Great post regarding the value of reviewing your trades

Since the markets seem to be too choppy for me at the moment, I'm doing my best to stay away.  I saw a tweet from @smbcapital regarding his post about two lessons from an improving trader.  Bella is posting some great topics for folks like me still finding their way, and this recent post discussed the value of reviewing your trades.  I left the following comment their website:

Bella,

Thanks for continuing to post great topics.  The letter from your reader hit home with me, since reviewing my trades has also helped me significantly.  Here's what I've recently done:

I've taken the last several months of trades and imported over 900 historical trades into an online trading journal a couple weeks ago.  For those who don't have a trading journal setup yet, www.tradervue.com is a great new online trading journal that's free.  I really like it after reviewing many others (free doesn't hurt), and the reports are also useful.  Simple and elegant to use, but powerful.

By reviewing each of my historical trades carefully one by one (and trying to relive the moment -- why I took it, how I felt, etc.), and then writing journal notes and placing appropriate tags with useful metrics (grade, setup type, outcome, market conditions, target met or not, etc.), I can run reports to see what setups are working for me, how much those setups make, win/loss %, how well I executed, what type of trades are NOT working for me, etc.  To get these types of reports, the "trick" is to spend the big effort to add meaningful tags into your trade journal records. 

As you, Dr. Brett, and others have mentioned, I want to focus on my strengths.  This journal is helping me significantly to discover what my strengths are, via facts from my actual trading results.

Updating each trade is taking a lot longer than I expected (it's a real grind) and I'm not quite done yet.  But with what I have so far, what I'm learning about myself is on the verge of shocking, or maybe not.  It's now easy for me to query how I would have done if I only took A and/or B quality setups (surprisingly big money with good accuracy), how much money I lost in "choppy" conditions (a lot), how much I lost when I took a trade while in tilt/revenge mode (don't even want to think about it), which setups work best for me, etc.

I'm also realizing that like an elite professional athlete that continues to reviews their tapes, monitors their stats, performs their drills and practices at 110%, etc., I will also need to maintain this high level of effort to understand and improve myself on a daily basis.  This level of effort has become the new normal.

Thanks again!

SPY - the stars align for a end of day buy

Posted this comment on the Trader-X blog earlier today:

SPY - 5min, buy above 15:35 for the following reasons:
* Was above vwap, and 5ma crossed over earlier [VLCO setup]
* Around 25 minutes of consolidation (refueling after a big move from bottom)
* Broke above the 100 ma
* 5ma was rising and supported price
* Green hammer-like bar says, "You are clear for take off"

I can't say there was anything convincing enough for me to attempt to buy at the bottom, but catching potentially half of that late day monster move isn't too bad.

Unfortunately, I wasn't around to even consider taking the trade. My TradeStation charts were too sluggish, likely due to all the volume.  So I wimped out and played it safe by leaving while I was ahead a little bit for the day.

Very volatile day.  We'll see if the party continues tomorrow...

SPY - this is a crash?

Here's a quick observation of the SPY today.  One comment I've read on my Twitter stream is that on the daily charts, it sure does look like a crash, but on the intraday charts, the selling has been quite orderly.

Since 95+% of my focus is on the intraday charts, I've also noticed how relatively uneventful the intraday chart patterns for the SPY and other indices have been over the past few days.  Sure, it's a bit more volatile than usual and it doesn't seem out of the ordinary...until I see the % loss for the day.

Today, the SPY moved more like a typical stock that's in-play (news driven), so maybe that's why it didn't look that unusual to me.  And something that Bella mentioned in his book, "One Good Trade", is that when you get significant volume in a stock, you neutralize much of the noise from the algos.  I've found that it then usually results in a more natural trading action, which means the Fibonacci levels tend to work cleaner.

Here's an example of the SPY today, and how the Fibonacci levels worked well to help predict the low of the day (and see how it reacts at the other Fib levels).  This calculation is similar to calculating a "measured move."  In this case, the opening range is calculated, and then that range is simply subtracted from the opening range low.

• The opening range over the first major swing (70 min) = 3.11
       118.38 high - 115.27 low = 3.11
• Forecast of "measured move" = 112.16
       Opening range low 115.27 - opening range 3.11 = 112.16
• Today's actual low = 112.02 

SPY - 5min 2011-08-08

Take into account the whole number effect of 112 acting as a magnet, and you can see that the forecast of 112.16 isn't that bad -- you can use a ballpark figure of 112-112.25 as a range to monitor for a bounce.  I find these Fib levels more useful (and safer) as a target for exiting short positions, although for those who like to try and catch falling knives can also feel free...

So much for a crash, at least on an intraday basis.  This pattern was similar to just another day at the office for a typical stock that's in-play.  But then again, this is the SPY, a very heavy ocean liner of a stock that usually moves with slow and heavy steps.

Makes you think, if it moved so orderly but yet so much on heavy volume, how will the markets look if it becomes disorderly on heavy volume?  Take a look at the monthly chart, going back to 2002. 

SPY monthly - 2011-08-08

Does it look like we're in a crash? Possibly, although it just looks like a bigger than usual pullback. But if we are crashing, this is just the beginning.

Recap: $KWK and $MTW trades from 8/8/2011

Unfortunately, I need to leave the "party" a bit early today. But needless to say, after not trading last week so that I can update my trading journal on Tradervue (I'm almost done!), I thought the fireworks would be over, and this would be a boring week.  But the volatility from last week continued, and I was able to catch a few good moves.

After getting chopped around for the first few trades in KWK and ELN, I caught a decent move in WYN - 9th bar, 5min chart. I'd likely rate is a C, maybe C+.  But with everything going down, I thought I'd have more margin for error and ended up being fortunate with a win.

Here were a couple afternoon trades:

MWW - 5min, sell below the low of the 13:25 bar. Exited when it barely missed the Fib Extension 2.0 line after watching the price action carefully.

This was was a classic "Beyond the FE" [BTFE] Trader-X type setup.  I missed the consolidation breakdown that was a "Beyond the Opening Range Low" setup that took place 25 minutes prior to this entry. I also missed a vwap line bounce [VLB] trade at around 11:10 that also ended up working well.

KWK - 5min, sell below 14:05 bar. I exited when the high of the green bar was broken (yellow circle).

The is something I believe Tom C. (from the Trader-X archives) would likely take, which was similar to a "Beyond the Fibonacci Extension" [BTFE] setup.  But this had more of a "break beyond the FE first, then pullback to the FE" (in this case, the 200% Fib Extension of the opening range) type action instead of a usual consolidation sideways as you saw in MWW above. 

KWK - 5 min (partial day)

Note that the charts above snapshots made prior to the close of the day, so there's maybe an hour missing.

Update: Online Trading Journal

Over a week ago, I wrote a post about using Tradervue as my new (and free!) online trading journal.  I've imported all my trades since I started trading 4 months ago and have been updating them with tags and journal notes.  Since I believe keeping a journal is so important, I've taken this week off from trading to update my well over 600 trade entries (it would be hundred more if some trades weren't logically grouped together by the program).  I'm not done with the updating, but I'm starting to really get the hang of using the journal.  And yes, I'm really liking Tradervue more and more.

TRADERVUE UPDATES SINCE LAST POST

• About a day after I asked, Greg (the owner/developer of the website) added the import for TradeStation.  Great turnaround!
• He also pointed out that yes, I can easily embed and display linked charts in the journal (nice!)
• Other key reporting metrics were added (such as win/loss %)
• Many other exciting features are on his enhancements list

IT'S ALL ABOUT THE TAGS

Since I have updated several hundred entries now, one of the most exciting features of this journal is the ability to filter reports based on tags.  As I'm updating each record, I'm entering tags for the following metrics with and included some examples of tags:

• Timeframe:
      5min, 15min
• Setup type:
      pb2rz, qh, btfe, rogue
          (pullback to retracement zone, quick hit, beyond the FE, no strategy)
• Target eventually hit?
      hit-fe, hit-fe20, hit-runner
          (eventually hit the FE, eventually hit the FE2.0, trended all day)
• Exit execution:
      goodexit, badexit
          (I exited at good levels, I exited poorly and left money or lost money)
• Grade of setup:
      A, B, C, D, F
• Market conditions:
      choppy, lowvol
          (choppy-wicky conditions, low volume)

WHAT CAN I DO WITH TAGS?

So why is it important to be able to filter reports based on tags?  So that you can ask useful questions and requests that will help you monitor and improve your performance, such as:

• How well has the "quick hit" setup performed this month vs. the prior month?
• How much would I have made if I only traded A or B grade setups?
• When the markets are choppy, how well (or poorly) do I perform?
• When I went "rogue" or into "revenge" mode, how much did that really cost me?
• Show me all examples of the pb2rz setups that have the A grade
• Show me the trades where I left money on the table
• And so on...

NOTE: Tradervue currently filters only by one tag at a time, but there might be some enhancements in the future (hopefully AND/OR type queries).  In the meantime, I can still run multiple reports to answer most of my more sophisticated queries.

I've also learned that based on looking at each journal entry with only the tags (without a chart), I can envision what that particular setup looked like, and more importantly, how I executed.  So when you add the ability to drill down/query by specific tags, that's very powerful.

TRADERVUE IS FREE, BUT REMEMBER...

Yes, Tradervue is free (and I hope it always stays that way, or at least very reasonably priced).  But highly effective use of the journal, both initially and ongoing, comes at a cost, especially if you never kept a detailed trading journal. 

It takes a significant amount of time to go through each one of your historical trades to analyze it and tag/update each entry.  I've gotten it down to about 1-2 minutes per entry.  Multiply that by hundreds, and you'll see it's a big grind.

Garbage in results in garbage out, so don't waste your time if you're not serious.  And your ability to be consistent with the grade or tag entries might be subjective and could vary slightly from day to day (e.g. is that a B or C grade entry?), but having decent metrics data is better than no data.  Remember, you can always update the tags later.

But the result of all this work is that I'm building a custom analytical database of trades that's a reflection of me.  I can ask it questions, and it will give me answers.  There's nothing else in the world like it.

FINAL THOUGHTS FOR NOW

I'm over halfway through updating my trades, and I've gotten to the point where I'm understanding what type of trades I prefer, what setups I do well in, and what make me go tilt/revenge/rogue.  There are some setups that I thought I did well with, but perhaps I need to reconsider.  And others that I didn't think much of, but I seem to execute well.

This is all based on quantitative data, actual historical results, solid facts. 

And on an ongoing basis, I'll be able to track my performance, determine whether the markets that are changing since a setup isn't working (or more likely, me), evaluate how well new strategies are working (or not), and find ways to adjust and improve like I've never been able to before.

Imagine any pro athlete that doesn't have a stats sheet to track and review their performance, they would be at a severe disadvantage.  The same is true for a trader.  As a trader, I need to utilize every tool possible to ensure that I'm headed on the right track, and to make sure I stay on the right track. 

OK, back to the grind of updating my trading journal.  Looking forward to it since I know I'll continue to learn much more...