Trade Smarter, Not More

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Trade Smarter, Not More

One of the most crucial aspects of trading I have learned over the last 8 years is knowing when “to sit on my hands.” Trading isn’t about taking as many positions as possible, but rather it’s about taking high probability trades. Probability plays a big role in trading. You can have the best risk:reward ratio on a trade, but if the probability of success is very low, all your effects are likely wasted…like buying lottery tickets. Trading is about discipline and only taking trades which have a high probability of success. That doesn’t mean you won’t have losing trades, you still will. But by putting as many factors on your side before you take a trade, you’ll be trading smart…and smart traders are more likely to succeed than traders who just make random trades hoping to hit a winner. Here are some strategies for being a smart trader.

Trade with the Trend

Trading with the trend is an overused phrase, and unfortunately that means many traders don’t utilize this information effectively. Many traders know they should focus on making trades in the same direction as the trend, but two key problems arise when they attempt to follow this.

  • They wait too long. A trend, especially intra-day ones, are likely to reverse by the time you feel “confident” about the trend. Therefore, you need to act on trends early, as these are the high probability times to trade.
  • No realizing that a trend has actually reversed. A trader thinks they are trading with a trend, but actually they trading against the trend since the trend has shifted.

Trends move from up to down to sideways, and therefore it is crucial trades understand which phase is occurring. Understanding trends is therefore pivotal. While the concept is basic, few traders understand the ebb-and-flow of trends. Capitalizing on Lower Highs and Higher Lows and Trading the “Mini-Channel Breakout” provide some methods of staying on the right of the trend (at least most of the time) as well as some information on trends.

Utilize a Trade Trigger

In order for a trade occur, something that you recognize should be occurring. Once you see a price pattern you know–that typically results in another type of behavior, such as an asset rising or falling–you should utilize a trade trigger to initiate the position. Examples of triggers include: a breakout, a move past a certain price, or a pattern completing such as a candlestick engulfing pattern.

Each strategy you use may have a different trigger(s) based on what works for the strategy. The benefit of a trade trigger is that it forces you to act. When the market creates your trade trigger, you don’t need to question when you will make the trade, you do it right then. If you don’t have a trigger you may wait too long, or make a trade too early before the market has given you adequate evidence of what it is likely to do next.

By having a trigger you are forced to wait for viable signals, because your trigger should be based on a sound strategy and the trigger doesn’t occur unless there is a good trade-setup for the strategy.

In Capitalizing on Lower Highs and Higher Lows I provided a trade trigger for that specific strategy; it involved a breakout of a small range. As soon as the price broke the range we were watching, a trade was taken. Lines were drawn to provide an exact price for our entry. Figure 1 shows an example of this type of trigger.

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Figure 1. EUR/USD 15 Minute Chart – Trade Trigger

Find Your Trading Balance

My tendency is to over-trade, especially if I am day trading. For others though, it may be to under-trade. The former is when you make trades which aren’t based on any sort of trading method or strategy–you are basically trading just to trade. Over-trading often occurs out of boredom. You are watching your screen and waiting for a good trade setup, but lose your patience and just start to hit your buy and sell buttons.

Under-trading on the other hand is when you are too hesitant to make the trades you should be making. If you have a strategy but don’t consistently apply it out of fear, likely you’re under-trading your strategy and not seeing its (or your) full potential.

The key here is to first establish a set of rules you will trade by. Without some sort of guideline for how you will trade, all trades are shots in the dark and therefore there is no benchmark upon which to base your performance and improve.

With a set of rules in place, you then need to follow it.

If you over-trade, have some sort of distraction close at hand so you don’t make foolish trades when you’re bored. Play free money poker for example; something that lets you watch the market, but keeps you occupied so you are not wasting money on “boredom trades.”

If you under-trade realize that you have spent time working on your strategy (hopefully) and now it is time to trust it. If you can’t trust it, trade it on a demo account or “paper-trade” it until you are comfortable.

Not everyone trades the same way, but there do seem to be common themes among successful traders. Namely, they can identify trends and trade with them. Their trades aren’t random; there is some sort of catalyst or trigger that initiates each of their trades. And finally, they use a strategy that they are comfortable with and follow it to the letter, not under-trading or over-trading it. If I am struggling in any of these areas, I step back and don’t trade until I have the issue worked out. Trading smart is not only about understanding the market, but also ourselves and our personal tendencies…and then being able to find a solution.

Transit of the future needs smarter routes, not more gadgets

By: Matthew Yglesias

Technology is changing the commuting experience across the board, and politicians looking to present a forward-thinking image are trying to embrace it. New York Gov. Andrew Cuomo and the New York City Transit Authority, for example, are eagerly touting a soon-to-arrive new bus fleet that will feature “enhanced amenities like USB charging ports and Wi-Fi.”

But a recent nationally representative survey of transit riders from TransitCenter, a New York–based foundation focused on improving urban mobility, indicates that high-tech gimmicks are a very low priority for the people who actually use mass transit.

The future of successful, high-ridership systems may or may not involve USB ports but will definitely include reworked routes that provide reasonably fast and frequent service close to where many people live.

What riders want: fast, frequent service

The key data comes in a chart, which compares how people who recommend their local transit service feel about various transit attributes versus how transit detractors feel about them.

On some measures — like fare payment options — both promoters and detractors feel pretty good, indicating both that agencies are probably doing something right and that merely getting it right isn’t good enough to convert detractors into promoters.

The biggest gap, however, occurs in two key areas.

People who are likely to recommend their local transit service are very likely to say that it is sufficiently frequent and sufficiently fast. People unlikely to recommend it are very unlikely to feel this way.

It’s easy for politicians to give short shrift to these measures because they’re not readily visible from the outside. A dingy bus and a shiny new bus look very different within an instant, but you need to regularly use a bus line to get a sense of how frequently it comes and how fast it travels.

Fast, frequent service requires trade-offs

In the real world, delivering a fast and frequent transit experience generally involves some trade-offs.

The city’s leaders decided that they wanted to increase bus ridership without increasing spending too much. To get the job done, they eliminated a whole bunch of bus lines and repurposed the vehicles to create a citywide grid of lines that offered consistently frequent bus service.

The downside is that this meant some people were now further away from a bus line or had to make a transfer to get to their destination. But offering fewer lines meant Houston was able to make the remaining lines better, with buses arriving much more frequently.

The result is a map that looks worse — more blank spaces — but works better in practice, with concentrated bursts of frequent service hitting Houston’s most densely populated corridors.

A similar issue arises with bus frequency.

Many routes around the country, including in Washington, DC, where I live, stop incredibly frequently. This is nice in the sense that nobody has to walk very far to a stop. And it works okay during late-night hours when most stops are unused and can be easily skipped.

But during any reasonably busy period, frequent stops mean that buses travel much slower than private cars, since they’re constantly starting and stopping.

Better infrastructure and better payment procedures can speed this up, but there is a fundamental trade-off: A fast bus can’t stop every two blocks.

The future is about being useful

The intricacies of route planning are complicated, but the basic message across the survey is simple. When thinking about a potential change in your transit system, don’t think about whether it looks cool — think about whether it would be useful in a practical, day-to-day sense to someone who lived nearby.

For example, if you want to do something high-tech, note that one item with a big gap between satisfied and unsatisfied customers is information about when the next bus or train is coming. This kind of data has long been a staple of the better rail transit systems around the world, but modern GPS technology makes it feasible to deliver for bus lines, as well. And smartphone apps make it possible to deliver arrival information not just to fixed locations at stops but directly to customers’ pockets.

Many bigger cities like DC and San Francisco have been doing this for years, but smaller cities where transit is a lower-profile issue have been slower to get up to speed.

Unfortunately, instead of focusing on things that are useful, many cities are pouring money into transit upgrades like streetcars that run in regular city traffic. These vehicles certainly look more impressive than a humble bus, but because they run in mixed traffic and can’t switch lanes they generally move more slowly than a bus.

Technology’s most useful role in upgrading mass transit is probably on the data side. Consolidating routes and shuttering stops can make a network much more useful to many people, but it will also inconvenience others. Gathering the data and analytics to make smart trade-offs on route design will save money and boost ridership, building both political support and financial resources needed for new investments in expanded service.

This story is part of The new new economy, a series on what the 21st century holds for how we live, travel, and work.

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