View from the time out box

Since the family life has gotten a bit busier, I've gotten a bit behind with updates to this blog.  However, this post is something I wrote mostly late last week, and just completed the final edits today. 

*****

There have been a few times in the past when I knew taking a time out was the right thing to do.  Once again, I reached that point last week.  My psychological capital is running low, my day trading has gotten impulsive and undisciplined, and a "I don't care" attitude has taken hold a surprising number of times.  I feel good that I had enough self awareness to simply STOP.

Now that I've made that decision, I'm finally in the cool down mode and am at peace.  My goal is to take a couple weeks off to regain a clear mind, and work on my mental game as well as revisit and revise my goals and plans for the next chapter.

There were many warning signs.

• Although my forex swing trading continues to perform well at over a 100% return year to date, my larger ES daytrading portfolio has lost over 50%, a big chunk of it from this month.  This is red flag #1.  The P&L speaks for itself that something was not going well.
  
• Possibly due to boredom and greed, I started to experiment with scalping again.  I've always wanted to be able to put myself into and out of "scalp mode" on demand.  While I've found some setups that I've been able to execute well on the fast moving tick charts, the momentum of taking so many trades opened the door for revenge trading. 
• I started to focus on recovering my losses (i.e. the money) instead of following the proper process to simply trade well.  I got fixated on getting +10 ES point days, which I did accomplish a few times.  But it's a recipe for disaster, because when the markets weren't moving, I still tried to force home runs, and struck out to the tune of more than 20 ES points.
• Efforts on my daily journaling and overall analysis of my trades during this period went downhill.  It's as if I didn't care anymore.  I only wanted to hit home runs, and nothing else mattered.
• When I started to look at my bread and butter forex setups, I started to feel impulsive and tried to justify and force setups that weren't there.  Or tighten up on stops way before my rules and get stopped out.  I had a completely different mindset and process vs. the successful process I used most of this year.
  
• And worst of all, I could feel some trading stress spilling over into my primary role as father and husband.  I feel fortunate that I was able to catch this situation and stop it well before any flash point was reached.  Because that would have been absolutely inexcusable -- a clear deal breaker in my life.

A great relevant webinar
When I expressed my time out to some fellow traders, I received a great link to FT71's "Trader Intervention" webinar from Matt.  It's about a futures trader with about 2 years of experience who started with a $100k account only to see it get crushed down to $20k in several months. 

He regrouped by trading on SIM for a few months, and went back live to become consistently profitable for 2 months resulting in his $20k account growing to $33k.  Then he lost $32k in 2 days, leaving behind a $1k balance.  OUCH!  The monkey took control and won. 

Listening to this webinar was eye opening and somewhat painful, since many of the trader's challenges are so similar to mine, except my losses are peanuts compared to his. 

FT71's comments and coaching in this webinar was spot on -- including his first recommendation that he just needs to stop trading.  And FT71's question about how he was doing with his journaling during his binge made me crack up (because his assumption was right, the trader's journaling was nearly non-existent, as was mine).  It felt like FT71 was talking to me and his recommendations in the webinar further reinforced my decision to take a time out and regroup.

Where to from here?
Over the next 2 weeks, I'll be working on cooling down -- no more live trading.  That will open up the day so that I'll be revisiting my goals and plans.  Working on my mental game will also be one of the key areas of focus -- self-hypnosis, meditation, yoga, etc.

Another question I need to seriously consider is, if I'm doing so well with forex, why not just swing trade forex, size up, and forget about everything else?  That style of trading seems to flow naturally and is a strength of mine.  So yes, that's also in the picture.

And on a related note, I need to consider whether the method I'm using to daytrade the ES is in sync with my personality and style.  Maybe all this mental stuff is a symptom, not the cause.  Because if I felt 100% comfortable and confident with a system, would I be breaking the rules so often?  Something else I'll be evaluating.

I look forward to returning from my time out in June, a little wiser and better prepared.  And especially a step closer to becoming a consistently profitable trader.

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.

A break from radio silence

Has it really been about 2 months since my last post?  A lot sure has happened since then.  Hurricane Sandy certainly disrupted life for a while, and when I returned to trading sometime in November, it's pretty clear I wasn't ready.  I was back from my hurricane hiatus, swinging for the fences, looking to make it big.  Probably as a way of lashing out at life's challenges. 

I was having upwards of 20-30 point daily P&L swings (both profit and losses) trading ES with only 1 contract.  I even had some overnight sessions with the flighty and volatile soybeans, trading late into the night resulting in 20 or more point P&L swings on a single contract. 

The only problem is that for every 20+ point day, there were more days where I lost 20+ points on 10 point range day.  Big recipe for disaster.

Yeah, I wasn't watching my risk...at all.  And I paid the price...big time.

Although my forex account has quietly gained well over 150% for the year, I ended down in my futures accounts over 70%.  Luckily, in absolute dollars, I had started with a minimal sized account just to trade, so there's hardly any impact to my overall financial condition. 

But from the psychological capital perspective, I was hit hard. 

I usually think primarily in percentages of portfolio, and when I took the hit in November, I wasn't even thinking in terms of percentage of portfolio risked (only thought how much $'s I could/should make).  In hindsight, this is simply not acceptable.  This is not what a professional trader does.  This was pure gambling.  In order to prevent myself from truly blowing up all my accounts, I took preemptive action and transferred money out.  Time out.

I've learned through experience that it's so easy to destroy your money with reckless trading, but so much more difficult to accumulate profits.  All it takes is one bad day of senseless trading to wipe out days/weeks/months of hard work.  It's a similar concept trusting someone -- what takes years to build trust with someone, can be forever broken in just moments.  I need to respect this concept.

During the darkest hours, I admit, I had thoughts of quitting. 

This doesn't happen often, but I needed to think of an alternative life to trading, and strangely enough, this usually brings me back to trading.  Trading is something I've been planning on doing full time for the past couple decades, and I've realized after careful consideration that there's no better time than now to continue charging ahead.

By the 2nd quarter of 2013, I will have been trading full time for 2 years.  It sure does seem like I've been at it a lot longer.  I remember hearing many others say it takes on average 3-5 years in order to become a consistently profitable trader (for those who even make it that far), and I always thought I could accomplish it in a year...or less.  Sure hasn't been the case.

Where has this trading journey taken me so far? 

I started it all in early 2011 with stocks, and after about half a year, I lost about half my account, literally all the losses were commissions.  I was breakeven on a gross basis, even with all my revenge/rogue/impulse trades.  I discovered that there were certain defined setups that worked very well for me, but just couldn't be patient enough to avoid the revenge and rogue trades.

As an escape, I decided to switch to futures which had more leverage and no pattern daytrading rules to worry about, and ended up losing over 70% in about a year.  A little less than half of my losses were due to commissions.  Unlike stocks, I definitely had a gross loss trading the ES and nearly all of my losses came on a handful of weeks where I went on tilt and got sucked down a death spiral of revenge trading. 

In hindsight, the leverage/tick size/contract size of the ES emini in relation to my account size really put me at a disadvantage.  I couldn't size down below 1 contract and reduce risk/scale out of positions as I easily could with stocks.  My thought was that if I couldn't be consistently profitable with 1 contract, why even bother sizing up?  I was stubborn to try and make it with an all-in all-out trading style using 1 contract. 

What and how I'm doing now

And due in part to this last experience of pain, I've recently escaped again.  However, instead of focusing more on forex (which has continued to work relatively well since I started trading full time) I've decided to explore stocks once again and for whatever reason, utilizing options heavily. 

I'm currently trading with a very small equities account and don't want to get triggered as a pattern day trader, so I only swing trade.  This restriction has reigned in the revenge and rogue trading significantly, since I can only execute a few trades a day and thus have the time to think them out.

During December to date, I've only had about 18 trades, of which over 70% are winners with a profit factor greater than 3.00.  In comparison, a bad revenge filled day from the past would produce more than 20 trades with an accuracy of < 30%, so this is significant change. 

I am hopeful and optimistic that maybe, just maybe, I'm starting to make the turn.  But then again, I've had this feeling before...which then lead to me to overconfidence, which then led me to falling off the discipline wagon in spectacular fashion. 

So I am determined more than ever to stay the course of maintaining a consistent and disciplined trading process, rather than focusing on P&L.  I also have to credit the stock trading room I've recently joined, which has making a big difference in the way I think and trade.  More about that in the future.

2013, here we come!

Since I'll be traveling over the holidays next week, this year is essentially over for me and I'll be shutting down.  So this will likely be my last post of the year. 

I'm really looking forward to seeing my old friends and family back in San Francisco.  Hard to believe it has been about 2 1/2 years since we moved from the beautiful Bay Area, so there will be a lot of wonderful catching up to do.

I look forward to 2013 with renewed optimism and confidence.

Happy Holidays to all, and best wishes for a great 2013!

To scale, or not to scale out?

After trade reviews of the challenging narrow range day in ES on Friday posted here, I did a "what-if" type analysis on my trades with regards to scaling out.  Renato mentions in his blog post here the advantages of scaling out and an example how.  I also believe this is a great way to potentially reduce risk and increase profits, *IF* you're starting with the adequate number of contracts and scaling out properly. 

My current scaling out strategy
Instead of using units of 4 contracts as Renato recommends, my current trade management of scaling out usually involves starting with 2 contracts, exiting 1 car at +1.50, and letting the other run after bringing up the stop loss to +.25.

As you could imagine, nearly most of the time the 2nd car is stopped out at breakeven.  So from the pure mathematical perspective, unless you occasionally have a monster runner, the #'s just don't seem to add up for the scaling out method I use. 

The reason to dig deeper?  Because I had to climb so far
My gross profit on Friday was $50, and that's after going into aggressive scalp mode about 1.5 hours before the close and climbing myself out of a $600 loss on 12 trades.  That type of P&L curve doesn't sit well with me so it was time to do some further analysis. 

One point was clear, I was not patient enough and entered some non-strategy (i.e. rogue) trades that contributed to the drawdown.  That was was got me into trouble for most of the day.  But there was also something about my scaling out strategy that I wanted to explore.

The what-if scenario I modeled
"What if I did NOT scale out and instead, simply exited my entire position at +1.50 when the 1st target was hit?"

Here are the results
Instead of ending Friday with +1.00 gross, I would have had an incremental:

• +13.75 if I used this method the entire day
• +9.25 if I used this method only during the final 1.5 hours of aggressive scalping

Crazy.  The few bad non-strategy/rogue trades I took earlier in the day were NOT filtered out of my analysis, so the results could have been even better. 

During the final 1.5 hours, the range of the ES was about  6.50 points, so these results are difficult for me to believe (but remember, they're simply based on the actual executions I took from scaling out of the 1st contract). 

What's also interesting is that when the trades were profitable, nearly all took only 1-3 ticks of heat.  So there's a possibility that the stop loss could be tightened up -- however, this requires further research and a much bigger sample size.

But can it be replicated?
A part of me wonders whether the aggressive scalping performance was due to luck and therefore, can not be consistently replicated in the future.  On the other hand, I have enough evidence over the past 3 weeks to believe that this type of performance can be more than possible. 

The real challenge is whether I or anyone can have the mental stamina to maintain this rapid-fire method of trading both intraday, as well as over days/weeks/months/quarters/years.  It's difficult being a human trying to keep up with the HFT algo-bots!

The bottom line
Renato mentioned this in his chatroom last week, and the bottom line is that you really need to be able to enter a trade with the appropriate number of contracts to effectively scale out.  So if you can't enter with at least 4 contracts, then you need to chip away and build up your account so that you can.  And only then can you take advantage of the powerful benefits that scaling out can offer.

Therefore, my new strategy starting this week will be to exit out of my entire position at +1.50 or +2.00, based on market conditions.  No more scaling out, since I will not likely be using that method when I start trading live.

2 day loss = 2 week gain

Total gross profits:  $-325.00  -6.50 ES points
Total trades:  11 [1 scratch]
Accuracy:  20.0%
Execution score: tbd %
Opportunity cost: $ tbd

Even with 1 hour less sleep than usual, extra family duty this morning, I was still feeling confident, even with the yesterday's performance hanging over me.  I was ready.

The first trade looked like a decent setup, and something I would take again and again.  But it went +1.25, just one tick shy of being able to bring my stop up to breakeven, and got a full stop out.

The yellow flag comes out
Uh oh, first trade that's a full loss -- that's when I should pull out a yellow flag and put it on my monitor.

Then the dreaded double clicking of the DOM took place, which entered me into a extra position.  At least this time, I was able to gracefully exit.  But still, another stop loss. 

This was followed by more sloppy and rogue trading, more losses.  Downward spiral.  Discipline was thrown out of the window, I was totally out of sync.  I was in a different world, in a not so good way.

This chart, from VanKar's Trade Analyzer, also shows that my entries were terrible, and rarely went much in the money before getting stopped out.  And you can see how I even let trade #5 get to +2.00 profitable, and yet I still booked a loss.  Shame.

Rogue Grove comes off the bench after lunch
During lunch, I tried to take a nap, but as exhausted as I was, I couldn't sleep.  So I made a decision to let Rogue Grove out to play.  The day was shot, the execution score was not even worth it tracking. 

I fully realized, this decision was dangerous.  Whether it was my fatigue that allowed it, or some part of my subconscious, I don't know.  It's almost a lose/lose situation -- if I made a good P&L comeback, then it reinforced potentially bad behavior.  If I really let things go, then the protection of my capital, my priority #1, was unnecessarily risk. 

"That Voice"
But on the flip side, there's a certain point where you need to start listening that "that voice" in your head, you know, the solid and reliable one that starts whispering to you what's about to happen, and is usually right.  Probably based on the culmination of hours/years of screen time experience, it's a voice easily confused with "Gambler Grove's" voice.  But I really believe that over time, it's becoming a little easier to tell them apart.

So I wanted to test it out.  To see if I'm getting to the point where I'm able to start operating at the level of an "unconscious trader."  You can absolutely argue the point that I wasn't of sound mind to make that decision at that moment in time, but it you know what, it still seems justified after the dust settled.  Chalk it up to a self discovery experiment.

The "almost" comeback
I was down about -10.00 ES points and got the P&L back to less than -1.00.  Not bad, a "typical" 9 point comeback.

But overconfidence took over, and I didn't want another one of those "almost got back to breakeven" days.  I wanted to close solidly green.  So "Gambler Grove" took the wheel from "Rogue Grove", and went for the gusto to CRUSH IT -- anticipating a big selloff into the close. 

Didn't happen.  Strike out.
Ended up going from -1.00, to -6.50 points, working 2 contracts around a short position.  But at least I didn't end up trading like I traded $TNA on this day. 

Back to where I started
The losses from the past 2 days have just about offset the gains from the past 2 weeks.  So essentially, I'm back where I started on March 1st. 

Gluttony took over today, and now I feel the effects.  Luckily, the damage was minimal.  Now it's time to regroup, refocus on the fundamentals, and get back on track. 

But first, I need a really good nights sleep.

Almost down 10% = TIME OUT

Since today would have been my mom's birthday, there are some family obligations I have to attend.  So this update will be quick and simple.

My account is now down nearly 10%, so I'm calling a time out.  It's back to SIM, because if I continue trading like I have been recently, where I don't have much respect for my trading plan or what I'm doing, it's financial suicide. 

Ever since I was up over 7% in the 2nd week of this month, due primarily to the great execution of my plan, I have since lost around 15% from that peak.  It's not the necessarily the loss itself that has been the primary trigger for my time out, it's the drastic and consistent decline in my execution score.  Had I continued to trade with discipline and maintained a high execution score, I would consider this drawdown much more acceptable.

On the bright side, at least I'm at the point now where I'm self-aware enough to understand what is going on, and to stop trading before things really get out of control.  It's time to reevaluate what I'm doing and to try and understand what is causing this self-sabotage type behavior.

My moment is still here, and I'm going to use this next phase to take all the pieces that I have learned to date, then rebuild an even stronger foundation upon which to grow.  I believe how a person reacts in the face of adversity is a true reflection of their character.  So let's do it.

A choppy day to remember

Today, the markets took a break after a powerful uptrend day yesterday.  It was a boring, choppy, narrow range type of day.  So does that mean my day was also boring?  Not quite.  Here's how my day broke down:

Early morning: Was patient, but only for so long.  I then entered a sub-optimal trade (it was NOT a formal Diamond Setups alert) about an hour after the open likely due to impatience.  It ended up being a full stop out.  Yuck.  Not a good way to start the day, since that usually triggers more losses.  And it did.

Lunchtime:  Although I was down for the day primarily due to my first losing trade, I had confidence that I could come back, even if it remained a choppy narrow range day.  After a few short scalps working on the resistance levels at the highs of the day, I entered yet another short position and scaled out half.  That gave me an opportunity to let the 2nd contract run with little risk and go to lunch.

While I was out, the trade got as much as +7.50 in the money.  When I returned, it was still about +5.00.  However, I did the unthinkable and let it stop me out at b/e!  It was obvious I did not have a strategy in place for this trade and treated it as a gamble.  This type of rogue trade usually gets me out of sync with my strategy and triggers more losses.  And it did.

Early afternoon: I continued to be out of sync with both the markets and Renato's calls.  He had about 3 calls today, all winners.  He clearly stated that the conditions are very difficult and that only those who are profitable for the week and aggressive traders should be trading.  I took another full stop loss trade based on a non-strategy (a rogue "why did I take that in hindsight?") trade in addition to other trades that took me even further down the into loss territory.  I can't keep making the same mistakes, so it was time to make a change.

Late afternoon:  I was not expecting nor did I wish for another "one lucky miracle trade" to get me out of my loss.  That would make me look lucky, yet again, assuming the markets even produced such a move on a day like today.  I decided it was time to regroup and focus only on a scalping strategy due to the choppy and narrow range conditions, and because there was one particular timeframe that continued to work very well even in these challenging market conditions.

I wanted to chip my way out of this the loss with small consistent wins, but unlike my prior crazy attempts to scalp, I had a solid trading strategy and methodology on my side.  Time to put it to the test!

Bottom line results: I took a nearly $600 loss and worked it up to b/e in the final 1.5 hours with 12 trades.  That's about +12 ES points.  And based on what I learned, next time my execution should be more effective which should lead to better utilization of potential profits.

* * * * *
Friday, October 28
Total gross profits:  $50.00
Total trades:  22
Accuracy:  65%
Contracts per trade: 2

NOTES:  Check out that crazy cumulative P&L.  Even though this is "only" a SIM account, it was still a tough experience.  As far as I'm concerned, I'm trading real money.

No big trend to fight today, only choppy narrow range conditions and my usual mental challenges.  These types of market conditions really bring out my propensity to be impatient with entries.  Which leads to rogue trades.  Which leads to losses.  Which leads to more rogue trades....  But the late afternoon was a test of my ability to regroup and refocus.  To best capitalize on these market conditions, I chose to aggressively scalp trade using the Diamond Setups system and made +12 over 1.5 hours with 12 trades.  Now I'm very tired!

* * * * *
The weekend is here, and after an intense week trading and studying the Diamond Setups system, I'm going to do my best to rest my mind.  I can honestly say that I was mentally fatigued by the middle of this week.  I will need to do my best to incorporate a way to protect my emotional and mental state of mind, as well as maintain my physical health through continued exercise.

But as tired as I am, I can't wait for Monday!

Full Lockdown in Effect

I'm sure you could almost have predicted it -- I decided to trade the live account today.  And it was likely going to be a big day -- one way or another.  So what happened?  Well, I was up $500 (5 pts/car) this morning between Renato's DS calls as well as my usual scalp trades.  I was starting to feel the zone and flowed with the trades, just like good 'ole SIM days that generated great results last month.  And at this rate, I was going to have a pretty good day.  But...

The trigger
But there was a trade on the DS alert late morning that stopped out, and for whatever reason, that knocked me out of the rhythm.  The DS is expected to have at least 2 losses for every 10 trades, so having a loss isn't unexpected.  But this was one of those trades where *I* did not set the original stop properly thinking it wouldn't get all the way down there, so I was scrambling around trying to adjust it as it started to go against me. 

After the loss, a small shift in my mindset was triggered.  The next few trades were not necessarily hit 'em out of the park revenge attempts, but the voice in my mind to make up the loss quickly was getting louder.  "You gotta go back in there and and get it back!"  This began to corrupt my discipline, made me anticipate entries, and I started to see setups that were not really there. 

A slow and gradual meltdown
Every trade I entered started to go against me almost immediately, and instead of taking this as a warning sign to regroup, I began to start looking for even more trades -- I had to get back into a trade. 

I ended up taking some breaks to cool down, but once again, all I could think was -- I needed to get back on board a trade.  The wheels started to wobble, and they finally fell off.  This ended up being one of my worst days.

The worst part
Sure, I feel embarrassed by my performance.  And sure, I feel like I'm walking around with my tail between my legs. 

But here's the worst part -- many people cared enough to take the time to send me great actionable advice and suggestions that would have prevented a day such as today, and I did not act.  I feel as though I let those people down and ignored them.  Far from it, I am a person who listens to what others say, takes them to heart, and acts on them -- which explains why I feel this way. 

Saving grace?  This game is far from over, and there is still time to implement the great suggestions.  You can count on that.

Full lockdown
As of tomorrow, my live account will be under full lockdown.  It's back to SIM, 100% for all trades.  My live account has suffered another direct hit, but I am far from being out of the game.  My decision to allocate $10k/contract has kept me well in the game.  In the past 7 months since I've started trading full time, I've experienced this a situation a few times, and knowing when to call a TIME OUT is critical. 

I'll need to work on the criteria to remove the lockdown, but it will have some element of how close are my actual executions vs. the signals from the system.

Monday, November 7
Total gross profits:  -x,xxx,xx   [Too embarrassed to disclose, but I WILL eventually]
Total trades:  29
Accuracy:  27.6%                   [Wow, very obvious how rogue trades were involved]
Contracts per trade: 2

NOTES:  Another gap up day, but one that filled the gap and continued lower to test the PP pivot, then an extended 1-2-3 / consolidation reversal pattern formed to go higher.  As the bottom was forming, the Berlusconi news popped the market higher, and then steadily crept up to close at the highs of the day.  In hindsight, it wasn't that different of a day, but my approach after a solid morning session ended up being a huge FAIL. 

Lessons learned
So it didn't work this first go around with the $ES_F, but what did I learn? 

• Know your tilt triggers -- An oldie but goodie.  After the first loss (or first few losses) of the day, my first reaction is to go back in and try to get it back quickly.  This results in revenge trading and overtrading.  And getting in one rogue trade makes taking the next rogue trade that much easier.  It is critical that I wait for a good setup for the first trade.
• Pulling the trigger -- I have no problems pulling the trigger after a loss.  In fact, I have a problem pulling the trigger too often after a loss. I'll need to find ways to minimize this.
• SIM vs. live -- I knew to expect differences, and yes there were, especially with the fills.  But what I didn't anticipate was my psychological reaction to the differences.  When I see trades that hits my +2.00 ES target but don't fill, there have been many instances where I let them go to a full stop loss.   And worse of all, I did not prepare properly to determine how I would handle those situations.  This happened a lot more often than expected, and was a trigger in some cases for non-plan trades. 
• Weekly goals - I need a very solid and crisp plan on what my strategy and goals will be every week.  I have mixed too many apples and oranges together with regards to my trading plan.  When given a specific task, I deliver, so it's time start doing this again.
  
• HUGE opportunities - The more time I spend time in the DS chatroom and study the system, the more it becomes clear that DS and the variations to better suit your personality can really provide some really huge opportunities.  And as you grow, the ES market is very liquid, so the fills will not usually be an issue for the retail trader.  Therefore, the more I see this system in action, the more I realize the enormous potential.  That's what keeps me going.  
  

Today was one of my worst days with regards to trading.  But do I still believe?  YES, without question.

How many warning flags does it take?

Total gross profits:  $-825.00  -16.50 ES points
Total trades:  10 [1 scratch]
Accuracy:  11.1%
Execution score: 27.2%
Opportunity cost: $+625.00  +12.50 ES points
   <-  It should have been
         about a -4.00 day

Late last week on short notice, my mother's burial was scheduled for today due to some botched up planning by the cemetery.  Unfortunately, I couldn't fly across the country at the last minute due to my family, which is probably something my mother would have wholeheartedly supported.  But still, it's not a good feeling to miss out on something like that.  Warning flag.

Early this morning, I saw a setup that ended up working but couldn't take it since it was the time to get the kids ready.  Of course, it worked.  And after I returned from working out and was getting my charts setup, I saw another setup or two that worked.  It was a good to know I was seeing setups that worked and was feeling confident for a solid day, although there was a slight sense of missing out.  Warning flag.

But then it appeared that a trend day up was starting as potential signals came up to short the market.  I kept saying this looks bullish, but kept shorting.  I couldn't pass them up, because they were valid signals, as well as my fear of missing out.  Internal conflicts.  Warning flag.

Before you know it, I had 2 full stop losses and I said I should quit here after being down about -4.50 ES points.  They were based on valid signals per my plan, but I wasn't pleased.  Warning flag.

I entered another trade and yes, it was a short against the trend, and I started to say shortly thereafter how it looked bullish.  Around this time, my sister called distraught about my mother's burial service -- the funeral home gave us the wrong urn -- it wasn't the ashes of my mom.  Ooops!  Warning flag.

Fast forward to about 3:10 PM, when I exited a 2 hour short trade with a small loss -- only 2 ticks below the high of the day.  Ugh.  Had I kept my original stop, I would have been fine.  Yet another warning flag.

OK...deep breath...no revenge trades, no rogue trades, no revenge trades, no rogue trades...


At 3:12 PM, I went long for the first time.  And I kept scaling in and getting stopped out.  At 3:30 PM, I got a sell signal, didn't want to believe it, and kept buying, even when the critical swing low got taken out. 

After missing the buy side all day, I must have been trying to make up for lost profits.  After I finally scaled out and went even, this one revenge trade campaign cost me -8.25 ES points, and my opportunity cost on this single trade was a whopping +10.00 ES points.  Crushing.  That might just be an all time record.

So, did the personal issues at hand help make this trading situation worse?  Perhaps.  Maybe I was taking out my frustrations at the market.  But had I done well, I could also have said that I was bolstered by the personal issues and how I rose to the occasion on yet another comeback.

But the bottom line is that this was a day where there were enough warning flags, one after another, to either not trade at all or to just stop early.  Instead, I didn't listen to my inner voice.  How many flags does it take to make me change my behavior?  I must to do a better job of self-managing myself, otherwise I will have a short trading career.

Well, that didn't work...

As I wrote yesterday, one thought I had was to start the day with the mindset of being in full recovery mode. In other words, don't wait half a day until I had a loss to start scrambling, start immediately!  So I tried it today.

Well, it didn't work.

As luck would have it, after being up maybe 2R or so after a few trades, I decided to go right to TZA and take it up several notches.  But perhaps due to being out of sync, as well as having to deal with choppy markets, and of course having some bad luck (getting stopped out multiple times by just 1 tick, only to see the trade work well), my plan didn't work.  I dug myself into another deep hole.

After hitting the losing streak, there were instances when my open positions showed that I was breakeven or even positive for the day, but a buy program would trigger and knock me out of my short positions or else reduce profits significantly, or [insert another excuse here].

Elements of revenge trading kicked in, which then led me into other poor entries, which led to more small losses, which then let me into even more desperation entries.  In other words...I could see a death spiral forming.  Time to blow the whistle, call time out!

Now that my portfolio is back close to the "I've blown up my account" levels, it's time to step back, regroup, and reevaluate my overall strategy once again.  I can definitely see how this day could have been quite a profitable day, but there were many actions I took that didn't support that outcome.

My scheduled time off starting now is timely, so we'll see how my mind processes all of this over the next few days to figure out my next steps.

Ooops, I "blew up" my account, again...

Back in a prior life, I used to work in credit risk management, where we would analyze and implement account management strategies on loan portfolios that were billions of dollars in size.  It's not as exciting as it sounds, since managing a big bunch of loans would be similar to driving a big 18 wheeler, vs. trading at a hedge fund which would be like driving a Ferrari.

Through dealing with the analysis of large numbers, I learned that it's not necessarily the absolute value that's important.  Instead, many of the metrics for comparison were based on basis points or percentages.  So as I began down this journey of learning to trade, I wanted to make sure I kept the proper perspective on my progress, and to also find a way to minimize my overall personal financial risk.

Primary way I measure performance

First, I knew the absolute dollar amounts that I would be trading would be considered random daily P&L noise for experienced traders.  So I wanted to measure my key performances, such as P&L and risk size, by basis points of my portfolio or the R-Multiple.  I find this to be the purest way to measure your performance, especially if your portfolio is small.  This way, as I scale up in size, it's not whether I'm betting $50 or $5000 per trade, it's just the same 'ole 50 (or whatever) basis points of my portfolio.

Yes, I do admit, for all the work I do, when I look at the absolute dollars I make or lose, it sure doesn't seem like much.  But measuring your performance based on percentages helps to keep a better perspective on how you're truly doing. 

You'll likely wreck the car (or your account)...

Second, I wanted to make sure that I'm not putting too much money on the line as I learn.  When a teenager is just learning to drive, there's a good possibility that they're going to get into an accident and wreck the car.  So even if you could, responsible parents just don't go out and buy a Ferrari for their child's first car!

Although I could open up an account significantly larger, it just would not be financially responsible.  I know from past experiences that I will initially lose money.  So my intention is to minimize the absolute dollar size of my account, so that I can use the $25k minimum pattern day traders requirement as my backstop to force a time-out.  This is similar to how you would get locked out of your account at a prop trading firm after you exceed a certain loss for the day. 

So what now?

After such a volatile day yesterday where I was very lucky to end the day slightly profitable, I was hoping to take it a lot more easy and be much more focused today.  But I learned quickly that trading with a lack of sleep can be very hazardous to your trading P&L.  That's no excuse for my lack of discipline.  I wasn't so lucky today with a SODA trade to bail me out.  I exceeded my $25k backstop oh so slightly, so now it's time to take a break, spend extra time evaluating what I did wrong, dust off, and refocus on my goals. 

In the meantime, I'll take the humiliating and embarrassing action of sending a little more money to unlock my account.  Nope, I admit, this isn't the first time I've had to do this in the past 4 months. I also admit, it's not like I really blew up my account, but it sure does feel like that to me.  However, this is the first time I'm telling the world of the shame and disappointment I feel.  This will motivate me to do better.  On the bright side, I look forward to the days when I'll be withdrawing money from my account on a regular basis.

Review of TheTradingWife.net

Now that enough time has passed and hindsight analysis becomes 20/20, it's clear that joining Danielle's TheTradingWife.net chatroom had a big impact on my overall swing trading performance, as discussed in my prior two blog posts here and here. 

This is my unsolicited review of her service.

BACKGROUND

I had been a follower of Danielle via @thetradingwife on Twitter for a while and knew she also had a credit spread options service.  So when I started exploring various credit spread services around the end of 2012 and contacted her for more details, I found out she was no longer at that website. 

She said she was planning on starting her own service, so I got on her trial when it opened up.  In hindsight, it was a good serendipitous series of events.

Since launching her service earlier this year, Danielle has been positively mentioned by @the_real_fly on his ibankcoin.com website back in February, as well as profiled in this month's (October) Active Trader magazine.

IT CLICKED FOR ME, BUT...

My belief is that there are no secrets with successful trading.  Everything you need to know is already out there in the public domain.  I believe one of the biggest challenges of successful trading is to "simply" discover what methodology works for you, as well as having the proper mental attitude.

One way to find out is to just keep trying various techniques and/or chatrooms in a methodological fashion until you find something that works -- but before you run out of financial and/or psychological capital.

I had studied many swing trading methods thru the years, so I am very much aware of the many different variations of trading.  However, I had yet to package up a method that I felt comfortable with, which also aligned with my personality and style and produced consistent results. 

After joining TheTradingWife.net and learning her overall process and methodology, I was surprised to learn how well her methodology resonated with me and with my own particular preferences I've picked up along the way.  And after nearly a year, my performance trading her method speaks for itself.  Note that my results are not based on her alerts -- I wanted to learn how to fish, not simply be given it.  As mentioned earlier, my actual results are here and here.

Will it work for you?  I have no idea.  And no one, except for yourself, will know for certain until you give this or any other trading methodology a fair shot.  If the overview below seems interesting to you, then it might be worth investigating.

MORE DETAILS ABOUT THE METHODOLOGY

You can see many blog posts and charts on TheTradingWife's website to give you an example of her swing trading method.  In a very simple nutshell, the swing setups are based on a combination of these criteria:

• Going with the daily 8 ema trend.
• Candlestick patterns such as left-right, belt hold.
• Chart formations such as rounded bottoms, J-hooks, and frying pan bottoms.
• Riding that trend until an appropriate signal appears to exit the trade.
• "Trade small and often"
• Position sizing no more than 10% of portfolio (sometimes half size), and generally, risk per trade much less than 1% of portfolio.
• Importance of staying out of the market during unfavorable conditions.
• Understanding emotional and psychological control when trading.
• For example, she will pass on a trade if she feels "emotions" about a particular stock. The way she explains this as it happens really hits home with me.

THE CHATROOM

This is not your typical chatroom full of emotional chest pumping daytraders shouting out boom at every opportunity.  So if you're looking for that kind of excitement where everyone is hi-fivein' and hootin' and hollerin' after "nailing" a few penny scalp, this is not the place for you.

TheTradingWife's chatroom is a much more relaxed and congenial place for those looking to learn how to trade for bigger % gains on a swing trading timeframe.  There's a good mix of content in the conversations -- heavy on trading obviously, but also open to current affairs, music, humor, etc. during slower periods.  It's like a friendly neighborhood pub.

BENEFITS FROM THE CHATROOM

• First of all, access to Danielle in the chatroom throughout the trading day (and often into the night) regarding any question you may have.
• In addition to live interaction via the chatroom, receiving realtime email alerts on stock entries and exits are great for those not glued to their computers.
• On occasion, she'll launch a video chat so that you can view her charts and comments.
• Great contributions from other members, but especially from the prolific and very knowledgeable "G.G.", who posts relevant and timely comments/charts throughout the day -- from very early morning to often late into the night. 

These days, I'm not around as much to monitor the chatroom in real time, but having a transcript to review is very valuable, especially since Danielle does a great job commenting the reasons why she took (or didn't take) a particular entry or exit.  If you take the time to study this the transcripts, there are usually some solid lessons.

THE BOTTOM LINE

Check out her closed P&L performance on her blog here.  And her open positions are listed on the top of her homepage.  I've watched enough of her trades in real time over many months to know these results are realistic.  She prides herself on transparency.

I'm not sure if many are even aware of the service she offers, since she doesn't really market or hard sell her chatroom -- it's just not her style to boast with tweet after tweet after booking a +30% trade, to join her room.  But maybe she should do just a little more self-promoting so that others could learn and benefit.

So if you're truly interested in working hard to learn how to swing trade based on her successful methods, she is a willing and capable mentor who will take the time to teach you in a congenial and supportive environment.  I'm just one of many who have had the privilege of benefiting from her mentorship.

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 TRADE
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.

THE CAST OF CHARACTERS

@treeee50
Planted the seed by showing a picture and whispered to all those that listened...the bottom in the Dollar might just be here.

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

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

@RenaTrader
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!

WHY WAS I LUCKY?
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

BUT DON'T COUNT YOUR CHICKENS...
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.

TIME WILL TELL
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!!

Glossary: Tradervue tags

[Note: this is a work in progress and will be updated on a regular basis]

This is a glossary page of all the tags I use in Tradervue -- a really useful online trading journal and reporting tool I've recently started to use.  There are some posts here and here I have recently written regarding how the use tags within each of my journal entries, which then enable me to quickly perform some very useful analysis.

For example, the way I created the tags was due to the types of questions I knew I wanted to ask, especially with regards to how well certain setups are performing (or not), as well as other questions such as how much my revenge and rogue trades were costing me.  I didn't think there were this many tags, but because I developed the tags based on my requirements already in my mind, it only takes me < 2 minutes per journal entry to update.  A great return on time investment for the powerful stats I can generate.

One question I would like to ask, but am not currently able to answer, is the maximum amount of actual profit (and loss) did I have at one time during a trade, vs. how much did I actually close.  In other words, how well did I manage the trade, and what was the opportunity cost of being less than optimal.  It would have taken too much time to calculate the figures for all 1000+ of my historical trades, but perhaps I can do this moving forward.

This is a living and breathing document, so as mentioned earlier, this glossary will continue to evolve.

                             GLOSSARY OF TAGS IN TRADERVUE
                                                 As of 8/21/2011

 

GRADE
a	Perfect, textbook, multiple factors of support
b	Near perfect, one additional factor of support
c	Meets spirit of setup, but some red flags
d	Not an ideal setup under the conditions
f	Fail, no reason to enter
TIMEFRAME
2min	2 minute charts used for entry
5min	5 minute charts used for entry
15min	15 minute charts used for entry
SETUPS
3br	3 bar reversal
b and b	Bread and butter
bo	Break out
bo-hod	Break out - high of day
bo-lod	Break out - low of day
bounce	Bounce of significant level (e.g. whole number)
btfe	Beyond the Fibonacci Extension (FE)
btfe1/2fe	Beyond the 1/2 to the FE (halfway between ORH & FE)
btfe16	Beyond the 161.8% FE
btfe20	Beyond the 200% FE
btfex	Beyond the FE extension (beyond 200%)
btorh	Beyond the Opening Range High (ORH)
btorl	Beyond the Opening Range Low (ORL)
bullflag	Bullflag setup
c and h	Cup and handle
cbd	Consolidation breakdown
cbo	Consolidation breakout
gitsor	Green in the sea of red
ritsog	Red in the sea of green
h-pattern	h-pattern (inverse is y-pattern)
heldbid	Bid that is held by big buyer
pb	Pullback - price pulls back for entry
pb-bt1/2fe	Breaks through "1/2 way to FE," pulls back, and retests "1/2 FE"
pb-btfe	Breaks through FE, pulls back, and retests FE
pb-btfe16	Breaks through 161.8% FE, pulls back, and restests 161.8% FE
pb-btfe20	Breaks through 200% FE, pulls back, and retests 200% FE
pb-btorh	Breaks through ORH, pulls back, retests ORH
pb-btorl	Breaks through ORL, pulls back, retests ORL
pb-pb2rz	Breaks through ORH/ORL, pulls back, retests Retracement Zone (RZ)
pb2rz	Pullback to the retracement zone
pt	Pushthrough (3+ bar opening setup)
qh	Quick hit (2 bar opening setup)
rogue	Rogue trade, not a part of trading plan
scalp	Quick trades for generally $0.10-$0.20 profits
topout	Topout (short setup)
triangle	Triangle pattern, via trendlines
u-turn	U-Turn (long setup)
vlb	Vwap line bounce
vlco-pinch	The 5ema pinches price action through vwap
wnbo	Whole number breakout
SETUP CONDITION
halfnum	Price action was impacted by $.50 level
wholenum	Price action was impacted by $.00 level
ma over vl	Moving average was over vwap (noted if setup was against trend)
midrange	Price was in the retracement zone at the time of setup
no-vlco	vlco had not yet taken place (usually early entry)
vl over ma	Vwap was over vwap (noted if setup was against trend)
tl	Trendline was a factor on the setup
sr	Support or resistance line was a factor on the setup
revenge	Usually noted if prior trade was just stopped out
sar	Stop and reverse - usually, but not always, used with revenge
vlco	vwap line cross over
asctri	Ascending triangle
destri	Descending triangle
filltail	Opening range pattern, price action fills in wick of opening bar
contra	Trade in the opposite direction of the gap (gap fade)
TRADING CONDITION
2extended	Price action was extended at the time of setup
choppy	Price action was choppy
lateday	Trades after 14:00
lunchtime	Trades around 11:30-13:00
narrowrange	Overall range was narrow
news	News released during trading hours, impacting stock
nogap	Stock did not have a gap opening
lowvol	Low volume stock or day, usually resulting in choppy conditions
EXECUTION & OUTCOME
win	Trade was gross winner
loss	Trade was gross loser
scratch	Trade was a gross scratch
fobo	Fake out break out - the breakout failed
error	Trade was entered in error
badexit	The exit could have been much more optimal
chased	Entry was late, chased the stock, usually should have stayed out
early	Entered trade early prior to actual sign (break of prior bar)
goodexit	Exit was optimal, could not have gotten much better price
4barstop	Not touching stop for 4 bars would have been optimal
stop2close	Stop was too close, would likely have been successful
stopped1tick	Stopped by 1 tick, usually used in conjunction with stop2close tag
scaledin	Scaled into the trade, adding on
scaledout	Scaled out of the trade, usually via 2 profit exits
THEORITCAL MAX OUTCOME
hit-1/2fe	Price ultimately hit the 1/2-way to FE
hit-fe	Price ultimately hit the FE
hit-fe16	Price ultimately hit 161.8% FE
hit-fe20	Price ultimately hit 200% FE
hit-orh	Price ultimately hit ORH
hit-orl	Price ultimately hit ORL
hit-runner	Price ultimately went past 200% FE
hit-tgt	Price ultimately hit target (non-Fibonacci target)
MISC
study	Tag to study trade further
twitter	Stock was added to watchlist from Twitter

The quest for consistency - Q3/2013 results

In my prior blog post almost 4 months ago, I commented at that time that I was profitable 6 out of the prior 7 months in my swing trading account.  Since that time, performance results have continued to remain consistent. 

Around that same time, I also made some changes to my swing trading.  I had a nearly forgotten IRA account at ETrade, and the account had been primarily in a money market fund making paltry < 1%/year.

But I was notified that the money market fund was shut down, thus leaving the account in all cash.  Well, at current money market yields where they are, being in all cash isn't much of a difference, but at least I was now "free" to trade in that account.

So I began actively swing trading my IRA account around the end of June. Here are some specifics of that account:

1. Due to IRA status, it is a long only and cash based (no margin) account
2. A steep $10/trade commissions. So that's $20/round trip, and even more when scaling out of a position.
3. The starting balance was a little over $30k, so it larger than my prior swing trading account.

So how did I do swing trading that account, with a much less favorable commissions cost structure?  Given the conditions, respectable.  Here are my actual results:

Performance by month from Tradervue.com

June - October 2013 statistics from Tradervue.com

Trade distribution from Tradervue.com

TRADE AND ACCOUNT RISK MANAGEMENT

From the trade and account risk management perspective, my risk management was even more conservative than with the prior account:

1. Except for a few dividend yield plays, my risk per trade was generally around 0.2% to 0.5% of my total account, often on the lower end of the range
2. Position sizing per trade was generally < 5% of the total portfolio
3. Total position leverage was on average < 50% but maxed out at around 85% for a short period

MY THOUGHTS

• This swing trading method has worked for me over the past 10+ months, and appears to be process with which I can remain consistent.
• However, a one year performance is nothing in the world of trading.  And I'm always wondering if the markets will change enough to negatively impact my future performance.
• How would I do in a overall downtrending market, since I'm in a long only account?
• Had I used a less conservative position sizing and/or more aggressive risk per trade, my returns could have conceivably been 2x higher.
• How much can I really size up my trading before I run into growth limitations?
• Commissions accounted nearly 25% of my gross profits (!!!), especially since my positions were usually small, only just a few hundred shares.  Had I used IB or TradeStation, my net returns would have been significantly higher.
• Even with swing trading, I still fight revenge/rogue trading at times, but it's very infrequent compared to daytrading.  I realize that this challenge will likely never go away.
• Trading with small risk per trade has been key.  I simply trade the solid setups, and follow the rules with little emotions.
• My greatest challenge now is to stay motivated and to remain consistent with following my overall swing trading process. 

LOOKING FORWARD

As my discretionary trading continues to improve, my trading time continues to get squeezed due to increasing family commitments. 

My main goal now is to work hard now to diversify my trading business so that by doing so, I gain more time for non-trading activities in the future.  I'm continuing to explore autotrading services, as well as ways to trade other methodologies and products.  I've also reignited the development of mechanical trading systems with some promising results.
 

It's a very interesting and exciting time for the retail trader, with tools and services currently available that most (especially me) could not have possibly imagined even 10 year ago. 

Trading in the fog

Tuesday, February 7, 2012

Total gross profits:  $-87.50 -1.75 ES points
Total trades:  3  [1 scratch]
Accuracy:  50.0%
Execution score: 83.3%
Opportunity cost: $75.00  1.50 ES points

I'm still a little under the weather, with not enough sleep, while being in single parent mode, as well as starting the day a bit late, so I should have used my discretion and just watched. 

But the lure of the markets was a bit too strong even from deep within the fog, especially since I sat out of the markets yesterday.  I could have ended the day with nearly a scratch, but greed took over and I tried to let my single contract go for much more than a +2 so that I could have ended the day with a profit.

Which brings up another point -- the power of scaling out.  Renato has talked about it often in conjunction with the DS system, and he also mentions from time to time how it's more difficult trading an all-in/all-out style vs. scaling out, unless you're scalping.

I recently opened up an account with VanKar Trading, using their version of OEC's platform called VK Trader LT.  It's supported by FT71 and he has had various presentations regarding the use of their proprietary trade analysis software, called VK Trade Analyzer.  So far, they have been great from the service and value add perspective.  One recent presentation on the VK Trade Analyzer module showed how using a scaling out methodology helps to reduce the overall risk on your trade, and seeing that take place in real time and why it helped to reduce risk was an eye opener.

So my next goal will be to ramp up to 2 contracts so that I can scale out of one contract quickly to reduce risk, and to then enable me to have a runner that could go for a big run.  Holding onto winners and letting them ride is a strength of mine, so I believe this should enable me to comply better with my overall trading plan and personality.

But first, I'll take things easy, get my health/schedule back, so that I can approach the markets from a position of strength instead of trying to make sense of things from within the fog...

EURCHF - swing trade example

A big challenge for me while in a trade is knowing when to hold 'em, and when to fold 'em.  Sure, if you have your set targets and stops in place, it should be easy, right?  But how often have you tightened up your stop, just to lock in a little profit or reduce your risk exposure...only to have it hit your stop the penny, and then resume going back in the right direction?

Swing trading as an exercise to let go
So one of the "exercises" I'm working on is to learn how to let a trade ride, until it tells me to get out.  Let the trade shake, rattle, and roll all it wants, that is, until a key level breaks, a reversal pattern shows up, or it hits my stop and/or profit target.  For me, swing trading helps me to let go of the second by second "details" that's required in day trading.

Why forex?
Back in the early '90s, I spent a little time trading the Swiss Franc futures when they were quite active on the CME, so I have an affinity for the Franc.  I've barely kept an eye on the Forex charts on and off for a few years, but it's only recently that I've had the time to revisit the currencies.  But more importantly, by trading the forex, I'm separating those trades from my equity trades, so there's greater mental segregation.

Some general observations on forex vs. stocks

• In general, Fib levels and trend lines still work well (just the way they always have)
• The 15 min charts are a good compromise to filter out noise
• Some elements of the Trader-X methods work (Fibs & candlesticks), but I've had to make some adjustments
• Unlike stocks, there's one indicator I use which is the fast stochastics (8, 3, 3).
• You can trade very big size

The trade
The EURCHF came up on the daily charts as having broken some critical trendlines.  I was stopped out of a couple earlier trade earlier with small losses, but this one more than made up for it.  Here's what the daily charts looks like:

 Entered on 8/4/11 based on the following conditions:

• On daily chart, there was a breakdown below the lower trendline (see chart above)
• On 15 min chart, descending trendline acted as resistance, price failed at this level
• 5ema crossed below 100ma
• Stochastics hooked over
• Red candle formed
• Stop was above the high of the trigger bar

EURCHF - 15m - at time of entry on 8/4/2011

Exited on 8/11/11 based on the following conditions

• Prior day high was broken
• Descending trendline of highs over past 4 days was broken
• The .618 retracement of the last swing on 60 min chart was broken
• 5ema crossed over the 100ema on 15 min chart earlier in the day (potential trend reversal)
• Multiple high swing highs and lows were in place

EURCHF- 60 min 8/11/2011 partial day

EURCHF - 15 min 8/11/2011 partial day

What I could have done better

• When it hit near parity 1.00 (panic low) on 8/9, I should have considered scaling out partial
• My stop should have been closer to the point of breakout (I wanted to give it a lot of room, perhaps it was too much)
• Even better, my gut was telling me an hour before getting stopped out that a reversal is taking place, and that I should be long. But I didn't want to do a stop and reverse for the purposes of this exercise.

Summary
Each mini-contract required a little less than $300, and at the peak, I was up over $1300 per contract, and I eventually closed out a little less than half of that.  A reminder to me that there is HUGE leverage in forex, and you really need to focus on risk.

It's interesting to go through an exercise such as this, since it's different in many ways from the usual day trade, and obviously quite different when compared to long term investments.  I am at the stage of trying to experience various types of trading styles and conditions in order to grow as a trader, so from that perspective, mission accomplished.  I've also realized that if necessary, I can be disciplined to hold a position over various bumpy rides for a week. 

But from this exercise, I realize that there's still A LOT more I need to learn about myself before I can become a consistently profitable trader.