Blog - HEIKIN ASHI TRADER

HOW TO BECOME A
PROFITABLE TRADER

Does Your Personality Influence Your Trading Success?

7/22/2022

What distinguishes a profitable trader from an amateur?

In addition to the tools of the trade, mental skills and personality play a crucial role in trading success in the financial markets.

Successful traders have impeccable mental strength compared to other traders. A significant part of your mental strength is based on what kind of personality you possess. If you are aware of your personality and work on it, it will have a positive impact on your trading performance.

With people, there are many shades of gray. No person is completely good or bad or completely positive or negative. It is your responsibility to identify your personality traits and how those traits affect your daily trading decisions.

Let's talk about two personality traits that are very important for trading: being intuitive and being analytical.

Traders with intuitive personalities make their trading decisions based on their intuition. This may be because they are naturally intuitive, or because they develop this intuition over time.

A trader with an "analytical" personality is just the opposite. He pays attention to historical data and solid evidence to support his trading decisions.

The balance between these two personalities is what makes a near-perfect trader.

If you're intuitive only because you're too lazy to do accurate analysis, you'll fail. On the other hand, if you are extremely data-oriented and wait for the perfect trading setup, you will never be able to trade, because perfection is an illusion in trading.

If you balance these two personalities by doing the necessary analysis and then placing your trades based on your intuition, you may suddenly get great results.

Although most personality traits are formed from birth, it is not impossible to acquire new ones.

Try to find out what personality traits great traders have (The Market Wizards books). Try to practice building these traits in yourself so that you can eventually become a holistic trader.

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Crucial Tips To Control and Manage Stress Effectively While Trading

7/22/2022

Trading is one of the most rewarding jobs in the world. It offers the freedom and flexibility that you can never expect in your typical day job. But as they always say - "with great power comes great responsibility." If not anything else, trading is a constant fight between you and the financial market you trade. As a job that requires your complete attention, it can get monotonous and pretty stressful.

You will come across situations where you spend hours developing a trading strategy, back-test it in a demo account, and finally, applying it to the live markets only to see a disastrous failure. What would you do in that situation? Do you go back to the drawing board to see where you went wrong? Or turn off the system to take a walk? Both are great options except for the third one: feeling demotivated, stressed, or going on a revenge trade.

It is important to stay super attentive when you trade. Feeling the stress is that one thing that takes the focus off your mind. Therefore, you must know that not trading is better than trading the markets with a stressful mind. Stress is inevitable in trading, and humans aren't sophisticated machines to stay focussed all the time.

We recommend you follow the below practices to effectively avoid stress when you trade the global financial markets.

Have No Expectations: You should have absolutely zero expectations from the trades you place. This might sound dramatic, but it is true - expectation is the primary source of disappointment. It is important that you work on your strategy and do everything right to end the day with profits but do not expect that. If you do so, and the outcome is different, you will be stressed and dejected.

Take Calculated Risks: One of the most common mistakes we make while trading is "wishful thinking." Do not risk your account and be certain about hitting the "take-profit" in a world of uncertainty. You won't be stressed even when the outcome is not in your favor when you take calculated risks.

Prepare: Imagine attending a must-crack interview in a Fortune 500 company, but you hardly have any relative experience. Would you be stressed or relaxed? Obviously the former right? The same applies to trading as well. When you know what to do in a certain situation, you won't be stressed when you are prepared on how to react to it. Always stay prepared!

Accept The Reality: Trading is not about winning vs. losing. It is about winning more and losing less. So when you fail, instead of feeling discouraged and stressed, accept the reality. See what you can learn from that mistake and make sure you won’t repeat them ever again.

Avoid Self Sabotage: As humans, we tend to find the easiest and more temporary ways to feel relaxed. Consuming caffeine, smoking, and drinking are a few toxic things traders prefer to avoid stress. Although you find instant relief doing these, ironically, they increase your stress levels in the long term. You know the harmful effects these habits will have on your health. Hence, I suggest you practice healthier alternatives to avoid stress. Meditation, regular exercise, and spending quality time with family and friends can do wonders for your mental health. All the best!

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Why it is important to remain detached when trading

7/22/2022

Emotions are an essential part of human life. In fact, emotions and feelings are the factors that distinguish us from the rest of the living beings on this planet. They also protect us in our everyday lives and make our lives worth living.

When someone compliments you, you feel happy. When you expect misfortune, you get scared. Of all the emotions, fear is very powerful. It helps us protect ourselves from external harm. So, we can say that we are very attached to our feelings.

However, it is important that you keep your emotions in check while trading and be logical. The game is such that your emotions will be tested every now and then.

Institutional traders understand market psychology better than any private trader. They take advantage of the emotional imbalances of private traders to gain an advantage over them and are almost always successful.

So, what do you need to do as a private trader to be successful?

The answer is to remain unemotional and believe in your strategy and logic more than how you feel about trading.
But how?

The best way is to detach yourself from your emotions and the money you put into the trade. When you're scared, it's hard to think clearly. That's why you make hasty decisions. This eventually leads to mistakes.

Always remember: the more you stay calm and detached and can think objectively, the easier it will be for you to control your emotions.

Successful traders put their logic above any emotion that could sabotage their trading. They stay away from anything that could trigger emotions, such as the amount of money at stake, the latest news they've come across, current market events, etc.
As a newbie, it is almost impossible to remain emotionless. It is only too human to avoid any risk or loss.

One of the ways I finally managed to stay emotionless was by treating my real account like a demo account. I started to believe that the money in my real account was just play money. But at the same time, I followed every single rule I set for my trading strategy. This helped me a lot to execute my trades professionally.

I learned to trade like an electrician checking a fuse box.

Finally, at the beginning of your trading career, you should never risk your entire savings or any large amount. This will only amplify your emotions in the event of an unfavorable scenario. Always give priority to logic and stay away from anything that lets your emotions into play.

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Why successful traders are humble

7/22/2022

Trading is one of the most rewarding skills but is difficult to master. The trading process can be frustrating as you will experience failures along the way to becoming a professional.

When things go well, you naturally tend to celebrate. This is quite normal, and in fact, it is important to appreciate small successes.

However, it won't take long for you to get cocky. A streak of good luck might inflate your ego, and you might think you've reached the top. If you find yourself in this situation, I recommend you fear rather than rejoice.

Sound ridiculous?

Do you know stories of traders who failed to keep their profits and ended up losing everything?

There can be many reasons for this, such as changing market conditions, overestimating oneself, self-centered trading, etc.

That's why successful traders try to stay humble.

If pride interferes with your rational thinking, it could lead to a change in your lifestyle. You might get the desire to spend a lot of money, brag and make stupid decisions.

You will set standards for yourself that you can hardly keep. With such pressure to perform, you will have difficulty controlling your emotions, which will eventually affect your trading.

In contrast, humility helps you.

You realize that neither success nor failure are permanent. You focus more on improving your trading skills. It is the sure way to stay ahead in the market.

Stay humble, stay humble. This is the "middle way" of a profitable trader.

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How to Overcome the Bad Habit of Overtrading

7/22/2022

Novice traders and experienced traders alike get into the bad habit of overtrading. Most of the time, the main causes that trigger overtrading are frustration, missed opportunities, losing trades and the desire to get-rich-quick. Other times, this costly habit gets in the way after we fail to act on a trade signal when the time is right.

The main issue is that these behavioral patterns occur without being able to control them. Most traders are aware of the destructive nature of overtrading and yet we find ourselves repeating the same mistake over and over again.

Now, you may ask:

“How do we break the bad habit of overtrading?”

The problem is that most traders are looking for answers in all the wrong places. There is no magic solution that will immediately solve your bad habits.

One of the techniques that worked very well with seasoned traders is to be aware of the consequences of overtrading. This in turn can inspire us to change.

The good news is that you can drop the bad habit of overtrading and make permanent changes in your trading activities. If you are very sensible about the negative consequences of your overtrading behavior then this awareness can put you into a different state of mind.

You’ll never want to go into the bad habit of overtrading when you’re aware of the dire consequences it can inflict.

For instance, consider this analogy:

A surgeon performing an operation can’t let their frustration interfere with their work if something doesn’t go as planned. That awareness that the patient can die if they act on their frustration keeps them under control.

Some procedures don’t go well same as trading doesn’t go well all the time. However, the awareness of the consequences should prevent the trader to act on his frustration. When you know that overtrading stands between you and your trading success, you’ll think twice before you act again on your frustration.

Thank you for reading!

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Risk Management is King

7/22/2022

Behind the flashy side of trading: All the brand-new indicators being released, “new” and exciting trading strategies, and "top secret" knowledge you have to pay an arm and a leg just to uncover the so-called "truth" to make a tremendous amount of money in such a short period that you, yes you! can buy a brand-new sports car in no time. There, the King hides.

In fact, it is not as glamorous to talk about as the above-mentioned messages you could often hear and watch on social media advertisements. Nevertheless, it reigns supreme in the minds and hearts of successful traders and investors throughout history. But what is it? and why is it considered the "King"?

In trading, “Risk Management” can be defined as a system put in place to minimize losses. Its main purpose is to protect your capital from the potential huge swing of losses brought by the Market going against your bias. Because, you will be wrong, a lot of times. It does not matter who you are and what your IQ is. No one can ever consistently and accurately predict where the market is heading.

In my twenty years of trading, nothing is more instrumental to my success than prioritizing Risk Management above all. I could never become a consistently profitable trader if I never had a risk management system put in place. In fact, in my first year of trading, I never prioritized risk management. I used to ask myself "Why should I?". If my analysis is correct then why should I think about the risk involved? I will prove to everyone that I am right! Well, suffice to say, in my first year of trading, the only thing bigger than the losses I incurred was my ego.

I learned the hard way that where the market goes is beyond our control, the only thing we can control as traders are how much risk we are willing to take. We can control how much capital we are willing to expose in each trade. Ultimately, we can control how much we are willing to lose when we are wrong.

I soon realized that it was more important to consistently make money than it was to prove that I am right. Risk Management is King since before you yearn for huge profits, you have to protect your capital first. The key to being a consistently profitable trader is to make sure you minimize your losses on your unprofitable trades to be easily offset and exceeded by the profitable trades you make.

In consummation, trading must be treated as a business. In a business, you set systems in place and methodologically approach things. You always respect the risks associated with your operation and manage them accordingly. For one unforeseen mistake could mean the end of a business.

“Successful traders are not just traders; they are risk managers above everything else" – Jason Cam

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The 3 Qualities of a Profitable Trade

7/22/2022

Have you ever wondered what make a trade a great trade?

Outlining the qualities that makes a trade good or bad can make the difference between becoming a consistently profitable trader and failing.

Not all profitable trades are good, just like not all losing trades are bad. There is more here than meets the eye.

Below, I’m going to share 3 traits that I believe every trade should possess to have the highest probability of success.

#1 A Good Entry Point

Unlike the conventional wisdom in this space, a great trade has a good entry. If you enter at the right price you can better cope with any potential drawdown. A good entry point will ensure the drawdown is minimal and you are more likely to hold on to that trade to reach its full potential.

And, secondly, a good entry point will allow you to increase your profit potential.

#2 A Time-Based Stop

Secondly, a great trade has a time-based stop.

Let me explain:

A time stop will teach you to let things go when a trade doesn’t act as it should act in a timely manner.

From my own experience the best trades are the one that show a profit right from the start.

If you’re in a trade and the market doesn’t do anything for let’s say the first 30 minutes or 1 hour, that can be a warning sign especially if you’re a momentum trader.

The market will be here the next hour and tomorrow there is always going to be a new trading opportunity. It’s better to play on the safe side than to be sorry later.

#3 Market Conditions

Are the market conditions working in your favor or are they working against you?

Let me explain:

You can’t have a trade that goes in your favor without the right market conditions. Put it simply, the market can either be trading or ranging.

If you’re looking for big swings in the market, you need to have a trading market. Or, if you’re looking for mean reversion make sure the market is stagnant.

In other words, it has to be the right trade for the right conditions.

The main idea to bring home is to focus on the process and not necessarily on the outcome of the trade. Don’t forget before you even consider pulling the trigger on a trade, make sure your trade has these 3 qualities: good entry, a time-based stop and the right market conditions.

Thank you for reading!

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A Proven Way to Find New Trading Edge

7/22/2022

To become a successful trader it all comes down to finding a trading edge where the odds are stacked on your side.

The generally accepted belief is that our trading edge comes from mastering our trading psychology. Put it simply, that’s wrong because our edge comes from our ability to find unique patterns in the market that other traders are not capitalizing on yet.

This raises the question of how to find a unique trading edge?

The answer is to look at the price action distinctively, through your own eyes.

If you do the same things as other traders are doing, you’re not going to find a suitable trading edge.

Let’s say you observe your favorite stock has the tendency to rally during the final 30 minutes of the trading day. The next step you backtest this pattern to see if there is something you can profit from.

If the new pattern you have found has a positive expected return, you now can have the confidence to execute the trades based on your new edge.

The reality is that most professional traders look at the market different than the retail crowd. Over time, originality wins while conformity loses.

There is no secret or a magic formula that will instantly give you a trading edge. At the end of the day, it all comes down to your ability to think outside the box and hone your pattern recognition skills.

The ability to recognize new patterns is like the skill of a mechanical engineer, who understands how an engine works, performs maintenance, diagnoses malfunctions and performs required repairs. As in the case of the mechanical engineer who can assemble patterns of information into relevant diagnostic for the car, the pattern recognition skill of the trader works the same.

In summary, a unique trading edge comes from looking at the market distinctively, through your own eyes.

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How to Utilize News Feeds in Trading Efficiently

7/22/2022

The market is a living organism, with events impacting prices on the go. Let’s find out how to stay in tune with the market news to have an edge in trading.

How to choose the news feed?
Today there’s no lack of market information available. Breaking news gets known worldwide in a blink of an eye. What makes a difference is how you select what matters and treat it in decision-making.

The needs of a trader
What does a trader need to have the inflow of information helpful? Check out the list below.

Niche-focused sources: Follow news focused on the market you trade only
Actuality: This is a no-brainer – news must be timely
Visually appealing: Spotting and reading the release should be effortless

Of course, the points above are more of an absolute necessity for short-term traders.

News sites vs. aggregators
You must be wondering, “what’s wrong with simply checking Bloomberg-like media daily?” The answer is, due to the robust journalism, such news tycoons are likely to overwhelm you with extra information.

Suppose you trade Forex; look what happens when you click on the FX section on Bloomberg

How many of those would be potential currency-movers? Probably one or two.

Sorting out what matters takes an additional mental effort, which could be used for executing your trading system.

What’s the solution?

News aggregators!

Such services gather articles or any relevant updates from major agencies globally, presenting you with laser-focused data.

Best three news feeds and their perks
News aggregators or simply feeds can also vary. Below are some of the best ones and their features.

Investing.com
The site offers broad market data, but the news section for a specific market is saturated with the most relevant news from different sources.

Notice that the articles are posted by four distinct agencies: Investing.com, Bloomberg, Forexlive, and Reuters.

Financial Juice
Here’s a promising startup taking news feeds to another level. It doesn’t stop on merely gathering filtered news, but posts live highlighted commentaries from key entities, easily catching attention.

You can also track upcoming economic releases from the calendar on the same screen.

TweetDeck – top Twitter feeds in one place
The tweets management tool is perfect for organizing your informational flows – you can choose what to follow and how intensively.

You can see several feeds simultaneously. However, there’s a natural limit to how much information the mind can process. It would be healthy to stick to 2-3 accounts.

How to act on the news
It’s an art to be able to monetize news. Below are three essentials to turn news into opportunities.
Have fundamental biasBroad bias is essential to put your next trading idea in context. Gather several facts that may impact a general sentiment on a particular asset. As such, critical economic data releases or comments from the regulator can set the market tone for days to come.

Follow the price action
Regardless of the facts, the market may behave irrationally. One approach is to follow the price, seeing a data release simply as a catalyst in either direction. Another way is only to take price action setups that align with fundamentals.

Add to your trade conviction
Sometimes you may see a compelling setup but would hesitate to take it due to the lack of evidence for the preceding move. Look through the news feed; it might offer you a reason.

Suppose you were waiting for a bullish breakout of 1.03 in EURCHF below.

You might hesitate to buy due to the absence of euro-related news or the unimpressive ATR potential of the pair.

Here’s what Financial Juice tweeted right when the price was getting above the key level.

As you see below, the breakout turned into a nice intraday move.

Similarly, you can check the feeds to find intraday catalysts, boosting the market momentum.

Final words
Traders should take their attention limits seriously to avoid information overload. News aggregators are a prudent way to make informational flows digestible. Use live news updates to add odds in your favor while considering price action setups.

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Value-at-Risk: The Most Famous Risk Management Metric

7/22/2022

Risk Management remains one of the crucial functions of financial institutions. One of the most used metrics to measure risk is the Value-at-Risk, or VaR.

VaR measures the extent of potential loss, a portfolio of risky investments might face over a given time horizon.

Technical Explanation of VaR
Value-at-Risk expressed in dollars ($VaR) can be explained by the equation below:

Prob$Loss>$VaR= α

Let’s understand this equation first. If we choose a confidence level α, say 5%, and a certain time horizon, suppose 1 year, the equation above says that the probability of the loss on your risky portfolio exceeding $VaR will be 5%.

Having explained $VaR, VaR is a similar except that it is represented in terms of log-returns:

Probrw<-VaR= α

VaR can be understood by the distribution of log-returns of your portfolio over a given time-period as in the following graph.:

Measuring VaR:
There are 3 approaches to measuring VaR:

Historical method
Parametric method (also known as variance – covariance method)
Monte-Carlo method

Historical Method
Historical VaR, the simplest method to calculate VaR, assumes that past returns can act as a good proxy to understand future returns. To calculate Historical VaR, collect market data for a given time period. For example, if you own a portfolio of stocks, collect daily closing prices for the past 251 days. From prices, calculate daily returns and then log-returns of your portfolio. You’ll have 250 values of log-returns. Now sort the returns in ascending order. The daily VaR at a confidence level α is simply the return at αth percentile. For example, if you want to calculate VaR at 10% level, find the 25th log-return in your sorted data.

Parametric Method
Without going into much detail of this method, Parametric method assumes a normal distribution in log-returns. Expected return and standard deviation are estimated to compute VaR.

Monte-Carlo Method
As in a typical Monte-Carlo simulation, VaR is calculated by randomly creating a large number of scenarios for future rates using non-linear pricing models. Then, returns are calculated for each scenario, and worst losses are then used to calculate VaR.

Benefits of VaR:

Applicable on all risky asset classes
Universally understood and used
Arguably the easiest risk management measure

Drawbacks of VaR:

Different calculation methods give slightly different VaR values
For large portfolios, calculating individual and then portfolio returns is a lengthy task

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He traded for a hedge fund and then went on his own. He specializes in scalping and fast day trading. His scalping book "Scalping Is Fun!" is an international bestseller and has been sold more than 30.000 times. His books have been translated into 11 languages.

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