Trading Psy Ops # The Defence is more important than Offence
In a game of chess or football or even in a war between 2 nations, offence hogs the limelight. When we watch a match of cricket, we are more focused on watching the player hitting a 6 or 4 / or our bowlers taking wickets. But do we really cherish when a Batsman blocks a Yorker or leaves a good off-swinger. I guess the answer is no.
Because we are result driven and want winning events more than the one which let us survive.
This is one of the AAM AADMI (apolitical) habits which has been the target of the market maker. So we need to focus on the defence area of trading. One is very simple and well know – STOP Loss or TSLs, this I will skip and focus on other aspects, except few touch points on SLs.
Decide when not to trade:
• To make a decision on a journey (to Profit), you should know till what point you need to go per month (I found a monthly target is better than a daily or weekly) – The Z factor, without this no planning can be done
• How much you scored till a weekly milestone, to decide whether you need an aggressive or defensive entry strategy next week – essentially meaning taking high-quality trade signal (defensive) or High-Risk trade signal (Offensive)
• Market opens everyday (working days), but that does not necessarily mean that you need to open take fresh entry everyday
Identifying failure points
• When you enter a trade, don’t decide fixed pip SL - that you will keep your SL at 50 pips or 30 pips below entry. Unless you are scalping, fixed pips SL is not required. Most of the times you can find a point where a trade will fail, with a nominal cost, than a traditional SL. That is the failure point, ensure you stick to that.
• MAE (Maximum Adverse Excursion) is beautiful concept of optimising SL by data-mining on a historical win-fail data if you maintain a journal properly
• Avoid a failure point on a chart as your SL area which looks very obvious – like a long wick of rejection before the new uptrend. Most of the SLs of retailers are there – it is nothing but a liquidity pool for the big sharks lurking in the deep sea
Do anything which stops you from going Emotional Overboard
• Killing a trader by overpowering / overshooting his emotional threshold – is the primary weapon of market maker, don’t be a victim of this. Do whatever it takes to get away from its line of sight:
o Right position size, which you can hold on to
o Never try to make up from a sequential loss (say 3 in a row), with X size, by taking the fourth trade with 3X or 6X size – that is suicide. The right way is , win with same size, more frequently with better RR
o Don’t listen to News channels or Twitter feeds when you are having open position – keep faith on yourself. Even if you lose in that process, it is fine. Don’t let other tell you that you are going wrong
o Be a good loser - Allowing a losing day to end peacefully, don’t fight the market. Keep you focuses glued to the monthly goal, not on daily. Losing a day or 2 is fine
Don’t be a Victim of Mental Inertia
We all know what the inertia is – a moving body prefers to maintain the same speed and line till disturbed by external force, and vis-à-vis for a static body.
When you cycle (at some-point we all did), you don’t keep on paddling as long as momentum persist, you simply steer and apply break if requires.
Our brain also works like this for the decision making which is a big fallacy for trading.
This is the secondary weapon of the market marker.
Some example:
• Market was negative and reversing for good, signals also showing sign of it. How retail fishes behave
o Oh its up sell – SL Hit
o Ok one more time – blown once more , 2 days silence
o Market entered uptrend and does a little pullback – yeah baby, this is it – short once more – blown to bits
Don’t feel victimised. Our trading habits cannot be totally insulated from our hard-mentality, regard less how much ever we may read about this. So learn to leave with it.
This is not a mistake in being wrong (taking a bad entry) – but it is definitely a blunder in staying wrong (retaining this loss making position).
Mental inertia is not good for your defence in trade
It does not matter if you have hit a 100 Pip(er) or 1000 Pip(er). That was your offence. What you did for the rest of the trades on that month will decide - your money grew at the month-end or not - end of story !!
, Getting all the bills in place, totalling all of it , looking for all tax exemp investments, getting together all receipts.