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.

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