Friday, October 14, 2011

New Beginning - New Adjustments

As expected, my new beginning has required some new adjustments.  This is the end of my first full week with @RenaTrader and his chatroom at and the bottom line is that I've been very satisfied with his service.  Both Renato and my fellow students in the chatroom have been great -- he provides a collegial and supportive environment where you can learn based on the style that works best for you, as well as being alerted with enough actionable information in advance to make profitable trades.

Last Thursday and Friday when I first started and didn't know much as I do now (which is still limited), I made about 12 points net of commissions trading the ES on each of the days -- even while missing some trades.  This also included taking some questionable ones and using less than optimal trade management for 2 contracts.  Still, my accuracy was around 70%.  Partially beginners luck from favorable market conditions.

For the first few days this week, I wasn't following along as I should have and had mostly rogue trades (old bad habits die hard).  But as soon as I regained focus by yesterday, I made about 8 points net of commissions trading units of 2 contracts during a pretty choppy and what I thought was relatively difficult trading conditions.

Today, I only made 1.75 pts, although there were some good setups I missed getting a fill by a tick or two, or just flat out passed.  I was having one of those days where my mind is in a fog, so I was being extra cautious. 

One of the members said he tracked 14 potential scalp trades each making a +2 profit target, 1 scratch, and 0 full stops, all before lunch.  That's 24 points!  Before lunch!  Under chopfest conditions!  He didn't take all of them, but that's what was theoretically possible if you followed the aggressive and short term/scalping approach to Renato's methodology.  Using real dollars, I'd be happy with profits 1/3 of that amount for the entire day.

So from the performance perspective, it's looking quite promising.  But since I'm still trading on a SIM account, I know these performance figures could be a huge distortion from reality.  Therefore, I'm taking as many steps as well as time to minimize the gap between plan vs. actual execution before switching to the live account.

For now, here are some of the key adjustments I've had to make from my previous method of trading:

Charting & Securities Traded
Instead of flipping through dozens or even hundreds of charts/securities a day generated by my stock screens, I now generally flip between just a few workspaces on my charting platform.  ES is the my primary focus, and I'll keep an occasional eye on EURUSD, USDCAD, and AUDUSD (my current personal favorite which he doesn't follow).  One advantage of all this is that I get to know these particular markets pretty well, and understand their particular behaviors.

Another advantage is that the ES and forex both trade actively overnight, except obviously over the weekend.  In many instances, there has been greater volatility during the London session vs. the NY session.  So if you're holding a position overnight, you're not likely to get a gap open go against you.  A disadvantage is also the same as advantage, the ES and forex trade overnight.  With all this recent volatility in the middle of the night, it's difficult to truly have restful sleep!

Another change is with drawing and updating the Fibonacci levels.  The prior method involved drawing them over the opening range just once during the day for each potential stock on my watchlist.  Now I'm updating the Fib levels (mostly on the lower timeframes) multiple times as significant new price swings are completed.  There are about a half dozen or so different timeframes to monitor, but only a few timeframes need constant monitoring throughout the day.  However, a lot of this updating depends on what level of trading activity you prefer.  Those who focus on weekly and daily charts do not update their Fib levels very often.

Order Entry and Trigger
I'm used to entering trades based on buy stop or market order, in the direction of the intended move.  Now I generally enter with limit order, in front of the market.  There are times when I feel like I'm standing in the middle of the road while a semi-truck is coming straight at me full speed.  Funny thing, when you get a confluence of various factors for a price level, it's like magic and the truck usually DOES stop before hitting you, AND it also happens to magically do a u-turn back the other way, on a dime.

The setup trigger is also different.  Since key levels are known in advance, I don't have to constantly look for a hammer candle pattern for an entry trigger, thereby passing up profitable trades that ended up doing what I had anticipated.  In addition, the ES bars can have a lot of messy wicks due to all the HFT/algos, so I never thought they could be traded very frequently based on 5 minute candle patterns -- or in other words, generate candle signals at the level of frequency I was seeking. 

Therefore, knowing a potentially significant price level and having confidence with those levels makes it easier to place your orders well in advance and letting the markets come to you.  Only downside is that there have been many instances when the market have come within 1 or 2 ticks from my limit order, and then shot back the other way without me.  With my prior method, it's similar to discovering a perfect hammer setup, but finding it a minute too late after it had already moved $0.25 away.  Regardless of the method, there will always be missed opportunities. 

Trade Management
The scaling out method @RenaTrader uses is one of the big "secrets" to making consistent profits.  I've experimented with scaling out in stocks, but never had a solid method that I was comfortable with using consistently.  Renato teaches a method that works, and I have seen others on the Twitter feeds scale out in similar ways.  After using it with 2 contracts (3 or 4 cars per trading unit is even better), I'm sold.

Community and Social Interactions
When I first started trading full time over 6 months ago, the primary interaction I had with other traders was essentially via the comments of the  It's a great site with a gold mine of great setups, and while Trader-X was actively posting, a great community for traders to share ideas via the comments.  Other than using that site, I felt I was pretty much on my own, trying to find my own way.

I began to branch out to Twitter/Stocktwits, but still don't interact very much with that community for whatever reasons.  I also started this blog, which is more of an outlet for my thoughts and ideas.  But I was missing a more real time interaction with a community, as well as some sort of mentor to help guide me on a path to consistent profitability. 

This is where the chatroom has helped to fill the void.  Having @RenaTrader as the great natured and patient instructor, as well as others similar to me who are eager to learn how to be consistently profitable, results in a great environment -- it feels like I'm a part of a team where we all share the same goals.  And even better, we all help each other out. 

I no longer feel as alone on my journey.  I'm looking forward to next week.


Tomross58 said...

Hey Grove,

Great detailed report and many thanks. The title on this post really says alot here. I have found in my journey that I have had a couple new beginnings but each time carries new lessons learned into the new beginning. Sounds like you had a good week to build upon and you discovered a couple new things which you may have already known but when explained in a detailed manner really has to be exciting. For instance the scaling in he does,,I was most interested with that part as I have racked my brain on what to do and only recently went back on my sim account and added share size and am trying to scale out. What a wonderful feeling to book some profits along the way ,,,,now I have to learn to not do them so early,,,lol,,,,I did have a mentor that never went into that and how the heck did I know?,,,
I also was an avid Traderx reader and learned alot there and came to really like the Fib lines so its cool that you are using something you are familiar with and like.
It sounds like if you can master just a couple of his strategies you can have an edge. I have moved to mainly trading the SPY and I believe its the E-MINI brother and was wondering if his system would work with the SPY's ?,,,Keep up the good work and I look forward to your next weeks postings.


Attitude Trader said...

First I have to comment on your writing. Although I still find many mistakes in mine, I take a certain level of pride in the grammar, punctuation, and flow of my writing, and I notice that in yours - nearly impeccable and easily read. It wouldn't surprise me to find a copy of Strunk and White's The Elements of Style in your office. ;)

Second, as you know, my current method is based heavily on Trader-X's Fib levels, and I only trade futures, so your review here is extremely interesting to me. I'm very wary of systems for sale (having bought plenty myself), so if not for your review here I wouldn't even give it a second look. I'll be looking forward to seeing how it's working out for you over the next few weeks.

Good luck and thanks for sharing.

Grove Under said...

You're so right about the scaling out part, which I believe is a huge part in giving you an edge to be consistently profitable -- at least based on some systems.

And I don't have the specific numbers, but my gut tells me that assuming you have a little edge with your system, trading more contracts as part of your initial trade entry and scaling out properly at the appropriate times will reduce your overall risk. It's one of those counterintuitive things.

Haven't looked closely at scaling in, but that might also be a big factor in reducing your risk.

And yes, the system works on any actively traded security. And since the SPY tracks very closely to the ES, I can see how it should work very well. But I haven't looked into the details from the execution perspective. Might take a closer look, or ask around to find out.

I have found that the ES seems to move "smoother" than the SPY (and especially the insane TNA/TZA). I imagine the ES moves as if the minimum tick on the SPY was 1/16, so the ES is not quite as "hyperactive" or noisy. That seems to keep me from getting as frazzled.

Appreciate your great feedback!

Attitude Trader:
Thanks very much for the compliment. I've heard of The Elements of Style, but have yet to read it. Now I'm really curious and will have to check it out -- I know I will probably learn a lot!

Totally with you on buying systems and not being happy with them and now being skeptical. Back in the 90's, I'm sure I spent well over $10k (likely much more) on systems, software, books, etc.

But maybe it's because of all those duds that I can better appreciate what I'm experiencing now. I'm pretty sure now that the Diamond Setups system works, but time will tell whether it's the right system for me to be able to trade consistently over the long haul.

But I hope that in the future, I can say that this is the time in my development as a trader when I stopped chasing success.

Will keep everyone updated...