[DbPhoenix]

There seems to be quite a bit of angst pervading TL lately. I'm Confused. I'm Frustrated. How Long Before I Make Any Money At This? How Long Before I Become Successful? Was This Short OK? What Am I Doing Wrong? There are threads that encourage beginners to post their profits and losses (without necessarily explaining how those profits and losses occurred), to post their losing trades (the Misery Loves Company approach), to post their winning trades (sometimes with the reasoning behind them, sometimes not).

But what about the couldawouldashoulda trades? There is as much if not more to learn from the winning trades we didn't take as there is from the winning trades we did, much less the losing trades we shouldn't have taken but took anyway.

This thread, therefore, is for the trades we should have taken because..., would have taken if only..., could have taken but.... It is not so much for What Was I Thinking? but Why Did I Miss That? It is not for the closet flagellant who wants to beat himself up but rather for the intellectually curious who is on a self-improvement arc, who wants to figure out and understand what he could have done better, assuming as he does that this exercise will enable him to do better the next time.

Posts will, of course, include an annotated chart of the couldawouldashoulda trade along with the poster's assessment of the situation, preferably with some sort of plan of what he intends to do the next time to avoid the CWS. This will theoretically hone the trader's understanding and appreciation of the setup so that the probabilities of his actually taking it next time will be increased. Or maybe not. But it sure beats banging one's head against the wall.

Since this is the Wyckoff Forum, setups and charts will of course reflect that. In other words, no pretty pictures of bowties and butterflies and so forth, no indicators, no pivot points, no Fib, no candlespeak, no colored price or volume bars. Just straightforward, plain ol' price bars (or a 1-tick chart, if trading PA has perverted you to that extent, or a line chart, if you're trying to see price movement without the bar structure) and, if you like, volume bars (though these are not strictly necessary).

Beginners, particularly those who are frustrated, should keep in mind that this is a process and that everybody goes through stages. One take on these stages is provided below. If you are at the very beginning, you have lots of company. If you find yourself further along, congratulations. If you prefer more detail, there are 38 steps posted thereafter, and these will provide you with more frequent benchmarks of the progress you're making.

Stages of a Trader

Stage One: The Mystification Stage

This is where the neophyte trader begins. He has little or no understanding of market structure. He has no concept of the interrelationship among markets, much less between markets and the economy. Price charts are a meaningless mish-mash of colored lines and squiggles that look more like a painting from the MOMA than anything that contains information. Anyone who can make even a guess about price direction based on this tangle must be using black magic, or voodoo.

But those ads on TV are so persuasive. Earn $100,000 A Week In Your Spare Time. At Your Kitchen Table. In Your Bathrobe. All one has to do is buy Hidden Secrets of Market Wizards Revealed! (plus shipping and handling). Or that software with the red and green arrows (how hard can it be?).

So you open an account, subscribe to Level II, install your charting software, and are absolutely mesmerized by all the flashing lights and colors. DOM? You bet! And all you have to do to participate is . . . click.


Stage Two: The Hot Pot Stage

Before you’ve lost all your money, the thought that you haven’t the least idea what you’re doing may prevent you from blowing your account entirely. You realize now that this is not easy, it’s hard, it’s work, but rather than chuck it, you elect instead to take the subject “seriously”. You locate your library card and/or shop Amazon. You check out -- or take much of what you have left and buy -- all the “recommended reading”. You take the courses. You attend the seminars (box lunch included). You subscribe to the chatrooms and websites and newsletters. How-To book or notes in hand, you scan the markets every day. After a while (sometimes a good long while), you notice a particular phenomenon which pops up regularly and seems to "work" pretty well. You focus on this pattern. You begin to find more and more instances of it and all of them work! It’s all true! It Works! Your confidence in the pattern grows and you decide to take it the very next time it appears. You take it, and almost immediately your stop is hit, and you're underwater for the total amount of your stoploss.

So you back off and study this pattern further. You go back to the books, back to your notes. And the very next time it appears, it works. And again. And yet again. So you decide to try again. And you take the full hit on your stoploss.

Practically everyone goes through this, but few understand that this is all part of the win-lose cycle. They do not yet understand that loss is an inevitable part of any system/strategy/method/whathaveyou, that is, there is no such thing as a 100% win approach. When they gauge the success of a particular pattern or setup, they get caught up in the win cycle. They don't wait for the "lose" cycle to see how long it lasts or what the win/lose pattern is. Instead, they keep touching the pot and getting burned, never understanding that it's not the pot (pattern/setup) that's the problem, but a failure on their part to understand that it's the heat from the stove (the market) that they're paying no attention to whatsoever. So instead of trying to understand the nature of thermal transfer (the market), they avoid the pot (the pattern), moving on to another pattern/setup without bothering to find out whether or not the stove is on.


Stage Three: The Cynical Skepticism Stage

You've studied so hard and put so much effort into your trading, and this universal failure in the patterns only when you take them causes you to feel betrayed by the market and the books and materials and gurus you tried to learn from. Everybody claims their ideas lead to profitability, but every time you take a trade, it's a loser, even though the setups all worked perfectly before you played them. And since one of the most painful experiences is to fail when success looks easy, this embarrassment is transformed into anger: anger at the gurus, anger at the vendors, anger at the writers, the seminars, the courses, the brokers, the market makers, the specialists, the "manipulators". What's the point in trying to analyze and improve your own trading when there are so many dark forces out to get you?

This excuse-driven blame game is a dead-end viewpoint, and explains a lot of what you find on message boards. Those who can't pull themselves out of it will quit.


Stage Four: The Squiggle Trader Stage

If you don't quit, you'll move into the "squiggle trader" phase. Since you failed with patterns and so on, you figure there's some "secret weapon", a "holy grail" that's known to the select few, something that will help you filter out all those bad trades. Once you find this magical key, your profits will explode and you'll achieve every dream you ever had.

You begin an obsessive study of every method and every indicator that is new to you. You buy a whole new series of books, attend new and different courses, sign up for new and different newsletters and advisory services, register for new and different trading websites and chat rooms (you hear this guy really knows his stuff). You buy more elaborate software (100s Of Indicators And Studies!). You buy off-the-shelf systems (Guaranteed Results!). You spend whatever it takes to buy success.

Unfortunately, you stack so much onto your charts that you become paralyzed. With so many inputs, you can't make a decision, particularly since they rarely agree. So you focus on those which agree with the direction of the trade you've taken (or, if you're the fearful sort, you look only for those which will prove to you how much of a loser you think you are).

This is all characteristic of scared money. Without a genuine acceptance of the fact of loss and of the risks involved in trading, you flit around like a butterfly in search of anything or anybody who will tell you that you know what you're doing. This serves two purposes: (1) it transfers to others the responsibility for the trade and (2) it shakes you out of trades as your indicators begin to conflict. The MACD says buy, the sto says sell. The ADX says the market is trending, the OBV says it's overbought. By the end of the day, your brain is jelly.

This process can be useful if the trader learns from it what is popular, i.e., what other traders are doing, and, if he lasts, how to trade traps and panic/euphoria. And even though he may decide that much of it is crap, he will, if he doesn't slip back into the Cynical Skepticism Stage, have a more profound appreciation -- achieved through personal experience -- of what is sensible and logical and what is nonsense. He might also learn something more about the kind of trader he is, what "style" suits him best, learn to distinguish between what is desirable and what is practical.

But the vast majority of traders never leave this stage. They spend their "careers" searching for the answer, that perfect setting, that ultimate tweak to their backtest, and even though they may eventually achieve piddling profits (if they don't, they will of course eventually no longer be trading), they never become truly successful, and this perpetual not-quite-failure not-quite-success can have debilitating consequences for the psyche.

And in case you're wondering, the following chart is not a joke.

Stage Five: The Inwardly-Bound Stage

The trader who is able to pry himself out of Stage Four uses his experiences there productively. The trader learns, as stated earlier, what styles, techniques, tactics are popular. But instead of focusing entirely on what's "out there", he begins to ask himself some questions:

What exactly does he want? What is he trying to accomplish?

What sort of trading makes the most sense to him? Long or intermediate-term trading? Short-term trading? Day-trading? Trend-trading? Scalping? Which is most comfortable?

What instrument -- futures, stocks, ETFs, bonds, options -- provides the range and volatility he requires but is not outside his risk tolerance? Did he learn anything at all about indicators in Stage Four that he might be able to use?

And so he "auditions" all of this in order to determine what suits him, taking all that he has learned so far and experimenting with it.

He begins to incorporate the "scientific method" into his efforts in order to develop a trading plan, including risk management and trade management. He learns the value of curiosity, of detached interest, of persistence and perseverance, of taking bits and pieces from here and there in order to fashion a trading plan and strategy that are uniquely his, one in which he has complete confidence because he has tested it thoroughly and knows from his own simulated trading and real-money experiences that it is consistently profitable. This eventually becomes his “edge”*.

He accepts fully the responsibility for his trades, including the losses, which is to say that he understands that losses are inevitable and unavoidable. Rather than be thrown by them, he accepts them for what they are, a part of the natural course of business. He examines them, of course, in order to determine whether or not some error was made, particularly one that can be corrected, though true trading errors are rare. But, if not, he simply shrugs off the loss and goes on about his business. He understands, after all, that he is in control of his risk in the market.

He doesn't rant about his broker or the specialist or the market maker or that vast conspiracy of everyone who's trying to cheat him out of his money. He doesn't attempt revenge against the market. He doesn't fret. He doesn't fume. He doesn't succumb to hope, fear, greed. Impulsive, emotional trades are gone. Instead, he just trades.

*the knowledge proved through research that a particular price pattern or market behavior offers an acceptable level of predictability and risk to reward to provide a consistently profitable outcome over time.

Stage Six: Mastery

At this level, the trader achieves an almost Zen-like trading state. Planning, analysis, research are the focus of his time and his effort. When the trading day opens, he's ready for it. He's calm, he's relaxed, he's centered.

Trading becomes effortless. He is thoroughly familiar with his plan. He knows exactly what he will do in any given situation, even if the doing means exiting immediately upon a completely unexpected development. He understands the inevitability of loss and accepts it as a natural part of the business of trading. No one can hurt him because he's protected by his rules and his discipline.

He is sensitive to and in tune with the ebb and flow of market behavior and the natural actions and reactions to it that his research has taught him will optimize his edge*. He is "available". He doesn't have to know what the market will do next because he knows how he will react to anything the market does and is confident in his ability to react correctly.

He understands and practices "active inaction", knowing exactly what it is he wants, exactly what it is he's looking for, and waiting, patiently, for exactly the right opportunity. If and when that opportunity presents itself, he acts decisively and without hesitation, then waits, patiently, again, for the next opportunity.

He does not convince himself that he is right. He watches price movement and draws his conclusions. When market behavior changes, so do his tactics. He acknowledges that market movement is the ultimate truth. He doesn't try to outsmart or outguess it.

He is, in a sense, outside himself, acting as his own coach, asking himself questions and explaining to himself without rationalization what he's waiting for, what he's doing, reminding himself of this or that, keeping himself centered and focused, taking distractions in stride. He doesn't get overexcited about winning trades; he doesn't get depressed about losing trades. He accepts that price does what it does and the market is what it is. His performance has nothing to do with his self-worth.

It is during this stage that the "intuitive" sense begins to manifest itself. As infrequent as it may be, he learns to experiment with it and to build trust in it.

And at the end of the day, he reviews his work, makes whatever adjustments are necessary, if any, and begins his preparation for the following day, satisfied with himself for having traded well.

(from Bo Yoder, Vad Graifer, and Mark Douglas)

38 Steps To Becoming A Successful Trader

1. We accumulate trading information - buying books, going to seminars and researching.
   
2. We begin to trade with our 'new' knowledge.
   
3. We consistently 'donate' and then realize we may need more knowledge or information.
   
4. We accumulate more information.
   
5. We switch the commodities [or stocks, or futures, or...] we are currently following.
   
6. We go back into the market and trade with our 'updated' knowledge.
   
7. We get 'beat up' again and begin to lose some of our confidence. Fear starts setting in.
   
8. We start to listen to 'outside news' & other traders.
   
9. We go back into the market and continue to donate.
   
10. We switch commodities again.
    
11. We search for more trading information.
    
12. We go back into the market and continue to donate.
    
13. We get 'overconfident' & market humbles us.
    
14. We start to understand that trading success fully is going to take more time and more knowledge then we anticipated.
    
    Most People Will Give Up At This Point As They Realize Work is Involved
    
    
15. We get serious and start concentrating on learning a 'real' methodology.
    
16. We trade our methodology with some success, but realize that something is missing.
    
17. We begin to understand the need for having rules to apply our methodology.
    
18. We take a sabbatical from trading to develop and research our trading rules.
    
19. We start trading again, this time with rules and find some success, but overall we still hesitate when it comes time to execute.
    
20. We add, subtract and modify rules as we see a need to be more proficient with our rules.
    
21. We go back into the market and continue to donate.
    
22. We start to take responsibility for our trading results as we understand that our success is in us, not the trade methodology.
    
23. We continue to trade and become more proficient with our methodology and our rules.
    
24. As we trade we still have a tendency to violate our rules and our results are erratic.
    
25. We know we are close.
    
26. We go back and research our rules.
    
27. We build the confidence in our rules and go back into the market and trade.
    
28. Our trading results are getting better, but we are still hesitating in executing our rules.
    
29. We now see the importance of following our rules as we see the results of our trades when we don't follow them.
    
30. We begin to see that our lack of success is within us (a lack of discipline in following the rules because of some kind of fear) and we begin to work on knowing ourselves better.
    
31. We continue to trade and the market teaches us more and more about ourselves.
    
32. We master our methodology and trading rules.
    
33. We begin to consistently make money.
    
34. We get a little overconfident and the market humbles us.
    
35. We continue to learn our lessons.
    
36. We stop thinking and allow our rules to trade for us (trading becomes boring, but successful) and our trading account continues to grow as we increase our contract size.
    
37. We are making more money then we ever dreamed to be possible.
    
38. We go on with our lives and accomplish many of the goals we had always dreamed of.

[Head2k]

Nice thread, exactly for me. Recently I make a very few trades, because my primary goal now is to stop behaving like an ******* . With this new goal I moved from overtrading to the other extreme. So I miss a lot of entries, even if they are valid according to my plan. I pass them when I am not sure of what's happening in wider context. And I often think of what I CouldaWouldaShoulda done then.

Enough for the introduction, here is my passed trade, or actually two of them, from today's NQ cash open:

First what I was looking at in my prep on larger scale (5000 CVB chart):

NQ formed a range on 6/1 - 6/4. That range was broken up on 6/5, but price was rejected above and returned. After the rejection support was found in the midpoint of the range around 1477. This midpoint also supported price on 6/4, before the break. And in the morning today price was supported at that level again.

Now lets look at 5m chart to observe Sunday, overnight and premarket:

There are several things to notice.
Price is not rejected much on the support. A narrow range or a base developes instead. This base is broken to the upside then, a few minutes before open.
The dark green line marks lows of Sunday's range, and it also marks an upper edge of a large bulk of trades in the 6/1 - 6/4 range. So I acknowledged the dark green line as potential resistance.

On 1m chart, I marked actual demand line and swing points, and I also noticed that the dark green line acted as resistance just few minutes before open.


So what to do now? Price found S in midpoint which already acted as S. Price wasn't rejected quickly, but formed a narrow range. Doesn't scream strength. But it doesn't look like price was hammering support either. Tests are quite fast. And then the range was broken up. The break was slow, nothing violent.
In such cases I look for buying a test of midpoint of the range.
But the R is so close. What if price doesn't get past it and a stair-step on larger scale develops instead (see 5m)? That would mean returning fully into the 6/1 - 6/4 range.

Here I am posting a 5sec chart.

The arrows mark possible entries according to my plan, only if I was sure which direction to take. At open I was ready to take the long but didn't pull the trigger. Then I gave up and just watched. The potential short I marked in hindsight, because in RT I was too occupied by thinking whether I should or shouldn't have taken the long.

Conclusion:

There are two aspects to think of. The first is whether I could have prefered the short. This is a question of analysis. And in hindsight I can of course say I could have. After the breakout of 6/1 - 6/4 range price returned, found S in midpoint and bulls tried up again. But they failed. They didn't get over 1500. And now they are in the midpoint again. Why should it act as support? After that failure to go up off that last midpoint test I shoud expected full rotation down.

The other aspect is what to do in such situations when I am not sure of direction (or larger context). This is a question of trading. One option would be just do nothing, like I did today. But then I would need to accept the fact and stop wondering what I should or shoudn't have done.
The other option would be enter the long and in advance acknowledge the need of SAR'ing in case that the dark green line acts as R. So that would mean taking both of the trades.
What I did today was very different. I was ready for the long but I feared the near R. Hadn't I feared it as an obstacle but accepted it as a possible level for short if the long doesn't go, I could have ended with 1 BE and 1 winner.

[DbPhoenix]

What a great way to open the thread. This is exactly the kind of examination I had in mind when I came up with the idea.

A few things to think about.

Even though the larger context may give us the strong S/R represented by the limits of the trading range, price will often find S or R closer in as we work our way towards show time. In this case, it was 1478 to 1482 (the 5m chart). Price had already rejected the larger range topped at 1500+/-, after which it had repeated difficulties getting past 1492. You will hear or read that the more you test something, the more likely you are to break thru it. Forget that. It is just as likely that traders will say the hell with it and explore the other direction. Stay unbiased and flexible. Here they were testing 1485 as well, and eventually decided that the ops there may be juicier. Which brings us again to 1478 to 1482.

Now for the chart below. Seven minutes before the open, traders decide to test 85 again, and it fails. This is not necessarily a go for a short, but if you like it, you could always work on making a setup out of it. You can also just sit on your hands and observe. Traders settle on 83. They jerk up a few times, but basically just lie there on 83. The market then opens, and we have another effort to get thru 85, a violent one. That doesn't work. So we get the same sort of effort to the downside. That appears not to work either. Traders appear not to want to go back to that 78 to 82 range. So they settle into 83 to 84. They poke out of it on both sides, each poke becoming progressively longer. Finally they bust out and try for 85 again, which again fails. This pretty much says Short Me, but you don't have to. Not quite yet. Largely because you know you have a downside test coming up.

Now you see what happens when you work your way toward 82. You can short that and risk being stopped out. Or you can wait for a retracement that may never come. Or you can do both: short the break below 82 with a tight stop (a very tight stop), then take the retracement as well, since the retracement doesn't even make it to 83. Then just ride the short until you get your exit signal.

[wjrusnak]

Here is my CWS for the day. I didn't get to my computer screen until about 12:15 p.m. EST (after Organic Chem Lab).



I noticed this set up on the YM happening around the last swing low on the 60 min chart, so I continued to focus on the setup and drew up my supply lines from earlier in the morning (on a 1m chart). I saw the weak break below the low of the session and was anticipating a set up at 8627. Even though this trade was counter-trend, it was appealing because of that weakness.

My entry would have been 8629-8631 with a stop of just below the low of the day at 8624-8625. The entry would have had to be quick (as seen in the 3 tick chart). I realize that the market rallied later in the day, but a true realistic exit for myself would have been after the second failure around ~8660 at about 1:30 p.m. EST. Even then, this would have been a terribly long trade.

So why didn't I take this? Prior to the test of the supply line around 12:30 p.m. EST I decided to get some lunch. I came back about 6 minutes later and price was already jetting toward the supply line. Now it becomes a CWS.

-- Bill

[DbPhoenix]

Originally Posted by wjrusnak »

So why didn't I take this? Prior to the test of the supply line around 12:30 p.m. EST I decided to get some lunch. I came back about 6 minutes later and price was already jetting toward the supply line. Now it becomes a CWS.

-- Bill

So was the lunch worth it?

[diablo272]

That has happened to me many times, and I gotta say, it's never worth it. I now don't leave my screen except to go to the fridge (a few feet away) and to go to the bathroom (down the hall). Neither of these usually takes more than a minute or two, and while price can still do something to surprise you in that amount of time...I can't hold it for that long. I've actually considered hiring someone to go out every day, get lunch for me, and bring it back to my room, but I don't really get that hungry during RTH, so it wouldn't be worth it.

[wjrusnak]

Originally Posted by DbPhoenix »

So was the lunch worth it?

No. I'm done with eating.

[BlowFish]

Originally Posted by DbPhoenix »

So was the lunch worth it?

I wonder how hungry you where and how close to your potential entry you where when you stepped out It's easy to find oneself answering an urgent email, making an important call, or even surfing an 'important' website (or posting here) right around the time price is approaching an area that is likely to require a trade decision. I hope this is not a too non technical observation.