Making Trading Human Again

Boris Schlossberg

If there is one thing true about the past decade in markets it’s that computers now dominate all trading. Its truly been the decade of Virtu and Citadel and the glory days of the individual prop trader are as quaint as the pictures of fat sweaty guys battling it out in Chicago pits.

Execution has become so efficient that brokers all now offer free trades and still make tons of money from kickbacks in the spread. There is no argument that you can no longer compete with a robot on a sub-second level. The machines will always beat you.

Yet anyone who has ever run an algo on any longer time frame knows just how stupid computers can be. Like idiot-savants, they are excellent at producing one single task well, but can’t adjust to even the slightest change of environment. Last month was yet another example of algo apocalypse amongst some of the most famous names in the business as the growth/value books completely broke down creating massive losses that some of the most sophisticated trading models never anticipated.

As I’ve said many times before our greatest asset as humans is our ability to lie. Without lying poker would be a dry boring game between machines and financial markets would have all the excitement of a cell phone bill. It is precisely the messy, inefficient friction introduced by lies and random human activity that keeps markets from devolving into perfectly efficient engines of boredom.

Aside from lying, humans excel at one other activity that binary systems like computers simply cannot master well – pattern recognition. 200,000 years on the Savanah plain and several billion neurons later have taught us to take note of even the slightest change in the environment.

Kids do this naturally. Move your 5-year-old favorite toy just a few inches off-angle on a shelf and they will notice it right away. I am always astounded at how my older kids when they were younger and my little one now would instantly sense even the most minute changes in our apartment building such as a blinkering lightbulb in the ceiling of the lobby.

Lately, K and I have started to exploit our human skill at pattern recognition by creating visual indicators for TradingView charts that help us make trading decisions in seconds. This has been revolutionary for our business. In the last 10 weeks alone K made more than 1000 pips in swing trades by using her Zip Trader heatmap indicator to help her pick the right trades. I managed to bang out 90% winners in my Flow trades by looking at the visual charts I created for that setup.

The irony is that we haven’t really changed much of the logic of the original strategies. The math behind the set up remains pretty much the same, but the ability to contextualize it visually has not only helped us see the trades faster but also choose them much better.

I am very excited about this project and feel that for the first time in ages we have a true edge on the machines. Next week we will be doing a free webinar about this project of ours so stay tuned. I think you’ll find it very interesting.

CADJPY – A Turn for the Making?

CADJPY – A Turn for the Making?

Chart Of The Day

No pair has been more beaten up by tariff talk than CADJPY. The cross got it from both sides as it suffered declines from risk aversion flows and from the idiosyncratic risk facing Canada which on the sharp end of the stick in both Nafta negotiations and general global tariff threats.

Today, however, was the first bright day for the pair in days as Trump’s tariff threats are universally opposed by those within his own party as well trading partners from abroad. Although its too early to tell, Trump may indeed back off or water down his initial proposals which will provide further relief to the market and to the cross.

Tomorrow the market will also hear from BOC, and while no one expects the central bank to raise rates, there is little evidence for BOC to be overtly dovish as growth up North remains positive and further policy tightening will have to come. So if BOC simply stays neutral and tariff threat begins to fade, CADJPY has a chance to recover further.

STOP the INSANITY! Making My Trades Less Stupid.

Boris Schlossberg

If you trade long enough you know that it’s not the bad trades that hurt you – it’s the stupid ones that always knock you out. This is especially so in day trading where the opportunity for truly boneheaded moves is available on a constant basis.

Tell me if this ever happened to you. You see a setup, but you are late to the chart. Maybe you were off the desk for coffee or someone IMed you and you had your eyes off the ball or you just hesitated to pull the trigger. Trading is timing and day-trading is the Swiss watch precision of timing. But you shrug off the feeling and plow into the trade anyway and like a weak tennis player that is wrong-footed you are almost always stopped out.

How about this. You see the setup forming. It right there, but not quite, According to your valuation model its a bit too early, but you can’t wait. You. Need. To. Be. In. That. Trade. Again like a tennis player that lunges too early and misjudges the ball, you get into the trade only to see it stop you out, and then reverse and hit your take profit.

Now, those are common mistakes, that all of us make. But what happens afterward – at least with me, and perhaps with you – is the true pinnacle of stupidity. Angered at the idea of an unforced error you double up and try to smack market right back. Of course, the market smacks you. Once. Twice. Sometimes even three times before you come to your senses and stop shoveling money into revenge trades. Now that is truly stupid and yet I do it all the time. So, here are my thoughts from the school of hard knocks on how to stop the insanity.

1. Define BEST. In the calm of the Asian session, after the day to day combat has ceased, mentally replay every trade you made. Go back to the charts and FORCE yourself to see what worked and what didn’t. Very quickly you will see the common properties of all your winners. Now slow it down and write out step by step what happened in each winning setup. Look at that list. Circle it. And then start each day writing out by hand. Yeah I know that sounds stupid, but that is the only way you will absorb the knowledge, Typing does not work. Memorizing does not work. Only writing out by hand will help you correct your behavior.

2. Separate all trades into BEST and REST. No ambiguity. No subtlety. No gradations. It’s either best or rest. In the heat of the trading day, we don’t have the luxury to be nuanced. As human beings, we are naturally binary animals. So play to your instincts. Now here comes the most important part. Trade REST at one-fifth the size of the BEST trades. That means if your normal size is 50,000 units, trade REST setups at 10000 units. (I am assuming that in case of day trading all your setups have the same stop and take profit criteria.) Note I am not telling you to not take garbage trades. You will do it. I will do it. Everyone who trades will do it. I am just telling you to take garbage size. In trading there are only three ways to avoid bad losses – you can wait it out. You can widen out and average out or you can stop out small. The first two choices will always lead to blow out. The third is the only pragmatic solution to trading.

3. Never trade without a ROBOT. I never let an EA select my trades, but I always let an EA manage them. This does two things. It always protects my risk once I am ahead on the trade and it gives me the peace of mind to hold the trade completion. As I’ve said many times before, trailing trades is the least efficient way of trading except for all others. But here is where all of us get into trouble. How many times have you been away from the desk, take a look at your phone, see a setup and jump right in using the MT4 app. Don’t do it. Almost every major blow up I’ve ever had, started exactly that way. You are basically trading manually which almost always results in adding to the positions until the size swells and the losses mount into the thousands of dollars. Want a better way to trade by mobile? Put Microsoft Remote Desktop on your smartphone. Configure your VPS and place every trade via a Robot. This way risk will never get away from you.

4. Never add money to your account. (This assumes you haven’t blown up, in which case by all means) This is actually a great piece of advice from Marty Schwartz – an old 1980’s trader who wrote one of the best books on the subject. Marty believed that you never increased the size until you could recoup and then double your capital. This forced you to focus on your setup and hone it mercilessly until you had the skill to trade larger. Remember the only thing greater than winning is coming back from losing.

5. Love your losses. If you took the BEST trade and it stopped out that not only natural but good. The best day trading systems are only 70%-80% accurate. That means every day at least 2 out of 10 of your best trades will be losers. Expect them. Accept them and know that control is the biggest trading skill of all.

Making Pips is not Like Making Donuts

Boris Schlossberg

Trading is a very tough challenge because the relationship between effort and success is almost non-existent. You can do almost everything right and lose or you can do everything wrong and win. While luck plays a role in almost all human endeavors ( you just need to see last week’s American football matches to see how a random bounce made all the difference) in trading the variance is far greater than in any other field.

There is absolutely no way, for example, that a pudgy 5 foot 6 teenager with coke bottle glasses could walk on a professional football field (be it American football or soccer ) and score. Yet in trading, that very same novice who knows nothing about finance or markets could easily beat the pros, at least for a little while.

Part of the reason why this is possible is simply the unpredictable nature of news. At any given time newflow can flip price action completely around. This does not happen in the real world where 99.9% of the newsflow has no impact on price whatsoever. Imagine if your donut businesses were affected by every new Trump tweet, and you get the idea of why trading is very different from making donuts.

Precisely because trading is so arbitrary you need to create a system of control that is ironclad. We can’t control price, but here are some of the things that we can control and should.

  1. Control size. Of all things that get traders in trouble, size is the biggest problem. Trading 0.01 lots for as long you need is still the best trading advice there is. Trading 1X equity max is a close second.
  2. Control entry. We can control exits, but we can always control entries by either letting price come to us or waiting til price touches a key point of momentum.
  3. Control how we exit. We can’t know where the market will take us, but we can control the trade once it’s in the money by using a dynamic stop. This a terrible method mathematically, but the best method physiologically and since trading is as much about keeping your psyche sound as it is about keeping your account positive controlling how you exit is the only way to control yourself.
  4. Control your approach. What makes you trade better – defined strategy or discretionary trading? Discover your inner truth and you will be much more successful at controlling the game.

Keeping Stupid at Bay – Making Trading Decisions That Matter.

Boris Schlossberg

There is a common and all too painfully true cliche that most Americans spend more time planning their vacations than their retirement. We simply focus on the wrong things and then wonder how did we screw up our life so badly.

Yesterday, I had my own vacation-to- retirement moment and it slapped me into stone cold sober into a becoming a much more serious trader.

Every Wednesday I have to pull myself from the desk to run over to 30 Rock to do a couple of hours of hits for CNBC. I always take the subway, because no real New Yorker would be dumb enough to get caught in midtown traffic. But NYC subway has been a disaster lately. The system is a victim of its own success as ridership is at all time highs, while capital spending has lagged for a decade. This results in track fires, train delays and produces a never ending cat and mouse game between commuters and the system.

Although, I am only 20 minutes away from the studio the trip can take an hour because I have to time the trains, brave the tourists and get through NBC security. I’ve developed all sorts of shortcuts from using the MTA app, to following the employee paths around the former Time-Life buildings in order to avoid the sidewalk hogging tourists, to getting to know all the NBC security personnel by name so I can jump the line every time I am there. All of these elaborate logistics are in place because I CANNOT AFFORD TO FAIL. I can’t be late to the studio because we shoot live. In ten years of doing this, I only missed one hit when the subway train just stopped dead in its tracks and trapped me. If this was trading you could say I’ve only had one losing trade.

But here is the interesting thing.

Yesterday I realized that I actually spend more time and care on my weekly trip to 30 Rock than I do on my trading plan and I bet many of you are guilty of the same crime.

Ask yourself a simple question.
Why am I in this trade right now?

Because price was running and I wanted to get in.
Because the markets haven’t moved for hours and I am bored.
Because I just lost money and I want it back
Because I am right.

If you answered yes to any of those questions – you are not trading to plan. None of those answers are in any legitimate trading plan ever. Worse, even if you answered no to all those questions, but still took a trade that sort of, kind of, close to your setup – you are still not trading to plan.

The only way to trade to plan is
Of your strategy
Sets up.

So if you want to start taking your trading more seriously than your commute make sure you answer these three simple questions every time before you hit send.

What is my opening trade size? I trade at 1X leverage – never more. That alone has saved me from a whole lot of stupid because no matter how many rules I broke I could only do so much damage to my account. Conversely, if you trade with high leverage and do 99% of things right you can still lose all your money when the market forces a margin call.
What are my trading rules and is THIS trade I am about to take meeting each and every of them? If the answer is no – then you are not trading – you are goofing off.
What is my maximum loss in actual, real dollars (or pounds, or yen or francs)? Percentage means nothing. It’s an abstract mathematical concept that you will quickly ignore at the first sign of heat in the market. But tell yourself – I WILL NOT LOSE MORE THAT $500 on any given TRADE EVER – and see how much more effective your risk control will become. Money is real. Percent is not.

That’s it. Just those three simple questions will separate you from the vast majority of your fellow traders you will start making real business decisions that matter.

What I Learned From Making 10,000 Trades in The Currency Market

Boris Schlossberg

A few years back Malcolm Gladwell wrote a book called Outliers which became an instant bestseller forever etching the value of the 10,000 hour rule in our social consciousness. In the book Gladwell stated that practice far more than talent was responsible for a person’s success and that to achieve mastery in any field it was necessary to practice the skill for at least 10,000 hours.

The 10,000 hour rule has since been proven to be bunk (sorry talent and luck really do matter more), but it’s easy to see how in our Puritan work ethic society the concept took a life of its own. In any case practicing something for 10,000 hours certainly doesn’t hurt and does in fact make you at least proficient in your field of study so Gladwell was on to something.

The other day I realized that I had completed approximately my 10,000th trade since I started in the FX business, so I thought it may be worthwhile to see what if anything I learned from the experience. I can’t say I’ve discovered the secret to a perpetually rising equity curve or that I have learned how to fully master all of me demons, but after so many trades there are a few tricks of the game that I think are worth knowing.

First and foremost most people will ask – do I really need to do 10,000 trades to learn how to day trade? The answer is yes. It’s not that 10,000 trades will give you the magic answer to how to master the markets, it’s more that after 10,000 trades you will learn just about every way you can possibly fail which is a value in and of itself.

The most common trading mistake – and one that I still make to this day ( though far less frequently) – is moving your stop. The Murphy’s Law of Life and Trading is that no matter how far or how frequently you move your stop, the market will always rise or fall just to the point of taking you out and will then snap back in your direction. You may escape the market’s sting once or twice or even three times, but in the end the stop will always get you and usually at the worst possible moment and at the biggest possible cost to your equity.

That’s why if you are daytrading and losing it is always better to stop out and get back in with bigger size that to continue adding to your position in hope of a turnaround. Stopping and starting may not feel good and may not even turn out to be profitable – but trust – me it will be far less un-profitable than adding to a trade.

After years and years of trading I have narrowed my stop down to just 25 pips. If you stick to that level it’s amazing how well you can survive in the market long enough to maybe even become profitable.

The next common mistake is that most traders start out way too large and get even larger if they add to the position. My starting trade is never more than one times my equity and I never scale up to more than four times equity at any given time. That means my biggest loss should never be more than 1% (25 pipsX4). Again, you can do a lot of foolish trades at 1% max and still live to fight another day.

Lastly, the key to winning as a daytrader does not lie in your ability to forecast direction (in fact the less you think about direction the better) but in your ability to maintain proper market posture. That means you let the market come to you rather than chasing it like a dog.

I am old enough to have survived the 1987 stock market crash and what almost no one remembers about that day is that it was the single biggest stock market rally in the history of S&P. A little after noon that day stocks stabilized and started to stage one the most vicious momentum rallies ever. If you had gotten long at that time and let it run until about 2PM New York time the gain was more than 10%. In daytrading it’s not important if you are long or short. The only thing that really matters is the quality of your entries. The better your entry, the better your trade.

Which is why after 10,000 trades in the market I still spend all of my time researching and trying to improve my entries. It’s not glamorous, it’s not thrilling but it’s what works. Every thousand new trades I get better.

EUR/GBP – Making a Bottom?

EUR/GBP – Making a Bottom?

Chart Of The Day

The euro’s woes are well know. The pair has been beaten up so badly that everyone is convinced that it can only go one way – down. And such sentiment usually results in some very nasty squeezes especially with all the bad news essentially priced in. On the other hand the market remains far too trusting of the BOE incessant rhetoric that rate hikes are just around the corner. UK Data has been in a slowdown since Q3 of last year and wage growth is stagnant. Therefore the chance of any monetary policy normalization this year is minimal. That makes pound vulnerable to a further selloff while euro stabilizes and suggests that near term bottom in EUR/GBP may have been put in.

Technically the 7400 level is the key support in cable and as long as it holds the pair should consolidate with an upward move towards the 7600 figure. A break of 7400 however would be very bearish and would open up the prospect of a move towards 7200.

EUR/GBP – Making a Bottom?

EUR/GBP – Making a Bottom?

Chart Of The Day


For most of this year the EUR/GBP trade has been a one way bet to the downside. That wasn’t surprising given the fact that UK economy was booming while EZ growth was anemic and investors bet big on the interest rate differential gap between the two currencies. However, the latest data suggests that any possible rate hike from the BoE may be a long time coming as inflation is actually declining rather than increasing. This has led to a significant bottom in EUR/GBP and the start of the possible short covering rally as traders begin to adjust their positions. Tonight the market will get a look at the latest BoE minutes and if the comments form UK monetary authorities suggest that caution reigns cable could see another round of selloffs and push towards the key 1.6500 level sending EUR/GBP through 8050 as the bottom in the pair forms.


EUR/GBP has formed a strong bottom at the 7900 level that has consolidated for more than several weeks suggesting that the pair may be ready to turn and break out above the 8050 level with a possible short covering target of 8200. Only a break of 7900 reestablished the bearish trend.

EUR/AUD – Making a Bottom at 1.4600?

EUR/AUD – Making a Bottom at 1.4600?

Chart Of The Day

EUR/AUD – Making a Bottom at 1.4600?


For the past month EUR/AUD has consolidated just above the 1.4600 level after falling hard from the 1.5800 at the start of the year. The euro has remained remarkably resilient as the market continues to doubt that the ECB will do anything further to accommodate monetary policy despite the fact that the region is in danger of tipping into deflation. However if this week’s economic data which includes the very important EZ flash PMI readings comes in weak, then the pressure on the ECB to act will increase exponentially. On the other hand if the data shows some improvement the news could spark a strong short covering rally and push the pair to 1.4000 and sweep EUR/AUD higher along with it. In Australia meanwhile the coming release of Chinese Manufacturing PMI could put further downward pressure on the Aussie and could add to the EUR/AUD rebound.


Technically EUR/AUD has built a strong base near the 1.4600 level and the pair has now built support for a move towards the 1.5000 target. However if the 1.4600 support does not hold it could open a fresh downleg with a possible longer term target of 1.4000.