Monday, January 30, 2012

$EURUSD closed +436 pips

Not a trading day for me today, although one eventful news was that I was stopped out of my EURUSD trade this morning.  This was one of those perhaps a handful of trades a year where everything goes almost according to plan.
$EURUSD 15 min chart 1/29/2012
On the surface, buying earlier this month only 30 pips from the major low since last summer for the EURUSD and booking +436 pips ain't bad, and was partially luck.  But when I realize that I was less than 20 pips away from my original target of 1.3250 of nearly +600 pips, I do admit there's some sense of coulda, shoulda, woulda. 

And then my rookie stop placement just above critical support as well as just below the psychological whole number of 1.3100, was either too far away of a trailing stop from where it fell from, and/or too close to the support area below.  In other words, my stop placement was in dead man's land and was easily picked off.  Lesson learned.

But in the end, it was a good risk/reward trade -- I risked 35 pips and gained 436.  Heck, I'll gladly take one of those every month.

* * * * *
Looks like I'll continue to be out of trading commission for another couple days, in addition to this Friday due to travel.  So I'll look at working on my mental game when I do have some time during the day.  I believe that there are some subconscious elements at play which is challenging me from getting to the next level.  I am certain that with a little more attention in this area, it will significantly help my trading performance down the road.

Saturday, January 28, 2012

My 2 month trading review using Tradervue

[April 2013: I've written a post here regarding my latest experience with Tradervue]

Since it's very likely that I won't be trading this Monday and Tuesday (historically, I do terrible when my wife is away and I'm in single parent mode) which essentially means I'm done with January, I decided to take a look a closer look at my P&L over the past couple months.

I've been trying to focus more on process and execution vs. P&L, so although I knew my account went slightly below where I started in December (on a net P&L basis), I wasn't as aware how my other metrics looked.

That's where the reports in Tradervue become so useful.  Tradervue is an elegant, powerful, and free trading journal, reporting, and analysis system that's very easy to use and generates the key metrics to help you understand more about your trading performance.  And as I've written about in the past, using the "tags" within Tradervue can enable you to create sophisticated reports and analysis of what's working (and what's not) with your trading strategies.

I started the first half of December on a good streak, taking little bites daily out of the markets, and thought I had it all figured out.  I thought to myself, "It won't be long before I scale up to 100 ES contracts at a time and start collecting some serious $$$'s!!!"  Heh heh, the markets must have heard me, because....

The 2nd half of December hit, volume and volatility started to dry up, people actually went on vacation for the holidays, and things got tough.  Why didn't I stop?  I did quit for about a week, although not by choice, but started trading again the final week of December.  I thought I didn't want to get rusty, since once January starts and the volume returns, I'll be ready to get 'em!!

January started, and the first week still felt like the holidays.  Oh, low volume is due to the MLK holiday, right?  OK, things will get better the following week.  Chop chop chop. The 2nd half of January started, and it looked like things are getting better, but it's still not quite like how I remember the markets were back in the "good 'ole days" of pre-mid-December.

Which leads to where I am today, slightly below where I was at the start of December, on a net basis.  At least I'm still in the category of "consistently net-breakeven trader!" Yeah!  But seriously, just like I have complete confidence to scramble out of a losing day, I know this is just a temporary drawdown, and that I'll be hitting a new highwater mark soon. 

It's great to see the other metrics that Tradervue provides. Here are some key takeaways from my trading results over the past couple months:
  • I seem to do terrible on Mondays, maybe I'm too anxious to get the show back on the road?
  • As the week progresses, I seem to take more daily trades.  Am I getting mentally fatigued, therefore more sloppy and less selective?  
  • What's interesting (or maybe not) is that the less trades I make (see Tuesday), the better my profitability.
  • The 6:00-8:00 hours (Euro session) are good, and although I don't take many trades during that time, it's a profitable period. Trades just seem to setup cleaner and work better during that timeframe.
  • The 8:00-9:00 hour is deadly.  That's the hour I'm off taking my kids to daycare.  And there are many times when I'm "looking hard" to get in a trade before I leave the house, or "looking hard" to get into a trade as soon as I return home.
  • Lunch hour has poor results...what else is new?  Maybe I should truly take that time off and physically leave the home?  Or spend more time exercising?  I've noticed that my profitability is better when I'm in better physical condition.
  • What surprised me was how well I did during the 2:00-4:00 hours.  If I had done nothing but trade during those hours in December and January, I would have done relatively well. 
Using data from just 2 months and 280 trades isn't necessarily enough for me to make major changes, but at least there are a few areas for me to keep a closer watch.  So if the trends mentioned above continue, maybe I'll just take Monday off, or Friday.  Or trade the Euro session, and quit trading until 2:00 PM.  Or maybe just trade every day from 2:00 PM - 4:00 PM.  Or...or...or....  Need to track...

We're living in a golden time where we have access to powerful tools such as Tradervue to help traders improve.  If you're not already using a trading journal or some other type of method to track and analyze your results, this is a very critical and necessary component to becoming a successful trader.

Friday, January 27, 2012

Final second kick in the gut

Total gross profits:  $-412.50 -8.25 ES points
Total trades:  9  [2 scratch]
Accuracy:  14.3%
Execution score: ?%
Opportunity cost: $?  ? ES points

It was one of those days -- just when you think your bad luck streak for the day is ending, you get kicked in the gut.

Today, I had a relatively good read on the markets, but like an painter that has a clear vision in his head but just can't get it onto the canvas, I wasn't able to execute properly.  Sure, I had more-than-usual-of-the-usual: missed trades, sloppy executions, and bad overall luck -- that's just something I'm working on and will absolutely improve with time (i.e. my mental game).

The kick in the gut
On my final trade, I was short the ES into the cash close, only a tick away from my +2 target....finally, something that seems to be working as planned!  But in my mind, I knew holding into the close was a gamble, especially on a Friday.  I watched the time and sales and my DOM, and only a second after the cash market closed, a huge buy order came in, spiking up the price several points in seconds. 

ES 377 tick chart - 5 points up & down...< 1 minute
Although my stop was at breakeven, it had about a 2 point slippage.  And in less than a minute after the buy order was quickly absorbed, the price returned to where it originally was and then hit my target.  Murphy's Law!

Just when you think you'll be getting a break, it's taken away in a flash.  It's like the other basketball team shot an impossible 3 pointer to win the game at the buzzer.  On the bright side, at least my I didn't get filled on the top tick of the spike, yeah!!

Coulda shoulda woulda...
I ended the day down -8, although if you factor in the opportunity costs and slippage of just that final trade, I would have been down -4.  And opportunities costs from other trades would have taken it down to -2.50.  And of course, there were a few missed profitable trades that I don't even count.  But in the end, it's not the P&L that really matters for me during this stage of my development, it's all about whether I did my best to execute the plan and remain disciplined. 

Why was today more psychologically difficult?
Today was probably more psychologically difficult due in part to the relaxation of some of the trade management rules I started yesterday (in other words, letting Rogue Grove take the keys to drive).  I was also "fixated" on the bottom of the upward channel in the chart below (will it break or hold?!?).  Therefore, instead of being mechanical about my trade management and simply following the rules, there was much more discretion and uncertainty involved -- and that consumes a greater amount of emotional capital.

ES 120min char
An easy solution?
I'll need to give much more consideration to how much discretion I'll use in the future.  Or perhaps it won't require much thought, since the critical issue at stake is simply my desire to let a contract run for greater than a +2 target.  This can be accommodated by trading multiple contracts and scaling out.  My only concern is the increased risk that trading multiple contracts might entail, so I'll need to consider the best scaling out strategy for 2 contracts.

I'm getting there
My account is now back to where I started at the beginning of the December, so at least I can still consider myself a "net-breakeven trader."  It was a tough ending, to a tough week.  But I'm taking this as more experience and education under my belt, so that I will be better prepared to handle greater adversity in the future.

So many pieces of the puzzle are finally starting to come together, and it's time to keep with the program of being disciplined and focused on my plan.

Thursday, January 26, 2012

A call for Rogue Grove - he almost did it again

Total gross profits:  $-162.50 -3.25 ES points
Total trades:  11  [1 scratch]
Accuracy:  50.0%
Execution score: 83.0%
Opportunity cost: $-112.50  -2.25 ES points

Down nearly -8 points by around lunchtime due to a miscalculation about being in a trend day, I decided it was time to call Rogue Grove into action, and see whether all those comebacks days are real or luck.

But there's one change I made -- Rogue Grove got the keys to drive only after a valid trade setup had already been executed.  I believe that helps to control Rogue Grove from ever going berserk on a revenge trade run. 

Rogue Grove almost did it
In other words, he didn't get to call the shots for what trades to enter, only how to manage them once the bus was on the road.  And although Rogue Grove didn't get me back to breakeven (he recovered almost +5 which was more than 50% of the losses), there was a really good chance he could have done it.

The next to last short trade went nearly +4 (bringing me just about to breakeven), but was closed out for +1.50 (Good Grove's call).  And then the trade went as much as +6.50.  Therefore, a breakeven or even a profitable day was well within reach.

Negative opportunity cost (which is good)
And another sign that Rogue ain't so bad (when kept under control) -- he had a $-112.50 opportunity cost, which means that had I followed the proper rules, the loss on the day would have been $112.50 greater.  So this is an instance where breaking some rules (taking a hit on the execution score) and using Rogue's intuition actually worked.

More time needed
I realize that one day does not a trend make, so I'll carefully introduce some elements of Rogue Grove into the daily trading as we move forward.  At this time, it will be primarily to manage a trade after the entry has been properly executed.  I'll continue to monitor the performance closely, and then determine how/if I will modify my trading plan.

Never gave up, never stopped believing
So this was yet another example of a day where I never gave up, never stopped believing, and nearly had a complete recovery from my losses.  These types of days help to boost my confidence and makes me believe even more.  Now the real trick will be to turn that "comeback switch" from the very first trade of the day, long before I'm underwater.

Wednesday, January 25, 2012

Sometimes, I'm lucky

Wednesday, January 25, 2012

Total gross profits:  $100.00 +2.00 ES points
Total trades:  2  [0 scratch]
Accuracy:  100.0%
Execution score: 100.0%
Opportunity cost: +$0  +0 ES points

I only had 2 trades this morning, and one was a reversal signal which made me exit out of the trade early.  But since it appeared everything was at a standstill and choppin' around until the FOMC news releases were out and digested, I decided to take care of some non-trading related duties (I went to Costco, yeah!).

So I left late in the morning and thought I would be back in time post-FOMC news trading, but ended up being out much longer (darn tire center took forever, UGH!).  I returned when the regular cash session was almost closed, and was surprised to see that our friend, volatility, had returned!

The Euro was exceptionally volatile, which brings up the long trade I entered back on January 13th.  As longer time readers know, I've always had an affinity for the forex markets, and have dabbled in it.  But before we get to the specifics, it's always interesting to see how some trading ideas come up, and how some trades I've taken have more of a story.

Planted the seed by showing a picture and whispered to all those that listened...the bottom in the Dollar might just be here.

Saw the picture, heard the whisper, connected the dots, and said "Euro strength?"

Heard the whispers between @treeee50 and @Jay_MTF, then listened to the Boss Man, got the plans and executed the mission.

The DiamondSetups "Boss Man" with the killer overnight levels for the Euro (and ES, CAD, crude oil).  Seriously, his overnight levels alone are worth the subscription price to his trading room!
But going back to this particular trade, the reason why I'm so lucky is because this trade came within 3 pips of my stop loss order.  Yes, I almost got taken out on this particular mission.  I was using Renato's Euro support levels from the overnight session, and was using the conservative entry levels with relatively tight stops.  So instead of getting stopped out and missing the big move, I've been fortunate to have entered it near THE bottom, and rode it up with relatively minor bumps along the way, so far.

EURUSD 120m chart
As I write this, the Euro is up about +450 pips from my original entry level, so it has approached an area of profitability where it's one of my better forex trades (assuming I closed it right now).

Speaking of good trades, let's not discuss the EURCHF trade back in September where I was up nearly +800 pips until it...ugh, heartbreaker.  Well, the lesson I learned from that experience is that in the forex market, the near impossible move can happen, so nothing is certain (including stop orders) until the trade is closed.  And that disclaimer includes this open trade.

My preliminary profit target for this Euro trade is near the 1.3250 area, which is simply the 38% retracement of this big leg down.  So either we'll get to that profit target area, or there will be some other signal that tells me that the move is over and that I should exit. 

But regardless of the outcome, I will consider myself very lucky that I was able to be in the right place at the right time, and overheard a conversation (thanks twitter) that lead to what has been (and could be) a great risk/reward trade.

And although I won't ever say this enough, thank you to the great cast of characters I mentioned above, as well as all the others (you know who you are!) for the great daily dialog we have regarding the markets and trading.  It has certainly made this oh-so-challenging journey to become a consistently profitable trader a really great experience.  Let's keep it going!!

Tuesday, January 24, 2012

Lots of patience required

I took a close look at the daily ES charts for the first time in a while.  Although I'm mostly a scalper, I shouldn't loose sight of the bigger picture, so I'm going to incorporate that into my daily review.  But what surprised me the most was how the average daily range has changed significantly since the beginning of January. 

You don't need to do any type of fancy analysis, just look at the size of the bars from December and prior, and compare them to the narrow range bars in January.  That's one reason why it has been much more difficult to utilize the strategies that worked so well only a few months ago.  So, as I discussed yesterday, I will adapt and adjust to the changing market conditions.

* * * * *
Tuesday, January 24, 2012

Total gross profits:  $200.00 +4.00 ES points
Total trades:  3  [1 scratch]
Accuracy:  100.0%
Execution score: 100.0%
Opportunity cost: +$0  +0 ES points

Patience.  That's what was required today, and a lot of it.  Without the volatility from the recent past as discussed earlier, I will need to be even more patient and wait for the best opportunities. 

So it was a good to be able to use the extra time to reflect and bounce around ideas on ways to take my trading to the next level.  For one, my mental game will always need attention.  That will be a given as long as I trade.  But from a more tactical level, how I scale out of my positions based on 1 contract will also be something I will review. 

However, since I believe I have achieved the level of "consistently net-breakeven trader" more often than not, it may also be time to start revisiting plans on how to manage the scaling out of trades with 2 contracts.  I will target next week to begin implementation of the new plans.

On another note, I do admit that there are times when I feel like I'm taking 2 steps forward and then 2 steps back.  But then I quickly realize that little by little, step by step, I have kept raising my game and have been making measurable improvements.  I've already mentioned this before, but just in the past several weeks, it's amazing how much my ability to follow my trading plan has become "easier" (although it's never truly easy). 

Now that a good solid foundation has been established, it's time to start building on top of it.

Monday, January 23, 2012

Adapt or die

Total gross profits:  $-337.50  -6.75 ES points
Total trades:  9  [0 scratch]
Accuracy:  33.3%
Execution score: 100.0%
Opportunity cost: +$0  +0 ES points 

A tough way to start the week, and the shape of the P&L curve today brought back the ugly memories of Tuesday, December 20th.  But unlike that day, I was in a good frame of mind today and executed my trading plan well. 

However, no system or methodology or person is perfect in all market conditions -- we all have our good days and bad.  The usual explanations (excuses) apply to this particular day, as I've already done so many other times....stop hit to the tick, target hit but no fill, blah blah blah....

After enough experiences recently with days that don't click well with my particular trading strategy, today was a day that hit a nerve which said, I need to start expanding my vision.  My thoughts posted yesterday regarding a sense of complacency was also in the back of my mind.  And then Renato posted a quote today which said:

"The market is constantly changing, we have to adapt or die."

I sincerely believe that if given a specific trading plan, I can execute it very well.  But what if it's a plan that's not best suited for the current conditions?  No matter how perfectly I execute it, the outcome will leave a lot to be desired (or lots of red ink).

So it's time to start considering the incorporation of other elements into my plan, to primarily help adjust and accommodate for changing market conditions.  There were many instances today when I "knew" that my signals were not necessarily ideal, but I still went ahead and executed them just so that I could say I was disciplined.

Although I have put "Rogue Grove" in a somewhat negative light within this blog, I believe there's a way to utilize the thousands of hours of valuable study and screen time that I have gained through the years, by allowing his "good side" to have a greater voice in my trading.  As destructive as his bad side can be, he also has a brilliant side that has scrambled out of many more deep losses than not.  That's the side I need to isolate and capitalize on.

How will I do this, and how "discretionary" do I really want to become?  I don't know, but by writing my thoughts, I'm hoping that more ideas will eventually surface.  As a start, before implementing anything, I believe I should continue to perform the daily analysis of "What would Rogue Grove have done?", and then evaluate how that may or may not have impacted my current trading plan.  This process will be a calculated evolution, based on the analysis of data, and carefully implemented, so that I don't go back to the old days when Rogue Grove ruled and went wild.

Sunday, January 22, 2012

Should maintaining discipline = feeling complacent?

One realization I had this weekend was how much impact I believe Mark Douglas' book, Trading in the Zone, has had on my recent performance to execute my trading plan with discipline.  It's as if there was a switch got turned on in my mind to just let go of everything, other than to just stick with my trading plan for every trade. 

Here's an excerpt from Douglas' book that really hit home: know that your edge places the odds of success in your favor, but, at the same time, you completely accept the fact that you don't know the outcome of any particular trade. By making yourself available, you consciously open yourself up to find out what will happen next...
And here's the part that I can now read and say, YES, I now truly understand and feel this: 
Adopting this perspective leaves your mind free of internal resistance that can prevent you from perceiving whatever opportunity the market is making available from its perspective (its truth). Your mind is open for an exchange of energy. Not only can you learn something about the market that you previously didn't know, but you also set up the mental condition most conducive to entering "the zone."
Therefore, assuming I have a system with an edge and entered and managed the trade based on my rules, the outcome of any single trade doesn't really matter.  The trade will be one of many tens of thousands of trades I will take in my lifetime, a portion of which will be losers, so why stress out over this one trade?

In a strange way, I feel as though I've become almost too complacent with my recent success to follow my trading plan properly, to the point where I'm thinking, shouldn't following my plan be tougher?  Shouldn't I be feeling a lot more angst, stress, anxiety, etc. before, during, and after a trade? 

I'm also starting to think, am I becoming too overconfident, too soon?  It's not as if I've been achieving a high execution score for an extended period of time.  Nor I have really executed as well as I can from all my missed trade opportunities (i.e. I've left a lot of good trades/$'s on the table). But at least I've pretty sure I've become a consistently net break-even trader, which leaves a lot of room for improvement.

So now what?

Run before you can walk.  Prove that I can maintain strict discipline for more than just a couple weeks.  Earn the right to trade with more contracts.  Continue tracking missed trades and how I can catch more.  Track my discretionary what-if type trades to see if my "subconscious trader" is truly becoming a positive factor. 

In other words, I just need to stay in the moment, stick with the plan, and keep my intensity level high.

* * * * *

Friday, January 20, 2012

Total gross profits:  $200.00 +4.00 ES points
Total trades:  4  [1 scratch]
Accuracy:  100.0%
Execution score: 100.0%
Opportunity cost: +$0  +0 ES points

Friday was one of those days that was either one of the most uneventful narrow ranged opex days in recent history, or a near perfect range-bound day to grind out scalps.  In hindsight, if simply bought at the lower channel and sold at the high, targeting +2.00 while using a -2.00 stop, you could have booked nearly 28 points with no losses.  Ping pong trading.  Again, fun to see in hindsight, but not realistic at all.

Example of a great ping pong trading day
So based on the market conditions, I believe I was fortunate to capture +4.00 for the day.  It was also a day with more stop and reverse signals than I've ever experienced before, due to the range-bound conditions, so that was also a good learning experience.  But I also deliberately missed a trade or two (a lot for me), one of which ended up being a full stop loss.  Which brings up an interesting point...

It seem as if I've capitalized on a loophole in my "execution score" calculation -- since I don't include missed trades in my execution score calculations, I don't get dinged for not taking proper setups.  This will be something I'll need to track further to make sure I'm not cheating myself.

Thursday, January 19, 2012

I thought it was a perfect execution day

Total gross profits:  $100.00 +2.00 ES points
Total trades:  5  [1 scratch]
Accuracy:  75.0%
Execution score: 90.0%
Opportunity cost: +$112.50  +2.25 ES points

At the end of the day, I thought it was yet another perfect execution day.  Yay!?!?  Upon review of my first trade tonight, I was wrong. 

The first trade, which ended up being a full stop loss (+ a few extra ticks), ended up being a trade that should have been closed with a small loss due to a reversal signal.  So that trade gets half a point ding towards my execution score.  And since it should have been closed out based on a reversal signal, I should have gone immediately long.

In other words, my -2.75 loss should really have been -0.50.  And since I missed getting on board the "correct" trade that ended up making +2.00, the true opportunity cost was +4.25.  But for the record, since I don't count missed trades, my opportunity cost will be recorded at +2.25.

In this next example, let's include the missed trade, and assuming that the rest of my day was the same, I would have ended the day +6.25 vs. the +2.00 that I actually booked.   Isn't it amazing how one simple error could drastically change the outcome of the day...or maybe not?

Add to that, a couple deliberately missed "Rogue Grove" trades (I didn't take because they were not in my trading plan) that accounted for +4.00 in potential could have been a mythical +10.00 day...on a day that I thought was not very easy to read nor trade.  If Rogue Grove continues to consistently book paper profits, he may have to make a formal appearance.

So how do I truly feel about today? 

There's no regret, no sense of revenge, no sadness, no anger.  Just a feeling from deep within which is at peace to stick with the plan, follow the process, focus on execution, and to always try and stay one step ahead on the next potential trade.  And I know that if I continue to do so and minimize my errors, the P&L will most certainly improve.

As I continue down this journey to challenge myself to improve every day, it won't be very long before I begin seeing some +10.00 days make an occasional appearance.

Wednesday, January 18, 2012

Will it be a trend day or not?

Total gross profits:  $-62.50 -1.25 ES points
Total trades:  7  [0 scratch]
Accuracy:  57.1%
Execution score: 100.0%
Opportunity cost: +$0  +0 ES points

It used to love trend days

Trend days don't happen often, I believe around 10%, give or take, depending on who you talk to and how they define a trend day.  But if you catch the right day, and you enter a  trade using something as simple as a 30 minute opening range breakout, then hold on to your position and exit market on close, a day such as today would have produced decent results with minimal effort.

That was then, this is now:  Be aware (or beware?) of trend days

However, when trading based on key support and resistance levels, there's a possibility that you might get stuck trying to continuously short in an uptrend day (or vice versa).  I fell a little into this trap today, was down about 6 ES points at one point, but was able to scramble and dig myself out to almost b/e.

So now I find myself trying more frequently to identify whether the day is developing into a trend day or not, so that I don't get chopped up and waste emotional capital fighting the trend.  I'm getting better at:

  1. Identifying the possibility of a trend day sooner rather than later, BUT...
  2. Incorporating that bias to adjust my trading plan is something I need to work on 
Other area for improvement:  Tracking missed trades?

Another area for improvement is to track missed trades.  For example, today, I had at least 4 trades that I missed, either because I was not around to take them (time limitations), I simply missed them (was not prepared), or I avoided them (couldn't pull the trigger or decided to pass). 

In the past, I didn't give missed trades much weight.  But to know that I could have been up +6.00 by the time the NY session opened, does raise a lot of questions.  There was also another trade or two that I missed during the day, so all told, let's just say that I had "Missed Trade Costs" of at least +8 ES points.

Since my discipline of executing against my plan has improved significantly, once I maintain this level of discipline for this week and next, I will begin tracking the "Missed Trade Costs" so that I can better determine if there was anything I could have done to capture a greater % of those trades.  Just based on past anecdotal evidence, I believe that missed trades can account for a very large % of a day's potential profits.

Bottom line:  I'm going make sure I leave as little as possible on the table by the end of the day. 

Tuesday, January 17, 2012

Discretionary vs. mechanical?

Total gross profits:  $150.00 +3.00 ES points
Total trades:  4  [1 scratch]
Accuracy:  66.7%
Execution score: 100.0%
Opportunity cost: +$0  +0 ES points

Another day that seemed it will provide some great trading opportunities due to the gap open at the opening of the cash market, but then lulled people to sleep by around lunchtime.

There was some movement during the middle of lunch, creating some hope for volatility.  But then the "lull you to sleep" phase 2 kicked in for another 2 hours, and by the time the ES broke out from the descending triangle, many were caught sleeping.

And what I hope will soon become a boring broken record commentary -- I had another day where the execution to my trading plan was perfect.  As a reminder, this execution score does not include missed trades (I had at 2 missed trades that could have made +4.00, due to an order that was off by 1 or 2 ticks).  But based on those trades that I did take, I could not have executed them any better.

Interesting comments from the prior post
Benny said...
Your current thought process is focused on all the wrong things. A good trader uses his system as a guidance, not an absolute rule. Good traders know when to break their own rules because through experience, no rule works all the time in all conditions in the market.
Grove Under said...
Hi Benny,
You really have a great point, and something that I've struggled with. One example, there are times when I sense that taking +1.50 profits makes more sense vs. +2.00, based on market conditions. What I'm really trying to control at this time by being so "rules rigid" is to keep "Revenge Grove" from ever coming back into the picture. He's quite destructive.

However, I believe "Rouge Grove" (might need to change his name, bad connotation) isn't really so bad, and will likely provide valuable insight in the future as when I should break the rules or take a non-strategy trade.

Problem? I'm not yet mature nor experienced enough to differentiate the messages between Revenge and Rogue well enough. But I'm going to better track their voices in real time, and through time, I should be able to tell them apart.

Anonymous said...
Benny - that's great if you know when to violate your system but then you don't have much of a system if you break it, right? If your system requires intervention or rule breaking, maybe your system isn't as robust as you think.

The other side of the coin is that if your system is good, you trade it and don't need to decide when to break it and do something random.
Beyond my thought already written above, I believe there's a wide range between being a pure discretionary trader vs. a pure mechanical system trader, with many points in between.  Each one of us is different, and based on our strengths and weaknesses, there is probably an area on the discretionary vs. mechanical scale that works best for you.

Therefore, I think both Benny and Anonymous have great points.  There are some traders where if you ask them why they took a particular setup (which made money), but then avoided another nearly identical setup (which lost money), they would probably tell you that the 2nd one just didn't "feel" right.  By spending thousands of hours reviewing charts and trades, they have probably developed a "system" within their mind that can never be explicitly transcribed into a mechanical system.

I'm far from that level, although there are times when my subconscious tells me (or yells at me) to either take a trade or avoid a trade.  I'd say it's a bit more than 50% correct, so perhaps I'm starting to develop and refine that inner voice.  And through time, maybe I can actually get to the point where I can quantitatively measure and prove (via my opportunity costs metric) that I can consistently outperform the system.

That's when I'll know that maybe it's time I can start breaking some of my rules from my trading plan/system on a regular basis.  Or maybe I'll never reach that stage.  Speaking of which....

Rogue Grove's view of today's market
Some key highlights from the market action today.

Sunday, January 15, 2012

A 94% execution day and still lost -11.75. HUH?!?!

Total gross profits:  $-(587.50)  -11.75 ES points
Total trades:  9  [0 scratches]
Accuracy:  33.3%
Execution score: 94.4%
Opportunity cost: +$200  +4 ES points / Or +16 ES, see more under * section

For the record, I actually felt VERY GOOD about my execution on Friday the 13th.  The market structure after the morning range started to make a lot of sense as the day evolved.  And the volatility and movement seemed very ideal for trading as well.

I did NOT overtrade (had 9 total trades) nor did I take any revenge or rogue trades (zero!).  And if it wasn't for the mistake of not exiting my first long trade at breakeven (instead of getting a full stop loss) the reversing and going short (which means I missed a +2.00 trade), I would have had a perfect execution day.

After a couple days to let the dust settle, I'm still feeling very good about my execution.  But with a double digit loss, here were/are still some of my thoughts:
  • Is the system broken? 
  • Am I delusional and only thought I did well?
  • Did I blackout, do bad things, and forgot what I did?
  • The aliens decided to get me on Friday the 13th
  • And so on...
Here's what I believe it came down to -- bad luck.  Oh no!  Not that lame end-all excuse category that's a dumping ground for everything that can't be explained, or for cover-ups! 


1 tick made a big difference, again
There were a few trades where it touched and triggered my stop loss on the nose and eventually went for +2 profits.  I also had a few trade entries missed by 1 tick (e.g. touched my limit price but not filled) that went for +2. 

* The asterisk section re: opportunity costs
Believe it or not, after reviewing my trades objectively and in great detail, the unlucky "tagged to the tick" stops and other "unofficial" missed opportunities that don't fit my usual criteria accounted for about +16 points of opportunity costs.  Wow.  So had it not been for the "bad luck", I would have had around a +4.00 type of day, which in all honesty, was the type of day it "felt" like to me, even as I looked at my P&L in disbelief.

It was a breakthrough day
There was never a time during the day when I seriously thought about breaking my trading rules, even late during the Friday afternoon as my losses mounted.  Throughout the day, my mind was in the zone and focused on my goal, which was all about proper execution, regardless of P&L.

Never did I consider entering a rogue or revenge trade, it was always "what's the next proper setup that I need to be prepared for?"  And never did I consider taking profits beyond my planned +2.00 per trade -- just to try and swing for the fences to make up my losses.

So even as the P&L side of the day was melting down, I did not deviate from my plan.  I kept my focus on the long term discipline and consistency as my primary target.  This behavior was a breakthrough and as long as I maintain this discipline consistently, I am positive it will bring good results over the long term.

What would have "Rogue Grove" done?
This can be a fun question now, since I have been able to compartmentalize "Rogue Grove" pretty well lately.  And I'm sure I can continue to learn from him, since it reflects my deep inner consciousness of all the learning, beliefs, and values I have regarding trading and life.

If unleashed around lunchtime, I am positive Rogue Grove would have broken even or had gotten profitable by the end of the day.  Maybe I'll make a separate post about this, but based on my observation notes throughout the day (and yes, also hindsight), I would have been biased on the long side after 11:00 AM.  Then maybe lost on a trade between 1:00 PM and 2:00 PM by switching to the short side.  But I would have been long and strong from 2:00 PM until the close.

Obviously, these are hypothetical comments, but based on all the comeback days from I've had from deep in the red, I'm pretty comfortable with saying a breakeven or profitable day was possible based reviewing my real time journal.

Bottom line
I found this trading day somewhat similar to following your GPS driving directions, only to run into a perfect storm of adverse weather conditions, road closures, construction, bad traffic, incorrect GPS data, and let's also throw in some mechanical issues with the car.  What should have taken an hour to arrive at my destination, took 10 hours.  Sometimes, these things happen, it's life, and we just have to move on.

For over 95+% of the time, I know that staying disciplined and prepared will generate much better results.  Therefore, simply one "bad weather" day such as this will not make me deviate and change, especially based on all that I've been able to accomplish with my mental game and discipline.  In fact, this day gives me an even stronger resolve to stick with the plan.

One "bad day" down, many more good days ahead!

Thursday, January 12, 2012

Got +4 and benched myself early

Total gross profits:  $200.00  +4.00 ES points
Total trades:  2  [0 scratches]
Accuracy:  100.0%
Execution score: 75% *
Opportunity cost: $0  +0 ES points

With the return of volatility today, it seems like such a shame that I didn't capitalize on all the opportunities.  But since I still wasn't feeling well and realized I wasn't thinking clearly, I did something unusual and stopped trading in the morning (doesn't hurt that I was also 2 for 2 and up +4 for the day). 

After the market closed, one thought I had was, "What if my first 2 trades were losses?  Would I have continued trading, even though I was not feeling well?"  Honestly, I probably would have continued trading, and I'm not sure if that's a good or bad thing.  Had I been in the hole, there's a good chance I would have recovered the losses.  However, that also means that I wouldn't be acting consistently -- for example, acting the same regardless of whether I was having an up or down day.

This bothers me somewhat. 

Because consistency of action, regardless of whether I am profitable or not on my prior trades, is what I am striving to achieve.  Maybe this is a different scenario when my state of mind or health is involved, but this is yet something else I'll need to consider for the future.

The journey continues, and at this time, the best thing I can do is to get a good nights sleep.

I might be ticky-tacking this one, but I dinged myself half a point on my first trade with regards to execution.  I brought my stop down to breakeven before it reached my +1.50 target, since I had to leave for a bit and knew that there was big news coming out while I was gone.  Obviously, my stop loss was not hit, but I need to be honest with myself that I did NOT follow my trade management rules properly.

Wednesday, January 11, 2012

1 tick makes difference - trade dumb!

Total gross profits:  $62.50  +1.25 ES points
Total trades:  9  [3 scratches]
Accuracy:  50.0%  [excluding scratches]
Execution score: 94.4%
Opportunity cost: $100  +2.00 ES points

Yet another choppy narrow range day, but that doesn't mean there weren't any opportunities.  If I had not made one error, I could have had a +3.25 day, which isn't too bad for a relatively narrow range day. 

With others that I communicated with today, it seems like it was one of those days where a 1 tick difference in your order entry or exit price made all the difference.  

For example, for many of my trades, if I had entered the order right on the sup/res level, instead in fronting it by a tick, I would have tightened my stop and exited many of my trades for at least +2 ticks (+0.50) instead of breakeven, per my trade management rules.  That would have added +1.50 to my bottom line, which would have resulted in a potential day of +4.75.

Or, on some other trades, my stop would have been just 1 tick farther away so instead of getting taken out and then watching the trade go +2.00 without me, I would have remained on the ride to the profit-land.

I tried to determine whether getting out with +1.50 target would have worked on a day like today, and yes, it might have helped a bit. Assuming I didn't make any errors or get any slippage, when comparing profit targets at +1.50 vs. +2.00, I would have left with potentials of +6.00 vs. +3.50, respectively. 

In the big scheme of things, the profit potential of all my hypothetical "what if's" (blah blah blah!) is just not much of a difference to warrant a change or complication to my trading plan. No need to overthink this.  But it's good to know that as long as I stick with the plan, on a good (and lucky) day with more volatility, this could have easily been a +10.00 day.

Luck always has some element in trading, and today was not necessarily a lucky day (nor was it unlucky, thank goodness). But with an execution score of 94% (on one trade, I moved my stop order to b/e 1 tick too early on one trade, and missed a +2), and ending the day knowing that I followed my plan pretty darn well.  I am very satisfied with my performance.

However, we start over again tomorrow, with a clean slate. What I did today and how well I followed the plan today will no longer matter, and frankly, no one cares. All that counts will be how well I am mentally prepared and how well I execute my trades according to the plan. 

I'll continue to research and analyze smart after the market closes.  But I will continue to "trade dumb" in accordance of my trading plan -- as if I don't know any other way.

Tuesday, January 10, 2012

The journey to make discipline a habit

Total gross profits:  $200.00  +4.00 ES points
Total trades:  3  [1 scratch]
Accuracy:  100.0%  [excluding scratch]
Execution score: 100.0%
Opportunity cost: $0  +0 ES points

Another day where it looks like the big trend and volatility party took place during the Euro session, creating a nice gap up when the NY session opened, promising an exciting volatility expansion day.  However, the NY session turned into a relatively boring day with only a 7 ES point range.  The party people dissed the NY session, again.

I had 3 trades today, all of which were according to plan and all executed properly.  100% execution score.  Of those trades I took, I could not have done any better, so my opportunity score was $0 -- I did not leave anything on the table.  This is something I will turn into a habit.  

What is it they say that you need to do in order make something into a habit -- do the same thing for 3 weeks or something like that?  Therefore, I still have a lot of work to do, my journey has only just begun.  And even after 3 weeks, I know that the amount of effort involved with keeping my level of discipline at the highest levels will never end.

I ended up taking a long nap and missed most of the afternoon session, since I'm still feeling under the weather.  So I did miss a profitable trade or two even in this choppy market, but that's fine.  First priority is to get and stay healthy, so that tomorrow and every day as long as I trade, discipline to follow my plan prevails.

Monday, January 9, 2012

Scratch day, but a big win!

Total gross profits:  $0  0.00 ES points
Total trades:  4  [1 scratch]
Accuracy:  66.7%  [excluding scratch]
Execution score: 87.5% GOOD!
Opportunity cost: $100  +2.00 ES points

A bit under the weather tonight, so this will be short and sweet.  For me, it was one of the more difficult days to read and trade.  The lack of volume, range, and volatility was "challenging" for someone like me trying to go for many quick hits.  However, I kept the number of trades down to 4 (yes, NO overtrading!), but best of all, my execution score was above 80%

Even though my P&L was $0, and I could have booked +2 on a trade I scratched, as well as missing a couple good +2 winners completely, I consider this a very solid winning day because I nearly flawlessly followed my plan.  On a more active and favorable type of trading day, I'm certain the mindset and attitude I had today would have helped me to generate +10 points or higher.

Even the last trade, which was intended to be an aggressive scalp trade for a quick +2 points, took nearly *2 hours*, and I exited with a +1 tick profit before the close.  There were many opportunities to bail out early, and I did move my profit and stop orders around a few times, but I reminded myself that I needed to follow the plan and quickly corrected any erroneous actions.  Just shows I still have some work to do.

Right now, I'm not worried at all about the trades I miss.  But as I get more consistent properly selecting and managing the trades that I do enter, only then will I begin to analyze what I can do to better capture those missed opportunities.  So for now, I need to learn to walk before I can run.

A constant reminder to myself:  It's not about the P&L, it's all about the process and proper execution.

Sunday, January 8, 2012

Gotta earn the privilege to trade bigger

Friday, January 6

Total gross profits($75.00)  -1.50 ES points
Total trades:  7  [2 scratch]
Accuracy:  40.0%  [excluding scratches]
Execution score: 35.7%  [yuck]
Opportunity cost: $275  +5.50 ES points

Here we go again, another day where at one point, I was over -6 ES points in the hole.  And once again, it was a battle for the rest of the day to get back to break even.

Although I only had 7 trades today (at least I didn't overtrade), the execution score of 35.7% indicates that I wasn't trading according to the plan.  So in hindsight, I'm very fortunate that this didn't turn out to be an exceptionally ugly day.  Had I followed my plan to the T, I would have ended the day with a +$200 or +4.00 point day, according to my opportunity cost calculation.

What caused this lapse of discipline?
I had made a decision a few days earlier to begin trading 2 contracts starting next week, since one of my issues has been whether to exit my single contract at +2, or to let it ride for a bigger gain.  Trading 2 contracts would make it much easier to scale out of 1, reduce your risk, and let the 2nd one ride.

So Friday seemed like a "last hurrah" type of day for my single contract days.  And once I was negative from the very first trade, I threw the discipline book partially out the window and started to throw Hail Mary touchdown passes instead by trying to let profits run beyond my usual +2 point profit target.

Whoa, Nellie!  Scratch the plans to move up to 2 contracts!
One of the points Renato has made many times is that he earned the privilege to trade bigger as he reached his goals.  I have made it a goal that I have an execution score of at least 80% or higher, which would then indicate that I am doing pretty well executing according to my trading plan.  After stepping back and realizing that 67% was my best execution score I had on a short week, I've made a decision to cancel the decision to trade bigger, and continue trading with 1 contract.

The new plan
I'll need to prove to myself that I have the discipline to trade with 1 contract consistently before moving up to 2.  Managing the risk of my portfolio should be priority #1, so there's no reason to rush into trading bigger.  Therefore, starting next week, I will exit my positions with a profit target of +2 points on a single contract, and imagine (i.e. track and manage) that I have a 2nd contract runner. 

This week, it's not about my P&L. It's all about my ability to follow the plan - how well can I focus on the process?  The execution score will be THE metric to track my success...just the way it should always be.

3 month review with Diamond Setups

[Please note that these are strictly my own personal opinions based on my experience.  Your mileage may vary!]

Hard to believe it has already been (or only has been?) about 3 months since I signed up for Renato Santos' Diamond Setups (DS) program.  I've believed in this system from nearly the beginning when I first saw it after 2 weeks, and so far, it has continued to deliver just as Renato had advertised. 

For those who like to cut to the chase and avoid the babble, just skip this interview section and go towards the end.  But for those who like to hear the voices in my head regarding DS, read on...

Interviewer: So Grove, how has the DS system performed?

Grove Under: As advertised on Renato's site.  Over the past 3 months, his alerts have generated profits well into the triple digit ES points.  There have been stretches of up to 20-30 trades where he hasn't had a full stop loss.  Unbelievable.

I see it happening, all timestamped, in real time, and it's amazing to see.

I've tried to find something significantly wrong with the Diamond Setups system or with Renato, thinking that maybe this is some sort of scam or dream, but I've failed, so I've long since given up. 

Interviewer:  How have you personally done, Grove? 

GU:  Oh.  Uhmmm...  I've...[unintelligible mumbling]

Interviewer:  Why do you always avoid the "tough" questions?

GU:  OK, I'm still here.  I've had my ups and downs.  Did well on SIM in October for my first month.  Accidentally started trading live early November and then decided to continue live.

I was overconfident and when I hit a little rough patch, I went on tilt and lost about 25% of my portfolio in a matter of only a few days.  I obviously didn't follow the DS system during that time and went bezerk.

Interviewer:  OUCH!  Talk about choking, bro!!

GU:  Hey...c'mon man.  I'm answering the question honestly, not avoiding it!

So back to SIM I went for about a month to regroup and to continue finding the style of trading DS that works best for me (and still continuing to work on that now).

I started trading live again in early December with these results (all gross points):

Week Ending 12/09:  +16.75
Week Ending 12/16:  +3.50
Week Ending 12/23:  -6.25
Week Ending 12/30:  No trading
Week Ending 01/05:  -6.25

Interviewer:  Oh, I see a little rough patch going on the past few weeks?  Wouldn't just simply following the DS alerts have worked much better?  Then why don't you just simply take Renato's DS alerts?

GU:  The holiday trading volume got to me a bit.  Volume and volatility wasn't quite there as before.  Also ended up making many mental errors.

And yes, I significantly underperformed vs. blindly taking the DS alert trades.  But I'm trying to trade the DS system based on what works best for my style.  I'm working on getting to the point where I can trade without the alerts -- the whole "learning to fish" goal.

Interviewer:  If someone is giving away fresh fish, why don't you grab everything while you can before it goes bad, bro!!  Based on your holiday trading excuse for your recent performance, you must be starving.  Don't go bezerk again, man!

GU:  Dude...

Well, like anything else, there's time and "tuition expenses" involved with finding your way.  You have to find what works best for you and there's only one way to find out.

Just because you use Tiger Woods' golf clubs or Nadal's tennis racket and try and play their style, doesn't mean that you will be as successful as they are. 

Nor would a basketball player best suited for playing center be a great point guard, or vice versa.  We all have to find our strengths and play to them.

Interviewer:  Uh, maybe you shouldn't have used Tiger as an example.

GU:  OK, let's just imagine we're talking about this 10 year ago, happy now?

Interviewer:  Yes, maybe just a little.  So what's next?

GU:  I'm going to tighten down my trading plan which continues to revolve around DS, and work primarily on my ability to execute according to my plan.  I must focus on establishing a great process, not on my P&L.

And on a related note, I'll continue to strengthen my mental game, since that's critical for achieving those goals, and therefore, for my long term trading success. 

Interviewer:   OK, Grove, sounds like a good plan.  In all honesty, I really believe you're starting to get  there.  Let's catch up again in a few months and good luck!

GU:  Agreed.  Thank you, and I'll have much better news to report next time.

Here are my thoughts after 3 months with Diamond Setups:
  • First and foremost, I continue to believe the Diamond Setups methodology is solid. 
  • And it's Renato's support in his chatroom that really makes this all work.  If you were to try and learn only by simply reading the system's rules, you're only getting a small piece of the puzzle.  
  • Communicating with other members in the room with a similar trading style has also been extremely valuable.  Similar to what this blog has achieved, I've made some great new friends with like-minded traders.
  • Renato is a machine, very consistent and reliable, like clockwork.  If it weren't for a minor mistake on a rare occasion, I would have thought he was not human.
  • And if Renato does make a mistake, he's quick to apologize and admits the error.  How many Wall Street types do this regularly?
  • This is my first subscription to a chatroom service, so I can't comment -- but others have told me that Renato is very unique in this business because he is so patient, respectful, and very open about teaching you his system.
  • Humans have common sense and spatial recognition of market structures that can not be easily programmed into a mechanical system.  The DS rules seem to capitalize on this. 
  • You can tailor the DS rules to work in whatever timeframe and level of activity that matches your personality.  Finding what DS style works best for my personality is what has taken time for me to figure out.
  • The larger the timeframe (i.e. swing trading), the larger the stop. The stop could be upwards of 5 to 8 points or more.  But you could also catch 20-100 ES points on a good winner.
  • The lower the timeframe (i.e. scalping for +2 points), the smaller the stop.  The stop for scalping is usually around -2 points.
  • Renato would be the first to tell you that you need to find the style of trading Diamond Setups that works best for you.
  • So far, the consistency of DS is impressive, regardless of market volatility, and trend vs. non-trend days.  And based on what I've seen, it seems like a non-trend day with decent volatility is the sweet spot for DS.  Fine with me, since trend days only seem to take place 10-15% of the time.
  • Watching Renato trade is like watching and learning from a master magician. You know how the magic trick is done, but you're just in awe at how well it's consistently executed.  
  • He says he's like a bricklayer, simply putting up one brick (trade) at a time, eventually building up a big wall.  But I think magician sounds better.
  • Renato has a very interesting background.  Sometimes, I think he's the Brazilian version of "The Most Interesting Man in the World." 

Looking back over the past several months, I've found that signing up with DS has provided incredible benefits.  Watching a successful trader in action, consistently displaying great discipline, as well as having him openly explain why he's making his trades, has been extremely valuable.

Watching Renato make profits nearly every day has been an eye opener as well as great motivation for me.  If I had not seen this for myself, every day, in real time, all very transparent and timestamped, for the past 3 months, I would not have believed it.

Let's just say that even if I never trade again (not likely!), I would look back on this time with DS as one of my greatest experiences with trading.

Thursday, January 5, 2012

2.75 points of slippage in ES?!?

Highlight of the day?  My first trade experienced a 2.75 slippage, but luckily only on 1 contract.  I'm sure there are much worse examples of slippage on fills from the flash crash or other big news events.  I had a stop loss order at 1266.25 on a short position before the ADP employment report this morning at 8:15 AM, which triggered with a fill at 1269.00. 

I called TradeStation, and they pretty much said what I had expected and what I saw on the tick charts -- it's still holiday volume, so the thin volume combined with the bigger than expected number created a volatile move.  The usual canned response, but they do have a point.

But still, I would have accepted 4 ticks, but nearly 3.00 full points (11 ticks) of slippage on what's considered a highly liquid security does seem out of the ordinary.  I consider it a lesson learned with regards to putting your stops in obvious places, as well as having a position before a high impact news release.

Thursday, January 5

Total gross profits($25.00)  -0.50 ES points
Total trades:  9  [1 scratch]
Accuracy:  33.3%
Execution score: 66.7%
Opportunity cost: ($125.00)
   [Positive impact due to a single large rogue trade]

Due to the large slippage of the first trade, in addition to the 2nd trade of the day being a error (entered wrong price) that lost, as well as a full loss for my 3rd trade, I was down about -7.50 in relatively short time. 

I started to chip back, and there were some additional trades that went about +1.50 to +1.75 in the money, but they ended up with a small loss.  I hope to better capture some profits in those types of trades once I'm trading 2 contracts starting next week.

How I identify potential reversal days
By around lunchtime, it was clear to me that we had a potential reversal day ahead of us.  I've seen many of these chart patterns, so they seem pretty clear to me, and they seem to work more often than not.  Here are a few key "tells" of a possible reversal day:

A) The swing high that preceded the low of the day was broken. 
B) The swing down to retest the lows retraced about 61.8%, and never broke the upward sloping trendline
C) A tight consolidation formed, and broke out of the range.  After the high of day was broken, the reversal was well confirmed.  You can also see a 1-2-3 bottom formation

So once the trend appeared to be up and we were headed for a gap fill, I looked for opportunities (including those not specifically stated in my trading plan) to go long.  I found a decent setup that wasn't totally to plan (i.e. therefore I consider it rogue), and ended up with a trade that booked +6.00 (went as high as +8.75).  This enabled me to nearly breakeven for the day.

Today was yet another example where I was able to scramble and climb back up out of a deep hole.  Something in my mind changes and makes me a better trader when I need to scramble.  The real trick is to find a way to turn on that switch when I start the day flat!

Modifications to the trading plan
Since it appears that my trading plan is possibly too rigid with regards to entry setups, I'm in the process of modifying it to be a bit more flexible.  The only potential concern is whether the modification will become too flexible and enable me to consider any random and rogue setup to be part of the trading plan.

However, one area I will not modify is the trade and account risk management sections.  Those are areas that need to be kept on a tight leash.  This is what will keep me in the game for the long term when I hit my next rough patch on the road.

Pushing forward
I'm still experiencing the mental challenges of sticking to the plan, but it's also a time of transition, since my plan is current in flux for the move to 2 contracts as well as the modifications described above.  This is a time I'll need to be extra careful in order to ensure that the move to 2 contracts will not result in the painful outcome from back in November.

But to look at it from a more positive perspective, it's also a time to push forward with even greater focus and determination to trade according to the plan.  I will minimize entering based on rogue and sub-par setups, which will help me significantly to achieve my goal of becoming a consistently profitable trader.

Wednesday, January 4, 2012

Still rusty, but new plan for trading 2 contracts

Wednesday, January 4

Total gross profits-($225.00)  -4.50 ES points
Total trades:  6  [1 scratch]
Accuracy:  20.0%
Execution score: 50%
Opportunity cost: $200.00

Unfortunately, there is still some rust in my system and a day that could have been breakeven or slightly profitable, just wasn't meant to be.

A combination of a setup that I will always take that just didn't work, in addition to some trades that weren't managed well after the entry, sprinkled by relatively well contained rogue trades, resulted in a day that was relaxed but not great.

The execution score of 50% leaves a lot to be desired and my opportunity cost shows that I should have had a breakeven day.

Next area of focus - scaling out
I noted several areas of focus in my prior post, but one item I didn't note was moving up to trade multiple contracts.  Based on the what I have seen, the whole concept of scaling out will generally reduce risk (assuming they aren't rogue trades), while still keeping open the option of having a big trade based on letting your remaining unit of contract(s) run. 

Changing the plan mid-stream
Since I'm only trading 1 contract right now, a typical mental challenge I run into is whether I should get out at my +2.00 profit target, or whether I should let the trade run a bit longer.  Making these calls mid-trade isn't the smartest way of managing for a trade, at least based on my current experience and skill level.

I'm quick to enter / slow to exit
I've discovered that one of my strengths is to be very patient and letting a profitable trade ride, perhaps even too long.  What's interesting is that this strength of holding on and being patient with a profitable trade is directly inverse to my ability to patiently wait for the right setups to enter.  In other words, I am impatient and trigger happy to get into a trade, but very patient and slow to get out of a trade, especially if the open trade is profitable.

Next step - trade 2 contracts
So it's time to adjust my trading plan and incorporate 2 contracts into my trading so that I can play to my strengths. .
  • I'll exit the first contract most likely at +1.50, and then raise my stop up to -1.50
  • Let the 2nd contract ride to either the next target level, or let it ride and let the markets tell me when to exit
The overall volume in the ES still seems to be light, so I might consider moving to 2 contracts next week, when the markets will hopefully be getting back to "normal."  In the meantime, I have a lot of work to do so that I can improve my mental game.

Tuesday, January 3, 2012

Getting back to business

A scratch day
After a very hectic but really wonderful holiday week with family visiting, it's time to get back to business.  I'm still feeling a bit rusty, so I only took one trade which ended up touching my profit limit order at +2.00 ES points but no fill.  My stop was at break even/entry price so I let it ride.  Luck was NOT on my side, and I ended up scratching the trade. 

Renato does it again
Renato made a few calls, including his first of the year that I didn't take since I wasn't quite ready to pull the trigger.  It also "felt" like a tough trade to take at the time.  Yes, in hindsight, those are really lame excuses.

(Jan 03-10:03) RenaTrader: RES 1278.50-80

What was the high of the regular trading session?  1279.75 at around 10:25 AM.  You can't get much better than this and he makes these calls to sell the high or buy the low of the day quite frequently.  I wouldn't believe it if I didn't see this happen regularly, in real time, timestamped, over the past 3 months.

No New Year's Resolutions
Many people are making New Year's resolutions this time of year, but I'm not going down the traditional path.  Sure, I'm going to work on goals, but I believe they should be reviewed and updated on a regular basis, not just once a year and forgotten. 

Focus goals on process, execution, and the mental game
I'm also going to start setting more specific monthly or quarterly goals related not directly with P&L, but to the overall trading process and quality of execution, in addition to ways to improve my mental game.

I'll also need to monitor my mental well being and make it a point to NOT trade when I am not in the right frame of mind.  My biggest losing days are directly attributable (with near perfect correlation) to those times when my non-trading life was exceptionally stressful.

Changing my physical world as well
I'm also changing my work environment and will experiment with a standing desk as my trading station, in a new location, to determine whether I will be more alert, especially in the afternoon.  Increasing my exercise regimen will also help to increase my overall well being, both physical and mental.

And finally, my diet, especially breakfast and lunch, will need to be improved, since I've noticed that when I'm not properly nourished, I become mentally agitated, which definitely impacts my trading performance.

It's on!
Here we are, 2012, and I've been pressing forward for nearly 9 months trying to find a way to trade that works best for me.  I'm positive that I have discovered more setups with an edge than I really need to become comfortably profitable beyond my wildest dreams.  But I have yet to properly execute on a consistent basis.  So I will become more selective in my setups, focus on execution, and make it happen.  It's time to do it!