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.


Anonymous said...

"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! "
I really thank you for sharing -- I can't believe how similar our thinking processes are. I have this issue as well. My plan is to have a daily goal -- this may fluctuate day to day -- and I will use that to mimic the "loss" I have to make up...

Tomross58 said...

Hey grove,

Excellent recovery yesterday and I think good to see that you didnt let that first trade take you out of thinking you can get it back. Great that you got that +6 on that move up.
Two contracts should allow you to book some profits and then sit with a free ride. Great job on managing your losses and now the most difficult task of managing winners. I think as traders that we really need to keep good records of how we scale out of our winners so as to maximize them in the future. Great job


Anonymous said...

Hi Grove and Tom,

Happy new Year.

Tom, have you gone live or are you sim trading? Do you understand the trading system? thanks Hector

Anonymous said...

Hi Grove,

Great blog! Do you enter trades with a limit order and set stops with a stop market order?


Tomross58 said...

Hey Grove,,,

Another good day in Renas room on Friday as he (Rena) continues to amaze. I took 3 trades and all 3 went in my favor almost from the get go. I think one was against me 2 ticks at worst.
To answer Hector yes I understand the system. The man trades it everyday flawlessly and like anything else in life you must put in the time and effort to become proficent at it. I am getting better everyday.
I am still on sim as I wanted to compile some numbers and get used to everything but going live is coming very soon. I also opened a new trading platform to trade Futures so I am now feeling comfortable with that. The Holidays offer some interesting trading days.
I will also say that I am in somewhat disbelief at how well the DS works. But I am there everyday and see it in action. I am sure Grove will agree. Hope this helps


Grove Under said...

Happy New Year!

Thanks much for the comment! Yes, limit to enter and stop market for stop loss. I use limit orders for profit target.

However, I wish MIT orders were much easier to use in TradeStation.

Although I guess can go 1 tick in front of my price with a limit order to essentially get the same effect.

Yes, totally agree about DS -- and watching Renato trade it is like watching a great magician. You know how the trick is done, but you're just amazed at the consistency of execution.

Good to hear you'll be going live soon, good luck!

Anonymous said...

HI Grove and Tom,

I just signed up with Renato!

Do you concentrate on one set up and which one or ones should I look at. Thanks

Anonymous said...


I have other questions,

Do you concentrate on futures or the forex, or both?

Do you trade one instrument or several at one time.

thanks hector

Grove Under said...

Hi Hector:
Great to hear you're on board!

If you focus and really get good at executing only the DS4, DS5, and DS7 setups, you will do very well.

I'm primarily following the ES, but also keep an eye on the EURUSD. For me, just following and trading ES is more than enough if you're looking to scalp +2 point trades. That could result in anywhere from a handful to 20+ trades a day, depending on how active you want to be.

I'm trying to target < 10 trades a day. Anymore than that, and my wheels start to wobble, and occasionally fall off.

See you on Monday!