Charts: AOL and EURCHF

I'm taking Trader-X's advice and not looking to trade much this week, although I'll still be keeping one eye on the markets tomorrow and maybe Friday.  During this pre-holiday week, I've found that many of the stocks that I put on my watchlist are getting quite choppy after the first couple hours.

I've learned through the hard way via a review of my trading journal that trading in choppy conditions are one of the biggest ways for me to generate losses.  However, I did see a setup in AOL today that was actually pretty clean, but I missed it and did not trade it.

I also keep one eye on the forex markets, and when an interesting situation lines up, I'll act on it.  And something did come up this morning in the EURCHF pair as you will see below.

* * * * *
AOL - buy above 8th 5 min bar - Fibs over opening range (25 min), 5ema, 100ema, vwap
[Did not trade-missed it]

Drawing the Fibs over the 25 minute opening range, this setup was a shallow pullback to the retracement zone setup (i.e. didn't reach the 38% retracement), but what made this interesting was that there was a vwap line cross over the 5ema (vlco) on the 5th bar (a bullish crossover), and in addition, the 3 bar retracement prior to the setup bar was orderly with minimal wicks (solid bodies).

Note: Drawing the Fibs consistently over the first 15 minute opening range (a method I've used in the past) would have also produced a compelling "Beyond the Fib Extension" type setup.

So when that 8th green bar came up, it sure did look nice, and it hit the FE within 10 minutes.  The reward/risk ratio was at least 3.5/1 - not bad for choppy day.

AOL 5min - 8/31/2011

* * * * *
EURCHF - sell below 7:00 15 min bar - 5ema, 100ema

Not sure why, but I seem to be able to give the Forex trades a lot more liberal stop, and be totally fine just letting it go.  The EURCHF in particular is quite volatile for the little margin that is required, so you would think that I would be much more cautious when trading this pair.

Perhaps the reason I can let these trades ride is due to the method I use for the forex, which is slightly different than for stocks.  One key factor is that I go into these trades with the intention of holding as a swing trade.  I'll have to research this further to see if I can apply the same mentality for day trading stocks.

The EURCHF was of interest first and foremost because the daily charts looked compelling for a short.  The reasons are listed on the chart below:

EURCHF Daily - 8/31/2011

One key point to note is that I usually wait for a strong move in one direction on the 15 min chart, breaking key support or resistance levels, before considering an entry.  I want to avoid trading in choppy conditions.

The 15 minute chart below has been annotated with my thoughts on why and where I entered this trade.  Prior to this particular trade, the 5ema crossed over the 100ema earlier on the chart, and the separation between the 2 moving averages was growing larger.  This indicated that the stock was breaking away and possibly starting a strong trend.

EURCHF 15min - 8/31/2011

I exited the first half with 100 pips profit, and I'm still holding my 2nd half.  I'll let it go until it signals a clear reversal.  A few weeks ago, this pair nearly hit parity (1.000).  I have my doubts that it will go down that far that fast this time around, but I won't complain if it does!

Power has finally been restored!

Well...wasn't that interesting.  Quite a diversion I've had over the past couple days.

After hurricane Irene did her thing to knock out our power (although the block starting next door had their power), our sump pump couldn't work to keep the basement dry.  It was a mad dash early Sunday morning for me to try and save whatever I could before the basement eventually filled up with about 5+ inches of water. 

Thank goodness the power is back on as of this evening.  Although it'll take time to get through the cleanup and restoration, at least I can start getting back on track with my trading over the next few days. 

Back soon...

A moral victory

Since BAC was in-play due to the bailout by Buffet, most of the other major banking stocks were also quite active, as if it they thought they were also blessed by the Oracle.  BCS came up as a stock on my screens, and frankly, I really didn't like it much during the first hour.

The stock price was relatively low, which means the dollar moves aren't that big, and it's one of those ADR stocks that act sorta different.  However, the price action didn't seem as noisy as BAC or some of the other stocks, so I kept watching.  I ended up taking 2 setups.

BCS - Sell below 14th bar - Beyond the FE setup. Fibs over opening 20 min range. Scratched the trade. But in theory, I should have stayed in.  The price action made a new swing low, and therefore, it was not as likely to take out the prior swing high, which was the high right before my entry bar.

BCS - Sell below 12:00 red shooting star - Beyond the FE type setup. Fibs over 20 min opening range. Took profits at the 200% FE target.

BCS - 5 min

I consider this a moral victory of sorts, since I was very focused this week on following my plan, and after passing up so many setups, I consider these relatively good -- although definitely not a grade A setup, perhaps a decent B.  They weren't big winners, but what's most important to me this week is that I followed my plan.

I won't be trading tomorrow due to non-trading related plans, but will likely peek-in to see what's going on in the afternoon.  Good luck to all!

Charts that make me say, WOAAHH!!

Maybe grinding through and reliving 1000+ of my actual trades from the past 4+ months to update my trading journal, as well as the 10's of thousands of other charts that I have seen over the years, has finally started to internalize something in my heart and mind.

WOAAHHH! and UUUGGGH!

I say that because something is beginning to happen more often -- when I now see certain setups that I know have worked well in the past, I hear a big "WOAAHHH!" in my mind with a sense to take immediate action.  Or if it's a setup that has burned me in the past, I just feel like saying "UUUGGGH!" and running away.  When the trade does as expected, it further reinforces those setups in my heart and mind.

Stop trying!  Be Free!

Eli from Traderhabits.com (great website) has a post today explaining once he stopped trying to make sense of the markets all the time, and focused on himself, he became free to focus on the markets.  That made him a successful trader.  He makes the point that the best traders "do not try to make sense of the market, they let the market make sense."  In other words, wait for your setup (in my case, the "WOAAHHH! moment), then capitalize on your strengths.

I've spent this week with a trading plan that has been very focused and specific, so that I can test my discipline to see whether I can follow my own rules.  I thought I would be fighting myself to stay away from the buy and sell buttons, but something strange has happened.  It has been surprisingly freeing and liberating.  Sure, my trading plan has been somewhat extreme and constricting, but it has also freed me to see the markets in a way I haven't in a long time. 

And Finally, The Charts

Here were some interesting charts I saw from today that made me say "WOAAHHH!"  However, they were not on my trading plan so I passed.  I had ZERO trades today, and I consider myself very successful.  "Discipline trumps conviction."

NOTE: These charts are a snapshot of how my charts appeared at the time of these successful setups (they all hit their targets).  As part of my pre-market visualization routine, I want to program my mind to become accustomed seeing how my chart appears just prior to the setup bar getting triggered.

CHU 5min - A very bullish opening range pattern, although the ORH acts as resistance.  It hit the FE profit target (actually went above the 200% FE).

CHU 5 minute

NLY 5min - has some lower wicks (slightly bullish), but the support level in this descending triangle is quite distinct and clear.  Only downside is that the average range of this stock is low.  However, on a strict risk/reward basis, this was worth taking.  It hit the FE target. 

NLY 5 minute

WFC 2 min - On the 5 min chart, it looked compelling and bullish, although the setup bar wasn't the perfect green hammer.  But when you see WFC on the 2 min stock, how could you not say "WOAAHH!!", this looks like it's going to breakout higher?  It's a opening range breakout + fill in the tail + ascending triangle setups all in one.  No problems hitting the FE target (went to 161.8% FE).

WFC 2 minute

Pre-game rituals and visualizations

Trading is a performance field, and unlike sports, it's nearly 100% mental.  After doing pretty well so far this week, I had a situation today where I entered a setup that I now realize was sub-par.  It was a momentary lapse of focus -- after seeing many less than perfect setups I deliberately passed that eventually became successful, I let down my guard, just a little. 

It was a mental slip.  A brain fart.  It stank.  And I paid the price.

After Flowtastical tweeted prior to the market open that for today's trading -- he was visualizing passing on the bad setups and taking the good setups aggressively -- I realized I didn't have a good pre-market ritual.  At least nothing that I have instituted on a regular and routine basis. 

When I first heard of pre-game rituals and routines, I immediately thought sports.  Here's a humorous perspective on how some elite athletes perform their rituals.  Funny as some of these rituals may be, it works for them -- they're some of the best around.

http://bleacherreport.com/articles/230520-the-10-funniest-pre-game-rituals

So being such an obvious factor in sports, it wasn't very difficult to find a lot of great articles regarding how to setup your own pre-game type ritual.  And these rituals can easily cross over to trading.  Here's a link to a good article on how to design your own pre-performance type ritual. 

http://www.mentalgamecoach.com/articles/Article2_02.html

In summary, the article explains that there are two types of rituals:

• Associative - "you enjoy focusing specifically on the upcoming event and organizing details, thinking about it, imagining yourself performing well and can see yourself completing the event successfully."
• Disassociative -"you'd rather not focus on what is about to happen, and instead prefer to distract yourself by listening to music, reading, viewing television"

It's obvious that the associative ritual is the way for me.  I don't have decades of experience of what works that's burned into my brain so that I can operate instinctively.  I'm at the stage where I need constant reminders and visualizations of how a good quality trade should look and feel -- before, during and after the trade.

As a start, I'm going start building my pre-market ritual with these items:

• Review my trading plan, and then mentally visualize myself trading the plan
• Flip through my "setup charts" that shows how my screen appears right before a specific setup triggers.  Example of BRKR - pb2rz setup
• Review key goals for the week, and then mentally visualize myself achieving the goals

This is still a rough draft and I'll need to build upon this and refine it.  I might also need to come up with a ritual during the day, so that I can re-focus and re-energize as necessary.  But as they say, some plan is better than no plan.  I'll start executing this pre-market ritual beginning tomorrow morning.

One "so-so" Trade

As I continued to reject setups that didn't meet my strict criteria, and watched them produce anticipated profits, I thought I had come across a setup that had a good potential.  But it ended up getting stopped out.  In hindsight, it really wasn't a highest quality setup, nor did I exit at the first sign of failure.  So, selection wasn't good, and execution was mediocre.

In the past, one losing trade would make me try harder to immediately get back my losses, potentially setting me up into revenge trading mode.  It's like the old Lay's potato chip slogan, "Betcha can't eat [trade] just one."  Now, one of my trading rules is to have a 15 minute cooldown after a loss or trading error.  Today, I only had one trade (a loss), so yes, I DO have the ability to just trade just ONE and be done!

GSK - 5min, buy above high of 10:35 bar - Beyond the FE16 setup

GSK-5min-at time of setup

Flag #1

Now that I'm in armchair trader mode, it's easy to see that even with the gap up (although not above the prior day high), this stock was choppy in the opening range, with little of the typical "juiced" behavior of a gap stock.

Flag #2

However, it made a relatively strong move, and what attracted me to this was the consolidation that was taking place for at least 4+ bars.  And when a trendline of the swing lows were drawn, it intersected with the big green bar seen on the chart.  That was a sign there were many looking at this chart.  But the other concern I can clearly see now are the wicks in the bars during the consolidation.

Once the stock broke out and didn't run, there was an opportunity to exit with a reduced loss.

GSK-5 min   Uh oh....

Flag(s) #3

There was a big red bar that broke and closed below the (1) $43 support, (2) the upward sloping trendline, and (3) the 5ema.  If that wasn't enough of a reason to get out, then I'm not sure else is.  I knew I should be exiting, and that this was likely a fakeout breakout.  However, I was thinking to myself how nearly all the other trades I passed that morning worked well, so this one should recover.

WRONG!

I let it hit my stop below the consolidation, increasing my loss by maybe $.10 over the more ideal exit, and decided that's my first and last trade of the day.  It was time to evaluate what went wrong, and why I took this trade.  I believe now that since I saw many successful trades go by, and saw something better in this GSK setup than reality.  I would grade this setup as barely a C, a trade I should NOT have taken.

Next Step

Time to refocus and build some exercises to help me visualize and burn into my mind, (1) What is a quality setup, and (2) How I act upon seeing it.

Charts: I'm Simon Cowell, and the fish that got away

On the first day of following my strict "diet" of only taking the very best setups, I found myself feeling a little like Simon Cowell during the golden days when he was on American Idol.  One after another, as the setups approached, I found myself telling them, "Go away", "You're terrible", and "Stop! Stop! Stop! Thank you, good bye."  And when something halfway decent appeared, the very best I could say was, "Not bad."

Bottom line, I took ZERO trades today.

It's not to say there weren't any interesting setups -- there were many that I would have taken in the past, and many would have been quite profitable.  However, I had my plan to follow, and for whatever reason, "missing" those trades did not bother me.  I've heard enough people say that's just the way it'll be and you just have to suck it up and deal.  So I'm adjusting, and surprisingly, I feel fine.  My mission is to follow my plan, I did, and there's a sense of accomplishment to it. 

Although I didn't take any of these below, here are a few charts of interest and some that "got away":

$GG - 5min

GG is not likely a chart I would trade since it's a bit choppy, but this chart stood out for a few reasons.

• The trendline on the chart below the two swing lows of the morning was extended upwards.  And as you can see, it helped to predict timing of when the consolidation broke out (first blue up arrow).  
• I also realized that the R3 pivot levels were off by default, so when I turned them on, it was nice to see that the consolidation took place between the R3 and the 161.8% Fib Extension.
• Ignore the 2nd blue up arrow, since that was just something I wanted to track (I had a feeling it would fail)
• But look at the consolidation in the light blue box.  It faked out on the downside, then ended up making a double top.  Once price returns back to the consolidation range, this is usually a sign of a reversal pattern.  It worked in this case, and the vwap was a good target.

$PANL 5min

PANL had a relatively wide bid/ask spread around $0.05 to $0.15 or more, so it had choppy price action.  However, the first blue up arrow was maybe what I would consider a B grade "pullback to the retracement zone" trade.  It looked pretty good, but it just didn't have a nice green hammer bar -- I'm looking for near perfect setups.  And I'd say this was a pretty big fish that got away.

The second blue up arrow indicates a "tell" that prices are about to go higher.  Multiple bullish candlesticks supported by a rising 5ema was a good sign of potentially more bullish action.  I'm not sure if I would have taken this trade, since the price action was still choppy, but this is a chart I will study further.


 $NEM - 5min

When NEM setup on the 4th bar with that green hammer (first blue arrow), my gut was telling me to take it, it's going higher.  However, I couldn't justify taking the setup since it wasn't a setup in my trading plan.  Sure, I could have fudged and called it a Beyond the Opening Range High setup or something else, but I'm going to be honest with myself.

The 2nd trade was also something that nearly screaming to buy.  It was essentially 2 different setups, the vlb (vwap line bounce), as well as a not as well ranked "pullback to the opening range high."   The vlb setup provided an excellent entry on the 2min chart, provided little heat, and the risk reward was great.  But again, the setups were not a part of my plan, so they were not taken. 


As mentioned earlier, zero trades today but I feel like I accomplished a lot.  I wonder if that's how Simon feels after rejecting and demoralizing so many people and crushing their dreams?  Well, at least the markets don't even know or care what I say about it.

Rules of Engagement - Trading Plan for week ending 8/26/2011

Criteria to determine when (trigger), where (stock), and how (order entry) a trade will be executed. 

Primary goal this week will be to test my ability to follow my trading rules (i.e. maintain discipline).


PREREQUISITES
Charts - 5 min candlesticks

Fib levels - Generally calculated over the high and low of the opening 15 minutes.  In some instances, opening range might be expanded to 30 minutes due to a large initial swing

Moving averages - 5ema, 100ema

Intraday vwap

Source of watchlist - Gap open scan via TradeStation

SETUPS
The following two setups will be in scope:

(1) Pullback to retracement zone [pb2rz]

• This is the "classic pullback" or "perfect pullback" as described by Trader-X
• Trade entries only between 9:55 to 10:30 AM

(2) Beyond the opening range high/low/FE [btorh/btorl/btfe]

• Breakout/breakdown of a consolidation (4+ bars) occurring at a significant level
• No trade entries after 2:00 PM

SETUP EVALUATION CRITERIA
Risk/Reward - Prior to entry, evaluate if potential profit is 2x risk (ideal is 3x+). If not, pass!

Setup quality - The quality of the setup should be A or solid B.

PROFIT TARGET
Profit target - Place limit order at the FE at time of order entry.

STOP MANAGEMENT
The stop will be place above/below the setup bar, unless there is clear and compelling reason.

The stop loss will remain at the original location unless:
(1)  There is a clear candlestick pattern showing a reversal pattern
        OR
(2) There have been 4 bars elapsed since entry, and a clear level or pivot point has formed which will indicate a reversal of the trade

TRADE RISK MANAGEMENT
Risk per trade = 30 basis points (0.3%) of portfolio size. Shares will be rounded off to the nearest 100.

ACCOUNT RISK MANAGEMENT
Max daily account loss = 1% of portfolio

Max intraday drawdown = If profits > $500, drawdown will be kept < 30% of max profits (i.e. highwater mark)

GENERAL REMINDERS
Find ANY REASON to pass up a trade -- I don't have to trade

ZERO trades a day is encouraged!

My strengths - Analysis of my best performing setups

Now that I have completed additional analysis beyond the preliminary trading journal analysis from 1 week ago, I know know which setups currently work best for me. Those setups will then be incorporated into my trading plan for next week. 

Improvements to Tradervue

But first, a significant change on my analysis has been the improvements made to the Tradervue trading journal by Greg, the developer of that website.  He has enabled the ability to split (and merge) groupings of trades to allow a more detailed ability to analyze your trading records.

Add to that the new ability for the use of the "AND" criteria in the filter, which enables you to analyze combinations of multiple tags (I currently these tags).  Based on my requirements and usage of a trading journal, this has really made Tradervue into quite a powerful journal and statistical reporting tool, and has made the results of this analysis much easier to generate.

Historical figures are even better

After I split some trades into more detailed records and retagged them, the revised figures now show that my profits were even higher than the results stated in the preliminary analysis last week.  At this point, the absolute figures don't really matter, since I already knew taking only A and B grade trades was the path to success.  The new data further reinforced it.

Focusing on my best setups

So for my next trading exercise, what I needed to do was to refine and focus which one of the A and B grade setups I would focus on, based on how well I did in the past (focus on my strengths).  I have to keep things simple, so that I can easily measure my ability to to execute.  Right now, I need to prove to myself that I have the discipline to follow a trading plan and to execute near flawlessly.

Here is the summary of the best/most interesting setups from my A and B trades.  Metrics are based on the R-Multiple:

"Setups" are the actual setups that trigger an entry, and I have tags for many different setup variations of each core setup (see glossary here) to produce better reports and metrics.  Note that in some cases, more than one setup tag will appear on a trade (which would drive some statisticians bonkers).  Therefore, although there appears to be a lot of setups in the matrix above, there are only 6 core setups in reality (see groupings by color coding).

"Setup conditions" are metrics for additional conditions that took place at the time of a particular setup.

Additional thoughts

I was a bit disappointed in the accuracy of the vlb (vwap line bounce) scalp trade (only about 50%), but I believe this is a factor on my ability to execute.  Therefore, I will be monitoring this closely.  I was also disappointed with the lack of success (and occurrence) of the 5 minute "quick hit" (2 bar opening breakout), so I'll be dropping those.  However, I believe the 15 minute version could likely work better, although I just don't have the data to prove it.  And I love the ascending and descending triangle setups, however, they don't occur as often, so I won't include them next week.

What next?

For my trades in the next week, I will focus on the following setups:

• pb2rz - Pullback to the retracement zone - the classic Trader-X setup.  As he says, it has great numbers, and you really can make a good living on just trading this one setup.
• btorh/btorl/btfe - Beyond the opening range high/low/FE - another classic Trader-X setup, this setup is generally based in conjunction with a cbo/cbd (consolidation break out/break down).

In the future, it will be interesting to look back and see how my trading evolves. But for now, I will focus only on the setups above, and prove to myself that I have the discipline to take only A and solid B grade setups.

Why focus on your strengths

Under the comments of Trader-X's post from April 22, 2011 (which itself is based on an excellent comment from a reader), Flowtastical mentioned the following:

The key to consistent money is knowing what you do best and executing only what you do best. I spent a good 5 hours writing that in my journal yesterday and it was amazing how much time I spent on executing things that aren't my strengths. Make your own private blog and post your most profitable trades every single day. Over time it will add up.

If you spend today writing in excruciating detail what you do best and execute exactly what you do best next week, your numbers are going to improve.

I don't think most traders overcome odds. I think they overcome themselves.

Spend some time on traderfeed.blogspot.com. Specifically read all his posts on "solution focused" trading. 

There are many other excellent comments under that post -- I now realize it provided a critical building block in my development as a trader.  I admit, when I initially read about focusing on your strengths, I wasn't as sure how much more that would help vs. working on improving your weaknesses. 

As I continued to understand and believe why this made sense, I recently ran into this excerpt from Dr. Brett's book "Enhancing Trader Performance" which really demonstrated the power of focusing on your strengths:

The question "Can anyone become a successful trader?" generally is framed within the contexts of weaknesses.  The questioner feels that he might be too emotional, too undisciplied, or too cerebral to succeed as a trader.  My sense, however, is that it is not the weaknesses that keep people from trading success; it's their strengths.

...I am thinking of three highly successful traders whom I have known personally.  All have made more than a million dollars trading for multiple years.  Each of these expert individuals possess just about every flaw you read about in trading psychology texts.  They are hyperemotional when they trade, they become stubborn and hold onto positions when they shouldn't, and they rarely if ever engage in systematic planning before markets open.  They succeed because their strengths overwhelm these weaknesses.

 ...other traders who are less emotional, more disciplined, and more systematic may fail because they lack strengths that readily translate into trading edges.

Tomorrow will be 4 months since that Trader-X post, and based on all the trades I have analyzed on my trading journal, I have finally done additional analysis to begin understanding my strengths.  As Flowtastical mentioned, he discovered that he spent a lot of time trading in ways that were not based on his strengths.  And when I did my preliminary analysis, wow, so did I.  And wow, how profitable I could have been.

As I realize how I much I have executed on Flowtastical's advice -- learn from Dr. Brett, start a blog, setup a trading journal, etc. -- taking those steps have finally made me feel like things are starting to come together.  I've had some setbacks along the way, and I'm still oh-so-very-far from my destination, but I'm getting closer day by day.  I keep reminding myself, with a sense of urgency, it's my moment, I can't let it go.

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

"Rage to master"

From Dr. Brett's book, "Enhancing Trader Performance", he discusses the concept of fundamental performance fallacy.  An example Dr. Brett gives is that simply practicing the piano 4 hours a day instead of 2 won't necessarily make you better.  I know through my experiences with golf that mindlessly and carelessly practicing the same bad swing more today than yesterday won't make you better tomorrow.  Simply put, hard work alone will not make you into an expert or elite performer.

Then what made elite performers different?

"...it is a transformation of one's relationship to a performance domain...There is a difference between work and immersion, and it gets at the heart of what competence means to expertise.  It is the difference between painting and becoming a painter, the talent that you have and the talent that has you."

Dr. Brett references a phrase, "rage to master", which comes from a study that investigated talent development and creativity.  It is a "consuming motivation to extend and express one's capacities."  Every day, I feel as though I don't have enough time nor energy to do everything I want to learn and improve my trading.  There have been countless days in the past several months where I am absolutely mentally exhausted by the time I get to sleep.  But I don't think I've worked even a minute.

"Performers don't work because they're motivated, but because they're captivated."

After "blowing up" my account this week, and getting a wake-up call regarding focus and discipline, it's time to take all the pieces that I've learned through 1000+ actual trades in addition to reviewing thousands of other setups, and see what I'm really made of.  I know I have the ability to be successful, so it's time to own this moment.  I will raise my level of discipline and execution to a new level, come Hell or high water.

I possess a rage to master.  This is my decisive moment.  Rehearsal time is over.  Next week, it's showtime.

"Focus, discipline...it pays off"

In the comments of Trader-X's blog, Ken left a comment that call it out -- a big wake up call for many of us who visit the site.  Here's an excerpt (emphasis by me):

...I am not trying to be confrontational, but I think your success would go up if you picked one and focused on it. I honestly don't think you can be successful looking at 2, 5, 10, 15, 30, etc. You might get lucky now and then, but I think consistent success is impossible.

I see a lot of you guys posting here, but you aren't really following the Trader-X methods. There is a high number of trades and a lack of real focus on what a good setup is, and when you execute you need to have the ability to monitor your positions and adjust accordingly. Thus, fewer and better trades. If you get down to analyzing a setup and studying the price action and bars like you should, you can't have a watchlist of 200 stocks and trade 5 timeframes. It just doesn't work that way.

Again, I am not trying to be confrontational, but I see you guys doing the same thing over and over and hoping for a different outcome that won't happen. Focus, discipline...it pays off. I have not had an unprofitable week since 2010. I have an unprofitable day every now and then, but never an unprofitable week.

Good luck.

Ken

Much of this applies directly to me and probably most other developing traders.  When I asked a follow-up regarding how many setups he monitors and how long it took him to get were he is now, here was his response:

Grove, I really only trade about three setups. I only look at the 5-minute timeframe, and use a 5EMA. I don't trade exactly like X, but I use the same principles. I focus more on plotting Fib lines over bigger moves which may or may not happen at the opening range. I am looking for a failure through the retracement zone or a nice bounce off of the top of it, with solid support form the 5EMA. I like the 5EMA to be right under price lifting it (or vice versa for a short). I probably put more emphasis on the 5EMA than most readers or X himself.

I have been making solid profits consistently for almost five years, and dabbled in trading for about ten before that but not as a full-time venture.

For me it is about discipline to only take good setups and about focus to only look at a small, defined watchlist and monitor what I am doing closely. And I don't trade a lot, though it is relative. On average I probably make 3 round-trip trades a day. Hope that helps.

Since getting locked out (I consider it a form of blowing up) of my account yesterday, it put me into the penalty box today to really think about what I've been doing wrong, and how I will get back on track.  So here's the plan as I wrote on Trader-X's blog:

Since I'm currently on the sidelines, I'm going spend extra time revisiting my trading plan, and getting back to the basics.  I have the data now, so I need to focus on what has worked for me (i.e. my strengths). 

I'm going to come up with a precise game plan for next week that is focused, measurable, achievable, and then execute.  ZERO trades in a day will be completely acceptable, and perhaps encouraged. 

I'm not as worried about the P&L -- I want to make sure that I follow the plan and execute well.  All my past trades show that if I only take A & B trades, the profits will be there. 

So now my work over the next few days is to complete the analysis of my trading journal, confirm which setups are my strengths, and write out my trading plan for next week.  That's the easy part.  To be contined...

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.

Recap: $SODA and $TNA - A tale of two strategies

Being a trader can mean a lot of different things.  Every day trader has a different style, and as an example, what's considered overtrading for one could be standard operating procedures for another.  There is no right or wrong, and as I have read countless times, it's important to find the style that works best for you.

Dr. Brett has written that many beginning traders generally have the process of discovering your trading style backwards.  In the educational process for doctors, a student will go through intensive rounds of training in a wide variety of subject areas, which then help them decide which area of specialization is best for their interests and strengths.

But on the other hand, beginning traders will generally jump into one or a few different trading style, and then try their best to make it work in a not so strategic manner.  Therefore, swing traders may never try learning how to scalp (too drastic of a change), and vice versa.  This leaves open a good possibility that you may never have had the opportunity to find the trading style that best fits your personality.

I'm still finding my way, so here are two of the day trading strategies I used which were quite diametrically opposed in nature:

• A "typical" day trade -  Used a setup that's a part of my standard plan, but I really kept the stops wide and didn't set any profit targets.  See SODA.
• Scalping -- Went down to a 1 min alongside a 5 min chart, as well as the $TICK index.  Also used TradeStations matrix, which is similar to a Level 2 screen.  See TNA.

Both provided very good learning experiences and I'll continue to analyze these trades over the coming days.

SODA - Sold under 15th 5min bar.  This was a variation of the pullback to the retracement zone trade.  Exited and then resold higher at top of the 14:00 bar.  Fortunate to catch a stock that trended strong with little pain, and so I caught a big chunk of the ride.

 TNA - 103 round trip trades (206 total trades)

As mentioned earlier, I actually made a conscious decision to scalp this, and I used 100 shares to try and minimize damage.  I still lost several hundred dollars (small losses and commissions really add up, and it was a good commission day for TradeStation!), but it was a very good learning exercise that will provide a lot of insight for the future.  In some ways, I had to get it out of my system -- I had to touch the fire and see if I got burned.  But more importantly, I had to try to see if it is something that clicked with my personality...

"The moment, you own it, you better never let it go"

Look, if you had one shot, or one opportunity
To seize everything you ever wanted in one moment
Would you capture it or just let it slip?

"Lose Yourself" - Eminem

Hard to believe it has been nearly 10 years since "Lose Yourself" came out, but this song still has a way of firing up my soul.  I appreciate good music and lyrics from all genre, and I believe Eminem is a gifted genius who uses music as a way to help guide his tormented soul.

Along the same lines, I'm using this blog on trading as a way to help guide both my heart and mind via writing, as I make my way thorough these difficult times climbing up a learning curve I can't imagine any more steep than it already is.  But as difficult and frustrating as learning to trade can be, I love it, and don't consider it work at all.

I've been following the markets long enough to know that we're in some extraordinary times with regards to market conditions.  Bella wrote a post the other day titled "You need to make more right now", and that kept me awake and thinking last night.

The markets are pitching hanging curveballs all over the place -- and I should be hitting them out of the park.  It's like I'm getting dealt 2 aces with the dealer showing a 6 nearly one after another (and well aware there are many 10's still left in the deck).  And the best part of trading vs. blackjack is that I can make my bet AFTER I see the cards.  Then why am I continuing to play (trade) lousy hands (setups)?  It's sad when I know I have better discipline at the casino vs. the markets.  This will change.

Bella ends his post with:

A close friend who is twice as smart as me started in 02, a market a new trader could not succeed in, and now practices law again. Luck plays a part in whether you make it as a trader or not. Again congratulations to all the new and developing traders in the world. You caught the best break from the trading gods with this market. But you now have an obligation to maximize this chance. You need to make more right now.

This passage is what made me recall the song "Lose Yourself" -- a song about how you are given very few moments in life where you have an opportunity that can change everything.  So when that moment comes, you better take it and run.  I'm currently in a very fortunate and unique position in my life where I have time to give almost everything I can into becoming a successful trader, but this moment won't last forever.

So I'm not letting this opportunity slip, I chose to seize the moment.

The moment, you own it, you better never let it go  

You only get one shot, do not miss your chance to blow  

This opportunity comes once in a lifetime

Preliminary trading journal analysis

[Edit: 8/15/2011 - Greg from Tradervue.com has just added the feature to allow searches by multiple tags, so the "Reports filter one tag at a time" section is not longer accurate. Big kudos to Greg for being very receptive to his user community!]

[Edit: 8/17/2011 - Once again, Greg has made my "Grouping of Trades and Tags" section below obsolete.  Please see the comments section below or his blog post here!] 
------------------

I finally completed updating the tags of all my historical trades in the free online trading journal at Tradervue.com last week.  I went back over 4 months of trades since I started day trading the beginning of April 2011, and am now in the process of cleaning up the tags.  With nearly 700 journal entries accounting for over 1000 trades, I know there is likely some tedious cleanup work remaining.

However, there's a point of diminishing returns and based on my requirements, I don't intend to or need to have perfect data.  Just something good enough for relative comparisons and insights.  It's not like I'm using this data to file my taxes.  My primary job is a trader, not a statistician.

Some caveats on the data and results

• Data quality - garbage in/garbage out?  My data is not perfect as described above, but I believe it's more than good enough to provide useful and valuable information.  To any other trader, my database is likely of very limited value, since it's not a reflection of who they are and their actions.  But to me, this data is priceless, it is me.

• Selection bias in the data.  In other words, this database is a reflection of my real life ability to see and execute the setups, for better or for worse.  So the accuracy or average profit of a particular setup in my journal does not reflect the optimal outcome of that setup -- again, only my ability to see and execute it properly (which hasn't been consistently great).  In the future as I improve, the nature of this dynamic database will shift and grow with me.

• For example, there are instances where I took a setup that was grade "B" and would be considered profitable based on backtesting.  But in real life, I totally chased it, executed it poorly, and possibly lost money.  So that particular B grade trade will show up and be calculated on my reports as if it was a losing setup.  It's not the fault of the setup, I just botched it.  As my execution improves, this will become less of a factor.  
• Grouping of trades and tags. Tradervue currently groups trades together into a single record if they occur within a certain timeframe.  Therefore, if you're scalping (or in my case, overtrading) a stock, it's likely that you'll have multiple trade pairs in one journal record.  As a result, the tags in that one particular journal record might contain tags of multiple setups, grades, outcomes, etc. 
• This is not a problem if I'm just reading my journal entries, but when I query tags for certain statistics, I will not be getting the most accurate results.  A query for A grade trades might also include D grade trades, and the average P&L outcome of all the trades in the group will be included in both queries.  However, these calculations seem to wash out as the sample size grows.
• Reports filter one tag at a time.  The ability to query tags on Tradervue is currently setup to filter based on one tag at a time.  So there are some instances where I will bring the data into Excel or Access for more sophisticated queries.  In those instances, there may be some results I discuss that you may not be able to easily reproduce from Tradervue alone, at least at this time.  Let me know if you would like to know more details on how I do this and I can write a future post.
• Gross P&L only.  Although this might change in the future, the figures from Tradervue are currently gross profit/loss, and therefore exclude commissions.  For longer term traders with a minimal number of trades, this is not a big deal.  However, I have over 1000 trades over 4 months.  And I am essentially a scratch trader according to gross P&L (-2R), but include commissions and all I can say about my net P&L is...OUCH!
  

Based on R-Multiples

In order to keep everything on a relative basis, I have converted the figures into R-Multiples.  Trader Mike posted an article on R-Multiples back in 2006, and this concept works best for me as a day trader.  I'm currently risking a very conservative 25 to 40 basis points (.25% to .40%) of my portfolio per trade, since the current name of the game is to survival while I learn.  So I'll use a weighted average of 30 basis points in my calculations as my current R.  In other words:

R = .003 * my portfolio value

As I become more consistently profitable in the future, I will raise the R-Multiple and balance it with the level of draw down I will eventually be comfortable with.  And I will likely consider incorporating tiers, so that if my level of conviction is high for a particular trade (e.g. A+ setups), then I will establish the trade with something like a 2R risk.  

The shocking...but really, not so shocking results

Reminder, see caveats earlier regarding the data...think relative not absolute regarding these results.  Based on how I tagged my trades in Tradervue, here are the results to date:

   GRADE  # RECORDS  % PROFITABLE   TOTAL R   AVG R PER TRADE

     A        24          92%         +61R       +2.54R 

     B       182          63%        +167R        +.91R 

     C       206          33%         -32R        -.16R 

     D       483          16%        -141R        -.89R 

     F       171          25%         -70R       -1.42R

Note: As mentioned in the caveats, a trading record may contain more than one paired trade, and therefore more than one "grade." So the sum of all records, as well as the sum total R, will not square with my actual figures to date.

   TYPE     # RECORDS  % PROFITABLE   TOTAL R   AVG R PER TRADE

   Revenge      475         20%        -136R       -1.12R

   Rogue         87         22%         -68R        -.78R

   (non-strategy)

I could likely just stop here with my "no-duh" analysis to become a consistently profitable trader -- simply take only A and B setups.  Only taking those trades would have resulted in 206 trades (~12 trades/week) being 65% accurate with +228R gross profits over 4 months.  Very respectable.  With better trade selection and execution, I have no doubt taking only A and B setups in the future will result in 70+% accuracy with even greater average profits (and risk/reward) per trade.

Taking C, D and F setups combined resulted in -243R.  Now this part, I admit, I did find shocking.  Taking these setups actually lost more than setups A and B combined.  And if commissions were included, then the gap is even greater.  I have to remember that taking lower quality setups, even if I risk "only" 30 basis points, are toxic to my P&L.  Death by a million paper cuts.

Summary

• When reviewing my A & B trades, it's really quite a confidence booster.  There's no question I have the ability to find good setups and to execute properly....
  
• ....then why the heck am I taking all those C, and especially D and F trades?!?  I've got some serious work to do.  I'm upset by this, and I'm going to channel these emotions to further fuel positive change.
• Only taking A & B quality setups are truly good to your P&L's health
• Taking C, D and F setups produce losses greater than profits from A and B combined
• Revenge trades don't work.  Surprise...Not!  But I am surprised at the level of punishment these trades had on my P&L
• Rouge trades (trades that are not part of my defined strategy) don't work as an aggregate.  Surprise...Not!
• Everything seems to rank order well, so my initial grade assignments worked relatively well
• However, the ranking of C setups might need adjusting.  I was expecting about 40-50% accuracy and breakeven gross profits.  Therefore, perhaps some grade C trades should actually be rated D.
• I was disgusted with nearly all D and F trades, so I wasn't as careful grading between them.
• My risk management is solid.  I don't mess with my stops nor do I risk too much on any one trade.  But I do have a problem with stops being too close when I adjust them.

Next Steps

I really need to understand those setups that feel nearly effortless and produce great results, then really focus on them.  I also need to learn to avoid, or at least minimize, all the others.  In other words, really focus on my strengths, and let them completely overpower my weaknesses.

And perhaps I also need to better understand why I occasionally fall into the overtrading/rogue mode, learn to lookout for those triggers, then smash those patterns.  Or who knows, maybe I should embrace this by evaluating other trading strategies and methods that better fit with my natural tendencies and strengths? 

In the days and weeks ahead, while making sure I avoid the analysis paralysis trap, I'll continue to dig into the data for more advanced insights, and especially determine which setups have worked best for me.  My work has only just begun.

End of week review

A recap of week ending 8/12/2011.

• Very volatile week, but I was actually doing pretty well, that is, until today.
• Monday, Tuesday, and Wednesday were profitable days, with selective trades and good returns.  I was up about 19R post commissions (R=my average $ risked per trade), with about 65% accuracy.  
• My overall portfolio as of close on Wednesday was up nearly 4%, while risking less than 20 basis points (.2%) per trade.  My execution and stock selection wasn't necessarily great, either, so the figures could have been even better.  
• However, Thursday the cracks started to show and due to some overtrading, losses erased all of Wednesday's gains.
• Friday, the morning was a scratch, but the rest of the day turned into a chopfest in a choppy market.  A touch more than my entire profits made earlier in the week was gone.
• Ended up scratching/slightly down for the week

Should have known better...
What's most disappointing is not the actual loss for the week, which is really nothing considering how much worse it could have been during this unusual week.  But the fact that I should have known better, (especially after going through hundreds of my previous trades this past week) that trading in choppy markets can be a disaster for me.  I'm so disappointed and demoralized with myself, but I'm very lucky that I didn't end up with a significant loss!

Is overtrading bad?
I hear and use the term, "overtrading", quite often, usually in a negative context.  However, if your trading style is that of a scalper, profitably averaging hundreds of trades a day, is that a sign of overtrading?  One consideration is that maybe I need to learn how to scalp trade.  The techniques are quite different than the standard Trader-X methods, so perhaps this is a sign that I need to make the efforts to discover whether this is something that could be a strength. 

What changed starting Thursday?
Up through Wednesday, I was holding a profitable EURCHF forex swing trade position.  For some reason, it could be that knowing I had something profitable on the table took some of the anxiety away from having to "get in the market."  I would glance at the profit from the forex trade, and that helped me to stay out of anything less than a B rated setup.  I'll need to work on changing that mindset.

Positives?
I continue to do well controlling my actual $'s risk.  A stop might get adjusted a few cents, but never have I ignored a stop loss, or let a loss of trade get out of control.  This is a strength that I am certain I possess, and my performance has proved it.  Another positive is that for the first few days this week, I took some good setups, and managed many of the trades very well.  And finally, I have finally completed the updating of my trading journal on tradervue.com. 

Warning signs -- overconfidence?
After Wednesday's close, I was actually feel quite confident and excited about my potential for trading.  But maybe I let a little too much confidence make me sloppy.  So I'm going to take all of this in over the weekend, and prepare myself for new week with much better results!