Drawdowns and losing streaks happen even to the best traders and they often result in an avoidable downward spiral causing traders to lose not only their self-awareness, but also much more capital than necessary. Understanding why there are drawdowns and knowing how to deal with such challenging situations, helps traders to survive and even progress in the face of losing streaks.
Short-term vs. long-term concepts of trading performance
The misconception about the concept ‘winrate’ and how it influences your performance often causes confusion and wrong beliefs. A trader with a 60% winrate has a chance of realizing four consecutive losing trades of 2.5%. Although this sounds like a low probability, if you only take one trade per day, you will encounter
Average True Range (ATR) is a concept that was developed by J. Welles Wilder and presented in his 1978 book, New Concepts in Technical Trading Systems. ATR is a measure of volatility; it is a 14-period average of True Range, which is calculated using the formula:
True Range is the greatest of:
1. The current high minus the current low.
2. The absolute value of the current high minus the previous close.
3. The absolute value of the current low minus the previous close.
The ATR doesn’t give buy and sell signals, but it may be useful for calculating profit target and stop-loss levels, which are reasonable for the prevailing market conditions. It may also serve as a confirming
After reading this article about Positive Expectancy, we sincerely hope that you are able to stop looking at performance on a trade-by-trade basis and are instead able to consider that your ability to have positive results is based on a large sample of trades. The more trades, the better. The larger the sample, the better.
By examining a large sample of futures trades, whether in real or simulated trading, it can be seen that having a recent trade bias is never indicative of whether a system is good or bad. Recent trade bias is instead an impediment and handicap for many traders: they become paralyzed with fear when unavoidable losses occur or they experience euphoria causing overconfidence,
There are two widely used types of charts by futures markets participants – candlestick charts and bar charts. Candlestick charts were developed by a number of participants in Japanese rice markets in the 17th century. The form of candlestick charting and analysis that is used today took form around 1755 when a rice trader named Munehisa Honma recorded rules for rice trading, based on his observations of candlestick charts. The rules are known as the Sakata Rules and form the basis for most modern candlestick chart analysis.
A candle contains a body and up to two shadows, each above and below the body. The body is bounded by the opening and closing price for the day (or time period used) and
Fibonacci retracements, arcs and fans are forms of technical analysis based on the Fibonacci series that was discovered by Leonardo Bonacci and detailed in his 1202 book, Liber Abaci. Although, the series was also described about 1500 years earlier by Indian mathematician Pingala, it is commonly known by the Fibonacci name. The Fibonacci series is expressed as:
FN = FN-1 + FN-2
The beginning of the Fibonacci series is as follows:
0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, …
Dividing each of these numbers by the number that follows moves more and more closely to 0.618; what is also known as the Golden Ratio. This Golden Ratio has a seeming unlimited number of natural occurrences. The opposing spirals of a sunflower’s seeds are determined by this ratio. The
Every trader knows fear and greed and the negative impact it has on trading. Most traders treat the problem as a personal issue – A preexisting psychological attribute that eventually permeates into our trading habits. The reality is that almost everyone, regardless of their individual personalities, fall prey to the same psychological triggers that cause them to deviate from their trading method.
For example, if you are long on crude oil futures (or Emini S&P or gold) and you are up $5,000 on your positions, it is only natural to imagine how much higher you can go. $7,000? $8,000? At this point, our mind starts to overwork and elements such as
Bollinger Bands® are a tool used for the technical analysis of securities created by John Bollinger in the early 1980s. They are comprised of a moving average of period N (simple and exponential moving averages are popular choices) and an “envelope” created by an upper and lower band, which are each K times an N-period standard deviation away from the moving average.
This indicator is popular with traders because it automatically adjusts to volatility currently being experienced in a particular market. Rather than “forcing” the width of an envelope on a market, Bollinger Bands® “listen” to the market, self-adjust and allow traders to plan their trades accordingly. They may be used on intra-day, daily,
There is a substantial risk of loss in futures trading. Past performance is not indicative of future results.
In this article we will discuss one of the most overlooked steps in building a futures trading system – regardless of the kind of market it is developed for.
Backtesting is the process of simulating trades that are triggered by rules defined in a trading system on past (historical) data. The process of developing a trading system is based on the suggestion that if it consistently worked in the past, then it will continue to work in the future. Thus, backtesting is a reliable way of confirming the trading system’s profitability – or rejecting it.
Many traders – especially novice traders – tend to ignore backtesting or underestimate its importance. This opinion is usually based on books or articles on learning technical trading where some ready-to-use “rules” are usually published. From reading