Wednesday, November 30, 2011

Rules of Engagement - Trading Plan for week of 12/5/2011

No trades today 
I was out longer than usual this morning and when I returned, that big spike up due to the "collusion" of the world Central Banks injecting Cortisone threw my charts (and me) for a loop.  Therefore, I generally stood back and just watched.

In addition, the sound of construction workers banging away in the basement combined with not enough sleep last night also contributed to my lack of action (to play it safe, even on SIM).  However, I did try an entry, but it didn't fill.  And I also missed one of Renato's alerts that ended up being profitable.

Although I didn't trade, Renato gave several alerts that I believe gained at least a few ES points in total.  The summary he gave of his net performance for the month of November was simply amazing and inspiring.  He has made me into a believer that taking small and steady bites every day can add up to substantial returns over a month.

So I worked on my trading plan
The lack of trading gave me time to focus on my trading plan for next week when I start trading live once again.  As I wrote in my last trading plan back in August, the primary goal will be to test my ability to follow my trading rules -- in other words, maintain discipline to focus on the process.

I have deliberately simplified the setups in the trading plan below in order to respect the proprietary nature of the DS system.  But for those who are familiar with DS, I'm sure you'll see that these rules are very straightforward and should be easily to execute (at least in theory).

How I will judge myself
At the end of next week, I will not rate myself on whether I made a profit or not, but how well I executed according to the plan.  I know based on my trading schedule, I will most certainly miss many good opportunities during the pre-NY open.  However, of those trades that I do take, I will score them based on how well they met the criteria as well as how well I executed according to the plan.

* * * * *
Trading plan for week of December 5, 2011
[Not locked down yet, so this is still subject to revision] 

PREREQUISITES
   Charts:
       30 minute and 377 tick charts based on DS levels, as well as my 5 min chart

   Indicators:
       RSI, moving averages, vwap, pivot levels

SETUPS
The following setups are in scope:

(1) Renato's DS Alerts
  • They work -- just take them!
  • If applicable, refine entry point with 377t chart
  • If there are conflicts, Renato's trade overrides all other setups
(2) Retest of 30m DS level
  • Wait for close on 30m bar, with entry on following bar
  • Ideally, trades should not be taken between 11:30AM and 1:30 PM
(3) Reverse Play on 30m level
  • Similar to Reverse DS4 setup, except this can apply to any DS level
  • Ideally, take this in the direction of the intraday trend
(4) First Touch of 30min DS level
[Not sure if I'm going to leave this in here or not for next week]
  • If DS4 is involved, wait for the farther level (and realize that many profitable entries will be missed!)
  • These FT setups should account for < 20% of total setups
  • Since FT may be riskier, these setups must have one of the following, or else pass!
       (a) 377t DS4 with RSI, or
       (b) Confluence with additional non-DS level such as trendline/vwap/pivot level
PROFIT TARGET
Limit order will be placed at +2.00 points (8 ticks).  This order will be sent automatically as part of a bracket order at the time of entry.

Exception: In an instance where the setup takes place at a known critical support or resistance level, once the stop is raised to +2 ticks, I will have the discretion to let the trade ride for a greater profit.  However, this should only account for < 10% of total trades.

TRADE RISK MANAGEMENT
Risk per trade not to exceed 2% of portfolio

Start by trading 1 contract (therefore, risk per trade will be < 1% of portfolio)

General rule - allocate $8k-$10k per contract

STOP MANAGEMENT
The stop will be placed -2.25 from entry price, unless there is clear and compelling reason to adjust by no more than 2 ticks.

The stop loss will remain at the original location unless:
   (1)  The trade is +1.50 (+6 ticks), then stop will be raised to entry price/breakeven (0 ticks)
   (2)  The trade is +1.75 (+7 ticks), then stop will be raised to +0.50 (+2 ticks)

ACCOUNT RISK MANAGEMENT
Max daily account loss = 5% of portfolio

Max intraday drawdown = If daily profit > $500, drawdown will be kept < 30% of max profits (i.e. highwater mark)

GENERAL REMINDERS
  • Find ANY REASON to pass up a trade -- I don't have to trade.
  • However, if the setup is valid, pull the trigger!
  • Don't fight the trend, save your mental and emotional capital.
  • Remain in the "Now Moment" -  Follow the plan and just let go -- let the trade win or lose.  Zen out, man. 

Tuesday, November 29, 2011

My swing trade finaly got stopped out, so now what?

It eventually had to end.  My short ES swing trade from last week was stopped out, and although I had my stop loss set at +.25 (so that I can say I never let that +50 point winner turn into a loser, ha ha!), I actually got serious slippage even though it was a SIM trade (surprise, not!).  It was 1 full point slippage...IN MY FAVOR!  Well how about that.  Ended up closing that swing trade with +1.25.

For kicks, here's the daily P&L of that single contract ES swing trade short @ 1198.00 from 9/22:
When will I trade live again?
I'm starting to think that I should start trading live again in December, for maybe a couple weeks or so before the Christmas holidays takes over.  Starting in December gives me a nice clean starting point, and I'll do my best to end the year on a good note.

The rest of this week will likely be difficult for me to trade during the peak morning hours, so I might end up waiting until Monday.  However, this will give me time to start writing down my trading plan as well as my goals. 

For whatever reason, it has only been in the past few days where I can truly "feel" and be comfortable with what my trading plan and strategy should be. 

Now it's time to write everything down, lock them down, focus on the process, and execute the process as flawlessly as possible.  I have absolutely no doubts that if I focus on trading the plan, the profits will follow.
* * * * *
Tuesday, November 29
Total gross profits:  $287.50   +5.75 ES points
Total trades:  7  [3 scratch]
Accuracy:  100.0%
Contracts per trade: 1

A somewhat uneventful day, but one that was profitable.  If I can consistently keep up this type of performance every day for a month, it will be a very respectable month.  The markets seemed to be in tune with the Diamond Setups method and levels.

It was a very steady day where most trades generally moved in my favor almost immediately. I also had a certain feel, and when the trade wasn't working any longer, I correctly exited ahead of the adverse moves for scratch.  Perhaps it was due to my rested state of mind (it has been about a week since I last executed a trade).

These "boring" but yet profitable days are what I would appreciate every day!
* * * * *
Once activity that has helped me to keep focused (and out of trouble) on the overall markets has been to update a 5 minute chart with trendlines and key support/resistance levels.  What's surprising is how well and how often these trendlines line up with the Diamond Setups trades. 

In this example, you can see how the trendlines I drew and extended ended up working well for certain DS setups (see green shaded areas).

Monday, November 28, 2011

From +50 ES point to +2 to ???

No trades for me on Monday, November 28th.  Since getting into the ES 1198 short on Tuesday 11/22, I've continued to let it ride, especially since I've been busy with non-trading related tasks as the holiday season starts to ramp up. 

So here are some thoughts as I saw my ES swing trade go up to nearly +50 points in profits, only to then watch it gap up around 20 points against me on Sunday night, and then getting within 2 points of being stopped out at break even today (Monday).
  • If this was a live trade (not SIM) I most likely would have exited earlier, probably on Sunday night for about a +20 gain.
  • Renato had a buy alert... right below the 1150 area (yes, the low of the move on Friday), so although I'm not sure I would have exited there on Friday afternoon (because weak closes are usually a bearish sign), that was potentially another option.
  • I could have done better daytrading vs. this swing  Assuming that I closed this single trade at the max possible +50 points, there were many daytrade opportunities that could have made just as much or even more during the time I was in this one swing trade.  But...
  • Big but...  Whether I would have captured all those daytrades and actually made that much is another topic of discussion.
  • Quick to enter trades, slow to exit.  That's my general nature (even as a daytrader), and the reason I've been able to hold on to this position for so long -- I'm slow to exit.
  • My natural Valium?  Having an active open position is somewhat like putting my trigger finger on Valium.  It makes me much more selective to enter new trades, unless they are very compelling. 
  • Permanent swing position?  So maybe I need to consider having a very small swing position as a way to counteract my need to always have something cookin'.  A mini-forex position comes to mind.
  • External non-trading diversions  There are times when I feel I'm too close to the markets.  It's as if I'm getting too clingy.  So how will I feel when the market treats me bad someday and I have nothing else to fall back on?  Either having other hobbies and interests or being forced onto other tasks should help provide balance.  Consequently, I believe having better balance will improve my ability to stick to a plan with discipline.
This particular swing trade has also been yet another interesting experiment to try rattle and shake my soul so that I can gain better understanding of myself as a trader.  This isn't the first time I've had a swing trade, but this time, I am much better prepared to observe and record myself to see how I think and act in a volatile market conditions.

Sure, if I had real money on the line, it would likely have been much more stressful, but either way, I believe this is a lower stress way of become more self-aware with myself.

When I am trading live again, I will likely go back to daytrading/scalping primarily for +2 ES points  I might consider swingtrading once I'm trading with an initial position of at least 3 or 4 contracts.

So the question that is getting louder in my mind -- when will I start trading live again?  I tell myself I'm in no rush, but there's also a side of me that wants to get back in the real game NOW.  Depending on market conditions, I'm thinking maybe next week at the earliest and sometime in January at the latest.

Wednesday, November 23, 2011

A +40 ES trade - it's only SIM, but let me dream...

A brief interruption to the holiday madness...

My "fluke" ES short trade from early yesterday morning seems to be doing quite well.  This turned out to be one of those < 5% of my trades that ended up running, and running, and running... 

So far, it's up almost +40 points (still open, so it could change) from my 1198.00 entry price around 6:50 AM on 11/22.  One trade, 1 contract, 1 1/2 days, not too bad.  I checked up on this trade throughout the day via my phone today while running errands, and saw no reason why I should have exited.  Too bad it's a SIM trade and not real!

Even though I'm not counting this trade as legit (it was slightly rogue based on my trading plan in effect at the time), there was something about this trade that made me take it AND continue to hold it.  I could also say the same thing about countless other trades that LOST money.  But at a minimum, it is a bit of a confidence booster and shows my strength of being able to hold a runner through ups and downs for the big move.

Although my primary goal in the near future will continue to be capturing +2 point scalps, this example also identifies the power of identifying a trend and sticking around for a nice ride.  This is further incentive for me to get up to trading 4 contracts so that I can have more opportunities to let a kicker contract run.

Maybe there's something more to this trade than I'm giving myself credit, so as a reminder of what a big win looks like, I'll post this as a reminder of what's possible.

Tuesday, November 22, 2011

Winding down for the holiday week

Between the construction workers finally banging away and fixing our basement due to the hurricane Irene floods (how long ago was that already??), preparing for family visiting tomorrow, as well as endless other circumstances of life that popping up, it makes focusing on trading very challenging. 

Yesterday - Botched SIM again
However, I did do some trades yesterday (Monday, Nov 21), but then ran into the TradeStation SIM confirmation delays once again.  This threw me off track.  By nature, when I see a problem, I try and isolate it and determine the root cause or at least better understand what's going on. 

So I began finding excuses to put on trades just to try and make it "break" and replicate the problem.  It's OK to do in SIM, but it's not OK with a live account.  Needless to say, I ended up straying far from the trading plan and it's not even worth posting the performance.

Overnight trading and the "one trade" today
Last night, I decided to give overnight trading a shot, and I ended up fighting the trend, and shot myself.  And before I had to head out this morning for a doctors checkup, I shorted the ES at 1198 during the pre-market session. 

The trade gained as much as +18.75 on one contract, before it hit the bottom before lunch (where Renato made a Diamond Setups call at 10:57 AM to buy at 1182-80!) and it then shot up due to the IMF news about the liquidity line.

Since I was in and out all day today, I held on and it got within 3 points of my breakeven stop.  I thought it would be "tragic" if I got stopped out at breakeven, but hey, it would be a lesson learned.  Luck was on my side, and the ES drifted back down.  And then right around the close, more news.  New stress tests for banks.  It ended up closing +16 in profits, and I will hold it into the overnight session.

By the way, this trade won't count on the "official" performance report, either, regardless of whether it closes with big profits or b/e.  It's more of a rogue experimental trade that I had a "hunch" about.

The bigger picture
Looking back on the past few weeks, it's clear there's a big gap between my desire to go for profit targets of +2s vs. runners that go +10s and beyond.  It's not necessarily mutually exclusive, but it is much more difficult to do both when trading only 1 contract, so I'll need to work on a plan to get up to 4 contracts as soon as possible.  Lots of planning and goal setting work for me to do.

Well, time has run out and more non-trading duties call, but best wishes to all for a safe and wonderful Thanksgiving holiday break!

Friday, November 18, 2011

End of a long week - more experimentation

It was a long week, but one that ended on a relatively good note.

Friday, November 18
Total gross profits:  $587.50   +11.75 ES points
[SIM adjusted gross profits:  $325.00]   +6.50
Total trades:  14  [1 scratch, 7 losses]
Accuracy:  42.9%
Contracts per trade: 1

NOTES:
An OPEX day that ended on a fizzle.  I stopped trading by 2:00 PM when it became slow.  But there were enough decent swings earlier in the day that allowed certain trades to run, as well as choppy areas where the DS levels did well to capture scalp trades.  Yet another experimentation day, focusing primarily on the whether to use the profit target or not.

No +2.00 profit targets on some trades
Today, I decided to lift the +2.00 profit targets for certain trades that "felt" as though they had room to run.  The result?  My percentage accuracy went down considerably and overall average profit per trade (expectancy) remained relatively the same as a good scalping day.  But the average $'s of winning trades went up considerably.  Why?  I had a few trades that ran a decent amount.  For example, I had one trade go +6.25 and another that went +8.00.

The primary criteria I used when allowing a trade to run was whether it was near the highs/lows of the day, and/or whether it is considered a significant area due to key trendlines.  These criteria in confluence with DS levels seem to provide a better than average opportunity for a trade to run beyond a typical scalp.

In this chart to the right, it's clear to see that rationale behind some of the trades were allowed to run without a +2 profit target order.

So the question remains, what style works best for me? 
Since starting to trade earlier this year, a certain pattern I've tracked is that I am very impatient to enter a trade, but once I'm in a trade, I'm almost too patient to stay on board. 

Therefore, I usually don't have the tendency to exit a profitable trade too early, but instead, I tend to overstay my welcome.  This works very well on those small percentage of trades that end up running far, but in most instances, I'll let a profitable trade stop me out with a scratch or a small loss.

I believe my ability to hold onto profitable intraday trades is a strength, and so I'll have to factor that into my overall trading strategy.  I'm willing to sacrifice winning accuracy in order to let certain trades run, because I feel that having those types of trades provides me with a sense of accomplishment.

And finally, are my SIM adjustments too tough?
As I continue to apply my SIM adjustments to the daily trade record, I wonder if I'm being too penalizing to my initial gross figures.  One thought that's crossing my mind is whether I just need to trade live again to find out once and for all.  Earlier this month, I had to trade live just to see how the real fills will be.  But that ended in a mini-disaster, so perhaps I should wait a little longer!  In the meantime, I'll just be extra conservative, and will continue to calculate my SIM results as I have been.

Thursday, November 17, 2011

An interesting SIM experience

A very interesting day, to say the least.  To begin, it was a day I probably shouldn't have traded due to a migraine headache, but it was mild enough for me to overlook some pain in order to experience my endless fascination with the markets. 

The bottom line end results don't reflect my true performance.  In general, there's much to feel positive about what I accomplished today.

Thursday, November 17
Total gross profits:  -$775.00 (see section below: "TradeStation's SIM was terrible today")
[SIM adjusted gross profits:  -$???.??] 
Total trades:  39
Accuracy:  44.7%
Contracts per trade: 1

NOTES:

Rough start
As I began the day, my plan was to scalp the day, and it didn't start off well, with a couple stop losses right away.  As I approached the $500 gross loss mark, I entered a short trade and realized that a call from Renato's DS alert was near the top of the downward trendline, which was also the top half of an intraday triangle.  Nice confluence of resistance.

Placed a trade and took a rest
Once the trade went in the money far enough for me to move the stop close to b/e, I took a break to rest.  Since I wasn't sure how long I'd be gone, my profit target was set to the lows of the day, which at the time was 1220.  So in some ways, you can say I broke my rules of not getting out with a +2.00 scalp profit target.  Maybe I went rogue, or maybe not?  This was an instance where I felt strong enough with the trade to walk away and let it run.


A nice surprise when I returned
When I returned, it was nice to see that I was up around +8.00 ES points.  And although it had broken out of the bottom of the triangle, there appeared to be good support right under the breakout of the triangle, so I booked the profits and went long.

After a few losses in a row trying to go long (i.e. going against the trend!) and and seeing that my my original profit target was eventually hit (which means I should have rested and stayed away longer!), I realized the trend was down.  No more mistakes like the prior few days, so I entered a short trade based on a DS level and let it ride for another +6.00 trade.

Nice recovery
With that trade and a few others, I went from a -$500 day, to a +$200 (gross, non-SIM adjusted) day based on 1 contract.  Not a bad +$700 (+14 ES points) swing, especially since I was feeling crummy and the markets were quite difficult to trade.  I felt I got some redemption, since unlike the other day, I was able to stop catching falling knives and traded with the trend.  A thought crossed my mind that I should stop for the day here, and be happy.

Shouda quit...but did I?
I couldn't stay away.  And from that point on, things got weird.  Maybe due to the trading volume, but my TradeStation SIM account started to freeze up when a stop market or a market order was placed.  The charts and data feed continued to operate as normal, but I'd have to imagine that TradeStation doesn't allocate much resources to their SIM order servers. 

TradeStation's SIM was terrible today
Confirmations were taking 15 seconds up to a minute or more.  I would watch my stop loss orders get hit, and filled at prices up to 4.50 points away (NOT ticks)!  Granted, I did get a few fills where I got 1 or 2 ticks in my favor, but those were rare.

And what really confused TradeStation was when my stop was hit (but pending and not filled), and when I entered a new position a few points away.  There were then 2 orders floating and getting queued up.

For example: Instead of properly executing the stop loss first at b/e, and then executing the new entry, TradeStation processed my 2nd order first, and essentially let the first order get rejected or processed at a price a significant distance away from the stop price.

In other words, my fills became a total mess.

A WTF moment!
As the SIM fill confirmations continued to take longer, there was once instance where I deliberately entered 3 orders with brackets (OCO profit and loss orders) in relatively close proximity, waited a few minutes while the orders were pending, and ended up with over a $300 loss!  Yes, it was a WTF moment.

So after my "nice recovery" morning, the afternoon was a completely different story.  Based on a combination of a less than perfect SIM order execution, and then my "let's try and break the F'in SIM" attitude, I ended the day with a -$775.00 gross loss. 

As the SIM order system really started to freeze up and snafu the orders, my last 3 trades of the day within a 20 minute period accounted for an amazing -$600.00 against my P&L!  This better NOT happen when I'm trading my live account.

So there is no need to even make any SIM adjustments today, since most of the stop and market orders in the afternoon had unrealistic slippage of considerable amounts.  In normal market conditions, how often would you get a 4.50 point slippage?

What went well?
  • Even when I had a large drawdown today, I never gave up.  As I have done more often than not in the past, I recovered from a large deficits.  The more I do this, the more confidence I gain.  But I'd rather be trading from the position of having a large profit!
  • I identified the trend and utilized the DS levels to identify entry points that kept me trading scalps in the direction of the trend. 
  • I did fade the trend if there were many confluences that indicated a significant high or low was in place (shorting the top of the triangle is one example from today), and let them run beyond the usual +2 ES points.  But I have to be careful that I'm not doing selective rogue trading on a whim. 
    • I've noticed that many of the big runners take place on contra-trend trades that are near the highs or lows of the day, and also near other significant levels.  
    • This is something I will continue to analyze and refine in order to help understand when to let a trade run (it'll be much easier once I start trading enough contracts to scale out on all trades).
These markets are no where as easy as what I experienced in early October, but I welcome these adverse conditions.  Bring it all on now, both good and bad, especially while I'm on SIM.  This way, I'll be better prepared to handle what the markets will throw at me once I'm trading live.  Let's go.

Wednesday, November 16, 2011

This is why I'm still on SIM

Yet another example of Murphy's Law.  I write extensively about something and feel as though I have it nailed down.  And then the next day, I get burned by what I had thought I learned so well and told the world about. 

Yes, I traded the ES...against the trend.

Here's a snapshot of today's market with my notes. 
   SH = Swing High (that preceded the critical swing low or LOD)
   SL = Swing Low (that preceded the critical swing high or HOD)
My only excuse?  My prior examples were based on the trend changing from DOWN to UP.  Today, it changed from UP to DOWN.  So I couldn't recognize the change as well [cough, cough].  But after today's example, there will be no more excuses.

This is one of those days where I'm glad I'm trading on SIM.

* * * * *

Wednesday, November 16
Total gross profits:  -$300.00   -6.00 ES points
[SIM adjusted gross profits:  -$687.50] 
Total trades:  22  [1 scratch, 14 losses]
Accuracy:  33.3%
Contracts per trade: 1

NOTES: Volatile overnight session leading to a gap down opening with a little over an hour of range trading.  The gap eventually filled before lunch, and then the markets went choppy during the lunch hour.  After a run to new highs, the ES stair stepped down, and finally dropped sharply into the close (hey, just like my cumulative P&L chart!). 

I had a late start today, so I took a little longer than usual to get caught up.  And up until about 3:00 PM, I was only down slightly for the day, which was OK since I thought today was one of the more difficult days to trade.  Even though I had identified the trend to be up, for some reason, it didn't help much.

As shown in the trend chart example earlier, after 3:00 PM, there were multiple signs that the trend had changed, including the break key trendlines, vwap, support levels, in addition to a 1-2-3 top formation.  And when I began taking multiple stop losses in a row trying to scalp +2s as the volatility increased with the market drop late in the afternoon, I became impatient and started looking to get back and recover my losses, trying to BUY in order to prove to the markets that I was right (red flags are waving here).  The 33% accuracy rate clearly indicates that my trade selection was poor. 

Key Takeaways
If the volatility of the markets become unusually high and various support and resistance levels are being broken like hot knife through butter, then take extra steps to identify the trend and to WAIT PATIENTLY for a high probability setup in the direction of the trend.

Or better yet...

Also realize when markets are volatile, I DO NOT have to trade.  It feels like 22 trades is a bit too much for a (shorter than usual for me) day like today.  I need to keep a clear mind, and reenter only if the odds are strongly in my favor.  Otherwise, wait until the markets return to normal conditions where I know I have an edge.

Next time, I'll be much better prepared.

Trading with the trend: Follow-up


After waking up this morning, my mind must have done some more thinking while asleep.  So here's a follow-up to the prior post on trading with the trend.  Even though I'm generally scalping for +2.00 ES points right now, there is value in knowing the direction of the trend. 

On my prior post, take a look at the swings when the trend is up (right after the 1-2-3 bottom).  The swing legs going up are bigger than the swing legs down.  It's one of those "no duhhhh" statements that can get lost in the heat of the battle, or especially if you think you're "right" that the trend will change.  So if the trend is up, it's usually much easier to make money on the long side.  Once again, "no duhhhh!"

Here are some additional takeaway thoughts:

  • Timeframe
    • Evaluate trend using 5 min chart, which is a good timeframe for my current scalping strategy.  However, any timeframe may be used based on your trading style.
  • Trend up 
    • Long trades - take as normal, and potentially add a runner/kicker in the future to scale out.
    • Short trades -  take the fade trade, especially if the levels are strong.  But be more careful, potentially exit quicker, and/or possibly go smaller profit targets if the levels are not strong.
  • Trend down 
    • Long trades - take the fade trade, especially if the levels are strong.  But be more careful, potentially exit quicker, and/or possibly go smaller profit targets if the levels are not strong.
    • Short trades - take as normal, and potentially add a runner/kicker in the future to scale out.
  • Potential trend change 
    • Take trade as normal, range based markets work well for scalping.  But realize it might take longer based on the market conditions at the time.
Just some additional thoughts as I continue to refine my trading strategy.

Tuesday, November 15, 2011

Trading with the trend

[EDIT 11/16/2011: Follow-up to this post here]

One of the challenges I've had when trying to define and clearly articulate my best trades is, well, I haven't had enough of them under the circumstances.  Since I'm still in the early stages of learning the Diamond Setups methodology, my experience was generally "given fish while learning to fish" during the first month, and that sure turned out to be quite a solid month that didn't seem real. 

Even if I were to look at back at my most profitable trades in that first month, I wouldn't have been able to tell you why I took it, except for the fact that Renato gave an alert and I entered the order (and it usually made money).  As great as it is to make money that way, I have an even more intense desire to be able to trade based on my own independent analysis.  So that's what's great about Renato's program -- he has no problems teaching you to how to fish based on everything he knows, and he does a very good job at it.

The lightbulb
When I started to try and "fish on my own" after 3 weeks of starting the DS program, things got a bit stale for a week, then a bit rocky, and finally I had the big meltdown(s) just as I started to trade live.  But upon reflection, I did learn and study what worked well for me, even as the red ink was spilling everywhere.

One of the "lightbulbs" during those dark times is so simple and something that I already written about it in the past.  How to save your emotional capital....simple, don't fight the trend!  Since the aggressive trading method I use generally goes for +2.00 profits, knowing the trend will help me ride the wave instead of against it, so that I can get that little extra "umphhh" to carry me to the finish line.  Every little bit of help counts.

Determining the trend

There are many ways to determine the trend, whether it's by trendline, moving averages, chart patterns, etc.  Like anything else in trading, there's no right or wrong way -- just a way that suits your personal preferences, each with their pros and cons.  I'm using a method that I learned many years ago, so it's something I feel comfortable with and seems to work. 

Assuming the trend is already up, I generally look for the swing low that preceded the HOD or a critical swing high, and if that swing low level is broken, then the trend will potentially change (possible chop zone), or the trend will change to down.  And as long as new highs are created along with higher swing lows, then the trend will remain up.  And vice versa for downtrends.

Here's an example of how I calculated the trend today:
So how does this fit in with my trading?
After reviewing my trades in the past, I've found that when I'm explicitly aware of the trend, AND I only look for quick scalp trades in the direction of the trend, I usually do well.

Fight the trend and my emotional and trading capital usual suffers.  If I do end up trading against the trend because of a strong signal, I'll usually be extra quick to take profits or to scratch the trade.  Very common sense -- this is not groundbreaking stuff by any means!

But it's so easy to get "stuck" or "out of sync" when trading a market that is trending strongly, especially if you've had success selling the highs and buying the lows during sideways or choppy markets.  I've had to snap myself out of trades recently -- exiting an against the trend trade early just to prepare myself for the next trade that goes with the trend.  Those with the trend trades usually end up with working better and more quickly, just the way I like it!

* * * * *
Monday, November 14
Total gross profits:  $337.50  +6.75/car
[SIM adjusted gross profits:  $162.50]  +3.25/car
Total trades:  11  [2 scratch, 2 loss]
Accuracy:  63.6%   [scratch counted as loss]
Contracts per trade: 1

NOTES:  I'm starting to think my SIM adjustments might be too penalizing, but I'd rather have it this way vs. being surprised with my results once I go live again.  In essence, the trades I adjust down to +2.00 ES points were +2.50 wins in SIM.  So I have total confidence that those trades would have been filled in real life.

Nearly all the trades today were prior to lunch.  I got Costco on my mind for whatever reason, and used that as an excuse to leave once the markets started looking choppy as we headed into the lunch hour.  However, I came back to see that there was quite a strong move higher while I was away.  

There was a +2 opportunity during the lunch hour that I missed, as well as another +2 opportunity in the afternoon where I brought in my stop a little too soon.  But all in all, today felt like a solid day mentally, and I believe having a lunch break helped me to maintain my patience in the afternoon.

The one full loss I had went against the trend, and not only that, it was initiated based on a level that wasn't quite as significant as I had originally thought.  But instead of scratching it or minimizing the loss once I discovered my error, I decided to let it stop me out.

Monday, November 14, 2011

Is it rogue or is it not?

As I learn a new system, my initial goal is to understand and trade it straight from the book.  But a funny thing usually happens along the way to trading system enlightenment -- especially if you have already spent years researching various systems, indicators, charts patterns, lunar cycles, tea leaves, etc. 

Everyone has some baggage
That's because there's always a certain amount of "baggage" (positive and negative) that never goes away -- you know, identifying certain chart patterns, drawing trend lines a particular way, an affinity to a certain indicator with your special parameters, etc. 

They all worked well in the past based on how you used them, and well, gosh darn it, they continue to work well for you now.  But the new system under study doesn't use them, so I really shouldn't use them, right?  But if I don't pay attention to "them", I'm sure they will continue to haunt me!

Is it rogue?
Today was a case in point.  I did my best to trade the DS system based on an aggressive style that seems to work well for my personality.  However, there were a few setups that utilized price levels that were not necessarily a part of the system. 

So does that mean the trade I took was a rogue or a non-strategy setup?  I was fully aware of what I was doing at the time, but the levels and setup were based on a something that I know has worked well in the past, and they just happen to mesh well with the DS system.  And just because the trades worked, does that mean it's OK?  But how would I had felt if the trades lost money?

Make it your own
And then I started to think about the whole concept of "make it your own."  I recall very clearly Renato telling me "...just make sure you know your own 'most comfortable' style" and then trade DS accordingly.  From what I have read, it seems as though nearly every trader continues to evolve their trading methodology through the years. 

Do you still trade the same way you did a year ago, 2 years ago, or even 5 years ago?  Chances are, you have evolved your methodology to adapt to the markets as well as your own personality.

A great framework
What I'm starting to realize is that Renato's Diamond Setups has provided a solid framework upon which to refine a trading methodology, that especially fits me.  Although you can take it out of the box and trade by the textbook very successfully, it can also be adapted to various timeframes and levels of aggressiveness.  The ways to determine and trade key support and resistance areas, are surprisingly robust. 

Therefore, I believe embracing some of my past experiences and incorporating them into this framework is something that seems to make sense and seems to feels right.  However, I need to remember -- learn how to crawl before I walk, and that changes to the trading methodology needs to be done in a very calculated and methodological  manner.

* * * * *
Monday, November 14
Total gross profits:  $462.50 
[SIM adjusted gross profits:  $287.50] 
Total trades:  9  [1 scratch, 1 loss]
Accuracy:  78%
Contracts per trade: 1

NOTES:  Today was another experimentation day, although I'm starting to tighten up the rules.

The market gaped down today, and the gap never filled.  My bias until the last hour was to short, so any buy setups were scratched promptly in the event they didn't move relatively quickly in my favor. 

Since I believe recognizing the trend and trying to trade with the trend helps to save you emotional capital, I spent a lot more time today identifying and tracking the key swing highs and lows that determine a trend change.  This was a key process change vs. prior days.  This activity meshed well with the DS system, and I believe it helped me to achieve the performance that I did today. 

Nearly all my trades took place prior to noon.  I took detailed notes today during the trading day, which will help create a record of the positive and clear mindset I maintained throughout the morning.  This day is a good example of how I traded to my strengths, and I will use this as a template for future trading days.

Another change was that I left the computer and went out to lunch, since my wife had the day off.  The only unfortunate part was that I ate so much, I had food coma for the rest of the afternoon and missed or chickened out of a couple +2.00 trades.

Sunday, November 13, 2011

"Transform Adversity Into Challenge"

So far, lots of great strategies (chapters) in the book I'm currently reading to improve my mental game, titled High Performance Trading by Steve Ward.  There was one chapter from the book that seems timely given the recent posts, and is called "Transform Adversity Into Challenge."

The key to success is failure
This chapter starts off with a story about the Olympic triathlete Hamish Carter who said, "The key to success is failure."  His failure in Sydney was critical.  It gave him the mental toughness and the drive to make changes that resulted in him winning the 2004 Athens games.

The author later goes on to explain an assignment he had to work with some traders in Chicago.  They were having difficulties and he discovered that they were all focusing specifically on two items:
  • Their P&L
  • What was going wrong or not working
Oh, well doesn't that sound very familiar to the readers of this blog?

"Triangle of Strength"
So what he taught these traders is to start focusing on the following dimensions, which should also look familiar based on the theme of the past few posts on this blog.

Here's an excerpt from that chapter:

1) Positives - What is going well?
It is so easy, when you are having a tough time, to become overly focused on what is not working.  And if, in some respects, we get what we focus on, then this leads to you just getting more of what you are already getting – and don’t want!  A shift in focus to looking for what is going well, and what is working, is not easy. But it is doable; and it is a skill that needs to be developed as a part of tough thinking.

2) Strengths - What are your strengths and how can you best utilize them to help you in this situation?

...all traders have particular strengths, and these ought especially to be called on times of difficulty or weakness.  They could be strengths in the areas of knowledge, execution skills, trading ability, resilience, motivation and persistence, staying focused, work ethic, composure, strategy development – what have you.  These are critical resources.

3) Controllables

In difficult times, when the pressure is on, it can become easy to focus too much on factors that are outside of your control, particularly, in trading terms, the market.  Blaming and complaining about market conditions does nothing to improve your performance – it might only help in the short-term in you having a quick moan and feeling better!  Performance is always enhanced when focus is on a well-designed process and the process is controllable.  This is no different when times are tough.  You need to create your processes, identify what is controllable and then focus on those aspects of your performance.
His exercises are generally a series of straightforward questions revolving around a particular "strategy" under discussion, but it will require considerable time and focus to address properly.  I believe this can be done effectively only by writing not by "thinking it through" as I read. 

There are so many relevant exercises and practical strategies I can incorporate from the book into my trading, but I know it will take time.  The journey to consistent profitability marches on...

Friday, November 11, 2011

"High Performance Trading"

The biggest breakthrough for me today was not necessarily the markets (it was relatively "boring" due to the holiday).  What has given me a renewed sense of optimism and purpose is the book I received today, called High Performance Trading by Steve Ward.  The subtitle explains it better -- "35 Practical Strategies and Techniques To Enhance Your Trading Psychology and Performance".

And after a quick glance, I believe this is exactly the type of book that I've been searching for.  The author references and acknowledges Dr Brett Steenbarger, Mark Douglas, Ari Kiev, and others who have already lead this particular field with their great works. 

Ward's goal was not to author yet another book on the "theoretical discussions of leading topics in trading psychology", since those works have already been done very well.  His goal was to create a practical book that leverages those prior works along with the work he has done with traders over the years, to create an outline of practical strategies, exercises, and examples for key topic areas that are relevant to traders.

Some of the questions he asks in his exercises may seem a little generic or touchy feely, but I'm at the stage where I'm open to anything that will help me understand myself to become a better trader.  If you're also interested in this type of book, check out this link to Amazon and review the table of contents as well as a few chapter excerpts.

Now the studying begins...

Thursday, November 10, 2011

Making SIM Results More Real - An Experiment

On one track...
I have the plans to help me achieve the state of peak performance.  That's going to take me a lot of time to reprogram my brain, but based on a great comment from Flowtastical, it can be really as simple as: 
Study your best trades and execute them better.  That is peak performance.
On the other track...
I'm still trying to "make it my own" trading the ES with the DS system.  And since I'm back to trading on SIM (simulation account) to really nail down what my style should be, one thing that has been bothering me is the lack of confidence I have with fills on SIM with limit orders.

SIM fantasy fills - to good to be true
When you use limit orders to enter and exit a position, you usually get a fill even if it doesn't trade through your price -- I call those "SIM fantasy fills."  So today, I began a day of experimentation trading the DS system with more of an aggressive scalping style (12 to 30+ trades a day) so that I could generate as many trades to evaluate.

The goal - make SIM results more realistic
Since I was a bit taken aback by the differences between SIM results vs. live trading in my last foray, I wanted to able to find a way to trade my SIM account so that it would better match real life results.  Next time, I don't want to be so surprised about my live P&L differences vs. SIM.

Adjustments made when trading SIM
For my experiment, my profit target was set to +2.00 and stop loss was -2.00.  However, as I started to complain about how the SIM fantasy fills were too easy and not like reality, CLETrader (the resident expert in the DS room on scalping strategy) recommended some of the following revisions to my bracket order on SIM:
  • Move my profit target limit order to +2.25 (and including the bullet below = +2.50)
  • Place my limit entry at a 0.25 favorable (more difficult to fill) level
  • Stop loss would remain at the original price
  • A $5 commission added per round trip


The adjustments accomplished a few tasks
  • The original entry limit order would have been filled in real life
    • However, every order, regardless of outcome, will have overstated profit by a tick.  This needed to be adjusted in the final results.
  • The original profit limit order would have been filled in real life
    • However, the trades the hit the profit target order will have overstated profit by a tick.  This needed to be adjusted in the final results.
The downside - manual calculation work necessary
The only difficult part of this task is the additional overhead necessary to calculate and apply the adjustment for every individual trade manually or semi-manually via Excel to generate the revised results.  But to me, this is a task worth doing in order to give better confidence whether the trades would have filled (or not) in real life.

An error in my experiment
In hindsight, I applied the incorrect values to my bracket orders today, and didn't modify my profit target limit order by another tick.  In some cases, this did make a difference on whether I got the fill or not.

Experimentation results
Please note that I was NOT trading a specific strategy consistently throughout the day (although it was more scalping related), and in addition, note the error explained just above which also impacts the results.  So this "experiment" has a lot of holes, and the actual P&L is somewhat meaningless.

Cumulative P&L
However, focus on the gap between the raw SIM results (red dashed line) vs. the adjusted live results (blue line).  A quick glance helps to explains one of the reasons why some users (mostly active daytraders who primarily use limit orders) of SIM are shocked by their results when they start trading live.  As the day progressed, the chart illustrates how small adjustments began to compound the difference between Adjusted Live and SIM results significantly.

I had 36 trades (I'm really tired now!) with a not that great 51.6% accuracy, which goes to show how I wasn't on track with the DS system which usually gets 70-80% accuracy.  Average gain was $96 and average loss was $87 (both raw SIM output), so we're talking about some tight margins on this particular day. 

One more interesting highlights is how the raw SIM data ended the day showing a gross profit, whereas the adjusted data showed a significant net loss.  With a relatively large volume of trades, the commissions and adjustments quickly overcame any gross profits.

The takeaway
When trading (especially active traders) via SIM utilizing primarily limit order entries/exits with an even risk/reward ratio, it is very useful to make adjustments to your final SIM results to avoid a false sense of confidence and success.

The method discussed here of adjusting the entry orders, in addition to penalizing the results of the trades, is likely to error against the trader's P&L greater than reality.  However, if reality ends up being a little easier because of this approach to trading on SIM, I consider that a successful outcome.

Wednesday, November 9, 2011

Searching for peak performance

It was a relatively uneventful day on my first day back to trading the SIM account.  Much of my morning was taken up by family obligations so my trading day was cut short.  Of the several trades I did end up taking, they generally worked as expected, no fireworks.  And it was yet another day watching Renato make some impressive calls in his DS chatroom under tricky news driven conditions. 

But then late in the afternoon, I experimented with my hotkey and other order entry mechanisms, trying to determine whether there might be an easier way to enter orders vs. the DOM/matrix I currently use.  That ended up trashing my trading records for the day, so I've chosen not to post any results for obvious reasons.  In hindsight, maybe that was just my subliminal self being passive-aggressive?

The rest of this week might also be dedicated to experimenting around with my orders entry setups, in addition to the next topic discussed below, so there's a good chance I won't be back to "real and serious" SIM trading until next week.  I'm going to consider the rest of this week as a bit of a cool down / postmortem period.

* * * * *
On the path to peak performance

However, one new area I plan on focusing starting this week has to do with how I can achieve peak mental performance.  Or in other words, how can I consistently get into the zone so that I can maintain my discipline to really let my strengths perform unencumbered.  Some of this has been discussed in Dr. Brett Steenbarger's books that I have already read, and for those who haven't already, it's highly recommended.

It's clear my problem is not whether I know the right positive expectancy setups, or whether the DS alerts make money or not.  I have a challenge with certain triggers that take me out of the zone, which then breaks down my discipline and keeps me from doing the right thing. 

Within the comments of the last post, Flowtastical wrote:
Can you tell me about what exactly went right?

You noted the feeling of letting setups come to you. Can you zoom in on that more? How did it feel? How were you sitting? When the setups were coming to you, what formation on the chart would make you pounce like a lion near its prey? If that formation came again, would you say you have an edge? Be more specific on what you did well, don't brush it off because learning what you did well that day cost you $1000.

Yeah, I've had quite an expensive week, so I better make the best of it.  My reply:

[...]
This may be one of my big missing pieces of the puzzle, and what's interesting is that this is a topic I studied quite a long time ago (and have obviously forgotten).

The best known examples are based on the work of Tony Robbins and NLP (neuro linguistic programming). Although some consider this pop psychology or a psudo-science, I believe there are some merits to this field.

What's most interesting to me is how you can use certain NLP or other techniques such as visualization to help you achieve the mental state of "peak performance" quickly.
[...]
This then leads to your comment about what it was that I was doing, in great detail, that made me feel as though I was working to my strengths. Unless I can consistently reproduce this routine to get to and stay in that zone, I will never be consistently profitable.
My next "side-trip" on this always challenging journey will take me to some destinations which will hopefully help me to reprogram and refocus my mind, so that I can consistently be in the peak performance state of mind.  And finally, I want to all make those little gremlins (darn it, they keep putting a stick in the wheel) go far far far away once and for all!

Tuesday, November 8, 2011

Full Lockdown in Effect

I'm sure you could almost have predicted it -- I decided to trade the live account today.  And it was likely going to be a big day -- one way or another.  So what happened?  Well, I was up $500 (5 pts/car) this morning between Renato's DS calls as well as my usual scalp trades.  I was starting to feel the zone and flowed with the trades, just like good 'ole SIM days that generated great results last month.  And at this rate, I was going to have a pretty good day.  But...

The trigger
But there was a trade on the DS alert late morning that stopped out, and for whatever reason, that knocked me out of the rhythm.  The DS is expected to have at least 2 losses for every 10 trades, so having a loss isn't unexpected.  But this was one of those trades where *I* did not set the original stop properly thinking it wouldn't get all the way down there, so I was scrambling around trying to adjust it as it started to go against me. 

After the loss, a small shift in my mindset was triggered.  The next few trades were not necessarily hit 'em out of the park revenge attempts, but the voice in my mind to make up the loss quickly was getting louder.  "You gotta go back in there and and get it back!"  This began to corrupt my discipline, made me anticipate entries, and I started to see setups that were not really there. 

A slow and gradual meltdown
Every trade I entered started to go against me almost immediately, and instead of taking this as a warning sign to regroup, I began to start looking for even more trades -- I had to get back into a trade. 

I ended up taking some breaks to cool down, but once again, all I could think was -- I needed to get back on board a trade.  The wheels started to wobble, and they finally fell off.  This ended up being one of my worst days.

The worst part
Sure, I feel embarrassed by my performance.  And sure, I feel like I'm walking around with my tail between my legs. 

But here's the worst part -- many people cared enough to take the time to send me great actionable advice and suggestions that would have prevented a day such as today, and I did not act.  I feel as though I let those people down and ignored them.  Far from it, I am a person who listens to what others say, takes them to heart, and acts on them -- which explains why I feel this way. 

Saving grace?  This game is far from over, and there is still time to implement the great suggestions.  You can count on that.

Full lockdown
As of tomorrow, my live account will be under full lockdown.  It's back to SIM, 100% for all trades.  My live account has suffered another direct hit, but I am far from being out of the game.  My decision to allocate $10k/contract has kept me well in the game.  In the past 7 months since I've started trading full time, I've experienced this a situation a few times, and knowing when to call a TIME OUT is critical. 

I'll need to work on the criteria to remove the lockdown, but it will have some element of how close are my actual executions vs. the signals from the system.

Monday, November 7
Total gross profits:  -x,xxx,xx   [Too embarrassed to disclose, but I WILL eventually]
Total trades:  29
Accuracy:  27.6%                   [Wow, very obvious how rogue trades were involved]
Contracts per trade: 2

NOTES:  Another gap up day, but one that filled the gap and continued lower to test the PP pivot, then an extended 1-2-3 / consolidation reversal pattern formed to go higher.  As the bottom was forming, the Berlusconi news popped the market higher, and then steadily crept up to close at the highs of the day.  In hindsight, it wasn't that different of a day, but my approach after a solid morning session ended up being a huge FAIL. 

Lessons learned
So it didn't work this first go around with the $ES_F, but what did I learn? 
  • Know your tilt triggers -- An oldie but goodie.  After the first loss (or first few losses) of the day, my first reaction is to go back in and try to get it back quickly.  This results in revenge trading and overtrading.  And getting in one rogue trade makes taking the next rogue trade that much easier.  It is critical that I wait for a good setup for the first trade.
  • Pulling the trigger -- I have no problems pulling the trigger after a loss.  In fact, I have a problem pulling the trigger too often after a loss. I'll need to find ways to minimize this.
  • SIM vs. live -- I knew to expect differences, and yes there were, especially with the fills.  But what I didn't anticipate was my psychological reaction to the differences.  When I see trades that hits my +2.00 ES target but don't fill, there have been many instances where I let them go to a full stop loss.   And worse of all, I did not prepare properly to determine how I would handle those situations.  This happened a lot more often than expected, and was a trigger in some cases for non-plan trades. 
  • Weekly goals - I need a very solid and crisp plan on what my strategy and goals will be every week.  I have mixed too many apples and oranges together with regards to my trading plan.  When given a specific task, I deliver, so it's time start doing this again.
  • HUGE opportunities - The more time I spend time in the DS chatroom and study the system, the more it becomes clear that DS and the variations to better suit your personality can really provide some really huge opportunities.  And as you grow, the ES market is very liquid, so the fills will not usually be an issue for the retail trader.  Therefore, the more I see this system in action, the more I realize the enormous potential.  That's what keeps me going.  
Today was one of my worst days with regards to trading.  But do I still believe?  YES, without question.

Monday, November 7, 2011

**TILT**

Well it looks like the ugly gremlins from my big owie day last week ended up coming back today.  And this time, they brought reinforcements.  It resulted in a day worthy of this:

Today will be an example to all of what NOT to do when trading.  Following Renato and the Diamond Setups would have resulted in essentially a scratch or small profit day on a very few trades.  He lead the room properly and those that listened, didn't get hurt.

I've read countless articles from others regarding overtrading, revenge trading, going on tilt, lack of discipline, [insert ways to self-destruct here], etc.  And like many other developing traders that eventually become consistently profitable, it looks like the rocky path is what I must also endure while working through my challenges before it all finally hits home, or until I run out of money.

I was fully aware that I was not in the right frame of mind from the onset of today, but I took this as yet an additional challenge to face -- as if successful trading itself isn't enough already!  In the morning session, I was doing well given the circumstances, scratching instead of being slightly profitable due to some missed opportunities.  But I was generally following the rules.

The Trigger
When the markets shot up after lunch stopping me out of a short position, that triggered my tilt.  I noted to myself that the trend had changed, and that I shouldn't fight the trend -- it uses up your emotional capital, so I should only look to be buying.  However, when your thoughts don't sink into your actionable consciousness, and you also combine that with fatigue, it's a real death spiral in the making.

Emotionless Trading - The Wrong Way
Whether it was partially due to the fatigue, I experienced little in terms of heightened emotions.  It was just a matter of getting back up mindlessly after getting stopped out.  A zombie with a mission.  For those who have raised children, it's a similar feeling to being awoken in the middle of the night countless times to sooth a crying baby...night after night after night....until you're so numb, you're in a state of autopilot.
 
To SIM, or Not To SIM -- Revisited
My account is now down net 15% in a span of less than a week.  Red flags are waving everywhere.

So the big question now is whether I need to go back to SIM.  I'm leaning towards it.  However, here's the quirk -- I have reason to believe that I respect the SIM account more than the live account.  Huh?  Yes, for whatever reason, it's easier for me to trade the live account with less discipline vs. the SIM account.  I have no reason why, but maybe it's some deep seeded programming bug deep within my brain that only a voodoo doctor can remove. 

Therefore, going back to a SIM account might only result in a false sense of confidence once again, only to see me fall off the tracks once I go back to trading a live account.  But then again, trading a SIM account will not results in losses to my real capital (nor will there be actual gains).  Best for me to just sleep on it, and decide in the morning on a clear and hopefully well rested head. 

Patience and Discipline
Renato has made countless comments that it takes discipline and patience of following your trading rules to become a successful trader.  On days like this, I know I have failed on both counts.  I feel as though he's speaking directly to me, the guilty party, although I know it applies to everyone. 

I still strongly believe that I can make it as a trader.  Whether it's futures, stocks, or forex, it's clear that when I follow the rules, the profits are there.  Simple as that.  So what is keeping me from achieving consistency?  My mind.  Similar to how athletes or others in various performance fields have coaches, perhaps I need to consider working with a trading psychologist.  I'm sure it's not cheap, but then again, the losses I'm currently enduring ain't pocket change, either!

Defeated and feeling the pain today, but I'll be back at the game tomorrow -- everything starts new again and the score is back to 0.  There's nothing else I'd rather be doing. 



Monday, November 7
Total gross profits:  -1,612.50
Total trades:  22
Accuracy:  31.8%
Contracts per trade: 2

NOTES:  Uhhhh...WTF just happened?




Friday, November 4, 2011

From a Hyperspaz, To a Zen Master

First, let's get this out of the way.  After the big loss yesterday, I'm happy to report that there was no big 2nd day meltdown.  But then again, this was no big monster game comeback, either...although that requires some explanation below.

Friday, November 4
Total gross profits:  $375.00 
Total trades:  10
Accuracy:  50.0%
Contracts per trade: 2

NOTES:  The employment report created the usual havoc for a few minutes, creating a nearly 15 point up and down move that went nowhere.  For whatever reasons, after the dust settled, it seems as though the levels today were in harmony with reality, and my ability to read the overall trend was also in sync with the outcome of the trades.  I was in the zone.

However, just because I was "right" doesn't mean I made money.  My fills were out in left field in the un-zone zone.  Either my entry limit orders or my target target limit orders were not filled.  I no longer get the benefit of SIM fantasy fills, can't easily utilize MIT orders in TradeStation, so my "missed opportunity costs" ended up being at least +6 to +8 ES points over 3-4 trades.  In other words, this day had the potential of being a very solid day.  But the realities of getting fills (or not) just goes with the business -- I'm never going consistently enter all the possible setups or execute all my orders perfectly.

Sure, I'm somewhat disappointed it wasn't a huge day.  But I'm actually satisfied that even with all the misses, I ended up having an "average" day.  Yet another example of the margin of error this system provides me.  I'm also relieved that what has worked in the past month has continued to work today.  Both Renato's DS alerts in the room (which went 5 for 5) as well as the scalp setups I take, were working as they normally do.

During the final hour, there were a few more signals that worked for +2 profits, but I was fatigued and thought it was best to stay on the sidelines.  However, my confidence is stronger because of this experience, and I can't wait until next week to keep moving forward.

* * * * *
Yesterday, a Hyperspaz -- Today, a Zen Master. 

Well, perhaps not so extreme on both sides, but I believe I've returned back to the pre-live account trading mindset, and it fees like I made a big journey.  I can safely say that I've gotten all the "what's trading the live account like" out of my system, so I was able to get back into the zone today.  But every day is a new learning experience, and I'm sure there will be something else I'll face as a challenge in the days ahead.

Based on the past week or so, here are a few random thoughts:
  • An unexpected but very positive surprise has been all the great like-minded people I have met through this blog and the Diamond Setups room. Extremely valuable and very appreciative.
  • Yes, fills really are different in SIM vs. live account.
  • "Only $1.20 a side commissions!" from my broker is a typical marketing diversion tactic.  After exchange and other fees, it's essentially double that figure.  Much greater hidden fees vs. stock commissions.  At least they scale it down with volume.
  • It's easier for me to enter a trade (and overtrade) on a live account vs. a SIM account -- because it's the real deal (call me strange).
  • MIT orders seem very appealing (even more so since I can't easily use them) and would likely increase my profitability.
  • When the markets are really in tune, the DS support and resistance levels work, I mean they can be REALLY accurate.  But without the proper trading rules, they don't mean much.
  • Mind over matter - the biggest challenge to successful trading.
  • When you're really in tune with your trading system, the challenge is not whether you can follow the rules with discipline.  It's whether you can properly execute your orders accurately and promptly.
My goal over this weekend will be to rest my mind and body.  I'll need to recover from whatever minor bug I've had over the past week as well as all the relentless learning my mind has endured, so that I can be well prepared for another challenging and exciting week. 

It has been a LOT of work getting to this point, but I'm really enjoying this journey and truly believe the best is yet to come.  Is it Monday yet?!?

Thursday, November 3, 2011

OUCH! For real

An imaginary post-game interview with trader Grove Under...

Interviewer:  Grove, what happened today?

Grove Under:  I got crushed.

Interviewer:  Oh, I see. What would you say was the primary cause of getting crushed?

GU:  I had a bad day.

Interviewer:  Okay...any other specifics you can give to explain what happened?

GU:  After unintentionally trading my live account yesterday, I decided to intentionally start trading my live account today.  So I guess I was a little too "amped."

Interviewer:  Amped?  Well, any other particular insights you can offer?  Such as from your typical list of "excuses"?

GU:  Well, I actually felt good today mentally and physically and truly believed that I could get through this day with a solid performance, even after a tough start with a full stop loss.  And I'm still feeling generally positive, even with the mediocre outcome.

But since you asked about my excuses, I spent much of the morning pretty amped and trying to force trades, just so I can see how the fills are with the live vs. SIM account.  I also had some nervous energy from finally starting to play the real game.

And having a big loss on the first trade of the is also a weakness for me -- it usually triggers revenge type behavior.  All those factors cascaded into a mini-death spiral resulting in 33 trades, many that were not part of the system.  Yes,  rogue trades.

Interviewer:  Oh, it sounds like you sure did go overboard.  How did Renato's DS system and the trading room do?

GU:  The DS system had the first full stop loss in something like 16 or so trades.  Even Renato and others in the room said this was a tough market to trade today.  If you don't recognize a trend day early enough, you pay dearly in more ways than just money.

But Renato had less than a handful of calls that ended up being being slightly positive by the end of the day, even after the full stop loss.  He did a great job navigating the calls.  Many others in the room had a small loss to slight gains.

Interviewer:  And how did you specifically do?

GU:  Oh, I ended up, ummm.... [unintelligible]

Interviewer:  Excuse me, Grove, are you still there?

GU:  Yes, I'm here. 

Interviewer:  What was your performance today?

GU:  Uh...I was down -$950 gross.  Real money.  On the bright side, it was less than 10 points per contract [sarcasm].  And with 33 trades on 2 contracts, let's just say my broker is happy with their commissions.

Interviewer:  WHOOAH!  OUCH!!  Didn't you just have a big "solid day" on your fantasy SIM account to start off November?  And after yesterday's botch-up, weren't you going to "step up your game" during GAME TIME today?!?!

GU:  Easy...don't rub it in.

Interviewer:  OK, let's put it another way.  How are you going recover from this devastating setback on both your trading account as well as from all the pain from deep within the depths of your traumatized psyche?

GU:  Huh?  In the big scheme of things, this wasn't a disaster.  We're talking about a 6% loss on the portfolio, which is nothing to sneeze at, but it's far from blowing up the account.  I've definitely had worse days.

Now it's a matter of getting down to the basics and waiting for the markets to come to me, for the setups that I know work over time.  It's as simple as that.

One point that helps me to move on is recalling how Michael Jordan would usually recover and have a strong game after a mediocre one.  I truly believe it's the ability to recover from setbacks, such as this, that will help define how well I will succeed in the future. 

Interviewer:  Any other final thoughts?

GU:  Mistakes made, lessons learned.  This isn't the first bad day, and it won't be the last.  And now that I got all this "what will the fills from trading the live account be like" out of my system, it's another thing out of the way.

And yes, it's time once again for me to "step up my game." Let's do it!

* * * **
Thursday, November 3
Total gross profits:  -$950.00
Total trades:  33
Accuracy:  48.3% (excludes 4 scratch)
Contracts per trade: 2

NOTES: A tough, choppy, slowly creeping trend day that ended up being a chopfest for yours truly on the first day of intentionally trading the live account.  The ES opened gap up, went down to fill  the gap, and gradually stepped higher throughout the day.

In order to gain the sense of fills, there were many pressed trades that should not have been made, as well as many trades where I manually exited at breakeven or at a loss, when they eventually made their +2.00 targets had I just let them go.  If I had selected a profit target of 1.50, it would also have changed the outcome significantly in a positive direction.  And during the final hour, it's clearly evident on the P&L how I tried to force my way out of with less than favorable trade executions.

Wednesday, November 2, 2011

Is it SIM or is it LIVE?

One quick moral to the story I have to share, without even telling a story first is -- you should avoid operating heavy machinery (and especially trading) when under the weather or if your mind is scrambled and not feeling so clear.  OK.  Then add the FOMC announcement dimension to the mix, creating a FUD (Fear Uncertainty Doubt) loaded trading environment, and that makes for a dangerous combination. 

Therefore, I said to myself early that it's a good day to take it easy and be very cautious -- just sit back and watch unless a really great opportunity comes up (i.e. Renato gives an alert). 

Do I always listen to myself?  No, I'm still working on that, so moving on...

The other important item of discussion is that you should always be aware of how to log into your SIM account vs your LIVE account.  Tonight, when I went to download my trades to update my Tradervue trading journal (which by the way, now supports OpenECry), I realized that I was logged into my live account the entire day.  Oh.

I didn't even notice it during the day...Not even once...After 7 hours of starting at my screens...And even after executing a over half a dozen trades.  Did I already say how you should avoid trading when...

I still remember complaining to everyone about my first trade, which went up as high as +1.75 (not quite reaching my +2.00 target order), that it doesn't really count because I got a SIM fantasy fill.  My order was to buy was at 1235.00 limit and the price never broke below that bid (ensuring a fill on a limit order).  So I assumed this was yet another SIM ploy to make me feel good so that I finally start trading live and begin paying real commissions.

I knew I would feel a bit "dirty" telling other I booked profits on a fill that would not have been very likely, so I ended up raised my stop to b/e and let it get stopped out -- made my conscious feel better, at least at that time.  I also noticed some other limit orders taking a bit longer to fill and thought "Wow, they must have changed the SIM parameters to make it seem more real!"  Well, it sure wasn't "they" that did it.

Now the question I need to consider since the seal has been broken is...do I just move forward with trading live...is it GAME ON!?!  And if so, why couldn't I have started yesterday when I had a nice solid day?  I'm going to sleep on it and decide tomorrow, with hopefully a clear mind.

Wednesday, November 2
Total gross profits:  -$25.00
Total trades:  7
Accuracy:  40% (excludes 2 scratchs)
Contracts per trade: 2

NOTES:  FOMC days generally tend to raise a trader's FUD in anticipation of the news.  So I was being extra cautious and had 1 trade before lunch (as described above).  In the final 30 minutes, well past the FOMC hype, I had 4 trades (out of 7 total).  There were some great +2.00 scalp opportunities in addition to Rena's calls (I think he had 3 or 4 calls today, all positive assuming aggressive entry criteria) that I missed fills or botched during the morning and early afternoon due to being overly cautious.

So instead of being up +6 to +8 points by the afternoon, I was essentially flat.  In hindsight, I felt the pressure to press some trades in the late afternoon to "make up" lost ground, and was very fortunate that this incident didn't blow up and result in much damage.  The cumulative P&L curve in the afternoon speaks for itself.

Well, that's enough drama for a day that should have been quite uneventful!

Tuesday, November 1, 2011

A solid start to November

I'm still recovering from a slight bug, but I'm relieved to say I ended up having a solid start to November.  Started the day with a better sense of focus and purpose and maintained it until early afternoon.  Although by the end of the day, I admit my mind was a bit scrambled and I ended up missing some layup trades.   

Tuesday, November 1
Total gross profits:  $925.00
Total trades:  10
Accuracy:  87.5% (excludes 2 scratch)
Contracts per trade: 2

NOTES:  Yet another gap down day, although the price action today was not quite as narrow as yesterday.  It was still a challenging range-bound day, but the size of the range gave enough room for scalp trades to effectively work.  In addition to some selective aggressive scalp setups, I also remained focused on Renato's calls (and as expected, it paid off).

What's the best type of market for me?
Based on my performance today, it seems as if I do better in range-bound markets, although I will need to check my journal.  So a thought that comes to mind is, "Am I a better range-bound trader or a trend day trader?"  Since there are generally more range-bound days vs. trend days, one would think that this may be good trait to have.  Although conventional wisdom says that trend days have the potential of generating considerable profits.

For now, I'm not sure either way, because based on some of the analysis I've seen using DS for aggressive scalps, there are still great opportunities to generate respectable profits even in challenging range-bound days such as today.  Therefore, in addition to doing research on my limited historical data, time will eventually tell whether market conditions do make much of a difference in my performance.

Breaking the cycle
After a solid day (or week, or month, or...), it's common for many to let down their guard because they think they're Superman.  I've been guilty of that!  So my goal tomorrow is to break that cycle.  I will work to maintain the mindset I had today, which is to remain focused and constantly on guard for the next trade. And regardless of my ending P&L, I will consider myself successful if I minimize careless errors and take all trades that meet my criteria -- quality of execution will be key.

But first, I need a good nights sleep.