Friday, November 11, 2011

"High Performance Trading"

The biggest breakthrough for me today was not necessarily the markets (it was relatively "boring" due to the holiday).  What has given me a renewed sense of optimism and purpose is the book I received today, called High Performance Trading by Steve Ward.  The subtitle explains it better -- "35 Practical Strategies and Techniques To Enhance Your Trading Psychology and Performance".

And after a quick glance, I believe this is exactly the type of book that I've been searching for.  The author references and acknowledges Dr Brett Steenbarger, Mark Douglas, Ari Kiev, and others who have already lead this particular field with their great works. 

Ward's goal was not to author yet another book on the "theoretical discussions of leading topics in trading psychology", since those works have already been done very well.  His goal was to create a practical book that leverages those prior works along with the work he has done with traders over the years, to create an outline of practical strategies, exercises, and examples for key topic areas that are relevant to traders.

Some of the questions he asks in his exercises may seem a little generic or touchy feely, but I'm at the stage where I'm open to anything that will help me understand myself to become a better trader.  If you're also interested in this type of book, check out this link to Amazon and review the table of contents as well as a few chapter excerpts.

Now the studying begins...

Thursday, November 10, 2011

Making SIM Results More Real - An Experiment

On one track...
I have the plans to help me achieve the state of peak performance.  That's going to take me a lot of time to reprogram my brain, but based on a great comment from Flowtastical, it can be really as simple as: 
Study your best trades and execute them better.  That is peak performance.
On the other track...
I'm still trying to "make it my own" trading the ES with the DS system.  And since I'm back to trading on SIM (simulation account) to really nail down what my style should be, one thing that has been bothering me is the lack of confidence I have with fills on SIM with limit orders.

SIM fantasy fills - to good to be true
When you use limit orders to enter and exit a position, you usually get a fill even if it doesn't trade through your price -- I call those "SIM fantasy fills."  So today, I began a day of experimentation trading the DS system with more of an aggressive scalping style (12 to 30+ trades a day) so that I could generate as many trades to evaluate.

The goal - make SIM results more realistic
Since I was a bit taken aback by the differences between SIM results vs. live trading in my last foray, I wanted to able to find a way to trade my SIM account so that it would better match real life results.  Next time, I don't want to be so surprised about my live P&L differences vs. SIM.

Adjustments made when trading SIM
For my experiment, my profit target was set to +2.00 and stop loss was -2.00.  However, as I started to complain about how the SIM fantasy fills were too easy and not like reality, CLETrader (the resident expert in the DS room on scalping strategy) recommended some of the following revisions to my bracket order on SIM:
  • Move my profit target limit order to +2.25 (and including the bullet below = +2.50)
  • Place my limit entry at a 0.25 favorable (more difficult to fill) level
  • Stop loss would remain at the original price
  • A $5 commission added per round trip


The adjustments accomplished a few tasks
  • The original entry limit order would have been filled in real life
    • However, every order, regardless of outcome, will have overstated profit by a tick.  This needed to be adjusted in the final results.
  • The original profit limit order would have been filled in real life
    • However, the trades the hit the profit target order will have overstated profit by a tick.  This needed to be adjusted in the final results.
The downside - manual calculation work necessary
The only difficult part of this task is the additional overhead necessary to calculate and apply the adjustment for every individual trade manually or semi-manually via Excel to generate the revised results.  But to me, this is a task worth doing in order to give better confidence whether the trades would have filled (or not) in real life.

An error in my experiment
In hindsight, I applied the incorrect values to my bracket orders today, and didn't modify my profit target limit order by another tick.  In some cases, this did make a difference on whether I got the fill or not.

Experimentation results
Please note that I was NOT trading a specific strategy consistently throughout the day (although it was more scalping related), and in addition, note the error explained just above which also impacts the results.  So this "experiment" has a lot of holes, and the actual P&L is somewhat meaningless.

Cumulative P&L
However, focus on the gap between the raw SIM results (red dashed line) vs. the adjusted live results (blue line).  A quick glance helps to explains one of the reasons why some users (mostly active daytraders who primarily use limit orders) of SIM are shocked by their results when they start trading live.  As the day progressed, the chart illustrates how small adjustments began to compound the difference between Adjusted Live and SIM results significantly.

I had 36 trades (I'm really tired now!) with a not that great 51.6% accuracy, which goes to show how I wasn't on track with the DS system which usually gets 70-80% accuracy.  Average gain was $96 and average loss was $87 (both raw SIM output), so we're talking about some tight margins on this particular day. 

One more interesting highlights is how the raw SIM data ended the day showing a gross profit, whereas the adjusted data showed a significant net loss.  With a relatively large volume of trades, the commissions and adjustments quickly overcame any gross profits.

The takeaway
When trading (especially active traders) via SIM utilizing primarily limit order entries/exits with an even risk/reward ratio, it is very useful to make adjustments to your final SIM results to avoid a false sense of confidence and success.

The method discussed here of adjusting the entry orders, in addition to penalizing the results of the trades, is likely to error against the trader's P&L greater than reality.  However, if reality ends up being a little easier because of this approach to trading on SIM, I consider that a successful outcome.

Wednesday, November 9, 2011

Searching for peak performance

It was a relatively uneventful day on my first day back to trading the SIM account.  Much of my morning was taken up by family obligations so my trading day was cut short.  Of the several trades I did end up taking, they generally worked as expected, no fireworks.  And it was yet another day watching Renato make some impressive calls in his DS chatroom under tricky news driven conditions. 

But then late in the afternoon, I experimented with my hotkey and other order entry mechanisms, trying to determine whether there might be an easier way to enter orders vs. the DOM/matrix I currently use.  That ended up trashing my trading records for the day, so I've chosen not to post any results for obvious reasons.  In hindsight, maybe that was just my subliminal self being passive-aggressive?

The rest of this week might also be dedicated to experimenting around with my orders entry setups, in addition to the next topic discussed below, so there's a good chance I won't be back to "real and serious" SIM trading until next week.  I'm going to consider the rest of this week as a bit of a cool down / postmortem period.

* * * * *
On the path to peak performance

However, one new area I plan on focusing starting this week has to do with how I can achieve peak mental performance.  Or in other words, how can I consistently get into the zone so that I can maintain my discipline to really let my strengths perform unencumbered.  Some of this has been discussed in Dr. Brett Steenbarger's books that I have already read, and for those who haven't already, it's highly recommended.

It's clear my problem is not whether I know the right positive expectancy setups, or whether the DS alerts make money or not.  I have a challenge with certain triggers that take me out of the zone, which then breaks down my discipline and keeps me from doing the right thing. 

Within the comments of the last post, Flowtastical wrote:
Can you tell me about what exactly went right?

You noted the feeling of letting setups come to you. Can you zoom in on that more? How did it feel? How were you sitting? When the setups were coming to you, what formation on the chart would make you pounce like a lion near its prey? If that formation came again, would you say you have an edge? Be more specific on what you did well, don't brush it off because learning what you did well that day cost you $1000.

Yeah, I've had quite an expensive week, so I better make the best of it.  My reply:

[...]
This may be one of my big missing pieces of the puzzle, and what's interesting is that this is a topic I studied quite a long time ago (and have obviously forgotten).

The best known examples are based on the work of Tony Robbins and NLP (neuro linguistic programming). Although some consider this pop psychology or a psudo-science, I believe there are some merits to this field.

What's most interesting to me is how you can use certain NLP or other techniques such as visualization to help you achieve the mental state of "peak performance" quickly.
[...]
This then leads to your comment about what it was that I was doing, in great detail, that made me feel as though I was working to my strengths. Unless I can consistently reproduce this routine to get to and stay in that zone, I will never be consistently profitable.
My next "side-trip" on this always challenging journey will take me to some destinations which will hopefully help me to reprogram and refocus my mind, so that I can consistently be in the peak performance state of mind.  And finally, I want to all make those little gremlins (darn it, they keep putting a stick in the wheel) go far far far away once and for all!

Tuesday, November 8, 2011

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.

Monday, November 7, 2011

**TILT**

Well it looks like the ugly gremlins from my big owie day last week ended up coming back today.  And this time, they brought reinforcements.  It resulted in a day worthy of this:

Today will be an example to all of what NOT to do when trading.  Following Renato and the Diamond Setups would have resulted in essentially a scratch or small profit day on a very few trades.  He lead the room properly and those that listened, didn't get hurt.

I've read countless articles from others regarding overtrading, revenge trading, going on tilt, lack of discipline, [insert ways to self-destruct here], etc.  And like many other developing traders that eventually become consistently profitable, it looks like the rocky path is what I must also endure while working through my challenges before it all finally hits home, or until I run out of money.

I was fully aware that I was not in the right frame of mind from the onset of today, but I took this as yet an additional challenge to face -- as if successful trading itself isn't enough already!  In the morning session, I was doing well given the circumstances, scratching instead of being slightly profitable due to some missed opportunities.  But I was generally following the rules.

The Trigger
When the markets shot up after lunch stopping me out of a short position, that triggered my tilt.  I noted to myself that the trend had changed, and that I shouldn't fight the trend -- it uses up your emotional capital, so I should only look to be buying.  However, when your thoughts don't sink into your actionable consciousness, and you also combine that with fatigue, it's a real death spiral in the making.

Emotionless Trading - The Wrong Way
Whether it was partially due to the fatigue, I experienced little in terms of heightened emotions.  It was just a matter of getting back up mindlessly after getting stopped out.  A zombie with a mission.  For those who have raised children, it's a similar feeling to being awoken in the middle of the night countless times to sooth a crying baby...night after night after night....until you're so numb, you're in a state of autopilot.
 
To SIM, or Not To SIM -- Revisited
My account is now down net 15% in a span of less than a week.  Red flags are waving everywhere.

So the big question now is whether I need to go back to SIM.  I'm leaning towards it.  However, here's the quirk -- I have reason to believe that I respect the SIM account more than the live account.  Huh?  Yes, for whatever reason, it's easier for me to trade the live account with less discipline vs. the SIM account.  I have no reason why, but maybe it's some deep seeded programming bug deep within my brain that only a voodoo doctor can remove. 

Therefore, going back to a SIM account might only result in a false sense of confidence once again, only to see me fall off the tracks once I go back to trading a live account.  But then again, trading a SIM account will not results in losses to my real capital (nor will there be actual gains).  Best for me to just sleep on it, and decide in the morning on a clear and hopefully well rested head. 

Patience and Discipline
Renato has made countless comments that it takes discipline and patience of following your trading rules to become a successful trader.  On days like this, I know I have failed on both counts.  I feel as though he's speaking directly to me, the guilty party, although I know it applies to everyone. 

I still strongly believe that I can make it as a trader.  Whether it's futures, stocks, or forex, it's clear that when I follow the rules, the profits are there.  Simple as that.  So what is keeping me from achieving consistency?  My mind.  Similar to how athletes or others in various performance fields have coaches, perhaps I need to consider working with a trading psychologist.  I'm sure it's not cheap, but then again, the losses I'm currently enduring ain't pocket change, either!

Defeated and feeling the pain today, but I'll be back at the game tomorrow -- everything starts new again and the score is back to 0.  There's nothing else I'd rather be doing. 



Monday, November 7
Total gross profits:  -1,612.50
Total trades:  22
Accuracy:  31.8%
Contracts per trade: 2

NOTES:  Uhhhh...WTF just happened?