Update: $AUDUSD closed on Friday

The $AUDUSD short trade that started on 9/9/2011 was closed out on Friday, 9/16.  The stop above the highs of the prior 2 daily highs was hit, and it ended up with a little over 70 pips profit.  It was well over 200 pips profitable at one point, but I wanted to give this one room to breath (unlike my daytrades where I usually close them out too soon).  And as Murphy's Law would have it, the pair opened with a nice gap down last night, and I also missed a clean short entry earlier this morning.

$AUDUSD 15min 9/19/2011

$EURUSD short was another trade I entered on Friday, based primarily on the daily charts.  It looked like a great opportunity to short based on a pullback to the point of breakdown from the prior week...

$EURUSD daily 9/19/2011

...so there looked to be a good spot on the 15 minute chart to enter.

$EURUSD 15min 9/19/2011

However, I got in a little too early, took some heat, and then the price action consolidated the rest of the day around my entry price.  It broke above the prior swing high that lead to the swing low prior to my entry, as well as the 100 ema, so I was no longer as confident of this setup.

And then my mind, I decided it was good to take a timeout this weekend, be in all cash, so I scratched the trade with a small profit.  As with the AUDUSD trade, Murphy's Law took effect, and the pair opened with a nice gap down last night.

Here's something I need to consider - I appear to be reading and executing better on a 15 minute level, using much wider stops.  I believe this method could could also work on stocks, but I've always tried to segregate the two asset classes apart.  Being able to get out easily overnight in the forex also gives me some comfort to hold on.  So perhaps I need to better integrate what works in each and work to enhance those strengths in my overall trading.

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It also turned out that I ended up having family visiting this week, so this timeout I took looks to be timely.  In terms of priority, family will always take priority over trading, so my activity will likely be quite light this week.  After having quite a mentally intensive past few months, I'm looking forward to this brief rest before I take things to the next level starting next week.

Knowing when to call a "Time Out"

As I start approaching the 6 month mark as a developing day trader, I've noticed a disturbing pattern on the majority of my trading days over the past couple weeks:

• My intraday P&L curve looks like a "V"
• Down significantly (up to -4%) the first half of the day, and then a fight back to breakeven the second half of the day
  
• The second half of the day consists of mostly solid trades with high volume scalping (usually net breakeven or slightly profitable)
• Due to high volume of trades, ALL of my losses over the past 2 weeks are due to commissions (on a gross basis, I am profitable, but that means little)
• I'm mentally exhausted from the psychological battle of having to dig myself out of the loss, as well as trading of the wicked action of TZA & TNA (although I'm getting somewhat used to it)
  

And then I tried to do "The Opposite"
Yesterday, I had another "V" day.  But once I got back to breakeven, instead of being smart and quitting like I did the other days, I decided to have a George Costanza day and do "The Opposite."  After telling myself I was done for the day, I decided my goal was to not stop at breakeven, but to keep going to make it decent profitable day. 

The result of doing "The Opposite"
Needless to say, yesterday ended up being a "\/\" shaped day.   Unfortunately, George's theory didn't work for me.  I'm "only" down about 4% for this week, once again, all due to commissions.  And I'm not yet at my "I've blown up my account" level, although I'm always close to that level by choice during my training.

But I feel terrible.  It's not due to the relative or absolute loss on my portfolio, but it's because I realize I've lost control of my actions.  It's mostly from taking rogue (non-strategy) and revenge (stopped by one tick, I'll get back in) type trades resulting in overtrading (surprise!).  It's the feeling you get when you're at the slot machine, mindlessly pushing the buttons over and over and over again, hoping for something good to happen. 

This type of behavior negates and trivializes the countless hours of researching I've done on what works for me and what doesn't.  It's so clear that I have the ability to see and take good setups that have positive expectancy.  Then again, it's also very clear that I have the ability to take absolutely terrible setups.  That part needs to stop.

Slow down, knowing when to call a time out
Like I have in the past when I run into these periods, I need to slow down.  I will stop trading for the next few trading days in order to have the time to evaluate my recent actions in great detail, and then work on my plan to improve self-control. 

When Phil Jackson was coaching the Lakers, he wouldn't take a time out as frequently as other coaches when his team played poorly.  He let them play through their challenges -- unless things got really bad.

I had some warning signs in the past week, but I played through.  But now I realize it's time to call a time out and be proactive before I hit my "I've blown up my account...again" level.

Every trader faces this challenge
The challenge I face is nothing new for any level of trader.  I've run across countless tweets, posts, and books about how waiting for your setup and being able to NOT trade is one of the biggest struggles imaginable.  In many ways, I believe they (and I) write about this all too important trading axiom to help them reinforce it in their own minds.

Doing nothing goes against the human nature of taking action to "fix" your problems and mistakes.  What's perceived to be initiative and decisive action in the corporate and political world can most certainly be ruinous to a trader.

On the bright side
During all of those "V" days, if I had totally avoided the first half of the day when my trades lost, and only traded the second half of the day that was profitable, I'd be having one of my most impressive weeks.  I would have gained 2-4% returns a day on my portfolio, risking only 0.30% per trade.

So it's time to hunker down and learn to stop taking sub-par setups.  Easier said than done, but I'm confident I will get there.

Recap: $ITMN and $AUDUSD

In a day where I got chopped silly by a thousand paper cuts and had to reference my Dr. Brett books and website for comfort and assistance to rebuild my psyche and sanity, at least there were some trades that worked.  I was able to take what I consider a "very ugly" loss and cut it in half to just an "ugly loss."

So yes, I did end up taking some nice profitable trades, so I should feel a touch positive for the accomplishment of partially cleaning up my big mess. But in the future, days with big messes caused by undisciplined trades will be a non-occurrence.

* * * * *

ITMN - 5min - vlb setup.  Sold short around 11:15 due to the vwap line bounce [vlb] which also corresponded with resistance from the Retracement Zone (RZ).  Held on through a choppy ride down, missed exiting at the FE target ($0.25 opportunity cost), and got out on the first pullback after the downward trendline broke.

There was also a "vlco pinch" setup later in the day, which is when the rising (or falling) 5ema pushes up (or down) against the vwap line, and pinches it to breakout.  With the pivot point level also acting in conjunction as resistance, I was hoping that this was the start of a big reversal.  But the price action stalled right at the RZ and I got out at breakeven.

ITMN - 5min - 09/13/2011

AUDUSD - Update: Still short, although I had little scare earlier this evening when the price approached the 9/13 highs of the day.  My stop has been lowered to slightly above the highs of 9/13, so the price got about 15 pips from getting triggered.  In hindsight, that spot was a great place to add on for a low risk/reward trade.  I've locked in some profits, and now it's time to sleep.  We'll see how this turns out tomorrow morning.  Good night!

AUDUSD - 15 min - 09/13/2011

Be water, wait, and then take action like this guy!

"Empty your mind, be formless, shapeless - like water. Now you put water into a cup, it becomes the cup, you put water into a bottle, it becomes the bottle, you put it in a teapot, it becomes the teapot. Now water can flow or it can crash. Be water, my friend."
Bruce Lee

Most are very familiar with with Bruce Lee quote about "be water, my friend."  It has been the subject of countless discussions in various fields, including brokerage commercials, and yes, trading.  It's still as powerful and meaningful today as it was when he spoke about it over 40 years ago.

I ran across this interpretation -- from the fighting perspective
"If you practise wing chun, you know exactly what he means. Do not use force to fight force, just be like water and flow your punch into the opponent."

My interpretation -- from the trading perspective
Be patient and wait for market to come to you.  In other words, don't force your trades.  Go with the flow of the market and only when the markets evolve into the shape that plays to your strengths, take swift and definitive action.

Speaking of swift and decisive action...
Imagine having a small pellet shot from a BB gun approaching you at 200 mph.  This person is able to draw his samurai sword and cut the small pellet as it approached him.  Makes you wonder how much focus and concentration it takes to do something like this.  And I just wonder how many takes it took to get this shot...I'd be very impressed if this was the first take!

* * * * *
After a solid trading day yesterday, I participated in a big chopfest today and got cut up bad.  Recovered about half my losses, but still, it's obvious I didn't read the memo above regarding waiting for your setup.  All in all, between yesterday and today, my absolute losses this week is not that bad.

But that's not the point.

This is clear evidence that after a good trading day, I let my discipline down.  I got sloppy.  And this is unacceptable.  This will require further evaluation to determine how I'm going to avoid this type of behavior in the future.

$AUDUSD - new entry on 9/9/11

After getting stopped out of the EURCHF trade last week based on a maybe-once-in-a-lifetime type of move, I saw the AUDUSD daily charts setup on Friday with an interesting pattern.  It's not a picture perfect triangle or chart pattern by any means, but it did show that there was a breakout taking place to the downside.  This pattern corresponded with many of the other major currency pairs.

AUDUSD Daily 9/11/2011

When this breakdown took place, I looked for an entry on the 15 min charts, and saw what appeared to be a good entry on 9/9 at around 8:30 AM.  However, I missed this entry, so I drew trendlines of the prior pivot swing highs, and saw a pullback around 11:00 AM that approached the trendline. 

AUDUSD 15min 9/11/2011

I entered at that time when the lows of the prior 15 minute bar were broken, and placed my stop above 1.05.  However, if I see that the trendline extended from the two pivot swing highs on 9/9 is broken accompanied by a bullish pattern, I may exit the trade prior to my stop loss being hit.

But for now, it's time to just let it ride.