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.

3 comments:

Matt said...

Hey Grove its good to see your making progress! I think when Renato said to make it your own most comfortable style he was strictly talking about entering on an aggressive vs. conservative basis and going all out in a couple points or scaling out as it moves in your favor. Adding your indicators or trend lines to a DS isn't making it your own its making a new system.

Is it rogue to take a DS trade that has confirmation of another indicator or trend line you used from the past? I don't think so, I think it just adds a little confluence that may emotionally help you pull the trigger on a trade, but it is rogue to take a trade based on a trend line or indicator that doesn't have a DS working with it.

Tomross58 said...

Hey Grove,,

I have to agree with Matt here but completely understand where you are coming from. There is a system here that works when properly followed and rules are adhered to,,,,we all agree,,,,if we have an indicator or moving average that can add to our confirmation thus giving more confluence then I think great. BUT we must remember why we are here. Pivots work, moving averages work, bollinger bands work, there are so many indicators that work I cant even mention them all. None work 100% of the time but a person can make the argument that everyone of them at one time or another work. In my years of trading I have never been able to put anything together well enough to become consistantly profitable, until now. I see what Renato is doing and it makes sense, but it must be followed. I will quote Matt here "Is it rogue to take a DS trade that has confirmation of another indicator or trend line you used from the past? I dont think so,I think it just adds confluence that may emotionally help you to pull the trigger on a trade, but it is rogue to take a trade based on a trend line or indicator that doesnt have the DS working with it". We (I) have to really keep this in mind as it surely is something I have done in the past and do not want to repeat again. Thanks for your help yesterday with the Fibs as I didnt have them the same way you did and I corrected them.

Tom

Grove Under said...

Matt/Tom:
Thanks for your comments, you both make some great points that help me to see more clearly.

I know I'm crawling up a slippery slope, and I want to avoid doing that as much as possible.

It's the whole "why do we want to reinvent the wheel" syndrome. The DS system works great as is, but seems like it's human nature to want to customize things to better fit our wants and needs.

Being aware of all of this will help me to proceed with caution and both eyes wide open. Thanks again!