Thursday, September 29, 2011

Recap: $AUDUSD stopped out

When I entered the $AUDUSD short yesterday morning, I thought that I would be in this one for the long haul.  But all good things come to an end, some more quickly than others. 

Reasons for being stopped out
I was stopped out just above .9800, giving me a profit of a little over 100 bips.  The stop was brought down based on a clear indication that several key resistance levels were broken:
  1. The downtrend line on the 15 minute chart
  2. The resistance line at .9775 where the last key breakdown took place
  3. The .9800 whole number level where another breakdown previously took place
AUDUSD 15m 09-29-2011
What did I learn?
At this point in my development as a trader, one important aspect of each trade is whether I learned something.  As I was reviewing this trade last night as it was still trending lower, I realized that .9700 was a key support level for at least 2 reasons:
  1. On a 30 or 60 minute chart, it's clear to see that there were many tests of the .9700 level,  each resulting in a rejection.  The clues left behind were the lower wicks (bullish signs).
  2. Looking at the 2 swings prior to my entry, the .9700 level was a near perfect Fibonacci extension
AUDUSD 60m 09-29-2011
Next time...
In the future, I'll have to consider taking profits, or at least partial profits at those key levels caused by a confluence of factors.  But overall, I felt the execution on this trade went relatively well.

Wednesday, September 28, 2011

Charts: $AUDUSD short

Meanwhile, as my equity day trading hits a bump in the road, I continue to be able to wait for decent setups on the 15 minute forex charts.  I was stopped out of a $AUDUSD short trade I initiated last night for about 30 bips, but a decent short setup appeared this morning which I'm still short, and has gotten as much as 180 bips in the money.

Well, that didn't work...

As I wrote yesterday, one thought I had was to start the day with the mindset of being in full recovery mode. In other words, don't wait half a day until I had a loss to start scrambling, start immediately!  So I tried it today.

Well, it didn't work.

As luck would have it, after being up maybe 2R or so after a few trades, I decided to go right to TZA and take it up several notches.  But perhaps due to being out of sync, as well as having to deal with choppy markets, and of course having some bad luck (getting stopped out multiple times by just 1 tick, only to see the trade work well), my plan didn't work.  I dug myself into another deep hole.

After hitting the losing streak, there were instances when my open positions showed that I was breakeven or even positive for the day, but a buy program would trigger and knock me out of my short positions or else reduce profits significantly, or [insert another excuse here].

Elements of revenge trading kicked in, which then led me into other poor entries, which led to more small losses, which then let me into even more desperation entries.  In other words...I could see a death spiral forming.  Time to blow the whistle, call time out!

Now that my portfolio is back close to the "I've blown up my account" levels, it's time to step back, regroup, and reevaluate my overall strategy once again.  I can definitely see how this day could have been quite a profitable day, but there were many actions I took that didn't support that outcome.

My scheduled time off starting now is timely, so we'll see how my mind processes all of this over the next few days to figure out my next steps.

Tuesday, September 27, 2011

My recent performance

Yesterday, I had limited number of trades and ended the day with a small profit.  The typical pattern took place:
  • Started the day with a few small profitable trades
  • Became more conservative and backed off for the rest of the day
  • Ended the day with a small profit of about 1%
Today, the market was mostly choppy this morning, and even as I told myself not to get involved in the chopfest, I patiently waited and took what I thought was a decent trade, which then opened the floodgate into many many more small choppy losses in a row.  Discipline failed.

So once again, the typical "dig myself out of a hole" pattern took place:
  • Started the day with a loss, which then accelerated into many small losses.  It was a chopfest in the morning
  • My usual setups weren't developing
  • My portfolio was down as much as -5.5% for the day.  Started to approach my "blow-up my account" levels
  • Market started to pick up a bit in the afternoon, and I needed a comeback, so I decided to scalp TZA
  • Scrambled my way back to a -2.5% loss for the day
  • Didn't get to the usual breakeven this time, but I wasn't as in tune with the market today
Attitude Trader left a great comment under the prior post with a link to something Don Miller wrote regarding putting himself into the "comeback mode."  Don said he visualizes the following chart so that he always feel as though he just suffered a "devastating loss" and needs to refocus for a big comeback:
Once again, this brings up a question I have to seriously consider -- more often than not, I seem to be able to consistently scramble my way out of relatively considerable losses, so why don't I just trade this way all the time?  Am I fooling myself trying to follow a certain trading methodology that I may not be "wired" to follow?

My trading week will be winding down starting tomorrow due to family visiting, so these topics will be food for thought for my mind to digest as I spend some time away from the markets.

Practical Application of Dr. Brett's books

There was a post I read somewhere recently that said a beginning trader prioritizes the components of trading in the following order:

1) The system / methodology
2) Money management / risk management
3) Psychology / mental game

However, the experienced and successful trader ranks importance in the following manner:

1) Psychology / mental game
2) Money management / risk management
3) The system / methodology

Unfortunately, I can't properly attribute and give credit to the source, but I totally understand the flip-flop of importance from the experienced trader's perspective (can't say "successful trader" yet).

So in the coming weeks, one area of focus will be to put the work of Dr. Brett into practical application to improve mental game.  There are a lot of great examples and exercises in his books, but it's one thing to read about theory and another to put it into actual use.

I will give it my absolute best efforts, discuss what I'm doing here, and then track to see how it impacts my P&L over time -- the ultimate scorecard.

Sunday, September 25, 2011

Weekly recap: Limited trading, but still gained insights

I had limited trading last week due to a family visit, and it will once again be somewhat limited due to more visits later this week.  However, I was able to get in some trades, still had minor bouts of overtrading, made about 1% gain for the week risking only about 15-20 basis per trade, and here are some other observations I made along the way.
  • In some ways, the ability to have limited time to trade kept me focused.  The more time I spend in front of the screen, the more likely I am to overtrade.  The state of my mind changes, likely due to impatience, fatigue, etc., but even more so if my first couple trades are losses.  I might need to take breaks that are longer to help calm the mind.
  • Even with limiting my trading time, it seems as though my usual pattern of starting with losses, then having to dig myself out of a hole still help true.  I'll need to find a way to break that pattern of starting off with losses.
  • On those "rare" occasions when I start off the day with a few wins, I seem to become more complacent and passive, looking to protect my gains, and therefore limiting my upside potential.  Quite the opposite of when I'm trying to dig myself out of the hole.
  • What I believe I need to do is to have a similar mindset as I do when I'm digging myself out of the loss.  However, I need to be careful -- What I don't know is whether it is the markets that are cooperating with my methods to create these big recoveries (i.e. lucky coincidence), or whether it's my mindset that truly changes and becomes more focused but yet aggressive when I'm underwater. 
During this period of limited time, I'm still continuing to read (and re-read) from Dr. Brett's books to consider how to implement new exercises and drills to enhance my strengths, and improve my self-discipline.  I'm amazed how every page seems to be packed so many great insights.  If only his books were available 20 years ago, I wonder what type of person (and trader) I would be today.

* * * * *
Here are a couple trades from last week:  One that was almost a classic Trader-X beyond the opening range low style setup, and another that is a forex swing.

FCX 5m sell below 7th bar - I wouldn't rate this setup too much more than a "B", since there were some choppy/wicky bars in the opening range, and the setup took place above the S2 pivot level.  But there was something about this trade that seemed compelling.

FCX 5m 09/21/2011
The first 3 bars created both a "fill in the tail" and descending triangle type of short setup, although it didn't look good enough to take.  But after the fakeout breakdown, it pulled back up, bounced of the vwap, and created a green shooting star bar.

I don't usually like to short on green bars, but this one looked compelling enough since it had the opening range low [btorl], a vwap line bounce [vlb], and descending 5ema all aligning together.  Perhaps the only negative was the S2 pivot level which was below the price action.

I exited the first 1/2 on the break of the 161.8% Fib extension, and then exited from remaining 1/2 when it approached the FE which was also aligned closely with the S2 support.

AUDUSD - I missed the big daily chart move down on this pair, but believe there might still be some more room to the downside.  Friday was a relatively choppy, narrow, and indecisive day.  But based on the trendline of the highs on a 15 min chart going back a couple days as noted below, I shorted this pair after it made a new low, and retraced back to the descending trendline, and broke below the prior 15 minute bar, at .9803.  My current stop is just above .9850 (yellow dashed line).

However, it didn't follow through to the downside, broke the descending trendline, and went sideways.  Last Friday, I exited my short position and regretted it.  This week, we'll see how things are looking in a few hours once the forex opens.
AUDUSD 15m 09/23/2011

Tuesday, September 20, 2011

Timeout from my timeout: With charts of $CVH, $POT, $REXX

Although I'm technically on my timeout due to reasons stated earlier, it's actually due more to the fact that I have family visiting this week.  However, I can't help but continue to take a peek to see what's going on in the markets (i.e. seeing what I may have missed).  Taking time away from the markets has been liberating in many ways, and I've noticed that it has given me the ability to see setups more clearly.  Letting your brain rest is a good thing.

Recalling the college years, staying up late into the night cramming for tests just does not work well for most -- there's definitely a point of diminishing return  -- and I believe I'm experiencing the same with trading except on a longer time horizon.  This might be a sign that I need to stop trying to drink from the fire hose and pace myself better to prevent burnout.  Trying to balance my family duties which accounts for a solid 7 hours a day, along with trading which I try and dedicate at least the 8-9 hours a day, and finally sleep which I try and hopefully get 6-7 hours, leaves very little time physically and especially mentally for much else. 

But for the past couple decades, my fascination and passion for the markets has always remained, so there's no use in trying to repress it.  Time to continue marching forward, working on getting a little better and better, day by day.  Steady progression.

* * * * *
Some interesting charts from today (9/20):

CVH - 5min had what I call a "3 bar reversal" [3br] triggered on bar 9.  This type of reversal pattern is usually good for a scalp and possibly a decent move, as was the case with CVH.

CVH 5m 9/20/2011
 POT - 5min/2min had a couple good short entries:
1) Short triggered below 12:25 red shooting star after a "VWAP line cross over 5ema" [vlco] took place.
2) Short triggered on break below narrow 14:15 bar, which was a pullback up to the opening range low. 

POT 5m 9/20/2011
REXX - 5min/2min - "VWAP LineBounce" [vlb] long setup on 12:45 bar.
REXX 5m 9/20/2011
* * * * *
I've missed out on some good setups.  But overall, the markets also look a bit neurotic, so maybe I'm not missing too much.  OK, it's time to go back to my timeout.

Monday, September 19, 2011

Update: $AUDUSD closed on Friday

The $AUDUSD short trade that started on 9/9/2011 was closed out on Friday, 9/16.  The stop above the highs of the prior 2 daily highs was hit, and it ended up with a little over 70 pips profit.  It was well over 200 pips profitable at one point, but I wanted to give this one room to breath (unlike my daytrades where I usually close them out too soon).  And as Murphy's Law would have it, the pair opened with a nice gap down last night, and I also missed a clean short entry earlier this morning.
$AUDUSD 15min 9/19/2011
$EURUSD short was another trade I entered on Friday, based primarily on the daily charts.  It looked like a great opportunity to short based on a pullback to the point of breakdown from the prior week...
$EURUSD daily 9/19/2011 there looked to be a good spot on the 15 minute chart to enter.
$EURUSD 15min 9/19/2011
However, I got in a little too early, took some heat, and then the price action consolidated the rest of the day around my entry price.  It broke above the prior swing high that lead to the swing low prior to my entry, as well as the 100 ema, so I was no longer as confident of this setup.

And then my mind, I decided it was good to take a timeout this weekend, be in all cash, so I scratched the trade with a small profit.  As with the AUDUSD trade, Murphy's Law took effect, and the pair opened with a nice gap down last night.

Here's something I need to consider - I appear to be reading and executing better on a 15 minute level, using much wider stops.  I believe this method could could also work on stocks, but I've always tried to segregate the two asset classes apart.  Being able to get out easily overnight in the forex also gives me some comfort to hold on.  So perhaps I need to better integrate what works in each and work to enhance those strengths in my overall trading.

* * * * *
It also turned out that I ended up having family visiting this week, so this timeout I took looks to be timely.  In terms of priority, family will always take priority over trading, so my activity will likely be quite light this week.  After having quite a mentally intensive past few months, I'm looking forward to this brief rest before I take things to the next level starting next week.

Friday, September 16, 2011

Knowing when to call a "Time Out"

As I start approaching the 6 month mark as a developing day trader, I've noticed a disturbing pattern on the majority of my trading days over the past couple weeks:
  • My intraday P&L curve looks like a "V"
  • Down significantly (up to -4%) the first half of the day, and then a fight back to breakeven the second half of the day
  • The second half of the day consists of mostly solid trades with high volume scalping (usually net breakeven or slightly profitable)
  • Due to high volume of trades, ALL of my losses over the past 2 weeks are due to commissions (on a gross basis, I am profitable, but that means little)
  • I'm mentally exhausted from the psychological battle of having to dig myself out of the loss, as well as trading of the wicked action of TZA & TNA (although I'm getting somewhat used to it)

And then I tried to do "The Opposite"
Yesterday, I had another "V" day.  But once I got back to breakeven, instead of being smart and quitting like I did the other days, I decided to have a George Costanza day and do "The Opposite."  After telling myself I was done for the day, I decided my goal was to not stop at breakeven, but to keep going to make it decent profitable day. 

The result of doing "The Opposite"
Needless to say, yesterday ended up being a "\/\" shaped day.   Unfortunately, George's theory didn't work for me.  I'm "only" down about 4% for this week, once again, all due to commissions.  And I'm not yet at my "I've blown up my account" level, although I'm always close to that level by choice during my training.

But I feel terrible.  It's not due to the relative or absolute loss on my portfolio, but it's because I realize I've lost control of my actions.  It's mostly from taking rogue (non-strategy) and revenge (stopped by one tick, I'll get back in) type trades resulting in overtrading (surprise!).  It's the feeling you get when you're at the slot machine, mindlessly pushing the buttons over and over and over again, hoping for something good to happen. 

This type of behavior negates and trivializes the countless hours of researching I've done on what works for me and what doesn't.  It's so clear that I have the ability to see and take good setups that have positive expectancy.  Then again, it's also very clear that I have the ability to take absolutely terrible setups.  That part needs to stop.

Slow down, knowing when to call a time out
Like I have in the past when I run into these periods, I need to slow down.  I will stop trading for the next few trading days in order to have the time to evaluate my recent actions in great detail, and then work on my plan to improve self-control. 

When Phil Jackson was coaching the Lakers, he wouldn't take a time out as frequently as other coaches when his team played poorly.  He let them play through their challenges -- unless things got really bad.

I had some warning signs in the past week, but I played through.  But now I realize it's time to call a time out and be proactive before I hit my "I've blown up my account...again" level.

Every trader faces this challenge
The challenge I face is nothing new for any level of trader.  I've run across countless tweets, posts, and books about how waiting for your setup and being able to NOT trade is one of the biggest struggles imaginable.  In many ways, I believe they (and I) write about this all too important trading axiom to help them reinforce it in their own minds.

Doing nothing goes against the human nature of taking action to "fix" your problems and mistakes.  What's perceived to be initiative and decisive action in the corporate and political world can most certainly be ruinous to a trader.

On the bright side
During all of those "V" days, if I had totally avoided the first half of the day when my trades lost, and only traded the second half of the day that was profitable, I'd be having one of my most impressive weeks.  I would have gained 2-4% returns a day on my portfolio, risking only 0.30% per trade.

So it's time to hunker down and learn to stop taking sub-par setups.  Easier said than done, but I'm confident I will get there.

Tuesday, September 13, 2011

Recap: $ITMN and $AUDUSD

In a day where I got chopped silly by a thousand paper cuts and had to reference my Dr. Brett books and website for comfort and assistance to rebuild my psyche and sanity, at least there were some trades that worked.  I was able to take what I consider a "very ugly" loss and cut it in half to just an "ugly loss."

So yes, I did end up taking some nice profitable trades, so I should feel a touch positive for the accomplishment of partially cleaning up my big mess. But in the future, days with big messes caused by undisciplined trades will be a non-occurrence.

* * * * *

ITMN - 5min - vlb setup.  Sold short around 11:15 due to the vwap line bounce [vlb] which also corresponded with resistance from the Retracement Zone (RZ).  Held on through a choppy ride down, missed exiting at the FE target ($0.25 opportunity cost), and got out on the first pullback after the downward trendline broke.

There was also a "vlco pinch" setup later in the day, which is when the rising (or falling) 5ema pushes up (or down) against the vwap line, and pinches it to breakout.  With the pivot point level also acting in conjunction as resistance, I was hoping that this was the start of a big reversal.  But the price action stalled right at the RZ and I got out at breakeven.
ITMN - 5min - 09/13/2011
AUDUSD - Update: Still short, although I had little scare earlier this evening when the price approached the 9/13 highs of the day.  My stop has been lowered to slightly above the highs of 9/13, so the price got about 15 pips from getting triggered.  In hindsight, that spot was a great place to add on for a low risk/reward trade.  I've locked in some profits, and now it's time to sleep.  We'll see how this turns out tomorrow morning.  Good night!
AUDUSD - 15 min - 09/13/2011

Be water, wait, and then take action like this guy!

"Empty your mind, be formless, shapeless - like water. Now you put water into a cup, it becomes the cup, you put water into a bottle, it becomes the bottle, you put it in a teapot, it becomes the teapot. Now water can flow or it can crash. Be water, my friend."
Bruce Lee
Most are very familiar with with Bruce Lee quote about "be water, my friend."  It has been the subject of countless discussions in various fields, including brokerage commercials, and yes, trading.  It's still as powerful and meaningful today as it was when he spoke about it over 40 years ago.

I ran across this interpretation -- from the fighting perspective
"If you practise wing chun, you know exactly what he means. Do not use force to fight force, just be like water and flow your punch into the opponent."

My interpretation -- from the trading perspective
Be patient and wait for market to come to you.  In other words, don't force your trades.  Go with the flow of the market and only when the markets evolve into the shape that plays to your strengths, take swift and definitive action.

Speaking of swift and decisive action...
Imagine having a small pellet shot from a BB gun approaching you at 200 mph.  This person is able to draw his samurai sword and cut the small pellet as it approached him.  Makes you wonder how much focus and concentration it takes to do something like this.  And I just wonder how many takes it took to get this shot...I'd be very impressed if this was the first take!

* * * * *
After a solid trading day yesterday, I participated in a big chopfest today and got cut up bad.  Recovered about half my losses, but still, it's obvious I didn't read the memo above regarding waiting for your setup.  All in all, between yesterday and today, my absolute losses this week is not that bad.

But that's not the point.

This is clear evidence that after a good trading day, I let my discipline down.  I got sloppy.  And this is unacceptable.  This will require further evaluation to determine how I'm going to avoid this type of behavior in the future.

Sunday, September 11, 2011

$AUDUSD - new entry on 9/9/11

After getting stopped out of the EURCHF trade last week based on a maybe-once-in-a-lifetime type of move, I saw the AUDUSD daily charts setup on Friday with an interesting pattern.  It's not a picture perfect triangle or chart pattern by any means, but it did show that there was a breakout taking place to the downside.  This pattern corresponded with many of the other major currency pairs.
AUDUSD Daily 9/11/2011
When this breakdown took place, I looked for an entry on the 15 min charts, and saw what appeared to be a good entry on 9/9 at around 8:30 AM.  However, I missed this entry, so I drew trendlines of the prior pivot swing highs, and saw a pullback around 11:00 AM that approached the trendline. 
AUDUSD 15min 9/11/2011
I entered at that time when the lows of the prior 15 minute bar were broken, and placed my stop above 1.05.  However, if I see that the trendline extended from the two pivot swing highs on 9/9 is broken accompanied by a bullish pattern, I may exit the trade prior to my stop loss being hit.

But for now, it's time to just let it ride.

Quotes and Thoughts - Inspired by Mark Minervini

With the limited time I've had this weekend due to non-trading obligations, I still found these great quotes by Mark Minervini, a trader who is featured in the Stock Market Wizards book.  As a developing trader, here are a few quotes that really stood out for me:
  • From his blog:  "Remember, the top three priorities in trading: First, is preservation of capital. Next is consistency in executing your plan. When you have these two things mastered, you can then pursue the third, which is superior performance."
  • From his tweet:  "To be a master trader you MUST face and realize your own destructive capacity... through this realization you attain longevity"
And here are my thoughts on these key points:
  • Preservation of capital...or lack thereof
    • I have been both unfortunate and fortunate regarding my ability to preserve capital
      • Unfortunate - in that I am down over a quarter of my initial trading capital.  I've heard from some that this is a normal part of a developing trader and that it's to be expected.  But for me, this is not acceptable, and shows the lack of risk management discipline I've had in limiting my losses during the early stages of my learning curve.
      • Fortunate - that the absolute dollar amount is not significant.  I started my account with an amount very well below my means, so this is not something that will impact my lifestyle.  And to think of it another way, a semester of college would have been much more expensive (and less learned)!
  • My consistency of executing my plan...has been inconsistent
    • Perhaps I have not yet settled on a trading style that works best for me. I'm still 5 months into my trading career, so I have not even been able to consistently execute a plan over the long term. 
    • There are times when I wonder if I even have the discipline to follow a trading plan.
    • However, I believe the first bullet point is generally correct.  Given a specific goal for a week, I have been able to successfully follow a trading plan.  And I know through review of my actual trades that I can see and take good quality trades...I just need to avoid taking the sub-par setups.  The true test is to be able to follow a plan consistently over the long term.
    • I believe when my discovery process is over, I will eventually settle on a trading style and plan that works best for me.  At that stage, I will likely have that "been there and done that" frame of mind, so I will be less likely to consider other trading styles.
  • Superior performance...will be achieved in time
    • I am far from there, but I am getting closer.  My goal is by the time the Fall season is over, I will have settled on a trading style and plan that fits my personality, have demonstrated considerable discipline following that plan, and at a minimum, be a consistently breakeven trader.
    • At that point, I will have the ability to start focusing on mastering my particular trading style to become a consistently profitable trader.
    • Only then will I be able to get on the path of becoming an elite trader.
  • Destructive capacity...where do I begin?
    • All traders possess some sort of destructive capacity that you must find a way to keep under control. I have skeletons in my closet that like to come out all too often to spoil the profit party. So I've recently placed some highly secure locks and doors to the closet so they stay locked up.  We'll see how well they are contained.
    • Through careful research of my prior trades, what has been destructive to my profits have been trading in choppy markets, revenge trading (especially after first couple trades are losses, or when my stop is too close and I'm stopped out by a tick), and rogue/non-plan/sub-par quality setups.  This usually leads to overtrading, which I define as taking more trades than what your trading plan defines.  Nothing new with regards to challenges other traders face.
    • However, I believe the most potentially destructive capacity I have is right now is trading beyond my daily account loss limit.  There have been many instances when I have traded my way back to breakeven or profits (although there have been a few times when it has ended terribly).  This may have engrained a bad habit that may very well come back to haunt me.  I will monitor this situation very closely to determine if I need to make some further adjustments to my trading plan.

* * * * *
Speaking of overtrading and going beyond my daily limit down, I was once again nearly limit down on my losses for the day on Friday, Sept 9th.  And once again, a key trigger was a loss from a decent quality setup.

But for whatever reason, I chose to make a foray back into TNA & TZA (the lure of fast profits?) and unlike the last time, I was able to scalp my way to a small net profit.  I didn't take 103 trades as the prior attempt, but took less than 40 (still a lot), so it wasn't efficient trading by any means -- my commissions ended up being nearly 20 times my profit.  Once again, TradeStation should be sending me some customer appreciation award.

And this time around, I was better prepared to deal with the cadence and rhythm of TNA & TZA, which at times seems akin to dealing with an angry swarm of bees.  There were times when I could "feel" when the price rotations were about to take place, and/or when prices were going to move in my favor (or not).  However, this style is trading is very mentally exhausting and it's something that I don't think I could do on a daily basis (although I won't say never, you just never know).

Chalk this up to another trading day where on the one hand, I was successful, but on the other hand, the day could be considered a dismal failure since I went on an unplanned tangent.  But in the end, the discovery process continues and I am a bit wiser, confident, and knowledgeable.

Thursday, September 8, 2011

Ooops, I overtraded again

After doing so well being focused averaging a handful or less trades per day for the month of September, I got on the overtrading bandwagon again yesterday (Sept 7).  No, it wasn't like the day when I deliberately scalped TNA with 103 trades

But I know I lost some trading discipline yesterday and there were a few items that were particularly disconcerting:
  • Since I over traded (at least according to my definition of it) that means that I didn't follow my plan.  Upon reflection, one factor that may have contributed yesterday was because I missed out on my pre-market preparation and visualization.  I need to make sure that my mind is properly focused prior to trading.
  • In the big scheme of things, over trading is not bad if all I'm doing is taking "A" grade trades one after another.  But this was not the case.  Many trades I took were "D" grade that had small losses, and as you can see below, all those small losses add up quickly.
    • Sept 7 trades by grade (gross figures):
      A & B grade:  +7.3R
      C grade:      +4.2R
      D grade:      -9.9R
  • Once commissions were applied, my gross profits ended up being net negative.  Yes, more than all of my gross profits were eaten up by commissions.
  • I ended up just below my limit down figure on my account (1% per day), but what is a big concern is that I let it get to be nearly 3% down before recovering nearly 2/3rds of my loss. Although my risk management plan for each individual trade is very solid, my account risk management plan was not followed.  This is a critical breach of my trading plan.
In a day not to be very proud of, there were a few positives:
  • I was able to regain my focus after lunch, and was able to increase my accuracy and recover nearly 2/3rds of my losses.  This demonstrated my resilience and ability to fight my way back without being careless.  There were some cases when I could have exited my positions when my account was at break even, but I was trading for bigger moves according to my trading plan.
  • There was a time when I would over trade and my gross loss would be very negative in addition to my net loss.  But now when I over trade, it seems as though I have a gross profit, but net loss is negative due to commissions.  At least it's trending in the right direction.
So what next from here?  I need to revisit my pre-market preparation and take an even closer look into my trading diary.  One of the worst ways for me to start the trading day is to take the first 2 trades as losses.  This usually evokes a "I'm not going to lose to you" attitude against the market, which then begets more rogue and revenge trading activities. 

It's time to take back control of my discipline.  I can already see in my mind that September will be one of my best months to date, and my primary focus for the rest of this month will be to take only excellent quality setups.  Easier said than done, but I'm up for the challenge.

Tuesday, September 6, 2011

Recap: $TRI - pb2rz and contra trade

One of my favorite trades is the contra trade, aka gap fade, reversal, etc.  I started to write a "recipe" on how to trade these setups, but I started to realize that I still need some more time for research.  However, there is one variation of the contra setup that seems to work well, which I call the [vlco].

VLCO (vwap line cross over) setup.  The high level definition of this contra setup is to wait until the 5ema crosses over the vwap line, wait 4 bars before entry, and start looking for a clean pullback or a consolidation break out.  You are looking to enter the trade in the opposite (contra) direction of the gap opening.  In essence, you will be very happy if the price fills the gap.  More details in the future.

Today in TRI, there was both a "Pullback to the Retracement Zone" [pb2rz] as well as a contra trade.  Here are the trades I took:

TRI - 5min chart, Fibs over opening 25 min range, vwap, 5ema
  1. Sell below 9th bar - [pb2rz] setup, sold at 15th bar for scratch.
    I thought this setup would make a good run, but it didn't even make it to the lows of the day.
  2. Buy above 21st green hammer - [vlco] setup, sold on 24th (11:25) bar.  Exited too early, jumped the gun when a solid red bar appeared on the 24th bar.  However, it didn't even break below the low of the prior bar, so this exit was premature.
  3. Buy above 28th bar - the prior 27th bar was a green hammer, but I missed it.  So when the next bar was a doji and was still a narrow range bar, I entered on the break above the high.  At the time, the high of the day was several cents above $29, so I exited when prices approached that whole number.
TRI 5min 09-06-2011
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Although there were a couple or so trades I took today which I would now consider more of a C grade, I was generally satisfied with my execution today even though I only netted a few dollars in profits.  There were some issues with stock selection (e.g. I need to stay out of choppy stocks), but these are the types of days that I will need to work on finding a way to patiently grind it, or just sit it out. 

Ultimately, one of my trading goals is to be able to quickly identify the type of trading day early in the session, and then utilize the trading methods that best suit that particular market condition.  But first, I need to crawl before I run, so I will need to master a few setups first as I identified in my trading plan a couple weeks ago. 

I want to learn to identify and act instinctively on a few key setups so that I can literally trade them in my sleep.When a solid setup occurs, I don't ever want to be in a situation where I freeze and not take the trade.  Even if I'm down for the day near my daily account limit down, or perhaps there are some very unusual market activities taking place, if a good setup presents itself, I will quickly and swiftly execute the order.

EURCHF - unprecedented move!

As I woke up to see that the EURCHF pair was up over 900 pips, I thought it was a misprint.  Then I knew it must have been some big news related move -- which ended up being the case.  The Swiss National Bank (SNB) pegged the Swiss Franc to the Euro at 1.2000 - they didn't want their currency to become a safe haven and thus potentially harm their economy.

So until another Soros comes by and breaks the SNB...goodbye EURCHF as a great trading vehicle.

Unprecedented move

In a span of about 15 minutes, the pair moved nearly 1000 pips, overshooting the peg by almost 200 pips, before finally settling down around the peg level of 1.2000.  In short, it was literally an unprecedented move.  Back on October 24, 2008 during the financial crisis, there was a 450 pip move that took place over a period of a couple hours, but in comparison, today's move took place in only minutes and was well over twice as large.

Trade Summary

I was very comfortable with the entry I had as well as how this trade was progressing.  But in the end, I exited this trade with a net 30 pip loss. After being up nearly 800 pips, it really highlights the importance of 1) having stop loss in place for these unexpected events, and 2) especially having the stop loss at the proper level to lock in profits.

I let this one "breath" a little too much, unlike many of my equity day trades where I'm stopped out by 1 tick.  I had a dream last night that I should have lowered my stop just above the break of 2 key resistance areas, as shown in the chart below.  Perhaps I would have slept better if I had done that!

EURCHF - 60 min - 9/6/2011
What did I learn?
  • Proper stop placement prior overnight is essential. These European currency pairs usually start moving during the 3:00 AM Eastern time hour since that's the start of business in Europe.  I got sloppy, and didn't bring down my stop last night.  This cost me at least 400-500 pips of profits, depending on slippage.  I didn't think this pair could move 500 pips overnight, but I was obviously wrong!
  • Scaling out ended up helping more than expected.  Since I took profits on 1/2 of my position at 100 pips and brought down my stop loss to "lock in" about 25 pips of profits, even with the slippage I received on my remaining position, I still nearly broke even on this trade. When I was up 600 pips, I had a thought about how nice it would have been to not have scaled out, but that's no longer the case!
  • Forex slippage can be huge.  My stop was placed at 1.1660 but my fill was 1.1810, a slippage of 150 pips.  Under ordinary conditions, the spread for this pair is about 5 pips, and slippage for adverse fills might be double or triple that. 
Moving on
On a more psychological note, when I saw that the EURCHF was up over 900 pips this morning after waking up, I didn't really feel very disappointed or shocked that I left a lot of money on the table.  I was more interested in what had happened and how I could have traded this better.  I knew my stop loss was in place (although not at the optimal place), and so I had some profits locked in (although in reality, the slippage ended up generating a small net loss).

At this time in my development as a trader, I am much more interested in going through as many adverse and unusual conditions as possible.  This way, I can experience how I handle the situation (i.e. how well I stick to my plan) and then most importantly, learn from the experience.  I want true battle situations -- let the markets try and knock me out.  Give me the battle scars, because this will only make me stronger and more resilient.  The next time this situation comes up, I will be prepared.

Now that I've written all I can about this trade, it's time to move on to the next opportunity.  Next!

Friday, September 2, 2011

A couple charts / still holding EURCHF

Although I didn't expect to, I did end up taking some trades today.  Perhaps the employment numbers shook up the markets a bit and woke them up.  I broke even today, although I should have had a relatively decent day.  Bottom line, my stops were too close on a few trades and I got chopped around.

Not much time for in depth writing tonight, but here are few trades with annotated charts:

PBR - Used the trendline to help time the 2nd trade (2nd red down arrow).  First trade was stopped out, it was not a good setup.  This stock also had a strange high volume move around 3:00 PM.
PBR 5min - 9/2/2011
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MTL - Used the trendline again to help time the trade, but was a much cleaner setup than PBR.
Also shared on

MTL 5min - 9/2/2011
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EURCHF - Still in the trade since 8/31, up nearly 500 pips, and holding on over the weekend.  This afternoon provided the first signs that the downtrend might be nearing the end.  However, we'll see how this pair opens up Sunday afternoon.  If it breaks and closes above the downtrend line over the past few days, then I will likely exit. 
EURCHF 15min 9/2/2011
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Have a great and safe weekend!