Thursday, March 8, 2012

Breaking trading rules

Total gross profits:  $75.00  +1.50 ES points
Total trades:  7  [1 scratch]
Accuracy:  50.0%
Execution score: 85.7%
Opportunity cost: $-100.00  -2.00 ES points

Tough day today, due to some misreads.  And the Execution Score indicates some penalties, which were based on two trades.

First tisk-tisk trade
The first was due to my decision to override a "go flat" signal on a long trade and continue to hold it.  I ended up making a +2 on what would  have been a breakeven trade, and have noted that on my execution score. 
Second tisk-tisk trade
The second trade penalty was due to moving my stop loss up to break prior to the trade reaching +1.50.  I knew it was my final trade of the day, and with the 70F degree weather outside and a grill that needed to come out of storage so that it can be cleaned up and ready for dinner, I didn't want to end the day on a losing note.  

Sure, I gave myself some dings based on a ticky-tack technicality, but I need to be completely honest with myself.  In the end, the b/e stop barely missed getting tagged by a tick, and I ended up getting the +2.  Therefore, no impact to the opportunity cost.

Rules are meant to be broken
I've spoken about this in the past, but there are certain times that I believe rules are meant to be broken.  Another example where I should have overridden my rules was the following:  

I was in a short trade from 1360.75 that started to show unusual "held offer" type behavior on the tape.  There was a big iceberg (hidden) order that protected 1361.00 for several minutes over many thousands of contracts, all the while the Euro continued to move higher.  

The price action was getting "jiggy", so I knew something was different and that it was a perfect opportunity exit the short trade with only a 1-2 tick loss.  However, my desire to stick with the execution won that time, and I ended up taking a full stop loss.

How I'll know breaking the rules is OK
I'll continue to track the opportunity costs, and as long as they remain negative, that's a good sign that my judgement to override my trading rules have some justification.  I believe my "inner voice" is starting to get more reliable, but I'd be the first to say that it's not yet ready for prime time.

It's not a sprint, it's a marathon.

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