Thursday, December 20, 2012

A break from radio silence

Has it really been about 2 months since my last post?  A lot sure has happened since then.  Hurricane Sandy certainly disrupted life for a while, and when I returned to trading sometime in November, it's pretty clear I wasn't ready.  I was back from my hurricane hiatus, swinging for the fences, looking to make it big.  Probably as a way of lashing out at life's challenges. 

I was having upwards of 20-30 point daily P&L swings (both profit and losses) trading ES with only 1 contract.  I even had some overnight sessions with the flighty and volatile soybeans, trading late into the night resulting in 20 or more point P&L swings on a single contract. 

The only problem is that for every 20+ point day, there were more days where I lost 20+ points on 10 point range day.  Big recipe for disaster.

Yeah, I wasn't watching my risk...at all.  And I paid the price...big time.

Although my forex account has quietly gained well over 150% for the year, I ended down in my futures accounts over 70%.  Luckily, in absolute dollars, I had started with a minimal sized account just to trade, so there's hardly any impact to my overall financial condition. 

But from the psychological capital perspective, I was hit hard. 

I usually think primarily in percentages of portfolio, and when I took the hit in November, I wasn't even thinking in terms of percentage of portfolio risked (only thought how much $'s I could/should make).  In hindsight, this is simply not acceptable.  This is not what a professional trader does.  This was pure gambling.  In order to prevent myself from truly blowing up all my accounts, I took preemptive action and transferred money out.  Time out.

I've learned through experience that it's so easy to destroy your money with reckless trading, but so much more difficult to accumulate profits.  All it takes is one bad day of senseless trading to wipe out days/weeks/months of hard work.  It's a similar concept trusting someone -- what takes years to build trust with someone, can be forever broken in just moments.  I need to respect this concept.

During the darkest hours, I admit, I had thoughts of quitting. 

This doesn't happen often, but I needed to think of an alternative life to trading, and strangely enough, this usually brings me back to trading.  Trading is something I've been planning on doing full time for the past couple decades, and I've realized after careful consideration that there's no better time than now to continue charging ahead.

By the 2nd quarter of 2013, I will have been trading full time for 2 years.  It sure does seem like I've been at it a lot longer.  I remember hearing many others say it takes on average 3-5 years in order to become a consistently profitable trader (for those who even make it that far), and I always thought I could accomplish it in a year...or less.  Sure hasn't been the case.

Where has this trading journey taken me so far? 

I started it all in early 2011 with stocks, and after about half a year, I lost about half my account, literally all the losses were commissions.  I was breakeven on a gross basis, even with all my revenge/rogue/impulse trades.  I discovered that there were certain defined setups that worked very well for me, but just couldn't be patient enough to avoid the revenge and rogue trades.

As an escape, I decided to switch to futures which had more leverage and no pattern daytrading rules to worry about, and ended up losing over 70% in about a year.  A little less than half of my losses were due to commissions.  Unlike stocks, I definitely had a gross loss trading the ES and nearly all of my losses came on a handful of weeks where I went on tilt and got sucked down a death spiral of revenge trading. 

In hindsight, the leverage/tick size/contract size of the ES emini in relation to my account size really put me at a disadvantage.  I couldn't size down below 1 contract and reduce risk/scale out of positions as I easily could with stocks.  My thought was that if I couldn't be consistently profitable with 1 contract, why even bother sizing up?  I was stubborn to try and make it with an all-in all-out trading style using 1 contract. 

What and how I'm doing now

And due in part to this last experience of pain, I've recently escaped again.  However, instead of focusing more on forex (which has continued to work relatively well since I started trading full time) I've decided to explore stocks once again and for whatever reason, utilizing options heavily. 

I'm currently trading with a very small equities account and don't want to get triggered as a pattern day trader, so I only swing trade.  This restriction has reigned in the revenge and rogue trading significantly, since I can only execute a few trades a day and thus have the time to think them out.

During December to date, I've only had about 18 trades, of which over 70% are winners with a profit factor greater than 3.00.  In comparison, a bad revenge filled day from the past would produce more than 20 trades with an accuracy of < 30%, so this is significant change. 

I am hopeful and optimistic that maybe, just maybe, I'm starting to make the turn.  But then again, I've had this feeling before...which then lead to me to overconfidence, which then led me to falling off the discipline wagon in spectacular fashion. 

So I am determined more than ever to stay the course of maintaining a consistent and disciplined trading process, rather than focusing on P&L.  I also have to credit the stock trading room I've recently joined, which has making a big difference in the way I think and trade.  More about that in the future.

2013, here we come!

Since I'll be traveling over the holidays next week, this year is essentially over for me and I'll be shutting down.  So this will likely be my last post of the year. 

I'm really looking forward to seeing my old friends and family back in San Francisco.  Hard to believe it has been about 2 1/2 years since we moved from the beautiful Bay Area, so there will be a lot of wonderful catching up to do.

I look forward to 2013 with renewed optimism and confidence.

Happy Holidays to all, and best wishes for a great 2013!

Saturday, October 20, 2012

Recap: Week ending 10/19 - Tough week but good finish

The week ending 10/19 was another tough week as I continued my long journey to find my way.  It ended on a good note, but it was full of difficult moments.
STARTED THE WEEK OFF WRONG
I started the week focused on maximizing P&L -- not on my goals to limit the number of daily trades to 3 and to limit my profit targets to +2.00 ES points.  I wanted to CRUSH the markets.  That should have been a big warning sign.  Sure, it felt OK that I ended up making a decent profit to start the week, but in the back of my mind, I knew I fell off the program.  I know was cheating myself.

CRACKS FORMED ON TUESDAY
Whether it was from guilt or who knows what, the cracks started to form on Tuesday.  Just prior to lunch, I called it a day barely exceeding my # of trades goal and although it shouldn't matter, I had a slight profit.  Nice job, I'm getting back on track.  But...in the final hour, I went on tilt.  I took what I thought was solid setup to end the day on a really good note, only to realize I totally read it wrong.  Yes, got greedy, got stopped out, revenge traded, and ended down a few points.  Ugh.

MONKEYS RAN AMOK
So when Wednesday came around, the monkeys ran amok.  Shortly after the NY open, I already had 3 losses in a row and it was all downhill from there.  My initial thought was, "We just opened!  How could I stop trading so early in the day?"  My will was weakened, I took one more trade, realized I did something I shouldn't have, which then snowballed into "what the heck, I blew it", and my behavior for the rest of the day ended up being yet another big ding to my psychological capital.

RADICAL SHIFT / DO SOMETHING DIFFERENT / DO WHAT WORKS
Just around that time, I realized that the S&P was in overbought conditions based on the interpretation of the daily charts that I have used for many years, primarily on the forex charts.  The high probability setups only happen once or so a month, and I just don't have the patience to simply wait only for those signals. 
$ES_F - daily chart - 10/19/2012

But I needed to do something different to change my ways and make new habits after a rough start to the week.  Swing trading has worked well for me in forex products, so why not try something similar to that in the ES?  And when I am swing trading, the setups are very infrequent, so it's much more difficult to get into the rhythm of impulse trading -- another plus.

THE PLAN
So Wednesday night, a plan was made to establish a swing short in the ES, very similar to what I do with the forex trades.  A couple indicators I use on the daily timeframe showed a nice clean overbought condition, so it was time to find a good short entry.  My target was 1425-35 area.  I entered the short Wednesday evening and by Thursday morning, I was up over +5 at one point.  But then came the big Thursday morning grind up where I got stopped out just 1 point before the erroneous Google earnings release that spooked the market around lunchtime.  It was tough to get stopped out so close to the highs, but I followed my trading plan and felt good about that.

I ended up taking a few solid day trade setups to end the day with a slight profit.  And after the market close, the daily charts looked just as bearish, or even more so than ever.  So Thursday night, I reentered the short, utilizing some good resistance areas from earlier in the day.  That short ended up being 1 tick below the high of the night and following day.

PATIENCE IS TOUGH BUT WORTH IT
At the Friday NY open, something strange happened.  The market gap opened below yesterdays close and ended up having an "opening drive" lower.  That means it sold off strongly after the open with very little rotation/swings higher.  This was very unexpected based on pre-market action as well as other factors. 

A very key point to remember is that when there is an opening drive, there's about a 50% chance for a trend day.  Since trend days generally happen < 20% of the time, those are pretty compelling stats.  As the ES tanked and continued to fall with minimal rotations higher, I knew there was a good chance it's going to be a trend day, and that trend days generally end at the extremes of the day -- in this case, the lows of the day. 
$ES_F 30m  10/19/2012

I couldn't be near the charts for very long, since the temptation to exit would become stronger, so I took frequent breaks.  Having patience to just sit on your hands on trend day is tough. 

But I ended up exiting once the market started to consolidate a couple hours before the close, weary of a reversal bottom that would rip higher into the close.  And most importantly, it was right in the middle of the 1425-35 range that I had targeted for profits.  I followed my plan, although it happened 1-2 days quicker than I expected.

As it happens more often than not for trend days, the market did end up closing at the lows.  I left about +6 ES points on the table, but I'll consider myself fortunate that I was able to book almost +24 points.

RANDOM QUESTIONS AND THOUGHTS
The week ended on a good note, but I still have many questions and issues floating in my mind that I will need to evaluate and address.  This last trade hardly resolves my many challenges.  So although both my financial and psychological capital have been somewhat replenished, there are still a lot more obstacles to overcome.
  • Over the past couple years, I've been successful at simply swing trading, so why do I keep trying to trade more like a scalper that goes for big wins?
  • Oh, but what would I do during most days just waiting for a swing setup?  One part of me likes the "action" of daytrading!  [** Flashing lights and "Danger Will Robinson!" alerts going off **]  Trading should not be something you do to help pass time.
  • Ending the week on a strong note is nice.  But this only means I need to be extra careful not to be overconfident on Monday.  And how will I feel if the market tanks another 20 ES points...without me on board?
  • Am I getting closer to the point where I will stop chasing success?  The pieces of this trading puzzle seem like they're starting to come together, but I've said/thought that many times before.
  • Cough medicine and the recent correlation to trading performance, so strange.  But correlation is not causation!  Or maybe not?  If so, what does this really mean?
  • Why is limiting myself to 3 trades a day so tough?  Sounds so easy, doesn't it?  What if I had originally set the daily trade goal to 6, would that have made any difference?
  • Although I have my fair share of really tough days that have hit my psychological capital hard, I still believe from my core that my dreams of trading success will become true.  It's only a matter of time.

Sunday, October 14, 2012

Back to the drawing board

Well, that didn't last long.  My plan was to focus strictly on only two simple metrics: 1) A max of 3 trades per day and 2) limit profit targets to +2.00 ES points.  P&L wasn't supposed to matter.  I didn't even last 2 weeks before I had a big blow up of my goals.  I had a couple days last week with around 30 trades.  What a disappointment.
Week ending Oct 12 / From Tradervue.com journal
It was like asking someone who loves and eats a chocolate bar every day to suddenly being allowed to eat only 1 tiny square after getting a job at a chocolate factory surrounded by thousands of bars.  Or someone who drinks 3 cups of coffee a day, to cut back to 1/4 cup.  And whatever other example you can come up with.  Not impossible, but very difficult.  And very much subject to the binge effect.

Then there are those days, like Friday, when I felt I was in such tune with the markets under unusual conditions.  I had barely 4 1/2 hours of sleep and felt emotionally "hollow".  I was also on cough medicine, both huge warning signs.  However, the lack of sleep and cough medication was a strange combination -- one which required me to only interpret and act based on what I saw on the charts, with very little emotion or mental chatter. 

Instead of looking only for setups, I also kept talking about the markets from a "story line" and "contextual" perspective, from both the bull and bear viewpoints.  That was different.  For example, when the better than expected Prelim U of M news came out at 9:55 ET on Friday morning, the market moved strongly higher with initiative buying. 

But something happened.  The market could not continue higher and began to stall.  Price action didn't jive with the better than expected news.  So when one of my favorite bearish chart pattern appeared, it screamed SHORT! 

There were many of these types of moments on Friday, and maybe that's one of the reasons why I keep trading with hope. 

Trading only a single contract, my MFE (Maximum Favorable Excursion) for all my trades on Friday was almost 28 ES points, double the RTH daily range.  Yes, it's not very likely to close out anywhere near 100% of your MAE.  But I ended up with about 1/3 of it which is so-so, but came oh so close to booking about 1/2 of it of my total MAE. 

Something was definitely different about Friday and I really hope it wasn't due to the effects from my cough medicine, because I'd rather not become some sort of cough medication addict to improve my trading!  So was it just a lucky day?  Was it just some false hope, like a slot machine that pays off just enough to keep you sitting around longer to ultimately lose everything?  Or was it an glimpse of more progress to come?

This weekend, I went back to review my blog entries from a year ago.  At first, it was disappointing to see that I've been essentially working on the same key issues back then as I am now.  Same story over and over and over again.  I feel like I've been spinning my wheels for an entire year. 

But the successful method I've been using for my forex swing trades have essentially remained unchanged.  And on another positive note, I do believe I'm wiser and better educated now from regarding trading methodologies vs. a year ago.  However, being smarter means nothing when a weak mental game prevents proper execution of trading methodology.

All of this raises even more questions.  I'll take some more time reviewing my journal entries from a year ago, to help understand what I did or did not do over the past year to address and take better control of my issues.  It's back to the drawing board.

In the past year, I also realize that my psychological capital has been hit much harder than my financial capital, but my will to succeed continues to burn strong. 

Friday, October 5, 2012

Review: Week ending October 5 - mixed results


MONDAY
The week started off on a success.  I had the patience to wait for the solid setups, executed well, limited my profit targets to +2 ES points, and I stopped trading once I made 3 trades.  PASS

TUESDAY
Only 1 trade.  And nothing else I saw was good enough to take.  It didn't bother me a bit.  I'm on a roll.  PASS

WEDNESDAY
I started with 3 losses in a row.  Uh oh, I'm no longer on a roll.  I was ready to quit and made the decision to move to SIM.  However, another setup came up, I took it, realized it was a live trade, but didn't immediately close it out. 

It ended up going +2.25, which means a +2 target would have filled.  But the problem was, I had moved my profit target way out.  I broke my +2 profit target rule.  And the traded ended up b/e. 

Monkey alert!

I knew this had the potential to get bad, was quite aware of it, and even told others about it.  For the most part, I thought I had successfully quit at 4 trades.  But the damage was deep, because in the last 30 minutes of trading, I executed *6* more trades. 

Looking back, I had very few breaks during the day, I was fatigued, and my willpower was weak.  All I thought about was making up my losses for the day.  It was comeback time!  And it completely backfired.  FAIL

THURSDAY
No repeat of the prior day.  I limited myself to 3 trades and never changed the profit target.  PASS

FRIDAY
After starting with a scratch, the next 2 trades were a losses.  And it was only 9:50 AM.  What would I do for the rest of the day?  Less than 2 minutes later, I took my 4th trade, I broke the plan.  Another loss.  About another minute later, another trade entered, another loss.  And so on...

I ended up with 5 consecutive losses.  By this time, the damage was once again done, and my mind was all about getting my money back.  Total focus on P&L.  I was quite aware of it, but by that point, I had thought:

"I've already broken all my rules, so F the plan.  I'm going into comeback mode and getting my money back!"

Sure, it ended up OK from the P&L perspective.  But P&L wasn't in the goals of what I'm trying to accomplish this month.  My goals were to simply:

   1)  Limit my trades to 3 a day
   2)  Limit my profit targets to +2.00 ES points

So Friday was a complete FAIL based on both goals.

WHAT HAPPENED?
What was the trigger for those FAIL days?  Nothing new.  It was basically when I either start off with a loss for the day, or have more 2 or more consecutive losses in a row, revenge trading mindset becomes comes into play.

On a good note, there were many instances this week when I was quite aware of my plan as well as my emotions for that particular moment.  And I successfully kept myself out of trades.  Many of those passed trades ended up being profitable, but it didn't bother me too much.  That was great to know.  It was also good to see I was reading the markets relatively well.

NEXT WEEK
I will continue with the plan. 

I will wait for only the best setups every day and limit my day to 3 trades.

I will limit my profit target on every trade to +2.00 ES points.

Upon internal reflection, I'm making good incremental progress.  But I have far to go and it's time to step it up.

One week down, 3 1/2 more to go.

Sunday, September 30, 2012

September update and new October goals

One of my primary goals for September was simple -- gain control of my overtrading by minimizing the number of trades per day.  The successful control I had through most of September surprised me (to average about 3 trades/day).  But as we approached the final couple days of the month, I let my overconfidence get the best of me and ended on a bad note. 
I was in "single parent mode" during the final days of September, which usually results in sub-par performance.  Add to that lack of sleep and being under the weather.  These were all major willpower weakeners.  I should have known better.

More significantly, I believe the minimal number of impulsive trades I had for nearly a month made me think I finally overcame my biggest challenge, I became overconfident and started to think the forbidden -- I now deserve to crush it and end this month with big profits.  Yeah, I started thinking about the P&L.

The only thing that got crushed was my psychological capital. 

October goals

In September, I had minimal regards for P&L since the goal was all about minimizing the number of trades per day.  So with the limited number of "bullets" per day, when I finally got into a trade, I found myself swinging for the fences more often than not, getting stopped out at breakeven many times even after being up 2 or 3 points and more.  It was a bit hypocritical, saying P&L was not important and yet still holding on for big moves.

So for October, I'm going to add on another simple goal -- every trade will have a +2.00 ES profit target, no more.  I may exit earlier if conditions warrant, but I will NOT be holding for the big winners.  That will happen in the future once I start scaling out of entries with multiple contracts, and then letting a runner run.

Therefore, I'm going to continue to keep my goals simple and easy to track for compliance: 
     1) Average about 3 trades a day (focus on solid setups)
     2) Profit targets at +2.00 or less (lock in higher probability profit targets)

In the big scheme of things, I feel pretty good that I was able to maintain control for a decent (at least for me) stretch of time.  So now, it's time to just step it up and execute.  Let's do it.

Thursday, September 20, 2012

ZERO = progress

The month of September has been groundbreaking in that my propensity to overtrade seems to have slowed considerably, almost overnight.  It reminds me of the time when my son was almost 3 years old.  He constantly sucked his thumb and no matter what we tried, we couldn't stop him.  So we eventually gave up. 

But then not too long after we backed off, we realized that he had stopped, cold turkey, kaput.  I had fears of a relapse, a fakeout phase, but no, he never sucked his thumb ever again. 

I can only hope that I have the same experience with my history of rogue/revenge/over-trading, but I'm pretty sure it'll be something that I'll need to work on for as long as I trade.  But as of now, here is how I'm doing from the perspective of number of trades per day:

DATE   # TRADES
====   ========
5/5       5
5/6       1
5/7       7    <- 4 rogue trades, narrow range day
5/10      1
5/11      3
5/12      3
5/13     ZERO  <- Big trend day, but no trades     
5/14      9    <- Went overboard after ZERO day

5/17     ZERO 
5/18     ZERO      
5/19     ZERO      
5/20      3   

AVG/DAY = 2.7 trades   <- Big success, last month was 7.3!
GROSS P&L = +7.75      <- Big underperformance, but this metric 

                          is currently irrelevant

I started the month of September back from vacation with some of my old habits in place.  But on a good note, the trend in the number of trades per day has continued to decline steadily.  I'm quite surprised how many ZERO trade days I've had.

After sitting out of the big trend day on May 13th, I probably felt like I missed out and ended up going a bit overboard the following day on May 14th.  Shame on me.  But then I stepped up, and there were 3 ZERO days in a row -- I don' t think that's ever happened before.  Patience is working.

Interestingly, I haven't experienced withdrawal symptoms from reducing the number of trades.  I'm sure the chatroom I've joined as of this month has been a big factor.  I'll write more about it at another time, but the key has been the similar outlook and style that the moderators and many of the members have with my own.

I've also tried my best to increase the level of awareness regarding how I am feeling, and more importantly, removing myself from trading when I get those feelings of revenge or from bored twitchy fingers.  Constantly being aware of my overall psychological and physical state is something I've been working on for the past few months.  But it seems as though I am now better able to take action.  That's a big step.

One internal dialog I've started is to ask myself "How will I feel if I get stopped out of this trade?" before entering a trade.  If I know I'll be completely at peace with the outcome if I get stopped out, then I know it's a decent setup.  Otherwise, I'll pass up on the trade.  And if I impulsively entered a trade, I will exit it immediately.  I haven't counted the number of times I've avoided an entry this month, but it's significant.  That's good sign of progress.

All in all, this focus on considerably reducing the number of trades and becoming much more selective with my trade selection feels good.  As least to me, those days of ZERO trades indicate big progress.  I'm know I haven't been behaving this way long enough to turn it into a habit, so I'll continue to focus on: 1) minimizing number of trades, 2) maximizing trade selection quality, and 3) minimizing attention to P&L.

So ZERO = progress.  My behavior is changing for the better.  But I still have a lot more work to do...

Monday, September 10, 2012

Still chasing success, but...

Summer is over.  And I admit, even with my limited time for trading over the past couple months, I not only did some SIM trading as expected, but also had some real live trades on and off through July and August.  Yes, I shouldn't have, especially since I was experimenting with various trading methods, and ended up trading live a whole lot more than I should have.

Recently did a review, and I see I ended up down around 40 ES points at one time, recovered around 40 points, back down around 40 points, and back up a bit, for now, on mostly one contract trading.  Quite a roller coaster ride that I'm not proud of.  Ugh.

Why did this happen?  I admit, I'm still chasing success.

Taking the last week of August off for our family vacation helped to slow and settle my mind to reflect back and understand what (and why) I'm doing what I'm doing, which can often feel like I'm banging my head against a brick wall.  I'm still looking for something that works for my style over the long term.

Although I usually feel that I'm getting closer to that elusive consistent profitability, I often step back and realize how long I have been thinking that way.  I'm going through various stages of development such as the lingering "Trough of Sorrow", then there's the "Crash of Ineptitude" which happens too frequently, all the while getting faked out by the "Wiggles of False Hope."

I know there are more disciplined and effective ways of learning and improving. But for me, based on my past paths to success in other endeavors, the not-the-most-efficient-shotgun-and-grind-it-out method seems to be how my journey will continue.

Turning over stones

I will need to turn over as many rocks as I can, until I get to the stage where I feel I've done all that I can.  It reminds me back to my much much younger days of visiting the local 7-11 convenience store after school.  I would see so many different kinds of candy for sale and would spend an inordinate amount of time looking at each one, trying to figure out which one to buy.

Now days, if I even want to eat some candy, it only takes a few seconds to select it, and I'm done.  Unlike my trading, I've already turned over many stones over the years, and I'm done searching. 

I also used to spend hours in the record store every week, endlessly looking at both current and old albums from all various genres, learning about the various artists, figuring out how to best spend the money I made from my paper route.

Now days, my desire for music is much more muted, although my taste in music is better focused.  So with sites like Pandora, it no longer takes me a very long time to select something to play and just move on.  Although there will always be some new stones to turn in the world of music, gone are those days when I would obsessively spend many hours a day/week focused on turning over those musical stones.

And my biggest "chasing success, success story" is that it took many many years of turning over many stones before I met my wife.  But that journey is thankfully over and has resulted in a family with 2 great young children (as long as they are behaving!), for which I am very lucky and thankful.

Now days, the amount of work and effort to maintain my relationship with my family is greater than ever before, and continues to grow at a breathtaking rate.  So although I'm done searching, the real though work has only just started, and seeing the positive return from my efforts, watching my children grow, is something beyond measurement.

So back to trading -- I often see many people who are very successful in other fields say trading has been one of their most difficult challenges to master.  Taking my current path of experimenting/chasing success/turning over as many rocks as I can to become successful with trading is an expensive way to learn, both from a financial and psychological capital perspective.  But I'm not sure if there's any other way, based on how I operate. 

On a good note, I do think the rate of "turning over stones" is starting to decrease.  So maybe I'm starting to settle down.  Maybe I'll stop searching so hard and settle down with a specific trading method.  And maybe I'll finally start putting in much more effort to maintaining a successful trading process.  This will be a key "tell" that I'm moving in the right direction.

The importance of environment

But here's one missing piece I've recently overlooked.  I have discovered that my trading environment is a big factor in my ability to remain disciplined in successful.  When I was doing some random trading over the past couple months, I was pretty much on my own, operating with minimal structure, exhibiting a lack of self discipline.  Recipe for disaster. 

I now realize that I've done better in the past when I'm a part of a group all trading a similar methodology.  So for now, I need to be a part of a team again.  The best environment for me would to be physically on a trading floor with other like minded traders.  But since that's not realistic at this time, the next best thing is to be a part of a chatroom.

So here's my new plan based over the next few months:
  • To continue daytrading the ES, I've joined a chatroom which has a live streaming audio and video feed of the charts.  Most importantly, there is a full time moderator using a methodology that I've recently evolved towards and have been exposed to quite a bit since earlier this year.  Based on attending for only about a week, this seems to have instilled a new sense of confidence and discipline.
  • I've also joined a swing trading service for stocks, just to see if this timeframe might be better suited for my personality.  I've opened up a new equity account just for this purpose and will slowly ease back into stocks after taking a break from equities for nearly a year.
  • I will also continue to monitor the forex markets for swing trade opportunities.
Will this direction be yet more random turning over of stones and a continuation of chasing success?  Or will this lead me to more focus, more self discovery, and ultimately, bring me closer to becoming a consistently profitable trader?

We shall see.  I still believe.  The journey resumes.

Monday, July 23, 2012

Crawling before walking again

As the family schedule stabilizes somewhat until it gets disrupted even more later this month, I'm reflecting back on my limited time for trading and realized that I've had some interesting progress.  I last wrote about taking a new direction to evaluate and create various trading strategies using TradeStation, and the ability to get nearly instant feedback via backtesting has been very enlightening.

Here are a few areas I've researched in the past few weeks:
  • Probability of breaking overnight levels - FT71 has frequently stated that either the overnight/Globex high or low levels in the ES will be broken over 90% of the time.  Although I've heard the 96% figure, I wrote a test that indicated the probability to be around 92%, based on 6 months of tick data.  Close enough to give me confidence that this particular event of touching one or the other overnight level is nearly a sure thing.
  • Electronic Local's trading methodology - I've attempted to recreate some of his trading systems he discusses on his blog, and along the way, my work took me on a tangent that resulted in some automated systems with good potential with both the ES as well as the AUDUSD and EURUSD forex pairs.  Another setup he discusses is very similar to a Diamond Setup pattern I really like, as well as how to trade the gap open fill.
  • Gap opens - In addition to EL's blog, Trader-X's blog is where I really learned to appreciate gap open setups.  I've created a system to determine the probability of a gap fill based on the number of points the RTH ES opens from the prior day. Certain gap open setups, after backtesting over 10 years if data, have resulted in a surprisingly consistent and profitable outcomes.  I've also discovered a great website http://www.thegapguy.com that covers gap fill strategies and statistics.  One interesting takeaway from that website I'll investigate further is incorporating the location of the gap open in relation to the prior day to determine even more refined probabilities.
So where does this all take me?

I'm very likely headed down the path of becoming more automated with my trading.  I've always believed that a great discretionary trader can make much more than an automated trading system, and Electronic Local has also written about that topic.  Note the emphasis on great trader, which is far from common or ordinary.  I'm pretty certain a great discretionary trader can make more in a few days (or even a day) than a solid algo can do on average over a month.

As a discretionary trader, it's quite obvious I'm not there yet

I'm the first to admit that my execution skills and inability to get beyond revenge and rogue trades has cost me plenty, so I'm still working on those challenges.  Therefore, having some algos auto trading in the background, chipping away at generating some consistent profits might be a new direction as I continue to develop as a trader.  The level of progress I make executing with patience and discipline as a discretionary trader, will determine how much focus systems trading will become.

Systems results -- theory vs. reality

In the meantime, I'm currently tracking a few different automated algos and trying to determine the real life potential.  What I have found is that what looks good in backtesting, will not do quite as well in SIM -- which means that when traded live, performance will suffer a bit more.  I'm utilizing limit orders for profit and entry orders.  But the stop market orders are always a bit of a wildcard, especially if the trading system is turned on overnight during certain hours when the markets are thinly traded.

Crawling but making progress

So although I feel like I'm back to crawling these days, I'm still learning a lot through the process of researching, developing, and testing automated trading systems.  There is good spillover effects for my discretionary trading.  The work has helped me to gain even more confidence with certain trading setups, as well as putting to rest certain setups that just don't do as well as I had thought.  Now if they could simply make a pill that makes me avoid revenge and rogue trades...

It's also good to see how everything is building up on all the great knowledge I have gained from Trader-X, SMB Training, Diamond Setups, and others who have heavily influenced my trading.  I'm slowly moving ahead, becoming more comfortable with the slower pace, and will continue to work on creating and refining a trading system and process that fits my personality and style.  But I do admit, there's still an element of chasing success...

Hopefully, I'll be back to walking and perhaps running again in the next month or two, at least once summer is over.  Until then, I'll keep chipping away.

Monday, July 2, 2012

Inspired to better understand the probabilities

I've utilized my limited time recently by going back and re-exploring mechanical trading programming from well over a decade ago.  For the longest time, I have passed by this area of trading with the not-so-accurate attitude of "been there, done that, not interested."

Automated systematic trading is a broad, complicated and complex field that I will never be able to fully grasp, especially on the institutional side.  Now days, this field of trading has fancier names -- such as algorithmic, algo, black-box, robot, HFT, and so on. 

For the individual retail trader, I'm still confident that a very good discretionary trader will be able to consistently outperform a solid mechanical trading system.  This is one of the primary reasons why I've always wanted to become a good discretionary trader and moved away from mechanical systems development.

Then why am I re-exploring developing mechanical systems?

I have been recently inspired by Electronic Local's blog, which is authored by a former pit trader on the LIFFE exchange who made the transition to become an upstairs trader.  I spent the past week going through his entire blog, and can report back that he has been very generous explaining his trading system.  I especially appreciate his "how to learn to trade" process.  Although he now sells training courses, just the free content on his blog is a gold mine for those who want to learn how to day trade the ES, forex, DAX, and other liquid trading products. 

The initial purpose of EL's blog was to document his journey of training his daughter how to become a consistently profitable (CP) trader.  It just happened to be that his daughter was from the IT field, so it wasn't long before she started to utilize technology to help her take what her father taught her and codify it as much as she could into a mechanical trading system.

Interesting use of trading systems

Soon, EL realized that by incorporating the basic overview of his trading methodology into a mechanical trading system had some compelling advantages.  He realized that there isn't a way to distill and program all of his discretionary trading knowledge into a mechanical system.  However, he could setup a "hybrid" methodology where the mechanical system can effortlessly monitor several markets, and alert him or even automatically enter a trade.

Once a position is established in the market, he can quickly scratch the trade if the picture didn't feel right.  He also discovered that he can manage/scale out of the trade much more effectively vs. a static set of mechanical  rules.  One reason is that there just hasn't been a way yet to code his ability determine market "context" from his years of trading experience.  Therefore, the hybrid trading method will enable him to cover and trade more markets, with less work.

EL has stressed many times in his blog, your experience and ability to determine market context is critical if you want to go beyond the performance of a typical mechanical system and approach that of a good discretionary trader.  For example, using the most appropriate algo for the current market conditions is key.  So if you pick a trend following algo on a low volume chop day -- well, I think we know what the outcome will be.

I like the hybrid approach, which seems to take the strengths from both technology and humans to leverage the best of both worlds.  Another approach would be the totally automated approach to utilize several different styles of algos covering various markets, which would be similar to having having your own group of prop traders (or multi-portfolio managers), each with differing strengths and weaknesses.  Ideally, this would smooth out the profit equity curve over time.

Dusting off my programming hat to better understand probabilities

I've spent over the past week dusting off my EasyLanguage programming hat, and have realized that my learning curve has gotten quite steep again.  I actually like this new challenge.  In a short period of time, I've been able to reproduce some of his basic systems in TradeStation and have also been discovering some very interesting observations. 

Another advantage of this return back to programming has been my ability to test out various setups and patterns used in my discretionary trading.  There have been a few examples of setups based on indicators or price patterns that I thought would be profitable over time, but my recent tests have shown them to be lackluster. 

By recently learning those trading setup probabilities, I'm sure I have saved myself countless $'s in losses over the long term.  It's an interesting direction I'm headed -- coming up with various trading concepts, theories, and hunches, testing them, and then determining whether it would work in a mechanical and/or a discretionary trading system.  Being able to code, test and understand my trading setup probabilities has given me a greater sense of confidence.

Where to from here?

It's interesting how EL's "inside out" setups (pullback in the direction of the trend), as well as the "outside in" setups (catching tops/bottoms) leverage and builds nicely upon what I have learned over the past year.  I've only scratched the surface so far with my exploration of systems development, but I believe this will be quite an interesting path on my way to becoming a better and consistently profitable trader. 

Although my summer non-trading schedule is getting even crazier, I hope to report some interesting updates soon...

Friday, June 22, 2012

Focusing less on trading...to become better

As they say, change is constant.  There have been recent changes to my family's schedule that is making me have to evolve and adapt - summer break schedule, here we come.  Since family is my first priority, I will adjust my trading schedule to fit their needs. 

I'm still on my self-imposed time out from trading, but I'm been fortunate that focusing less on trading has given me a fresh perspective on what I need to do to become both a better trader and person.

Therefore, my current goal is to NOT focus as much on my trading, but on other aspects of life, such as health and mental well being.  By working on strengthening those areas, I believe it will cross over and improve my trading performance.

Here are the current areas of focus:
1)  Reduction in trading time:  As mentioned, family commitments have increased, so time for trading has decreased.  The likely scenario is that I will focus on short term trading for only certain hours.  I am also looking into more swing trading.  I will also factor in a good 1-2 hours for research and journal updates during the day vs. the evening hours as I have done in the past.

2)  Trading strategy reevaluation: Therefore, the reduction in my trading hours will require that I reevaluate my overall day trading strategies.  For example, determine the impact of trading only certain hours of the day on my P&L.

I will also need to begin evaluating swing trading strategies that require only end of day trade evaluation and order management, which may mean that stocks might make their way back into the picture.  There are also other trading strategies I'm reviewing that may help transition to a reduced trading schedule.  Lots of homework ahead.

3)  More exercise:  I am currently working out 5 times a week, ranging from kickboxing, cardio, and yoga.  This is a pretty large increase from 1 to 2 days of exercise I was averaging before.  I have to admit, exercising and yoga has generally increased my energy levels, but more importantly, my ability to focus and remain centered.

In a great book I recently read called "The Willpower Instinct", the author referenced studies which demonstrated that exercise and meditation both have a similar positive impact on the prefrontal cortex part of the brain -- that's an area that controls impulsive actions, like revenge trading.  Which leads to...

4)  Hypnosis: Along the lines exercise and yoga, I have begun listening to hypnosis CDs a few weeks ago that are focused specifically for traders.  In addition to listening to trading affirmations and approaches for improvement, the process of going under a trance has had the added benefit similar to meditation where you leave the session feeling energized and rested.  I believe it may take a couple months or more of regular use before the effects become evident, but I believe some positive effects are being to emerge.
It looks like this period of transition will soon settle down so that I'll be able to focus more on trading.  But in the meantime, I'm realizing that this is likely a well needed break after an intense year of learning.  Based on how everything is progressing, I believe I will emerge from this period mentally stronger better able to deal with my challenges. 

The journey continues...

Tuesday, June 5, 2012

Update $AUDUSD: Out +10 pips

I woke up this morning thinking I was still in the AUDUSD long trade, but found out my breakeven stop was triggered last night.  However, it was interesting to see that since my stop was placed at the exact low of a sharp move, I ended up getting a positive +8 pip slippage, resulting in a +10 pip gain.

This trade eventually went on to go about +87 pips from entry (~3.3R), hitting the first target of .9800.  So the takeaway is that when taking a counter-trend trade based on the higher timeframe (daily chart in this case), exit (or perhaps large scale out) at the first clear target area (.9800 as mentioned earlier).
AUDUSD 15 min

Monday, June 4, 2012

Back on the grid...back in $AUDUSD...and archery

After being mostly off the grid for the past week, it's good to be back.  But since I'll be in single parent mode for the rest of the week, my trading related activities will be significantly curtailed until next week.

Trading SIM on ES
I'm continuing to trade the ES on SIM, since I realize that I haven't yet completely bought in and committed myself to a specific trading plan that meets my personality and style.  That's probably one of the biggest factors of why I'm having discipline issues (i.e. overtrading).  Therefore, I'm back to the basics, doing homework, trying to figure out what type of timeframe, setups, style, etc., work best for me.  This may continue for quite a while.

Trading live on AUDUSD
However, I'm much more comfortable on the swing trading forex side, and I posted the observation last week of watching the .9665 to .9700 levels for AUDUSD, which continues to be respected.

The entry
After seeing a good setup on AUDUSD earlier today that took place above the .9700 level, I entered a long position at .9716 with a stop at .9690.  At this time, the trade is nearly 2R and once it approaches 3R, I will consider raising the stop to b/e or another appropriate location.
$AUDUSD 15 min
The target(s)
My target is still TBD, although I see some significant levels at the whole numbers of .9800,  .9900, and 1.0000, so I will watch the price action at those areas.  However, I realize that this is a contra-trend trade going against the bearish trend, and that any pullback higher may be very short lived.
$AUDUSD 4 hour
Archery and Trading
While on vacation, I took a short introductory class on archery.  What's very interesting about archery is how similar it is to golf as well as trading.  It's not a reactive sport, so it's up to you when you choose to engage.  But it was pretty clear to see that after you learn the basics and master the fundamentals, the biggest obstacle is then mental.

So when I asked the instructor how critical the mental game is to archery, it wasn't a surprise when he said it's the most critical component during competition.  He brought up an author named Lanny Bassham who wrote a highly rated book called With Winning in Mind: The Mental Management System.

Lanny competed in the International Rifle Shooting event in the 1972 Olympics and came up short with a silver medal.  So he spent the next few years studying Olympic gold medalists, developed his mental management system, and won the gold medal in 1976. 

I have not read the book yet, but I have seen some summary notes online.  It appears that many of the exercises and theories are very similar to what you commonly read in the trading or other sports psychology type books.

I'm getting to the point where everything I read regarding performance psychology makes me feel as if I'm walking around in a big circle -- been there, done that.  Everything is a variation of a few key themes, presented in different ways.  Nothing I read now seems to be truly new or groundbreaking.

So whether it's archery, golf, trading, or any other performance field, there are no secrets on what it takes to become an elite performer. However, just because I know a lot about what I'm supposed to do to improve my mental game, doesn't mean that I'm doing what I'm supposed to do.  There's a big gap.  So it's time to start planning and executing.

Tuesday, May 22, 2012

$AUDUSD: I'm watching 0.9665 - 0.9700

AUDUSD - Monthly chart
Although I'm on my self-imposed time out and then a family vacation for the rest of this month, I'm still following the markets with at least one eye.

Here's something interesting.  With AUDUSD continuing to drop like a rock, I wanted to take a look at a much higher timeframe to see if there's anything of interest.

Well look at that on the chart to the right, the 0.9665 level on the monthly chart seems to stand out going back years.

AUDUSD - Weekly chart

And 0.9665 seems to hold well even after you drill down to the daily or weekly timeframe.

What's also interesting is that the 0.9700 level is also the 78.6% level of the most recent swing low to swing high. 

It seems like the most interesting action lately has been taking place while I'm asleep, but while I'm awake, I'll be watching the price action around .9665 to .9700 level closely if it decides to get there. 

If the .9665 area holds and a bottoming formation and/or retest of the .9665 level takes place, that might indicate a short term bottom and long opportunity.

Otherwise, a decisive break of the .9665 area and a pullback/retest back up to that level may indicate an opportunity to short.

Monday, May 21, 2012

View from the time out box

Since the family life has gotten a bit busier, I've gotten a bit behind with updates to this blog.  However, this post is something I wrote mostly late last week, and just completed the final edits today. 

*****

There have been a few times in the past when I knew taking a time out was the right thing to do.  Once again, I reached that point last week.  My psychological capital is running low, my day trading has gotten impulsive and undisciplined, and a "I don't care" attitude has taken hold a surprising number of times.  I feel good that I had enough self awareness to simply STOP.

Now that I've made that decision, I'm finally in the cool down mode and am at peace.  My goal is to take a couple weeks off to regain a clear mind, and work on my mental game as well as revisit and revise my goals and plans for the next chapter.

There were many warning signs.
  • Although my forex swing trading continues to perform well at over a 100% return year to date, my larger ES daytrading portfolio has lost over 50%, a big chunk of it from this month.  This is red flag #1.  The P&L speaks for itself that something was not going well.
  • Possibly due to boredom and greed, I started to experiment with scalping again.  I've always wanted to be able to put myself into and out of "scalp mode" on demand.  While I've found some setups that I've been able to execute well on the fast moving tick charts, the momentum of taking so many trades opened the door for revenge trading. 
  • I started to focus on recovering my losses (i.e. the money) instead of following the proper process to simply trade well.  I got fixated on getting +10 ES point days, which I did accomplish a few times.  But it's a recipe for disaster, because when the markets weren't moving, I still tried to force home runs, and struck out to the tune of more than 20 ES points.
  • Efforts on my daily journaling and overall analysis of my trades during this period went downhill.  It's as if I didn't care anymore.  I only wanted to hit home runs, and nothing else mattered.
  • When I started to look at my bread and butter forex setups, I started to feel impulsive and tried to justify and force setups that weren't there.  Or tighten up on stops way before my rules and get stopped out.  I had a completely different mindset and process vs. the successful process I used most of this year.
  • And worst of all, I could feel some trading stress spilling over into my primary role as father and husband.  I feel fortunate that I was able to catch this situation and stop it well before any flash point was reached.  Because that would have been absolutely inexcusable -- a clear deal breaker in my life.
A great relevant webinar
When I expressed my time out to some fellow traders, I received a great link to FT71's "Trader Intervention" webinar from Matt.  It's about a futures trader with about 2 years of experience who started with a $100k account only to see it get crushed down to $20k in several months. 

He regrouped by trading on SIM for a few months, and went back live to become consistently profitable for 2 months resulting in his $20k account growing to $33k.  Then he lost $32k in 2 days, leaving behind a $1k balance.  OUCH!  The monkey took control and won. 

Listening to this webinar was eye opening and somewhat painful, since many of the trader's challenges are so similar to mine, except my losses are peanuts compared to his. 

FT71's comments and coaching in this webinar was spot on -- including his first recommendation that he just needs to stop trading.  And FT71's question about how he was doing with his journaling during his binge made me crack up (because his assumption was right, the trader's journaling was nearly non-existent, as was mine).  It felt like FT71 was talking to me and his recommendations in the webinar further reinforced my decision to take a time out and regroup.

Where to from here?
Over the next 2 weeks, I'll be working on cooling down -- no more live trading.  That will open up the day so that I'll be revisiting my goals and plans.  Working on my mental game will also be one of the key areas of focus -- self-hypnosis, meditation, yoga, etc.

Another question I need to seriously consider is, if I'm doing so well with forex, why not just swing trade forex, size up, and forget about everything else?  That style of trading seems to flow naturally and is a strength of mine.  So yes, that's also in the picture.

And on a related note, I need to consider whether the method I'm using to daytrade the ES is in sync with my personality and style.  Maybe all this mental stuff is a symptom, not the cause.  Because if I felt 100% comfortable and confident with a system, would I be breaking the rules so often?  Something else I'll be evaluating.

I look forward to returning from my time out in June, a little wiser and better prepared.  And especially a step closer to becoming a consistently profitable trader.

Belated update: $AUDUSD stopped out -10 pips

Here's a belated update of my AUDUSD short from 0.9945 last week. 
$AUDUSD 15 min chart as of 5/18/2012
  • I was stopped out pretty quickly for a -10 pip loss, since I lowered my stop way before I was supposed to.
  • Not sure why I lowered the stop, since it was already pretty tight at -25 pips.  But I suspect there was bad mental spillover from my ES daytrading gone bad
  • The trade has gone as much as +150 pips, which would have been about a 6R return.
  • It's time to take a little break from trading to revisit my plans.

Wednesday, May 16, 2012

$AUDUSD short at 0.9945

Short AUDUSD at 0.9945, with stop at 0.9970. 

The chart to the right is a 60 min timeframe, in order to show the origination of the trendline. 

It looks like a bottoming formation is setting up (higher pivot low) so it doesn't look like it may run far. 

But if it breaks under the lower trendline of the triangle, it might have a shot at retesting the lows around 0.9870.  So I view this as a potential 3R trade, not a big runner.

Monday, May 14, 2012

$AUDUSD - one that got away

Family duties have kept me a little busier than expected lately and away from the markets, so I realize that I will miss my fair share of good setups.  So when I do come back to see a good setup that got away, what I will do is to acknowledge that the setups are still taking place, and that there will be many more in the future.  Because the markets are not going away anytime soon.

Here's a setup that took place earlier today that I wasn't around to take.  And although it wasn't a textbook perfect setup, there were enough elements that came together that would have made it worth taking.  Since my stop would have been around 15 pips, it went over +60 pips (around 4R) at one point.

There will also be some high impact AUD news in less than 2 hours, so it'll be interesting to see how it will impact the currency.  At this point, the trend is still down on many timeframes, so I would be assume the market is expecting that the news will likely be more negative than positive.

Wednesday, May 9, 2012

Update: $AUDUSD 15m trendline holding

As long as the this down sloping trendline holds, the trend on the 15 min timeframe will remain down.  Once this breaks, or I see consecutive higher swing highs and swing lows, then I will start considering an exit point to cover the short from 1.0125.

Tuesday, May 8, 2012

A couple short setups today on $AUDUSD

I am already short AUDUSD from 1.0125 from several hours ago, but here's another simple trendline and stochastics setup that just took place.
$AUDUSD 15 minute
Will we hit 1.0000?  My original target for 1.0000 was made on March 28th based on my short from 1.0521, although I was expecting reach it by April -- so my timing was off.  However, we're finally at the point where it seems does seem quite realistic to achieve.

Monday, May 7, 2012

Attempting to slow down -- Resulted in +8.50 $ES_F

Since I've discovered that my wheels have the potential to wobble and fall off when I trade $ES_F more than several times a day.  So I'm taking a hint from my forex trades and cutting back on the number of trades (being more selective), and then going for longer duration moves (letting them ride).

Today, this "slow down" strategy worked for +8.50 ES points over 2 trades, both winners.

What part of this is due to luck?  I don't know, but although there was some luck, I know there is definitely room for improvement upon review after experiencing some unlucky situations today.

On my long 1360.00 trade, I was not lucky to reach my profit target at 1370.75 by 2 ticks, and ended up closing the trade for +6.50 (instead of +10.75).  There were some signs that the trade was no longer working, and I believe I could have saved a couple handles. 

Last week, I had my first > +10.00 ES day and it was also based on a slow down/let it ride strategy.  Maybe I'm on to something -- a method that's a better fit with my style and personality?  Although my desire is to be able to scalp my way to consistent profitability, maybe because it "feels" more like work with less potential boredom. 

But the slow down strategy seems to have a lot less wear and tear on my psychological capital due to less decisions that need to be made during the day.  And most importantly, if it turns out to be profitable, then why mess with it.

I'll continue to take this current overall strategy and mindset, especially the "I really don't care unless I see a solid setup" attitude, and see how long I can consistently follow this current path. 

$AUDUSD stopped out swing long, -34 pips

Well, that didn't take long.  Stopped out of $AUDUSD swing long from earlier today for a -34 pip loss.  There was a news release tonight at 9:30 PM ET regarding the Australian trade balance, and it came in worse than expected. 

$AUDUSD 15 minute
There were a few signs that the trade wasn't going to hold up.  Some key tells were:

1) The upward trendline and a revised trendline weren't holding
2) There were no longer new swing highs and swing lows on the 15 min chart (indication that the upward trend was over).

Now back to waiting for the next solid setup...

Long $AUDUSD at 1.0207

I exited the $AUDUSD swing short late last week, and ended up missing a decent chunk on the downside -- since I was partially biased/scared off by the oversold conditions on the daily chart.  But I need to remember that just because something is oversold, doesn't mean it can't go down much much more.

But it looks like we're finally getting that oversold bounce, and although I admit the overall longer term trend is still down, it looks like there might be an opportunity for a few hundred pip bounce.

So I went long today at 1.0207 with a stop loss currently at 1.0175, based on the charts below. 

The daily chart below shows the potential targets.  There's currently quite a bit of confluence and symmetry/structure in the $AUDUSD.
$AUDUSD Daily chart
The trigger to enter was based on the C2E setup on the 15 minute chart (below), which is simply based on the trendline and stochastics -- get on board in the direction of the trend on a pullback.

About half of these setups will get stopped out, and assuming it does go in my favor, I will only consider moving the stop once it goes 2R or 3R (2 or 3 times my initial stop amount) in my favor.  So mentally, I consider this trade is pretty much done/gone, and will start looking for the next opportunity soon.

Thursday, May 3, 2012

From the comments

"Bud Fox" posted a comment under a prior post.  And since my response was too long for the comments section, I've posted it here.
In the comment section you sound so confident in your system. You speak of a "positive outcome" over time. So why do you get so tilted when you take a losing trade or multiple losing trades? Are you being honest with yourself about believing in your system? Or are you just saying it to yourself in an attempt to convince yourself?

IMO you are focusing too much on the psychological aspects of trading. This is a trap that I think a lot of newbie traders are falling into in recent years. It's like a Little League ball player seeking out a sports psychologist to help with hitting woes. The problem is not in the Little League'rs head, it's in mechanics and technique. Therefore working on the mental aspect is not going to help.

Based on your blog entries I'd say that your system does not work. Either that or you are not following it at all. 
Hi Bud:

Thanks for the feedback, you have very valid points.

Yes, I am absolutely confident that certain setups I trade have an edge.  After meticulously going through and honestly analyzing thousands of actual trades with a strong no-BS filter to help understand the probabilities of various setups (see examples here, or here, or here), I am very confident that certain setups I trade work well over time.

But you are absolutely correct, I am NOT following the system since I'm also taking unauthorized revenge/rogue trades that crush my profitable trades.  If I was miraculously able to eliminate ALL my impulse trades, I would be a consistently profitable trader.  The data proves it and I have a high degree of confidence in my analysis.

After the markets have closed and the dust has long settled, I review/grade my performance trade by trade, and it's quite easy to look back and see those revenge trades -- trades that just don't fit valid setup rules and usually take place shortly after I was stopped out of the prior trade.  They really stick out, and they also stink bad.  Some people have the inability to enter trades, but I have the inability to stay out of trades. 

So the easy answer is, "If you have a system that makes money, then just follow the darn system and don't take any invalid trades!!!"

Yes, I have tried, and based on my ES daytrading P&L so far, I have not yet been successful.  I can follow the system for short stretches of time successfully as I did here, and then I fall off the wagon.  It's like telling a alcoholic, just don't drink.  Or a smoker, just don't smoke.  Or a gambler, just don't gamble. 

I'm honest enough with myself to admit that it's likely some "wiring" in my mind needs to be modified before I truly become consistently successful.  And that I might not be able to "fix it" myself.  When you hit the wall enough times, making the same mistakes over and over and over, it starts to hurt.  So even though it was just a couple revenge trades this week, the camels back broke.


Ultimately, what really bothers me is that trading is one of the very few areas in my life where I do not feel as though I have complete control over my actions and emotions.  So at this point, my biggest motivation is not necessarily the P&L (although the P&L will reflect my success in how well I control my actions), but I'm motivated to learn and conquer how to gain better control of my actions.  This is perhaps one of the biggest challenges I have faced, and welcome the opportunity to improve myself.

This is why I'm looking for help on the psychological side of trading.  At a certain point, it's no longer about the mechanics and the fundamentals.  It's all about the ability to execute consistently over time.  Similar to how even the elite and best figures in the performance fields of sports, acting, or concert violinists have coaches / instructors / teachers / mentors, I'm looking to get the best possible help so that I know I'm doing everything I can maximize my success. 

In the end, I want to know in my heart that I've given and did my absolute best.

Thanks again for your comment, it really helps to keep me honest.  This also helps me to think through and better understand my current challenges, or at least what I think they are.  And if there are certain experiences that you [or anyone else reading this far down] can share that helped you to overcome your challenges, I would really appreciate hearing about them.

$AUDUSD closed +175 pips

$AUDUSD daily chart
$AUDUSD retested the daily trendline at 1.0265 with oversold stochastics on the daily, and the ES looked like it hit a short term bottom.

So I exited with +175 pips.  With initial risk at 35 pips, this was a 5R trade.

This resistance area around 1.0265 is solid, but not quite good enough for me to buy.  However, it was good enough for taking profits.  I'm now looking for a solid buy setup for a short term retracement higher.

Update: $AUDUSD swing short

 Update on the $AUDUSD swing short position:
  • The 1.0265 immediate target based on the trendline of the daily swing lows was reached within a few pips earlier today. 
  • The 1.0300 area is currently a good area to short. 
  • However, if 1.0310 does not hold, I will look to exit the short position, and look for long opportunities.  
Current position is up about +145 pips, which is about 4R.  Stop is at breakeven.  Longer term target is currently 1.0000, but subject to change.

Wednesday, May 2, 2012

Day trading discouragement

The early morning session started with a limit order to short that didn't get filled at 1399.75, and ultimately went as much as +10.50.  Fear of missing out was actualized full-on.  But I was actually fine and chalked it up to bad luck.  I continued to feel under control and didn't trade the rest of the morning session.

The 2 losses in a row trigger
After the lunch break, I entered a valid trade that got stopped out.  And then I entered another valid setup that got stopped out.  Uh oh, 2 stop losses in a row.  And like clockwork, a revenge trade or two came up. 

That raised all kinds of red flags and sirens in my mind.  It's quite surprising how quickly I went from feeling like having a positive breakthrough day yesterday, only to experience great discouragement this afternoon.  It's good to know that my self-awareness levels are up, but I believe this level of discouragement is a sign that my psychological capital is running low. 

And then the voices started
Although I ended the day with a winning trade, my inner voice started to question whether I am mentally ready to day trade.  Part of self-awareness is knowing when you just don't have the right mental frame of mind and then having the ability to stop trading.  I'm just about there.

My trading strategy works just fine -- it has an edge and I've proven it with data.  I have confidence in it.  I've said it many times -- eliminating just half of my revenge trades would be a huge positive impact for my P&L.  So my issue is the ability to wait for the solid setups and to avoid revenge trading after a loss or two in a row.  In other words, it's all in my mind.

Time for another break?
Therefore, I will likely take an extended break from day trading and return only after I have regained a much greater sense of control over my actions.  I'm seriously considering hiring a trading coach / psychologist to help with my psychological challenges.  They're not cheap, but I'd rather make a serious investment in making myself a better trader over the long term, rather than continuing to lose money via revenge trades in the short term.

Although I may stop day trading temporarily, I will continue to swing trade in the forex markets, since my bottom line performance has been good so far this year.  Perhaps I have not given ES day trading enough screen time, because I still have no doubt that I can become a consistently profitable day trader.  Or maybe this is a sign that my strength is not in day trading, but in swing trading the currencies.  Time will tell.

Tuesday, May 1, 2012

A scratch day that's a breakthrough day

It's May and it's time to get back to business. 

I spent most of April trying to learn as much as I can about the mental game of trading and thereby better understand my own trading.  It has been a tough month and at times, mental nerves have been touched that I had never expected. 

About 90+% of what I read and focused on last month revolved around trading psychology.  So when I started to read the same messages and themes (from different authors written decades apart), I realized that I've probably dug into the topic as far as I can.  

The biggest issue I have as a trader?  Revenge / rogue / overtrading / impulse trades. 

So that's why I'm very proud of my scratch performance today.  I only had one trade -- on a big trend and reversal type day.  These are the types of days that had a higher likelihood of hurting me in the past from trying to fade the big moves as well as overtrading.

Earlier in the morning before taking my kids to school, I was short, looking for a big move down with a initial profit target about +13 away, because I knew a bad 10AM news had the potential to juice the move.  When I returned, I saw my position get over +3, only to get stopped out at breakeven by 2 ticks. 

Revenge was totally on my mind, but I realized what was going on and did my best to let it pass.  And of course, had I gotten back on board with a revenge trade, it ended up going up as much as +4.

Then the big 10AM news was released. 

It was much better than expected and the market shot up.  In the past, especially after feeling as though I was wrong (e.g. stopped out or missed trades), I would have tried to short the big move up, getting stopped out several times, trying to prove that my initial short thesis was right.  This time, I sat, took no action, and simply watched. 

I knew the 1397 area was key since that was the prior day's RTH high.  I saw it break through and pullback to retest the level slightly, and thought about buying.  But it wasn't a setup in my plan and instead of taking an impulse trade, I once again passed (and it eventually went up +15).

Then I decided it's time to call it a day, well before the lunch hour.  Passing up all those impulse trades and then making the decision to stop trading early in a very active day, was huge.  This is something I never would have done in the past.  So this is very different.  And I felt relatively at peace with myself based on this decision.. 

I feel very strongly about how this day, as minor as it may seem, was groundbreaking for me personally.  One day a trend does not make, but if I'm able to consistently maintain this mental frame of mind of preventing revenge and impulsive trades, and only wait for the solid setups, the positive impact on my P&L will be considerable. 

Thursday, April 26, 2012

$EURUSD - stopped out to the tick

After only several hours, the swing short $EURUSD from 1.3231 was stopped out to the tick for a -31 pip loss.  I got the high print of the day so far.  Better luck next time!
EURUSD 1 min chart

Wednesday, April 25, 2012

$EURUSD charts - short entry at 1.3231

Charts with explanation of short entry at 1.3231:

It starts at the daily chart level, where a confluence of a trendline, 61.8% retracement, and price takes place.
EURUSD daily
At the timeframe to help trigger the order, there's another connect 2 points and extend trendline in confluence with an overbought stochastics indicator.
EURUSD 15 minute
Historically, these swing trades get stopped out more than 50% of the time at my original stop, especially with the relatively tight stops I use in relation to the target objectives.  Since I'm usually targeting a profit of around 10R (R=initial stop loss amount), the numbers work out even if I'm wrong often.

Closed $AUDUSD for +207 pips

After nearly 1 month, the AUDUSD short I entered on 3/26 was exited yesterday for a profit of +207 pips.  Based on my initial risk of 40 pips, this trade returned about 5.1R. 

The 1.0250 area provided solid support, even after relatively bad economic news released late Monday night, which indicated to me that there was a decent amount of strength supporting this pair.

While the +207 pips initial sounds like respectable outcome, this trade was held for nearly a month, so another way of looking at this is that it didn't quite average +10 pips a day.

Thursday, April 19, 2012

Update: $AUDUSD short from 3/26

Hard to believe I haven't been shaken out of the $AUDUSD swing short at 1.0521 from 3/26, but assuming I don't jinx myself due to this post and get stopped out within minutes once this post goes live, I'll continue to hold this until I get a clear signal that the move is over or until it approaches one of the targets in my original post.
$AUDUSD - 240m chart
One thought I had based on the chart above is how relatively large the swings have been (> 100 pips) since I entered this trade (nice opportunity), vs. the absolute P&L I currently have.  On a risk/return basis, I'm over 4R on this trade (currently about +175 pips, original risk = 40 pips) and was as high as 7.5R at one time.

When I look at all the swings, they add up to well over 1,000 pips, so I can't help but think what if I was able to capture just 25% of those moves?  Yes, probably faulty thinking, especially since I could have been stopped out within minutes once I entered this trade, or perhaps this could have dropped nearly straight down to parity instead of going somewhat sideways.  But I can't help but imagine the possibilities.