Study agenda Thursday 8/14 five-hour timeblock

• Ongoing indicator research
  
  • verify availability in both FT and MT4
    
  • classify as leading or lagging
    
  • synopsis of how it's supposed to work
    
  • clutter factor on chart with other indicators?
  
  

  Indicator research is on this page

  
  
• Assemble a preliminary research survey
  
  • Goals: methodical, unbiased, objective
    
  • Object: find clues that lead to a good entry or exit setup; store research data in a non-subjective way that can be extrapolated via math later on
    
  • Interested in: a) (entry) short burst moves (breakout); b) (entry) steady trending moves; c)(exit) definitive exits; d) (exit) loss of momentum clues
    
  • Include questions asked on all entries/targets
    
  • Include questions for each indicator separately
  
  

  The survey is being assembled on this page

  
  
• Mindmap the survey testing procedure, including how it leads to a trading strategy
  
  

  This mindmap is now located here

  
  
• Watch Wall Street Warriors season 1 episode 5

Study agenda Thursday 8/7 five-hour timeblock

• Study Van Tharp's high-expectancy/low-risk formula; write out how/where it will be applied to my strategy
  
  • reference 1
    
  • reference 2
  
  

  I think expectancy calculation is critical to an overall successful strategy. The correct time to apply this formula is after trade rules are written. Use historical testing to perform a minimum 30 trades (preferable 100-200) and then calculate the expectancy based on those trade outcomes. The expectancy figure tells whether or not a strategy could be profitable in the long run, and what the average take would be.

  
  
• Study equity crossover ideas; write out how/where it will be applied to my strategy
  
  • reference 1
  
  

  Equity Curve trading is a theory that says the trader should stop trading or reduce lots when the equity curve crosses above or below its moving average and to resume trading on a crossover in the opposite direction. It is unknown whether this would be useful or not for manual trading. One possible indication is that it could flag a trading strategy that no longer works. This needs more research. I think I would like to analyze the equity curve during each trade, and when the crossover below the MA occurs, switch to paper trading so the strategy could continue to be monitored. Upon a crossover above the MA, begin live trading again. My theory is that a failed strategy would continue to perform in a substandard way, thus keeping equity below the MA.

  
  
• Write out specific/formal survey (testing) procedure
  
  • reference 1
  
  

  Prerequisites: a) identify trading markets/hours to test; b) identify currenc(ies) to be tested; c) identify primary chart timeframe that will be studied; d) identify core strategy style: breakout, scalp, counter-trade, trend-following; Objectives: a) to observe how each indicator (or chart behavior) performs around a potential trade entry and exit; b) survey all stats for every trade; Post-analysis: after sufficient number of trades exist in the database, analyze database for indicator correlations which can then be used to solidify trade rules

  
  
• Research and identify a mind-mapping tool that will work for my purpose (web-based)
  
  • reference 1
  
  

  I've tentatively selected Mindomo as the best fit.

  
  
• R&D to locate classification of indicators: leading vs. trailing needed
  
  • reference 1
    
  • reference 2
    
  • weed out any that are not available in both FT and MT4
    
  • read-up on some and see if any look useful; start a list of those I'd like to survey
    
    • On-Balance Volume
      
    • Average Directional Index
      
    • ZigZag indicator
      
    • MACD
      
    • RSI
      
    • Stochastics
      
    • CCI
  
  
• Rob Booker / InterbankFX free webinar at 6pm (will watch the recorded video later)
  
  

My "Research Goals"

Focused, targeted research is key to building a winning strategy. These are specific goals I plan to accomplish during the research phase of my strategy.

• Identify timeframe I will trade (will multiple timeframes be studied as well?)
  
• Identify pairs I will trade
  
• Identify best times or markets for trade entry
  
• Identify best days for trades
  
• Identify the sweet-spot window of time successful setups can be in-trade (before forcing an exit)
  
• Identify conditions that could occur after setup, but before entry, that indicate setup no longer valid
  
• Classify the type of strategy (breakout, etc.)
  
• Identify specific patterns that occur in winning trades
  
• Be able to identify/calculate high-expectancy, low-risk trades vs. others (Van Tharp)
  
• Find a combination of indicators that complement and reinforce good trade setups
  
• Identify any criteria that might indicate trade setups will not work (ie, impending news or other connections)
  
• Develop an objective/unbiased method to collect data (with intention to assimilate later)
  
• Develop a protocol for assimilating data into something useful (ie, statistical significance)
  
• Notate my research procedures so they can be mechanically repeated for future strategy development

My "Steps to Success"

These are the steps I'm following on my journey to trading success.

1. Identify my trading objectives, goals and targets.
   
   • What would my ideal trading plan look like?
     

     My ideal trading plan is one that fits my schedule. I want to be able to study charts in advance of placing any trades, such as the evening hours after 9pm when kids are asleep. I would scan for any potential or ripe trades at that time, and setup alert triggers accordingly. I will also notate exact trade entry orders so that in the event I am entering the orders during middle of the night, there will be minimal thinking involved.

     
     
   • How would I keep my emotions in check during a trade?
     

     I will have a clearly defined strategy that dictates, mechanically, exactly what should be done in every situation. Therefore, there is no need to get emotional or even "watch" trades in progress. No changes to trade strategy will be made unless one of the exit criteria is reached.

     
     
   • What triggers would I have in place to deal with unanticipated activity or movements?
     

     All trades will have (at least) an emergency stop. This stop will come into play in the event of an extreme geopolitical event, such as bombing, terrorist activity, or similar affecting the markets. This stop is different than the discretionary stops that may be used as well.

     
     
   • What procedures would ensure that no single trade could ever cause massive damage?
     

     All trades will have an emergency stop in place. Additionally, discretionary stops may be used and moved on active trades as the trade develops. The discretionary stop represents the highest desired risk of the given trade. As such, the leverage on the trade itself will be based on this initial discretionary stop, and limited to a percentage of account equity. The discretionary stop may be tightened during the trade development, but never loosened.

     
     
   • What are some things I would/wouldn't do to improve my psychological stability?
     

     I will try to workout regularly (3+ times/week), and preferably before trading studies. Additionally, I will not study trades in the midst of other distractions such as children, television, or the dayjob.

   
   
2. Identify some ways that I will give back to the open community.
   

   I will maintain a public blog to share my travels. I will share any tools, worksheets or methods I develop that help me find or execute my trading strategies.

   
   
3. Identify the chart timeframes, pairs and markets I want to focus on in this round.
   

   Tentatively looking at trading 15min EURUSD, GBPUSD, USDCHF, USDJPY but will focus on one pair for initial studies.

   
   
4. Identify the indicators that I want to have available to me during research testing.
   
   • What is a specific reason for choosing each indicator?
     

     (indicators not selected yet)

     
     
   • Are any indicators closed-source?
     

     (hopefully not, as that would be against my Rules to Live By)

   
   
5. Create ground rules for strategy research project.
   
   • What protocol will be required for testing?
     
   • Is there a defined maximum time a trade can be held open?
     

     Yes, there needs to be a time stop. This should be answered during the study period. I expect to find good setups succeeding within a percentage of time. After that percentage, the likelihood of success would be less. Therefore, I should identify this sweet spot and plan to automatically close trades that are outside this window (free funds for other opportunities). Also, I believe that a short-term trade strategy is not valid if entry triggers are met but no followthru.

     
     
   • What criteria would indicate that it's time to take a loss?
     

     a) Discretionary stop reached; b) Time stop reached; c) Other criteria dictated by trade rules

     
     
   • What criteria would indicate that it's time to close at profit?
     

     a) Target reached; b) Time stop reached; c) Other criteria dictated by trade rules

   
   
6. Begin strategy research project on paper.
   
   • Review strategy research project and make adjustments periodically.
     

     (this is discussed further in the Research Goals section)

   
   
7. Gather all data from research project and attempt to assimilate into a trading strategy.
   
8. Write tentative trading rules that complement the above research findings.
   
9. Backtest the rules for a reasonable period, refining rules as necessary.
   
10. Forward test the rules for a reasonable period, refining rules as necessary.
    
11. Begin live trading on a micro account using the refined ruleset.
    
12. Review progress on an identified schedule.
    
    

My "Rules to Live By"

This is an official list of core beliefs and "rules" I will reference back to when in doubt. In other words, if I see myself getting sidetracked, or unsure if I should devote research time to a new idea that comes across my desk... hopefully this will serve to guide me:

---

These are core principles that drive my study and trading life. Before engaging in new activity, I need to make sure none of these rules are violated... as that would certainly be going against the grain.

Open-source software

• I'm a strong proponent, so investing in closed-source would be strongly contrary to my beliefs
  
• I will prefer open tools, indicators and systems before considering any closed-source purchase
  
• Tools or systems that I personally develop will be built on open principles
  
• I'm completely uncomfortable with closed-source robots
  
  • No way to fully understand their workings
    
  • No way to fix or improve them
    
  • Not a good prospect for long-term success

Collaborative development

• I believe that it is not possible to saturate forex market with any particular trading style
  
• I'm not afraid to share my secrets/ideas with others
  
• I believe others will contribute ideas that help me excel, and vice versa
  
• I believe in serendipity

Make my own trading decisions

• I strongly believe that allowing other people to manage my money is a dead-end road
  
• I believe that I must learn myself how to handle my own money if I am to excel in the long term
  
• I should develop my own trading strategies, even if it takes longer to excel as a result
  
• I believe that the best trading strategies would be personally discovered and developed by myself
  
• Any system that does not allow me complete understanding and control of trading decisions should be avoided
  
• Only a personally developed system could "fit me like a glove"

Fire up the engines

I've finally succeeded in negotiating a 5-hour study block with my wife. I have thought about this a lot and I think it could be exactly what I am needing. The problem is I live and breathe forex constantly yet I am completely frustrated from a total lack of study time. I need time where I can focus intensely on the tasks at hand, and to avoid the constant scatter-brain I have when at home. Tonight is my first trial of what I hope to carve into a permanent weekly study block. This particular block of time (Thursday evenings from about 6pm to 11pm) may be ideal for both myself and my family.

My primary objective is to get back into the trading I love so much. But my personal discipline will absolutely not allow this until I have completed the necessary prerequisites -- namely, development of new trading strategies as the old ones I was using are no longer viable (for various reasons). However, over the years I have learned how to build new strategies and I am looking forward to sharing those procedures here.

One thing I will try to do is set an agenda for myself to maximize each studyblock. I find that I am easily distracted... but if I have a bullet list of items to accomplish, I am much more likely to spend that time productively. I would like to go home exhausted at midnight feeling as if I have made major progress. That would make me extremely happy. I'm the type of guy who needs to see progress -- even if just in baby steps.

Study agenda Thursday 7/31 five-hour timeblock

• Formally answer all questions on the StepsToSuccess page
  
• Review RulesToLiveBy page and ensure everything up to date
  
• Establish the ResearchGoals page
  
• Forex Tester software -- need to "figure out" before trial runs out
  
  • How to load history data?
    
  • Is 1min -> tick interpolated going to be adequate?
    
  • Figure out how to step forward and backward
    
  • Determine timezone adjustment if needed
    
  • What "procedure" will I follow for running the test?
    
  • What indicators could work, and are available also in MT4?
  
  
• Prep for strategy discovery testing
  
  • Locate the survey form I put together
    
  • Identify which pair(s) I will focus on for this round of tests
    
  • Identify specific trading hours that will be studied
    
  • Identify specific indicators that will be observed
    
  • Begin writing out my formal testing procedure
  
  
• Begin envisioning how survey test data will be interpreted
  
• Identify specific items that need to be converted to strategy rules

Stuart Walton's trading rules

Stuart Walton provides a very interesting interview in Stock market wizards -- unlike most other traders Schwager interviews, this guy had "no burning desire to be a trader, no special analytical or mathematical skills, and was prone to emotional trading decisions that caused him to lose all or nearly all his money on several occasions."

He kept these rules posted on his computer to remind him constantly before making any trades. I really like and agree with all of these so I'm reposting them here:

• Be patient--wait for the opportunity.
• Trade on your own ideas and style.
• Never trade impulsively, especially on other people's advice.
• Don't risk too much on one event or company.
• Stay focused, especially when the markets are moving.
• Anticipate, don't react.
• Listen to the market, not outside opinions.
• Think trades through, including profit/loss exit points, before you put them on.
• If you are unsure about a position, just get out.
• Force yourself to trade against the consensus.
• Trade pattern recognition.
• Look past tomorrow; develop a six-month and one-year outlook.
• Prices move before fundamentals.
• It is a warning flag if the market is not responding to data correctly.
• Be totally flexible; be able to admit when you are wrong.
• You will be wrong often; recognize winners and losers fast.
• Start each day from last night's close, not your original cost.
• Adding to losers is easy but usually wrong.
• Force yourself to buy on extreme weakness and sell on extreme strength.
• Get rid of all distractions.
• Remain confident--the opportunities never stop.