Become a Profitable Trader Faster with Positive Feedback Loops // Ep. 13

In This Episode

• The loop that many unsuccessful traders get stuck in
• 3 ways to get more feedback, even if you trade longer timeframes
• How to rate your trades to get instant feedback

Speed Up Your Learning by Using Feedback Loops in Trading

Let's talk feedback loops. They are one of the most important ways to improve your trading skills quickly.

In this episode, we talk about the negative feedback loop that most traders get trapped in. Then we talk about how to get out of that loop.

We also give you more tips on how to speed up your learning by implementing fast-feedback tools.

Remember, it's all about failing faster…and learning from it.

Read the Transcript:

Hugh: I thought we could talk about feedback loops. Like positive feedback loops and creating rapid feedback loops to improve yourself faster.

Walter: From my point of view, the lower the time frame you're trading, obviously the faster you're getting feedback on your trade decisions. But beyond that, one of the tricky things about trading I think, is getting stuck in the improvement idea because there's the element of chance.

We can't really account for the random nature of our sequence of wins and losses. We can anticipate losing streaks: the worst type of losing streak; the typical losing streak; the biggest sort of win streak, we can use that to change the way that you manage risk and stuff.

If you want to get really sophisticated but the other thing is, there's a real temptation to ascribe responsibility for a given trade's outcome to the elements of your system and then have to go back and re-jig it. So that's one thing that's really critical.

The two takeaways for me would be, if you're trading lower time frames the good thing is, if you can do that, you will get almost instant feedback. If you're trading the five-minute; three-minute; two-minute charts, you're going to get this feedback really quickly. Which is great but there's a real temptation for us to tinker with things.

If you think about it, when the Wright brothers came up with the airplane, the one that they got off the ground, lots of people around the world were trying to get off the ground.

Hugh: Hey there! I hope you find this episode useful. I just want to let you know that Walter and I give away something valuable every month that helps traders improve their skills. You can enter to win by simply leaving an iTunes review and leaving a comment on our YouTube videos.

At the end of each month, we'll look at the comments and reviews from the month and we'll pick a winner at random. Each comment and each review counts for one entry during the month that it's pitted.

So, if you're interested in that, be sure to enter after this podcast is over. Alright, back to the episode.

Walter: Interesting fact. Did you know that Harry Houdini, the magician was the first guy to fly in Australia?

Hugh: Yeah, I heard about that.

Walter: He packed all this stuff and brought it down to Australia but anyway, the airplane that the Wright brothers created, as a species we don't just go, “Oh, we got it. We got an airplane and we're good to go.” We don't do that. We are always kind of like making it faster, better, more comfortable, more efficient. That's how we're wired.

We are engineers by birth really. You can watch even little kids when they build a sand castle or something. They're just always trying to figure, “Okay, will this collapse so I'll do that”. It is in our nature.

So I think for trading that can be a bit of a slippery slope. I'm always kind of guarding people against that. You want to account for hindsight bias, a good way to do that is with your journal.

In your journal, you can write down how well you think this trade is going to work out. On a scale of one to ten or one to five. I think it’s a five, it is brilliant. This is great. One to five, this is a five. This is a winner and then you can go back and see if your intuition really works.

You can go back and when you exit your trades, go back and look at your exits. How well did you sit with your rules or did you change things up? So that's a really good way to incorporate that especially if you are using higher time frames like I am.

Your trades kind of take like, why did I take this trade again? You need to have a good record. What are your thoughts on using feedback or how feedback interacts with trading?

Hugh: That's a really good point you made about trying to tweak things. I think people buy courses or they have forums and then they always want to tweak them. So that's a good point.

I would add to that I think it's important especially if you're trading the higher time frames. Like you said, if you're trading a five-minute, you get a lot of feedback and you get instant feedback loops basically.

If you have a higher time frame, figure out ways to create that same sort of repetition but you’re not doing it necessarily in the live market. So you could do Forex Tester. Do some back testing. Just practice your setups. You could look at your old journal entries and take a look at the winners versus the losers.

Focus on the losers and see what you're looking for and then at the end of the week, you can also take a look at the trades that you may have missed. Like you said that could suffer from hindsight bias but that can also give you repetitions that will allow you to improve faster.

Walter: That's great and the screenshots too. If you have a screenshot before like at entry and a screenshot of exit. You can have a screenshot of what you consider to be a perfect setup. Compare that to the one that you're about to take. Make sure is this, am I seeing a similar thing here or is this very different?

As a pattern trader, that became really important for me. To make sure that I knew that I was trading the pattern and what I saw and not what I thought. The more you get into news and stuff — I love FxStreet. FxStreet is awesome. They're awesome but — spending too much time on there and reading about what other people think about the markets to me, that's bad.

It's the same with any business newspaper or any business website like any economic related thing. You can really get stuck to the point where you're blind to one side. You just buy only or sell only. So it's really tricky.

Hugh: Okay, cool. Thanks, Walter.

Walter: Thanks.

Hugh: All the information in this podcast is for educational and informational purposes only and is not trading or investment advice.

Enter the Monthly Contest

We give away a trading prize every month, so be sure to enter to win.

You can win by doing one or more of the following:

• Leave a comment on YouTube
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Each action counts for one entry in the month that it was posted. We will pick a winner at random from the entries that month.

The giveaways can include books, coaching sessions, trading tools, or surprise gifts.

It will usually be something that will help you improve your trading psychology. 

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