Plus: The Charting Trick That Shows You How to Get in Early and Profit From Trend Reversals
If you stand in my garden and scan your eyes South, you’ll see an old ruin poking-up on a rocky hill like something out of The Lord of the Rings.
It’s Beeston Castle, built in the thirteenth century by the Earl of Chester after he got home from the Crusades.
You can gaze down on eight different counties from up there.
It’s an incredibly atmospheric place…
Especially since – rumour has it – hidden away, deep down the well shaft in a secret chamber, the treasure-hoard of King Richard II still lies, glinting in the dull light.
They say the King stashed it there before striding-out to deal with a rowdy Irish uprising. Problem was, he got himself captured and killed before he ever had chance to go and get it back.
A crew of treasure hunters had a go at getting down the well in the 1930’s. They only got so far though before they hit the top of the rubble-pile seven hundred years worth of curious children have made by dropping stones down there!
There have been other attempts in the years since, there’s supposed to be a new one in the pipeline…
But this time, they’re coming tooled-up with the latest technology.
Ultra-sonic probes, Seismometers, magnetic detectors… Geo-phys imagers so they can look for secret underground tunnels… you name it.
And I’ve got to admit… I’m completely taken by the romance of this stuff (sit me in front of ‘Time Team’ and I’m in my element).
Are these treasure hunters really that different to us traders?
Like us, they’ve got their special bits of technology to help with their analysis; they’ve got the findings and advice from generations past to learn from and they’re involved in a speculative venture with no way of guaranteeing the outcome…
Swap ‘haul of treasure’ for ‘haul of pips’ and you could be talking about the same people.
But I think there’s one critical difference between them and us…
For the treasure hunters it’s all-or-nothing… death or glory!
Their investment of time, money, and resources is admirable but what if they don’t find the treasure?
For them, there’s no real sliding scale of success.
They pack their gear up and slink home with their tails between their legs. The gold and jewels lie in wait for a more successful attempt.
But for the trader seeking his fortune in the Forex markets…
He might also have his efforts focused on a goal, but if he falls short he can still enjoy the luxury of wild rewards.
Let’s say Steve – our trader – had his mind set on £60k net profits this year. We’re coming up to the anniversary of Steve setting his target and he’s falling short…
He got caught out when the Yen broke to the upside in April, and that bit of a flat spell his system went through in January have both taken their toll.
So Steve’s looking at missing his target by 20% – but is that really so bad?
£48k profits instead of £60k?
Lets put it in perspective… Imagine if the treasure-hunters miss their target by 20%. They’ll still be coming up with buckets of dirt, not gold – and no half measures.
I know which camp I’d rather be in.
But there is one thing we definitely can learn from the treasure-hunters and that’s their striving for a pure, laser-focused, single-minded objective in the first place.
It’s King Richard’s treasure they’re aiming for.
Find a few old arrowheads, the odd buckle or silver coin… that’ll be nice, it’ll all go into the bag, but it’s not enough… it’s not what they came for.
Reach a bit of an obstacle– their progress slowed by having to dig rubble out of the well by hand– and they’re not going to suddenly up-sticks and move their operations to Peckforton Castle down the road instead.
They won’t be diverted from seeking their prize where they know they have the best chance of finding it.
Can you adapt the same goal-seeking outlook with your trading?
Keep yourself focused on a single objective and you can ride above the distractions… the inevitable flat spots your system goes through, the conflicting market analysis you might read, the alternative ways of trading vying for your attention…
And I’ve found one way to get this clarity of focus is to write out a simple statement of your objective.
Now, you might already have something like this in place, but if you haven’t, it’s really simple to do, and here’s an example of the kind of thing that might work well for you:
“By 15th January 2014, I’ll have done whatever is needed for me to secure net profits of £12,000 from my end-of-day Forex trading operations. I will have done so in a way that did not require constant monitoring of my positions, and didn’t disturb my valued early evening and weekend family time.”
It’s best to write in fully formed sentences – as if your goal has already been achieved.
And come at it from a real high-level overview. Don’t concern yourself with the details of how you’re going to achieve your goal yet – that can all be figured-out in the next steps, once you know exactly what it is you want.
But your goal should be something quantifiable that inspires and stretches you – without being in the realms of fantasy… something you can refer to daily to keep nudging you back on track.
So, if you’re up for this – I’d really like to get to know you a bit better…
Have a think about the resources you currently have available for your Forex Trading venture, and then set yourself a goal for six months time.
There’s no right or wrong answer so it might be a financial goal, it might be something to do with improving your self-discipline, it might be finding a new system that suits you better… it’s whatever is right for YOU.
If you’d like to share, you can send your goal to me at the usual address.
Recommended Reading: Fortune’s Formula – William Poundstone
And if you’ve not heard of Kelly before, this is the formula that shows you how much to risk per trade for maximum profit with minimum risk of wiping-out your account.
For your poolside enjoyment – you’ll be reading about corrupt wire operators fixing horse race results, card counters clearing out Vegas casinos, spectacular hedge-fund explosions, the inevitable Mob involvement.
And in terms of helping your trading, you’ll see how precise position sizing can turbo-charge even a modestly performing trading system.
You’ll also learn how Claude Shannon (one of the mathematicians involved) used the Kelly Method over a thirty-year period to outperform even Warren Buffet.
It’s a riveting story and reads like a novel.
Quick Charting Trick: How To Trade A Trend Reversal
GBP/USD – 4Hr Chart
Here’s a simple way to spot a reversal of the current trend and trade an early position in the direction of the new trend.
We’re looking at a 4-hour chart of GBP/USD here from early June 2013.
1. Monitor for breaks of the current trend-line (here’s one – labeled A)
2. Wait for the market to put in a new intermediate high/low in the direction of the new trend (labeled B)
3. This intermediate high needs to be confirmed by a pull back of at least 3 bars (labeled C)
4. Enter on a breakout (labeled D) once the market moves past the intermediate high
5. Initial Stop-Loss goes below the extreme of the pull back at (C)
6. Move your Stop-Loss up to lock in profits as the new trend develops
It doesn’t work out like this every single time, but when you do capture a nice entry, you can enjoy a real day in the sun!
Be on your toes: Market moving data coming this week:(London Time – BST)
Tuesday 18th June:
09:30 UK Consumer Price Index (GBP)
10:00 DE German Economic Sentiment (EUR)
13:30 US Consumer Price Index (USD)
Wednesday 19th June:
09:30 UK Monetary Policy Meeting Minutes (GBP)
19:00 US Interest Rate Decision* (USD)
19:30 US Ben Bernanke Speaks* (USD)
Thursday 20th June:
08:30 CH Swiss Interest Rate Decision (CHF)
09:30 UK Retail Sales (GBP)
13:30 US Initial Jobless Claims (USD)
15:00 US Existing Home Sales (USD)
* = The Big Ones!
Until next time…