Look Investigate Verify Execute TM
The same as we do in every day life, look for opportunities. Look and look and look some more. Rather than being overwhelmed by charts, formations, indicators, lines and more, there are 12 setups that have an uncanny ability to be present before movements in all markets. Whilst it could be argued that they predict movements, I do not hold that to be true. In my view, a prediction, or forecast, is far more than just about direction. After all, it is pretty much a 50/50 up or down case with direction. A forecast to me is direction, end point commonly called a target, time/date of that end point being reached and more significantly the path to both. Far, far more than what is generally seen as a forecast.
The 12 setups all have black and white rules or definitions which means they can be coded given enough resources of time, money, knowledge and ability. And certainly this is much easier today than it was back in the 80's when I first started ... in the PC era (pre computers)! Drawing my charts by hand gave me a feel for markets and their movements which computer number crunching rarely does. The advent of computers allowed me to establish the veracity of what I had observed or 'discovered' through spending 1000's of hours drawing charts of various stock, futures and FX markets. My wife had termed herself a 'Futures Widow' at the time as I was spending a good 10 -12 hours a day drawing the scores of charts that I kept up to date.
Of the 12 setups, only 3 are trend-following as markets are known to trend only about 25 - 30% of the time. There are 8 reversal setups designed to 'pick' turning points and 1 setup, by definition, belongs to neither camp. What this means from a practical trading perspective is that no matter what phase a market is in, trending or non-trending, congesting or non-congesting, one or more of the 12 setups will be there to give you an opportunity to benefit or profit from.
The chart above, prepared by a L.I.V.E. student trading the EurUsd pair, shows the setups that were present during his chosen time to be at the helm on August 20, 2012. He goes through all the steps in a defined (and serene) manner
before pulling the trigger and placing the orders with the broker.
Having found an opportunity, the next step is to establish how to take advantage of it. Some setups employ an Entry Mechanism (EM) whilst others require a Timing Tool (T'tool). Whichever is the case, both the EM and T'tool 'tell' you when, where * and how to enter the market and, as importantly, where * to place your Initial Stop Loss (ISL). Again, this is pretty much in line with what we do in every day life! Or do we? Very often we are prone to jump straight from 'Looking' to 'Executing', hence leaving out two very significant parts of this equation.
As the 'I' part involves referring back to your chart/s, this also provides the opportunity for you to double-check the 'L' part. It can be easy to overlook obvious things when you have a bias in a market, or when you rush through a process. Two old sayings certainly apply here: the devil is in the detail and less haste and more speed.
* The exact levels vary slightly depending on the market and broker/trading platform being used.
This is an often overlooked aspect of trading (and life in general) as so much emphasis is placed on just the entry and exit levels. 'V' is about the only reality in life as it applies to all things we do and all decisions we make! What is the downside if something does not work out as planned ... aka ... Risk!
The 'V' part of this equation involves simple basic maths to establish the amount of Dollars at risk which then means you can establish the size of position to be taken given your personal risk constraints. Two other parts of 'V' are to establish how the potential campaign is to be managed (should entry be achieved) and double checking all the above. In other words, the final check list before placing the relevant orders. As with flying so too with trading ... every take-off is optional, whilst every landing is mandatory!
The campaign management routine involves using a variety of exit strategies (and even add-on concepts). Exactly the same as a mechanic has a number of spanners to use or a brain surgeon has a choice of scalpels to use, you have a variety of exit strategies. They include a Break Even Stop Loss (BESL), a Trailing Stop Loss (TSL), a Time-based Stop Loss (TBSL), a Common Sense Stop Loss (CSSL) and a Protect R Stop Loss (PRSL). Each has its own rules as to when and how they can, or indeed should, be applied. This means that the decision-making process is so much easier when you have explicit rules to follow. This has been done to help you take away the angst factor of what do I do when! Simply refer to your manual for your rules as too what to do when. After a while, this does become second nature.
This is the final phase of the L.I.V.E. process. Quite simply, once all the boxes are ticked, personal biases are recognised and addressed, the orders are double checked and then placed. Outcome unknown! Exactly the same as in life. The outcome is merely 1 of the next 1000 campaigns, so statistically it has no relevance. So there is no need to hang around and 'sweat' on the outcome. The worst case scenario is that it will be a full loss referred to as 1R, (R being a percentage of your account that you risk each and every spin of the roulette wheel). This has, or should have, little impact on your overall trading account. By little I mean in the order of 1 or 2% of your account when you limit your own R to just 1 or 2% of your account. This means that you can sustain say 10 losing campaigns in a row and still have 80 - 90% of your financial capital in tact. Your personal emotional capital is also in your own control, when attachment to an outcome is relinquished!
You will notice that I use the word 'campaign' as opposed to the more commonly used word 'trade'. In my view, a campaign is far more structured than a trade. The image below gives you a visual of how 'structured' this approach is ... from the screen layout, complete with the trading spreadsheet called the Setup Analysis Template (SAT) to the charts which are used in the 'L' phase and the actual trading platform. Everything in its place and a place for everything help to lead to focus and an orderly, structured approach to what is often seen as chaotic and erratic!
Above is the same student's view at the start of his August 20, 2012 session applying the L.I.V.E. rules in real time
with real money. The student is part of The Experiment, a unique concept of sharing a journey of striving to
achieve extra-ordinary returns from a field where success eludes the majority.
Time Management is in recognition that everything we do in life is actually a trade, or perhaps even a trade-off! The most precious commodity of all is time. Time is irreplaceable ... time with family, time watching the kids grow up, time with friends, time to smell the flowers ... time! It is up to us to spend it wisely. Hence, even the act of speculating in the FX, or in any market, is a trade ... exchanging our precious time for an outcome that we believe will compensate us for our choice not to spend that time in a different fashion. One of the less common stats that are looked at in The Experiment is the R return per hour at the helm.
This approach is certainly not the holy grail ... more accurately it is a road that has served me rather well over the last 30 years of being involved in the financial markets as a trader, author, educator, mentor and student of life and the markets!
Is it for you? I have no idea!
Can you apply it successfully for yourself? I have no idea but I can see no reason why not!
No two people are the same!
The graphic above depicts the application of the same L.I.V.E. approach, this time on two markets, more time-frames simultaneously and using 3 monitors.