed by one or two big losing days, that made me question EVERYTHING about my trading methods. The methods were not at fault, my mind was, since it looked like the more i was “on fire”, the more difficult became dealing with losses when they inevitably occurred. I knew that was part of the game, but knowing something and fully accepting it, is very very different. Now i completely understand why in the trading world traders often say “the real challenge is not a technical one, is a psychological one”.
The first thing that helped me was understanding that “not trading” is fine! I was literally expecting in my mind to close a number of trades on each session, and after staring for an hour at my screens without taking a single trade, i was starting feeling edgy and uneasy, resulting in poor and forced trading decisions. Now i completely embraced the fact that i don’t have to trade every swing, and i don’t have to trade on every market condition. I became really good in isolating turning points (both pullbacks and trend reversal points, thanks to Cory help and patience in correcting my early mistakes), and became good in spotting patterns early on giving me a chance to position myself in a good position for eventual breakouts (front running). Speaking of patterns, i embraced the notion that front running patterns (especially bigger patterns) giving me a huge risk reward (3:1, 4:1, 5:1, which i consider HUGE for day trading), i HAD TO expect about half of them (or more) failing, and that was normal because the nature of setting this kind of r:r was that they required a strong breakout momentum that was not always backed by the market. So i stopped trying to change the formula. Most importantly, i stopped trying placing trades on choppy conditions, or even conditions that i didn’t like. Now, when i can’t identify a clear trending opportunity, or a clear pattern opportunity, i simply stand aside. I no longer feel like i missed something if not placing a single trade on a 2 hour session. Instead, i look back at the session, and i try to identify good setups with the benefit of hindsight, and i try to learn something from it. And i feel good about controlling my emotions and having preserved my capital, knowing that “i survived to trade another day, and the market will still be here tomorrow”.
In trading, more is not necessarily better (quite the opposite it seems).
I still remember something that Cory wrote on an e-mail after i asked him about trading for a firm.
“The way of the firm is: Keep it simple. Making consistent money (by doing all things consistently) matters more than being busy.”
That’s a great line and summarize this particular problem about “wanting to do more, and adding more, and more of this and more of that…”
I believe this is a personal journey that every trader has to go through, because reading about it or hearing about it is not same as experiencing it and then acknowledging it.
Another thing i want to add is that when i stopped trying to mirror somebody elses trading (be it Cory or other traders), i started becoming a better trader myself. Because after learning something from the great traders out there, is about taking that information and shape it in a way that works with who we are and how we look at the markets. That is something that new traders should really understand as soon as possible, because if we don’t learn how to flow and be completely in tune with our methods, we will never be able to be in tune with the markets.
And finally, Patrick, is good to see you are doing well! I remember reading your posts of frustration alongside mine, many months ago, and we have come a long way since then.
You can’t succeed without strong passion and determination
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