Tag: dean whittingham

The Currency Exchange Trap In Trading Global Markets

Posted on by The INO.com Team

Dean Whittingham created A Traders Universe - Trading System Development in 2005 as a resource site for traders of all levels, with education, courses, brokers, tips, free videos, newsletters, trading systems, simulations and a free 7 step process for building a profitable stock, futures or forex trading system.  Read how Dean illustrates how the change in currency exchange rates effect the overall performance of any overseas trade on your financial statement.

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Picture this: you live outside the US, let’s say Australia, you think the price of Oil is going to appreciate over the next month or two. Your options are to buy the commodity through the futures markets, buy a CFD, or buy an ‘oil’ based ETF. Either way, you will be buying an oil based asset and in which currency? The US dollar.

What happens? Well the price of Oil appreciates, and low and behold, so too does your purchase (whichever that may be), in fact it appreciates 20% over two months. Nice! Then something strikes you. You look at your financial statement only to be reminded that your sale price has been converted back to Australian dollars; naturally, this is where you live and so too does your broker. Continue reading "The Currency Exchange Trap In Trading Global Markets" →

What Is Your 'R' Factor and How to Stop Yourself Cutting Winning Trades Short

Posted on by The INO.com Team

Dean Whittingham has been a guest blogger here before (see previous posts) and every time he brings great material to our readers and this post is NO DIFFERENT! So please enjoy the article, be sure comment, and also if you have time check out ATradersUniverse.com. ENJOY!

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In trading there is a factor known to many as the ‘R’ factor or risk factor. Traders determine their average or base risk per trade they’re willing to take and name it ‘R’, and then measure profits as a multiple of this ‘R’. For example, a 3R profitable trade means the trader has made 3 times the amount they risked. The idea is to determine the ‘R’ factor early on in the trading system building stage and keep it consistent, whether it is a fixed dollar amount or a percentage of available capital.

The benefits of using an ‘R’ factor include measurability, especially during back testing, which helps to determine a systems potential, and being able to track your trades from a systematic point of view rather than a monetary point of view. However it is the monetary point of view that I would like to address as I feel there could be another angle or point of view that could aid struggling traders, especially those that find themselves cutting winning trades short (breaking their systems rules).

Continue reading "What Is Your 'R' Factor and How to Stop Yourself Cutting Winning Trades Short" →

The Dimensions of a Successful Trading Entity

Posted on by The INO.com Team

In June I asked my friend Dean Whittingham from Traders Universe who wrote a GREAT post that got me, and our readers thinking. I asked Dean to see if he could write another piece that got us all thinking again...and I think the below article is exactly what we need!

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Many considerations go into creating and running a successful trading entity. We'll look at the most popular which get the most attention, right through to the most important, which usually get the least attention.

Here is the list:

1. Entry signals
2. Risk management
3. Exit signals

4. Reliability
5. Reward to Risk
6. Opportunity
7. Capital management

8. Objectives
9. Familiarity with Markets
10. Resources
11. Mindset
12. Style
13. Management

Most, and by most I mean probably close to 80-90% look at number 1 and that is it! That is a startling reality, but a reality nonetheless. But there is a reason this happens. Most new traders are unaware that such a large number of traders ultimately fail in this business, and more importantly, this fact is well known by the very people who market trading in this way.

But enough of that, let's look at some serious considerations you should make and the order in which you need to do it.

Objectives – Set a target, a goal, a reason. Without this, you can't create or find the right system for you. You won't know whether the system will work for you, or even if it is on track or not once you begin trading it.

Familiarity with the markets – Quite simply, markets move in similar patterns which is all good, but there are different costs, margins, hours of trade, laws etc associated with each market that need to be considered.

Resources – These are your physical and mental assets. Everything from your time, capital, computer, to your mental strengths forms your list of resources. Day traders need different resources to a long term trader, not only in hard assets but mentally too.

Mindset – This is part of your self-image. Your self-image influences your decision making process on a continual basis. It stands to reason a trader would only become successful if they were making the right decisions. You need to see yourself as a success first.

Style – This is something you'll need to work out way before you look at any system. Are you mechanical or discretionary, in other words, do you want a system to tell you what to do, or do you want to be analytical? Do you want to trade for growth or income (part of your objectives)? These sorts of styles all require different tools, and so it seems silly to purchase a system before you even know your preferred style.

Once you have these aspects thoroughly researched and sorted out, I can guarantee you that finding or creating the right system of entry and exit tools will become far easier and much more enjoyable too. You'll naturally be attracted to the type of market tools that suit you.

But even then, once you find the entry and exit tools that suit you, there is more work to do.

You need to back test and paper trade your entry and exit rules to determine the rest of the considerations mentioned above.

Reliability – How reliable is the system for producing winning trades compared to losing trades, and does this suit you? The latter part of this question is the most important part. The reliability of the system does not tell you its overall profitability. It tells you your ratio of winning trades to losing trades, and this is a psychological question. Do you need to be right more times than wrong? This is the simple question you need to answer.

Reward to Risk – What is the average profit per trade? This is your total net profits divided by your total number of trades (if your system has a net loss then it's no good - obviously). When you know the average profit per trade of your system over a decent sample, you can then determine the number of trades you need to make to reach your objectives.

Opportunity – Now that you know the number of trades you need to make over a time to reach your goals, you must determine whether or not your chosen markets will offer the opportunities you need. Will you need to trade in multiple markets, trade both long and short and so on?

Capital Management – If you do find that your chosen markets offer enough opportunities for you to reach your goals, you need to consider if your capital can handle it. Many systems will require multiple positions open at one time in order to reach goals in a specified time. This means your capital may be stretched, or may not even cope. The size of your positions in the market is a part of your capital management and is also determined by whether or not you have leverage and the margin required.

Risk Management – Risk is what you are willing to lose per trade. Your exit strategy aids in determining this factor, but it also needs to gel with you, because your risk per trade is a factor in your drawdown. The higher the risk, the higher the drawdowns and you need to know the maximum drawdown you're willing to tolerate.

Management – The final consideration we'll cover here is management. You are controlling an entity and so management of all key areas is important. If you log each trade, you can assess for human errors, bad habits, you can also assess costs associated with trading and whether or not they can be reduced. In fact management is the part of your trading that is always looking for ways to improve the running of the business.

If you look at the list above it can seem like a lot. If one was to think of what goes into creating the great business models like McDonald's, Starbucks and so on, then I don't think it even compares. But why should it be so daunting? Enjoy the process and it will be a lot easier than you think.

Happy Trading

Cheers,
Dean

A Traders Universe

What's the hardest thing a trader will ever have to do?

Posted on by The INO.com Team

Today I've decided that we need to show our support to our huge Aussie following by giving Dean Whittingham, a native Aussie and trading mentor, the ability to teach us a thing or two about what he's learned while trading in Australia. He's been a mentor, trader, teacher, and technical analyst for years and today he'll be blogging about the hardest thing a trader will have to do.

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Visit forums, join memberships, purchase tuition with member areas for support, read books, talk to fellow traders etc and you can be guaranteed you will come across many who will be struggling with a whole host of reasons why. Some will even appear as experts but beneath the surface are struggling with some aspect of their own trading system or style. But do you know what the hardest thing any trader will have to do is?

1. Learn the jargon – no way, this is easy and it just takes time.

2. Find a profitable trading system – there are hundreds of thousands of them, in fact many are just given away for free nowadays.

3. Back test and paper trade – c’mon, I know many people don’t like hard work but you’re way off here.

4. Learning to read charts – kids like reading charts as they look at the green thing and they say, “Hey that’s going up”, or if they see a red thing they say “that’s going down”.

5. Setting goals – important because if you don’t have a goal, you’re floating aimlessly; but not the hardest.

6. Thinking successfully – no matter who you are or where you are there is always something you are good at. If this is so you already know how to be successful.

7. Being true to yourself – knowing who you are is indeed a quality that sets one apart from the rest and is therefore one of the hardest things a trader will ever have to learn, but not the hardest.

8. Cut losses short – it is hard to do this for many but it is definitely not the hardest.

9. Logging trades – as we are lazy this is done by a very few, but this does not make it the hardest, not by a long shot.

10. Keep emotions at bay – trading without emotions is very hard, but as we are humans the proper definition is more like managing emotions; but either way it is not the hardest thing a trader will ever have to do.

11. Remain independent – listening to other’s advice whether it is a newsletter, internet forum, or just your buddy next door is very easy to do as we like to follow other people by nature so to do the opposite is hard, but not the hardest.

12. Sticking to the rules of a plan or system – this is indeed hard but not the hardest. Many people trade with only rules for analyzing or entering, but most never have a complete set of rules anyway, but even those that do, it is not quite the hardest and you're about to find out why.

13. Letting profits run – BINGO!

The hardest thing a trader will ever have to do is to let profits run. It doesn't matter whether a trader uses trailing stops or profit targets, the ability to let a trade run its full course is the hardest thing a trader will have to consistently do.

Why is this so difficult?

For one, most place more emphasis on seeking opportunities and rules for entering than on anything else to do with running a trading business. And this is exactly how the whole “trading” thing is marketed. Very few traders have rules for exiting.

But even those that do have rules for exiting, only a small minority will stick to them, and this is because we as traders can not get past thinking about the money. Money rules us as traders and probably rules us in our lives too.

If you go back over all the points above I can tell you that all of them contribute in some way to the most difficult thing a trader will do; hold on to winning trades.

For example, if you think you’re a successful trader then why would you cut your profits short?

Because if you thought you were a success you would know yourself and where you need emotional management, you would learn any jargon and how to analyze, you would have a goal, and you would have a plan to go with it, which means you would have a system with rules for analyzing, entering and exiting, and you would have a fair idea how this system performs, which means you would have back-tested or paper traded it, and you’d cut losses short and you’d log all trades, you’d remain independent, and finally you’d stick to all the rules.

What a trader will face is the situation where they cut a profit short and take a look at what they made for that trade; this will send out a good feeling throughout their body. What will compound this feeling is if they look a little later on to see their decision was justified because the trade would have resulted in a loss if they’d not closed it out earlier.

The problem is this good feeling we are experiencing is encouraging bad behaviour whether it’s breaking rules, trading without a plan or whatever. To continue on this path will lead you to having to find more winning trades because the trades you do get wrong will cost you more than what you make from the profitable ones.

Now here comes the litmus test: If you cut a profit short only to see it would have been a lot more profitable had you held on longer or used your exit rules then this should hurt – I mean really hurt, but not because of the lost opportunity but because you see it as a failure on your part. If it doesn’t then success means very little to you.

All traders will go through the process of seeing themselves in a winning trade only to see it end up as a loss. This is inevitable. Apart from having someone look over your shoulder to prevent you breaking rules or cutting profits short, the only person who can do this is you! If you find yourself cutting profits short then look for your weakest links in your trading business. I have given you many here to ponder.

Dean Whittingham

http://www.atradersuniverse.com - Stock, futures and forex trading system development for all traders.
If you'd like to learn more from Dean I highly suggest his latest report on The Subtle Trap of Trading