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Deep Posts Reader Questions Answered

Once you’ve suffered a huge trading drawdown, how do you recover?

I imagine this question is one that more than a few traders are struggling with at the moment.

Dear John,

Here’s a question. Once you’ve suffered a huge drawdown, what’s the best way to recover? I suffered the losses from making very stupid mistakes, but I’m not sure how to recover from here. Can you offer any help?

Thanks,

Glenn C.

Believe it or not, Glenn’s question has a silver lining to it. Of course it’s always rough to suffer a big drawdown. It can be a very destablizing event, above and beyond the obvious financial impact. In this case, though, Glenn’s losses came from what he as described as boneheaded moves on his part. That’s a good thing because it immediately implies something which is correctable. It’s much worse when you feel like you’ve been doing everything right and take a big hit.

That said, rattled confidence doesn’t generally come back quickly, as the current market environment is telling us quite clearly. It takes time to build back up as the result of some success. Generally, the best path back from the abyss is to perhaps shift back to demo trading for a while and to definitely cut way back when going back into live trading. Progressively build yourself back up to normal risk levels over time as your confidence returns.

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Deep Posts Trader Resources

Wall Street Warriors episode videos

I’ve never seen the show myself as I don’t have the Mojo network, but I’ve heard a lot of good thing about the show Wall Street Warriors. The show “follows the daily lives of ten successful individuals who deal in millions in the marketplace”. Here’s a link to a site which will allow you to watch episodes online.

http://www.hulu.com/wall-street-warriors

You may need to register, but I believe it’s free otherwise. I haven’t had the chance to check them out myself, so I look forward to hearing comments and impressions from those who have either seen the broadcasts or watched the videos online.

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Deep Posts Reader Questions Answered

I think technical analysis is crap, and I should study economics to swing trade forex

Here’s something I came across on Trade2Win.

I am a newbie, have been reading forex stuff for about 6 months on a daily basis.

I am now interested in trend trading over timeframes of few days to a week or so. Where I can make a trade and come back when I need to close, without having to watch the charts all-day long.

After a lot of reading through the forums, I am not very interested in technical analysis or price action, but more on the fundamentals/news etc. Personally I believe most of the TA is bs.

So, should I start studying macroeconomics? I am already a university pharmacy student, but I would like to study economics on the side, out of interest.

Could anyone advise me on whether I should go ahead with this, and also whether there are any good books or resources I should go to for studying this subject matter.

The purpose of studying economics would be for me to have a deeper understanding of the world and of price moves in forex – since right now I’m not all that certain about many economic issues. Also so I can understand other markets like commodities etc.

Thanks.

The biggest issue this individual has with their plan is the timeframe. Fundamental analysis can be very useful, but it’s only applicable in timeframes that are generally measured in months or longer. You cannot trade fundamentals when making end of day trading decisions in the forex market. The big picture things which drive trends just don’t change that frequently.

Now, if you’ve been reading this blog for any length of time you’ll know that I’m primarily a technical trader and market analyst. Clearly I don’t think technical analysis is “bs”, though there certainly are many technical methods which I personally find to be based on flimsy logic, but then I just don’t use them. At the same time, fundamental analysis plays a large role in my stock market trading, though significantly less when I trade forex and other markets.

Getting back to the trader’s question about studying economics, the answer is clearly “Yes”. But for a market like forex that means focusing on macroeconomics. The micro stuff and subject matters related to social planning and whatnot might be interesting, but don’t really help the forex trader.

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Deep Posts Reader Questions Answered

What do you suggest is the best way to trade fx markets?

Here’s a part-comment, part-question I received from a trader named Garry the other day.

Simplicity is the key, so what do you suggest is the best way to trade fx markets? Daily charts and what indicators if any?

Firstly, I’m going to agree that simplicity is generally a better idea for most traders than complexity. That’s not going to be the case for everyone as some traders thrive with complex methods and ways of evaluating markets, but an awful lot of traders would do better thinking more simply about things. There is a tendency to think that more is better when oftentimes it isn’t.

As for the best way to trade fx, there is none. There is only what’s best for you. The process of becoming a good trader is largely the process of figuring out the optimal way for you to approach trading and the markets. That’s why I spend so much time laying the groundwork for doing just that in my book and course. Without knowing quite a bit about someone, I can’t really make any judgement about what’s best for them. It’s a very personal sort of thing.

Here’s an example related to Garry’s question about daily charts and indicators. I personally am not a great fan of indicators. Some very successful traders swear by them, but I’m primarily a chartist. They only indicators I look at in any meaningful fashion are ones which provide me a relative reading on volatility. You could argue that those aren’t even proper indicators the way others would define them. They’re more like statistics. And as for the daily charts, I very often look at the weeklies (or longer) because I like to do more position trading than shorter-term stuff, but then I also look at shorter term charts if I’m looking for a shorter term opportunities.

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Deep Posts Reader Questions Answered

Does The Essentials of Trading cover strategies related to E-mini S&Ps?

Here’s another inquiry which came in recently.

Hi John:

My name is Brent and I am relatively new to the world of futures trading.  I majored in finance in college, so I have a basic understanding of some of the principles and verbiage… but it’s been about 10 years since I’ve been in the classroom.  I have been searching the Internet looking for information about futures trading, and I was really impressed by the “non-intimidating” approach of your website. I presently find myself in a position where I have the opportunity to pursue a career in trading.  I have a few friends that have been moderately successful trading e-minis, and I think their success has awakened the “inner trader” in me… LOL… 

My question to you is:  Does your book cover strategies and techniques as related to E S&P Minis?  Even though some of my trading friends have offered to “mentor” me, I am a person who needs to be able to understand things conceptually. I am taking a huge risk by stepping out into the trading world, however with that risk there comes the possibility of a great return.  My desire is to do everything possible to ensure that I realize those great returns.  I look forward to being a productive member of your trading forum!!

Answering Brent’s question directly, I would firstly say that The Essentials of Trading is not specific to any market, including the mini S&Ps. Nor does it lay out specific trading techniques, except where they are used as examples to demonstrate things or make a point.

That said, the book (and by extension the Essentials trading course) definitely does fill the need Brent describes as “…to be able to understand things conceptually”. The material is very much intended and designed to be foundational, allowing one to learn the core trading concepts and have them as a strong basis for then moving on and developing a personalized approach to trading. Outlining the requirements of a good trading plan is a key part of the presentation.

I’m a little confused by the use of the phrase “career in trading”. I don’t know if that’s just Brent’s way of talking about getting into trading seriously, whether he’s planning on going after a position in the industry, or whether he’s planning on trading for a living.

As for the part about taking a huge risk, the statement I would make is that in trading you can take whatever risk is right for you. It need not be something extreme. Actually, it shouldn’t be. A healthy appreciation of the risks is definitely a good thing, though.

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Deep Posts Trading Tips

Very, very, very bad trading!

The following posting was pointed to me. I think it originally came from Craig’s List. The poster’s moniker was CaReFulInVEstOR.

$130,000 saved up and I have follwed Robert Kiyosaki (Rich Dad) and he said Silver was going to run and the market wasn’t a safe place, so In Feb of this year, I put it all into silver at $21 an ounce. It dropped to $16.50 an ounce in March. I lost $30,000 in that move so I sold it out since I couldn’t take the losses. Then everything started getting crazy and I read more artacles that said there was a silver shortage and put my $100,000 in to silver at around $19 an ounce in July. It is now around $11 and I only have $58,000 left and I don’t know what to do. I lost over half my money just this year in silver. It was my life savings. I owe $160,000 on my house and that money was everything I saved up so now I have nothing.

I won’t make any judgements on Kiyosaki’s call because I didn’t see it or read it. That is completely beside the point, in any case. This person acted incredibly foolishly - as greed will often make people do. Check out the screen name. Careful Investor? Not so much.

Risk Management!  Risk Management!  Risk Management!

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Deep Posts Reader Questions Answered

Kondratieff Long Wave Theory

I was asked the other day:

What is your take on the Kondratieff Long Wave Theory?  Would you say we are in the Winter phase?

I’ve heard of a lot of different analytic methods and concepts, but I have to say I have never heard of this. But then again, I’m not a trained economist, so I could have just missed out on this one in my education. Having taken a quick look, I now realize it’s basically a theory based on super cycles.

Kondratieff Long Wave Theory came from Nikolai Dmyitriyevich Kondratieff (1892 – 1938) who was involved in the early Soviet economic planning processes. You can learn more about him and his ideas here:

http://www.kwaves.com/kond_overview.htm
http://en.wikipedia.org/wiki/Kondratiev_wave

I’m going to have to read up on all this stuff. Until that’s done, I’m not going to venture a guess as where we might be in the cycle. I encourage anyone else who has some thoughts on the subject to leave a comment with them, though.