My trading philosophy

Over the years, I have tried many different trading systems and have absorbed the best from the techniques I have encountered and ultimately ended up developing my own system. It is inevitable that you will do the same, even if you use my system as the foundation.

The key drivers of my trading goals were:

• Getting most of the big moves of the day
• The ability to sit through a trade, without panicking when it goes against me
• Predictable losses that I can control
• Few good trades vs many marginal trades

I arrived at the above after being burnt using alternate philosophies such as:

• Trying to get all moves: Low win rate, small profits
• Momentum trading: Needs large stops, hard to sit through.
• Dollar cost Averaging: Unpredictable big losses
• Scalping for a few ticks: Good for my broker, not me.

One of the key things that I learnt was that the mind's ability to focus attention wanes over time and judgement suffers. Your first two or three trades are when your judgement is finest. At the end of the day, especially if you have suffered losses already, you will probably make terrible mistakes and have days that will wipe out weeks of profit.

Trading every possible swing is fatiguing to the mind and is not something you can do day after day. Therefore, I chose to focus only on the big moves. That way, one to four trades a day were sufficient for success.

On entering a trade, I learnt that often I would be shaken out when the trade went against me. I deduced that this is because my body reacted viscerally to the open loss during a pullback. I realized that to be able to sit through a trade, I would need to trade with a fixed stop. Over time, the body gets de-sensitized to a fixed loss and you will stop reacting to it and you will be able to execute without emotion.

These observations led me to focus on the open as a source of good trades since many large moves are at the open. Trading the open also has the benefit that I can choose to trade only an hour or two and quit for the day.

Its a viable trading plan to only trade the opening setups. If the open ends up being some sort of trend, it may be worthwhile taking with-trend trades. I generally avoid trading trading ranges or barb-wire. They are notoriously difficult to read correctly.

In future posts, I will describe my setups and trading reports in detail.