Recap: Week ending 10/19 - Tough week but good finish

The week ending 10/19 was another tough week as I continued my long journey to find my way.  It ended on a good note, but it was full of difficult moments.

STARTED THE WEEK OFF WRONG
I started the week focused on maximizing P&L -- not on my goals to limit the number of daily trades to 3 and to limit my profit targets to +2.00 ES points.  I wanted to CRUSH the markets.  That should have been a big warning sign.  Sure, it felt OK that I ended up making a decent profit to start the week, but in the back of my mind, I knew I fell off the program.  I know was cheating myself.

CRACKS FORMED ON TUESDAY
Whether it was from guilt or who knows what, the cracks started to form on Tuesday.  Just prior to lunch, I called it a day barely exceeding my # of trades goal and although it shouldn't matter, I had a slight profit.  Nice job, I'm getting back on track.  But...in the final hour, I went on tilt.  I took what I thought was solid setup to end the day on a really good note, only to realize I totally read it wrong.  Yes, got greedy, got stopped out, revenge traded, and ended down a few points.  Ugh.

MONKEYS RAN AMOK
So when Wednesday came around, the monkeys ran amok.  Shortly after the NY open, I already had 3 losses in a row and it was all downhill from there.  My initial thought was, "We just opened!  How could I stop trading so early in the day?"  My will was weakened, I took one more trade, realized I did something I shouldn't have, which then snowballed into "what the heck, I blew it", and my behavior for the rest of the day ended up being yet another big ding to my psychological capital.

RADICAL SHIFT / DO SOMETHING DIFFERENT / DO WHAT WORKS
Just around that time, I realized that the S&P was in overbought conditions based on the interpretation of the daily charts that I have used for many years, primarily on the forex charts.  The high probability setups only happen once or so a month, and I just don't have the patience to simply wait only for those signals. 

$ES_F - daily chart - 10/19/2012

But I needed to do something different to change my ways and make new habits after a rough start to the week.  Swing trading has worked well for me in forex products, so why not try something similar to that in the ES?  And when I am swing trading, the setups are very infrequent, so it's much more difficult to get into the rhythm of impulse trading -- another plus.

THE PLAN
So Wednesday night, a plan was made to establish a swing short in the ES, very similar to what I do with the forex trades.  A couple indicators I use on the daily timeframe showed a nice clean overbought condition, so it was time to find a good short entry.  My target was 1425-35 area.  I entered the short Wednesday evening and by Thursday morning, I was up over +5 at one point.  But then came the big Thursday morning grind up where I got stopped out just 1 point before the erroneous Google earnings release that spooked the market around lunchtime.  It was tough to get stopped out so close to the highs, but I followed my trading plan and felt good about that.

I ended up taking a few solid day trade setups to end the day with a slight profit.  And after the market close, the daily charts looked just as bearish, or even more so than ever.  So Thursday night, I reentered the short, utilizing some good resistance areas from earlier in the day.  That short ended up being 1 tick below the high of the night and following day.

PATIENCE IS TOUGH BUT WORTH IT
At the Friday NY open, something strange happened.  The market gap opened below yesterdays close and ended up having an "opening drive" lower.  That means it sold off strongly after the open with very little rotation/swings higher.  This was very unexpected based on pre-market action as well as other factors. 

A very key point to remember is that when there is an opening drive, there's about a 50% chance for a trend day.  Since trend days generally happen < 20% of the time, those are pretty compelling stats.  As the ES tanked and continued to fall with minimal rotations higher, I knew there was a good chance it's going to be a trend day, and that trend days generally end at the extremes of the day -- in this case, the lows of the day. 

$ES_F 30m  10/19/2012

I couldn't be near the charts for very long, since the temptation to exit would become stronger, so I took frequent breaks.  Having patience to just sit on your hands on trend day is tough. 

But I ended up exiting once the market started to consolidate a couple hours before the close, weary of a reversal bottom that would rip higher into the close.  And most importantly, it was right in the middle of the 1425-35 range that I had targeted for profits.  I followed my plan, although it happened 1-2 days quicker than I expected.

As it happens more often than not for trend days, the market did end up closing at the lows.  I left about +6 ES points on the table, but I'll consider myself fortunate that I was able to book almost +24 points.

RANDOM QUESTIONS AND THOUGHTS
The week ended on a good note, but I still have many questions and issues floating in my mind that I will need to evaluate and address.  This last trade hardly resolves my many challenges.  So although both my financial and psychological capital have been somewhat replenished, there are still a lot more obstacles to overcome.

• Over the past couple years, I've been successful at simply swing trading, so why do I keep trying to trade more like a scalper that goes for big wins?
• Oh, but what would I do during most days just waiting for a swing setup?  One part of me likes the "action" of daytrading!  [** Flashing lights and "Danger Will Robinson!" alerts going off **]  Trading should not be something you do to help pass time.
• Ending the week on a strong note is nice.  But this only means I need to be extra careful not to be overconfident on Monday.  And how will I feel if the market tanks another 20 ES points...without me on board?
• Am I getting closer to the point where I will stop chasing success?  The pieces of this trading puzzle seem like they're starting to come together, but I've said/thought that many times before.
• Cough medicine and the recent correlation to trading performance, so strange.  But correlation is not causation!  Or maybe not?  If so, what does this really mean?
• Why is limiting myself to 3 trades a day so tough?  Sounds so easy, doesn't it?  What if I had originally set the daily trade goal to 6, would that have made any difference?
• Although I have my fair share of really tough days that have hit my psychological capital hard, I still believe from my core that my dreams of trading success will become true.  It's only a matter of time.

Back to the drawing board

Well, that didn't last long.  My plan was to focus strictly on only two simple metrics: 1) A max of 3 trades per day and 2) limit profit targets to +2.00 ES points.  P&L wasn't supposed to matter.  I didn't even last 2 weeks before I had a big blow up of my goals.  I had a couple days last week with around 30 trades.  What a disappointment.

Week ending Oct 12 / From Tradervue.com journal

It was like asking someone who loves and eats a chocolate bar every day to suddenly being allowed to eat only 1 tiny square after getting a job at a chocolate factory surrounded by thousands of bars.  Or someone who drinks 3 cups of coffee a day, to cut back to 1/4 cup.  And whatever other example you can come up with.  Not impossible, but very difficult.  And very much subject to the binge effect.

Then there are those days, like Friday, when I felt I was in such tune with the markets under unusual conditions.  I had barely 4 1/2 hours of sleep and felt emotionally "hollow".  I was also on cough medicine, both huge warning signs.  However, the lack of sleep and cough medication was a strange combination -- one which required me to only interpret and act based on what I saw on the charts, with very little emotion or mental chatter. 

Instead of looking only for setups, I also kept talking about the markets from a "story line" and "contextual" perspective, from both the bull and bear viewpoints.  That was different.  For example, when the better than expected Prelim U of M news came out at 9:55 ET on Friday morning, the market moved strongly higher with initiative buying. 

But something happened.  The market could not continue higher and began to stall.  Price action didn't jive with the better than expected news.  So when one of my favorite bearish chart pattern appeared, it screamed SHORT! 

There were many of these types of moments on Friday, and maybe that's one of the reasons why I keep trading with hope. 

Trading only a single contract, my MFE (Maximum Favorable Excursion) for all my trades on Friday was almost 28 ES points, double the RTH daily range.  Yes, it's not very likely to close out anywhere near 100% of your MAE.  But I ended up with about 1/3 of it which is so-so, but came oh so close to booking about 1/2 of it of my total MAE. 

Something was definitely different about Friday and I really hope it wasn't due to the effects from my cough medicine, because I'd rather not become some sort of cough medication addict to improve my trading!  So was it just a lucky day?  Was it just some false hope, like a slot machine that pays off just enough to keep you sitting around longer to ultimately lose everything?  Or was it an glimpse of more progress to come?

This weekend, I went back to review my blog entries from a year ago.  At first, it was disappointing to see that I've been essentially working on the same key issues back then as I am now.  Same story over and over and over again.  I feel like I've been spinning my wheels for an entire year. 

But the successful method I've been using for my forex swing trades have essentially remained unchanged.  And on another positive note, I do believe I'm wiser and better educated now from regarding trading methodologies vs. a year ago.  However, being smarter means nothing when a weak mental game prevents proper execution of trading methodology.

All of this raises even more questions.  I'll take some more time reviewing my journal entries from a year ago, to help understand what I did or did not do over the past year to address and take better control of my issues.  It's back to the drawing board.

In the past year, I also realize that my psychological capital has been hit much harder than my financial capital, but my will to succeed continues to burn strong. 

Review: Week ending October 5 - mixed results

MONDAY
The week started off on a success.  I had the patience to wait for the solid setups, executed well, limited my profit targets to +2 ES points, and I stopped trading once I made 3 trades.  PASS

TUESDAY
Only 1 trade.  And nothing else I saw was good enough to take.  It didn't bother me a bit.  I'm on a roll.  PASS

WEDNESDAY
I started with 3 losses in a row.  Uh oh, I'm no longer on a roll.  I was ready to quit and made the decision to move to SIM.  However, another setup came up, I took it, realized it was a live trade, but didn't immediately close it out. 

It ended up going +2.25, which means a +2 target would have filled.  But the problem was, I had moved my profit target way out.  I broke my +2 profit target rule.  And the traded ended up b/e. 

Monkey alert!

I knew this had the potential to get bad, was quite aware of it, and even told others about it.  For the most part, I thought I had successfully quit at 4 trades.  But the damage was deep, because in the last 30 minutes of trading, I executed *6* more trades. 

Looking back, I had very few breaks during the day, I was fatigued, and my willpower was weak.  All I thought about was making up my losses for the day.  It was comeback time!  And it completely backfired.  FAIL

THURSDAY
No repeat of the prior day.  I limited myself to 3 trades and never changed the profit target.  PASS

FRIDAY
After starting with a scratch, the next 2 trades were a losses.  And it was only 9:50 AM.  What would I do for the rest of the day?  Less than 2 minutes later, I took my 4th trade, I broke the plan.  Another loss.  About another minute later, another trade entered, another loss.  And so on...

I ended up with 5 consecutive losses.  By this time, the damage was once again done, and my mind was all about getting my money back.  Total focus on P&L.  I was quite aware of it, but by that point, I had thought:

"I've already broken all my rules, so F the plan.  I'm going into comeback mode and getting my money back!"

Sure, it ended up OK from the P&L perspective.  But P&L wasn't in the goals of what I'm trying to accomplish this month.  My goals were to simply:

   1)  Limit my trades to 3 a day
   2)  Limit my profit targets to +2.00 ES points

So Friday was a complete FAIL based on both goals.

WHAT HAPPENED?
What was the trigger for those FAIL days?  Nothing new.  It was basically when I either start off with a loss for the day, or have more 2 or more consecutive losses in a row, revenge trading mindset becomes comes into play.

On a good note, there were many instances this week when I was quite aware of my plan as well as my emotions for that particular moment.  And I successfully kept myself out of trades.  Many of those passed trades ended up being profitable, but it didn't bother me too much.  That was great to know.  It was also good to see I was reading the markets relatively well.

NEXT WEEK
I will continue with the plan. 

I will wait for only the best setups every day and limit my day to 3 trades.

I will limit my profit target on every trade to +2.00 ES points.

Upon internal reflection, I'm making good incremental progress.  But I have far to go and it's time to step it up.

One week down, 3 1/2 more to go.