In this episode of 2Traders Podcast, Walter and Darren talk about how often systems fire off trades, what that means to your performance, and how a trading system can entirely depend on your beliefs.
Also, Walter and Darren discuss about why traders have mental blocks about pulling the trigger or overtrading, and how your decision regarding trade frequency should come down to answering this question: What am I really looking for?
Download (Duration: 19:45 /22.6 MB)
In this episode:
01:13 – a look at my trading record
02:40 – wrong approach
05:13 – overtrading
07:00 – trade your beliefs
09:46 – benefits of trading less often
11:10 – another approach to trading
12:14 – decision points
14:27 – interpret trading visually
16:25 – other people’s belief
17:23 – human nature
Pick the trade that you know you’re comfortable with. [Click To Tweet].
You should first uncover what your beliefs are about the market. [Click To Tweet].
It just depends on what you’re really looking for. [Click To Tweet].
Darren: When you start trading, all you can do is to learn from other people. The nature of human beings is that if someone has got a convincing story about something then it’s quite easy for us to buy into that, especially if it’s a group of other traders they’re also trading like that.
Announcer: Two traders, Darren and Walter, pull back the curtain on profitable trading systems, consistent money management, and profitable psychological triggers. Welcome to the Two Traders Podcast.
Walter: Hi there! It’s Walter here from the Two Traders Podcast. Darren here is on the line. Good day, Darren.
Darren: Hi, Walter.
Walter: Well, Darren, we’re going to talk about frequency of trading and how often your trading system trades. What does that means for you and your performance as a trader?
I’ve had some of these questions come through and it’s probably one of the most frequent questions that I get or complaint — I guess you could file under — which is, “Hey, Walter. This looks good but you never trade, you’ve never taken that trade?”
One of the reasons why I’ve taken this approach, Darren, is because I’ve noticed that historically if I go back and look at my trading record, typically the more often that I trade, the worst I do.
In other words, the lower the timeframe I trade, the worse I do. The more trades I take, the worse I do. It’s almost like if you’re trying to shoot a target with a bow and arrow and you’ve got a stack full of arrows, you’ve got three hundred arrows and you know you’ve got three hundred arrows to hit the bullseye, you can keep doing that.
There’s nothing wrong with that. We have to understand that your win rate — the likelihood of you hitting each arrow there — is probably going to go down. Eventually, you’re probably going to hit it. Hit the bullseye.
It’s not one of the things where, in the Olympics, what did they do when they shoot for the target… What they do is they pull the arrow out and they envision hitting the bullseye. That’s their whole ritual that they take for every single shot that they take. Then, they do it.
That’s the kind of way that my training has evolved into. I know it’s completely different to the way that you trade but what typically I get is “Hey, Walter. I don’t understand why I would do this ‘cause I don’t get enough trades.”
Normally, what that mean is it’s another way of saying — the traders basically saying –I want to trade more often because I have two thousand USD to trade and I want to turn it to two million over the next ten months.
The only way I know how to do that is to take a boat load of trades and that’s really what’s going to get to the promised land. That’s the wrong approach. For a number of reasons, it’s easier for many traders to just slow it down. Concentrate maybe on one pair or concentrate on one system and then multiple pairs but, either way, you’ve got to concentrate on something whether it’s a specific setup.
If you’re really good at that setup, then use that setup across a number of timeframes and a number of markets if you like to. Otherwise, I would suggest that you just focus on one pair if you do want to take a lot of trades.
Either way, I think that focuses, really, on what’s going to pay off for you. I’d be interested to hear what are your thoughts. It’ll be a bit different on the frequency of trading.
Darren: Yeah. I wonder with you if the reason — low frequency trading, if that’s how you want to call it — works for you, is it because you’re trading only good setup? That’s what’s working for you or is it because you’re comfortable trading less and because you’re more comfortable in that environment, you’re having more success?
My personal belief is probably because it suits you more than it’s a particular edge to your strategy. You could probably trade your style of trading and show more frequently and be just as successful, if that suits you.
It cuts both ways for traders just probably as many people that need to trade frequently as there are people like you who like to, perhaps, take less trades and not be in the markets so often.
For me, with my beliefs on the significant of entries anyway, frequency is not an issue for me and I’m pretty much always in the market. I can’t think of much time when I’m actually out of the market.
That’s because I’m not focused on the entry. I’m focused on managing the trades once I’m into them. What is your belief? Is your belief that your system works and your success is down to the fact that you’re picking good entries? Or do you think it’s as much down to the fact that you’re trading a way less comfortable for you? Are you not taking too many trades?
Walter: That’s a great question. Most of the traders that I’ve come across have problems with over trading. In fact, I’d say it’s roughly twenty percent to eighty percent. Twenty percent of the traders have problem pulling the trigger. Eighty percent of the traders have problems pulling the trigger too often.
I’m definitely in the eighty percent. When I sit down and take a lot of trades, a couple of things happen especially if I’m living to the lower timeframes. First of all, I can feel the different physiology which happens in your brain. You know the difference between taking a trade on the five-minute chart and a trade on a weekly chart.
It’s even not the same thing. It’s like comparing soccer with a bunch of five year olds to soccer in a World Cup. It’s completely different. The strategy, everything about it, changes when you move to a lower timeframe. That’s number one.
The second thing that you bring up with interesting point which is you say, “I don’t really believe in the edge or the power of taking a really good entry.” Which is, of course, different to the way that I view it.
I view these potential trades as, let’s say, you’re a single guy and you’re looking at dating. When you’re looking at dating someone you think “Okay. Well, am I attracted to her?” or “I don’t really like brunettes, I like blondes.” “Well let’s see, is she tall enough for me?” or “I like him a little bit taller than that.” “Do I like her curves? Do I like her legs?” “Do I like the things she’s interested in?” “Oh, she likes football like I do.” Or “she likes surfing” or “she doesn’t like to travel, she hates getting on airplanes and that’s going to be a problem.”
It’s kind of like that one when I’m looking at trade set. It’s like I’m looking for the perfect date. I know that’s not the way you do it because you just take them all and roll the dice and some of them are going to work out because you’re sure you are trading your beliefs like I trade my beliefs.
I do believe that if you are picky, you can increase your win rate. Looking around the other traders who’ve taken the similar approach, like in the forum, Rema has done some testing. He’s found that his testing shows that his weekly chart trades have a high win percentage than his daily chart trades.
Is that because he actually is better taking trades on a weekly charts than the daily charts? Or, is it some sort of anomaly and it just happens to be the case that at this moment showing a higher win percentage for the weekly chart trades and a lower win percentage for the daily chart trades?
He’s still making money in both cases but maybe it’s just at the point where it just seems so many weekly winners that’s just slightly above what the real mean is for the average win rate or whatever. That could be something also that is going on.
I tend to believe that most traders would be better suited to slow down, take fewer trades and just concentrate on one thing which I don’t think it’s necessarily very different from what you do.
How many pairs are you currently trading actively? Would you say it’s one pair? Two pairs?
Darren: Just the prime dollar, one pair.
Walter: Yeah, exactly. That’s my point. My beliefs are that most traders… If you want to take a lot of trades then, just focus on the GBP, just focus on the AUD. Pick the one that you know you’re comfortable with and just do it. Put a heck of a trade
The other side of that is if you don’t want to do that, if you don’t want to trade the GBP on the one-hour chart, or in the five minute chart, or whatever — the two-hour chart or the thirty minute chart — if you don’t want to do that and instead you want… For example, a lot of people listening to this, probably have a job. They probably are not a full time trader. That’s just the odds.
If you want to manage your trades easily, one way to do that is on the daily time frame or the weekly time frame because there’s no point in sitting around waiting for the daily candle to close. There’s certainly no point sitting around waiting for a weekly candle to close.
You can easily manage those trades over a few minutes or hours a day — maybe an hour a day max. You can manage your daily chart trades and you can trade thirty, forty different markets with just one specific setup on the daily charts.
You could literally spend forty five minutes a day engaging in those trades, setting those trades up, managing those trades. That’s not a lot to ask for someone who has a full time job and still wants to trade. You’ll have plenty of trades if you want to broaden your horizons and just trade one simple system.
To answer your question is, most traders would benefit from trading less often because most traders come to me and say “I’ve got this overtrading problem” or they’ve got a problem that’s related to overtrading and they don’t know that it’s overtrading. Very few traders come up and say “I really have hard time pulling the trigger.” That’s quite rare.
The other thing is my beliefs are that you can increase your win rate by waiting for the right girlfriend just like when you’re waiting for the right wife or whatever, husband. If you’re waiting for this perfect thing to appear, if you’re picky enough, it will appear. You will eventually find it. You don’t have to settle for something less.
Those are my beliefs. I know it’s not for everyone. I guess I would have to say “Yes, I do believe that it’ll help your trading or it helps my trading to be picky. Also, it’s nice to have a lifestyle where you don’t have to look at the chart every four hours or every hour or whatever, or what have you… or sit down and trade.
Some people I know, they sit down and trade for five hours a day. They’ll sit down and they’ll trade from eight a.m. till one p.m in Europe and that’s basically what they do. They’re looking to take two trades during that time period. If they get two, that’s great. If they don’t, it’s the end of the day. They go on to tomorrow.
It just depends on really what you’re looking for.
Darren: Obviously, we’ve got different side of the coin with our approach to trading right now. My belief is that all of those elements that eventually worked for people are grounded in their beliefs about what’s going to work. That is ultimately what’s going to get them to the point of being consistent with their trading.
It’s quite funny with the traders that are trading my particular entry. The problem they have is not taking entries because they start to add analysis into the entry that shouldn’t be there, basically. Perhaps, they come for you like a “I’ve learned trading with that sort of style of doing analysis.”
I agree with what you say about the advantages of moving to a higher timeframe. From my point of view, that is because you’re reducing the amount of decisions you need to make.
Generally, what I find is that the people’s errors are coming in at decision points and they add biases or stuff they’ve learned in the past. It’s not relevant to the system that they’re trading now and so they make bad decisions. The more of those decision they have to make, the more likely they are to make mistakes.
I agree in that respect that moving to a slower timeframe can produce better result. What I don’t believe — which is I did used to strongly believe — is that there is some statistical advantage in slower timeframes.
Again, it’s so hard to prove that and I’m just — like I’m not going to believe it.
Walter: Right. Basically, what you’re saying is if someone will go out and test a particular system on the one-hour charts and they found a fifty two percent win rate, then they test the same system on the weekly charts and they’ll find a sixty five percent win rate.
What you’re saying is that just happens to be the case because of the sample that they have. If they have a different sample, maybe those numbers would be reversed or something like that.
Darren: Yes. It’s just down to the sample. For instance, price action. If someone try to argue to me that price action on a weekly chart is more likely to play out the way you expect than it is on the one hour chart, I would find that really hard to buy into.
Walter: Right. What you’re saying is the reason why these things appear because people have to make more decisions on the one-hour chart than they do in a weekly chart. There’s more opportunity for tripping out.
Darren: Exactly. Also, visually when you look at the weekly chart compared to a H-1 chart, H-1 chart looks much more complex with many more candles in there because you’ve got less in a weekly than things like support and resistance appear to be more significant, etcetera, etcetera.
My tradings for an hour nowadays is going down. How we interpret trading, visually, because of high charts, candlesticks chart appear, leads people to make lot of assumptions that aren’t necessarily true. If you compare it to just seeing price moving up, down — abacus styling — I suppose have like a timeline, as well. Visually, they’re so different.
The visual aspect of how we trade leads people to make assumptions that can’t necessarily be proven. Do you understand what I mean there?
Walter: Yeah. My question would be if I’m making decisions that are wrong because my beliefs are leaking in to them, why is that important? In other words, my belief is that you should first uncover what your beliefs are about the market. Build your system around those beliefs because you will always end up back with your beliefs
If I trade Darren’s system and I decide “ well, this is the greatest thing I’ve ever seen. I’m going to trade Darren’s system.” What will eventually happen is either I’ll have a poor period performance at some stage, sooner or later, or I will just lose faith in it for whatever reason.
Maybe because I missed out on some winning trades for whatever reason. What ends up happening is I’ve modified that system to fit my beliefs. If it’s an issue for a trader to be trading his beliefs because he’s allowing those to sinked into his trading system, my response is why don’t you just trade your beliefs? Why not build from there?
You know what I mean? How is that helped me to move, repressed, or move away from my beliefs and stick to the true system.
Darren: I think half the battle is finding out what you really believe. That’s half the battle. Initially, you go along with other people’s beliefs. You try and become sort of saying “traders person” you’re learning from.
If you look at how I’m trading now, I’m not following any of the rules that we’re told that we’re supposed to follow with regards to risk management, position sizing, risk/reward. Any of those things that I used to use, and I thought I believed in them but, maybe I resist trying to become like someone else.
It’s only when I got to call and build upon my own beliefs from scratch that I started to improve dramatically. It’s a difficult one, really. Isn’t it?
When you start trading, all you can do is learn from other people. The nature of human beings is that if someone’s got a convincing story about something then it’s quite easy for us to buy into that especially if it’s a group of other traders who are also trading like that.
It’s quite difficult to be really open minded about trading when you start out because you need to go along with other people. Now I look at the charts and I see them in my own way. To some extent we’ve got to do that. I guess you have, as well.
You clearly got a strong belief that how you trade, the frequency of your trading, the type of technical tools you use to trade, you’ve got a rock solid belief in those now. You’ve got to have now your own thing.
I’d be very cautious about this whole idea of under trading and over trading. For me, you’ve got to find out for yourself what works. I’m very cautious about saying you shouldn’t trade a lot or you should trade a lot. You should just be open-minded and play with the whole thing and try some stuff out of the box. Eventually, something will click for you…
Walter: That’s the end of part one for the trading frequency podcast. In part two, you’ll hear how Darren and Walter focus on different aspects of the trading game. You’ll see why Walter’s traders have difficulty with over-trading while Darren’s traders have difficulty pulling the trigger.
You’ll also see what you must keep in mind when trading Darren’s system and why how you find your profits with your trading system is entirely up to you. Also, you’ll see why you may or may not marry your dream girl and how do you know when you need to re-examine what you believe in? Also, Darren and Walter tackled this issue: Is there really any proof with any technical trading systems? All this and more in part two.