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Before Christmas a client very kindly gave me a copy of a book. It is called The Slight Edge by Jeff Olson. The point the book makes very well is that success is not something that happens in a bang and a flash. It is the result of tiny steps taken again and again over a period of time. And every day you are either taking that step – or not taking it. The person who takes those tiny steps may not have much to show for it for a while, but the progress is exponential and will eventually manifest in a big way.
There are many ways in which we might apply this principle to trading, but in this article I want to focus on the experience of actually taking a trade. However much study you do, and however much paper trading and backtesting, eventually you have to get out of the simulator and into the cockpit and fly the plane. And you can’t expect 1 or 2 trades to give you all the experience you need in the market.
I would like to illustrate this with the case of one of our Platinum traders who has kindly given me permission to use his example. At the end of the 12-month Platinum Traders Program, students have to produce a forecast. In mid-November he produced a forecast for a turn in Aquarius Platinum (AQP) for 9 January 2010.
On 4 January he wrote to me and mentioned that the market seemed to be shaping up nicely coming into his date. As his discussion sounded slightly academic to me, I started asking him some questions about how he planned to trade it. This is a different kettle of fish, putting your money where your mouth is.
9 January was a Saturday, so he was prepared to allow a couple of days either side. On Thursday 7th the market hit 75% of the previous range and gave a signal day. He decided to go short, using the Closers Rule. A friend who’d been through a few more of the traps suggested that he place his stops about 5c above the high of the day. However, he placed his stops 1c above the high, at 7.94.
Chart 1 – The Set-Up in AQP
click chart to enlarge
This trader did not have a lot of trading experience, and the idea of going against the trend based solely on his own forecast was, to say the least, challenging for him. On the 8th the market was down, but closed high, with a temperature reading of +4. He then had to sweat it out over the weekend.
On Monday 11th the market gapped up on the Open and in the last 10 minutes of trading broke the high of the 7th by 2c, stopping him out of his trade.
Chart 2 – False Start
click chart to enlarge
This is where Time by Degrees shows its power. 180° from the 13 July low, a major low, came out on Tuesday 12 January. The 7th was a bit premature. But that is trading. Things are often not perfect, and had the trader left his stops a bit wider as his friend advised him he would have been safe. This is where time in the trenches counts. You have to get the experience from taking many trades to get this slight edge.
Many traders early in their trading career would have given up at this point, but fortunately, by asking the right questions, I was able to direct this trader’s attention back to his chart, and he took the next entry signal on the 12th.
Chart 3 – What Happened Next
click chart to enlarge
Since the top on 11 January, you can see that AQP has fallen 20% from 7.95 to 6.36. You can also see that it has not exactly been smooth sailing. Indeed, Platinum futures (PL-Spotv) continued to climb until the 20th. I can assure you that this trader’s emotions went up and down with every move of this stock as he followed his first successful forecast and traded it.
This sort of experience can only be gained by doing, and by doing again and again and again. By putting the techniques that you learn into practical operation in actual trading, accompanied by effective money management, you will increase your trading skills and develop your own slight edge.
I will finish with a verse from a poem called The Ladder of Saint Augustine by Longfellow, which Gann quotes in his book Truth of the Stock Tape:
The heights by great men reached and kept
Were not attained by sudden flight,
But they, while their companions slept,
Were toiling upward in the night.
Knowledge is Power!
Tim Walker
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