When it comes to trading I always say the exit strategy and the risk is the most important
part. People are looking for the secret sauce, the secret thing they can put on their chart
that's going to make them super successful, but the thing is, it's about managing your
risk. If you protect your risk, protect your capital at all times, that's going to help
you to keep trading. I always think of things like boxing. Boxing
is my favourite thing other than trading...well, actually it's probably more my favourite thing
than that. And you know, it gets to a point in a fight when someone is winning clearly,
and the other guy hasn't got a chance. And inevitably the boxer because of the bravado
and that kind of thing, the ego, wants to continue, thinks it might turn around at some
point. But it's up to the team in the corner at that point to throw in the towel, so that
he can survive to fight another day. To go and have more matches, have a chance to win
eventually. I think this is the same with how we are in the markets. So, when we open
trades, inevitably our ego goes with it. It's very difficult especially at the start to
leave your ego behind when you're starting to trade. We take it with us and at the start
it's really difficult to not take losses personally. So you think that every time you lose a trade
or every time you open a trade, it's sort of a reflection of yourself rather than your
strategy. So when you win trades you feel good, like "I made the right decision". When
you lose trades, then it's like "oh I must have F'ed up at that point, I've done something
wrong". And we need to start to realise that winning and losing are both parts of trading.
It's like two sides of the same coin, we've got to have both. When we're going for our
exit strategy we always want an anchor point for our exit. This has got to be something
that's happened previously on the chart to use as our anchor point for a stop loss, where
beyond that point we're no longer engaged in a setup. So we're in what we call the grey zone
It's like limbo. You know, when people say you're in limbo, you're between the living
and the dead and you don't know where you are. It's kind of that because if you're in
a losing trade, if you're not in a setup, you're as good as dead. And if you're in a
setup then you've got a good chance of succeeding. And by the way, if you're in a setup where
it's good, your analysis could be absolutely perfect, everything spot-on, perfect, most
perfect setup you could possibly get, highest success probability, perfect risk, everything
and it can still fail. It just happens. Don't take it personally.
Some people trade based on looking at the overall trend. you know people say
"the trend is your friend" and they'll just jump into a trade based on the trend and that's it.
No setup or anything. There's an element of that that's going to be successful for them
because the market is in a trend and the structure's in your favour, there's something on your
side. So, if like 60% of the time, 50% of the time, whatever, at this point the market's
going to reverse straight away, brilliant. But it doesn't mean we want to exit just at
that point if it's not the case for us. On the other hand, if we're doing the same entry
going long and it's a downtrend at that point, so we're looking to do this bit. We're in
a downtrend, there's nothing else in our favour at that point because we're in a downtrend,
everything's against us, so all we're relying on is that 60%. Which is also why our position
size when we're in a trade like that is going to be lower, because the risk is higher than
the situation where we're entering up here. So you take into account the different things
that are on your side, try and let them play out or give them the room to play out. Everything's
this way, everything's heading this way structure-wise, the sort of significant levels and stuff,
if you think about horizontal ones are all going to be based on what's happened here,
so this is a path of resistance going this way. Everything's against you and in a way
that all you've got in your favour is this. The setup that you had. So you want to reduce
your risk as a result of that. Therefore you want a tighter stop - that's one way to reduce
risk, which I'll come onto in a second. And you're going to have a lower position size.
Got it? Any questions?
So at that point not only has your baseline trend line that you had there been broken,
which is one - a sign that potentially something's up. "But also a higher high"
Exactly, the higher high, you haven't yet got a higher low but already there's
uncertainty because you're in that middle ground. So you want to be out of it because
you want certainty. There's always a chance you can find a re-entry and go with the trend
again. I'd rather take a small loss and have certainty and then get bigger profit afterwards.
The situation with a probe trade is that a probe trade you're putting a position in the
market with the intent that if it goes in your favour or against you or whatever, you
have the potential to add more to make it a full trade. So, I'll explain in a second
the situations where you'd use that, but to put that in perspective what the calculation is...
Let's say that you have a trade where the setup calls for a maximum of 1%.
Given the context of the market you decide that the actual maximum you'd be willing to risk
is 0.8% because it's not quite at the, sort of, best version of that setup.
Then you look at your chart and you see that because of a structure or significant levels and so on,
you think "Ok it's best just to put a probe trade at that point" in which case, you open
with 0.4%. So half the amount or you might decide it's less. Like when there's situations
where it could go one of two ways but you don't want to miss out on that setup, you
don't want to commit to a full trade, you can always add to it afterwards. It's the
only time I ever allow myself to enter more money on a losing trade.
You should never ever enter on a losing trade. I know people like to average down and stuff like that,
because if you enter at this point and the market is moving against you, you can get
a lower entry point and it averages out to your overall average price is lower. But that's..
you're basically opening trades on a whim then, if the trade goes against you you're
out of your setup, you're in the grey zone, you shouldn't be entering. Apart from in these
situations when you see a significant level, you shouldn't be adding to your risk you should
be taking away from your risk on the initial entry. You see? You sort of analyse the overall situation
You never increase your risk. The maximum you can go to is still the limit you had from the start.
Not me personally, but with Sandro, on his side...
The platforms and stuff, so the back-end of allowing wealth managers and
stuff to do advisory, something like that, and the execution side.
The food was, yeah I'm not going to lie, there was a quiche I had, I don't know what cheese
they put in the quiche, but I was... actually told the missus about it like, listen, she
was like "how was the course" it's like "babes, I don't know but this quiche right here yeah,
it's serious. The cheese in it, I've never had it, it was creamy and all sorts".
But anyways, "I know what you're talking about" you know it... alright.
It's been really great learning first-hand from someone like Nicholas and Mr. Cassar,
who have like, who have first hand experience of being successful in this market and it's
been, like really, just been great actually following what they do on a daily basis. I've
picked up a lot of great tips which I reckon we can use in the future.
It's actually a classic trading book, it's from, I think it's the 1950's or something
like that. So basically this guy Nicholas Darvas, because everyone that's good at trading
is called Nicholas. He had a system which allowed him to trade around his work schedule.
So during the daytime he was a dancer... I'm not! And at nighttime he was, like in the
evenings, he'd look at what's happened in the stock market during that day, based on
daily movements and place his trades on that. So since he wasn't there to see the markets
actively to see how things were happening during the day, he figured out a system to
still understand where movement's going to happen. His strategy if you want to call it
that, or his process or his tool, wouldn't work on its own. It just... If you actually
go back on the charts and test it, it doesn't work. We have our own version of something
similar and to not look like we tried to steal the idea, we do still call it Darvas Boxes.
But the Duomo Variation, that's an important distinction. And basically what we say is
that the boxes can be broken and create a new box on top, but they can also be extended.
It's kind of starting to combine some of the different things that we use: reversal zones,
the Fibonacci ranges, the structure of the market and putting it in an easier visual
way, but in a way that we can now use the structure of the market differently.
We learnt a lot of new concepts, a lot of theoretical, academic almost, concepts, if
you like. Put them into practice, refined them. I think they're starting to sink in.
It took a fair bit of time, because some of them are quite complex and advanced.
The key now is really to put them into practice I think.
Good fun, very insightful day and yeah, really enjoyed it.