A solid start to November

I'm still recovering from a slight bug, but I'm relieved to say I ended up having a solid start to November.  Started the day with a better sense of focus and purpose and maintained it until early afternoon.  Although by the end of the day, I admit my mind was a bit scrambled and I ended up missing some layup trades.   

Tuesday, November 1
Total gross profits:  $925.00
Total trades:  10
Accuracy:  87.5% (excludes 2 scratch)
Contracts per trade: 2

NOTES:  Yet another gap down day, although the price action today was not quite as narrow as yesterday.  It was still a challenging range-bound day, but the size of the range gave enough room for scalp trades to effectively work.  In addition to some selective aggressive scalp setups, I also remained focused on Renato's calls (and as expected, it paid off).

What's the best type of market for me?
Based on my performance today, it seems as if I do better in range-bound markets, although I will need to check my journal.  So a thought that comes to mind is, "Am I a better range-bound trader or a trend day trader?"  Since there are generally more range-bound days vs. trend days, one would think that this may be good trait to have.  Although conventional wisdom says that trend days have the potential of generating considerable profits.

For now, I'm not sure either way, because based on some of the analysis I've seen using DS for aggressive scalps, there are still great opportunities to generate respectable profits even in challenging range-bound days such as today.  Therefore, in addition to doing research on my limited historical data, time will eventually tell whether market conditions do make much of a difference in my performance.

Breaking the cycle
After a solid day (or week, or month, or...), it's common for many to let down their guard because they think they're Superman.  I've been guilty of that!  So my goal tomorrow is to break that cycle.  I will work to maintain the mindset I had today, which is to remain focused and constantly on guard for the next trade. And regardless of my ending P&L, I will consider myself successful if I minimize careless errors and take all trades that meet my criteria -- quality of execution will be key.

But first, I need a good nights sleep.

A solid month that ends on a whimper

Just a little over 3 weeks ago on October 6th was when I first started trading the Diamond Setups system via my SIM account.  And as October comes to an end today, Renato closed out the month in spectacular fashion, gaining over 20 points in the ES.  Very well, then what about my performance? 

Monday, October 31
Total gross profits:  $25.00
Total trades:  15
Accuracy:  60%
Contracts per trade: 2

NOTES: I ended the month of October on a whimper.  After a gap down open, the ES had a relatively flat morning, with some minor sign of life early afternoon. Then the final jungle hour punished the bulls with a 20 point decline.  I'm usually capitalizing on those final hour moves. 

But this turned out to be a day when I was "right" often, but either lost money or the train left without me, usually due to careless errors.  Today was also the day that I stopped scaling out as a test, and exited my entire position at the first target, usually +2.00 or +1.50. 

Playing catch up
I missed some of the morning session when there were some good setups, and some people in the room had booked 6-8+ points before lunch.  Unfortunately, I was playing catch up in the morning after my late start, and that lead to some sloppy trades, which then lead to more, which then lead to more...  Feeling a bit under the weather should also be a sign that I need to take extreme caution.  The markets have no mercy for the weak minded!

Due to my schedule, there will be more days in the future when I will be starting an hour after the market opens.  So I'll need to be better prepared for playing catch-up and not let it impact my performance.  Once I was out of sync with Renato's call, it was a mental challenge trying to restore balance.  I thought I was going to be back on track since I nearly caught the sharp move down in the final hour based on Renato's call, but a careless error on my part botched those plans.

Totals: October 2011
Total gross profits:  $3512.50
Total trades:  142
Accuracy:  67%
Contracts per trade: 2

What happened over the past week?
After evaluating my equity curve for the entire month, it's clear that my P&L has flatted out over the past week, while the system continued to generate steady profits. 

In hindsight, I believe it's relatively clear what has happened.  After having a great start over the first few weeks, I thought I knew how to trade this system and began trying to "make it my own."  The alerts that Renato provides, which I initially traded with discipline, became less important. 

Other examples include:  I wanted to become a rapid fire scalper, but also hold a runner for a those big wins.  I wanted to trade aggressively, but yet in a conservative way.  I wanted to incorporate some of my biases and methods from the past, but yet still trade the new system as is.  I wanted to tighten the stops even more, but that's not a part of the rules of the system.  And so on.

Lack of discipline, chasing success, overconfidence, lack of a focused strategy, you name it.  And all long, the system continues to chug along, banking $'s.

So what do I do now?
I signed up with Diamond Setups to learn the system, but I recently strayed off the optimal path.  I'm very fortunate that the system has enough margin for error so that the damage to me was basically lost opportunities -- I essentially had a breakeven week.  It's now time to get back on track and continue to pay attention to Renato's calls, and continue to test and analyze the best trade management strategy for 2 contracts.

We're now down to the final 2 months of the year.  It's time to raise the bar and start November on a great note!

To scale, or not to scale out?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

A choppy day to remember

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

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

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

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

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

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

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

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

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

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

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

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

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

How to save your emotional capital

How can you help save your emotional capital while trading?

Simple...Do NOT fight the trend!

And so what did I do today?...I fought the trend! 

My natural preference is to trade with the trend, usually on a breakout or on a pullback in the direction of the trend.  But for some reason, I kept trying to short this big uptrending market today.  The trades I took were NOT a part of the Diamond Setups chatroom, just me trying to be "smart", and I ended up wasting a lot of emotional capital.  Didn't I just say yesterday that I was going to listen better? 

@RenaTrader said around lunch time that this will likely be a trend day up, so he was only looking for long trades (unlike me).  Then near the final half hour, he made this call to short, but only for aggressive traders (I was already selling on the way up, so hey, what's another short attempt!):

     [Oct 27, 2011 3:25:05 PM EDT] RenaTrader 1289-91 is key

But I didn't listen...again. 

I thought the market couldn't get up there, so I entered my short at a much more aggressive level at 1286.50.  Once again, not a great decision.  If I had listed to Renato, my entry would have been 1288.75, which would have entered me 2 ticks below the high of the day.  That would have only been a couple ticks of heat instead of the -2.75 points I had to endure.

My exit was based on a decent confluence of vwap and other levels at 1274.50, which was the exact swing low before it rebounded sharply.  There was also some SIM related fantasy fills on this final trade that may not have been so lenient in a live account.  Luck was on my side, and total profits on my final trade was +13.50 points. 

ESZ11 5min 2011-10-27

Because of that final trade, I ended the day $-20.10 net after commissions, vs. having quite an ugly day.  After the markets closed, instead of feeling a sigh of relief that I scratched after being down so much, I was quite disappointed with my performance.  And knowing that it was a single unusually good trade (ironically against the trend) that recovered all my losses also gave me a clear message that this kind of miraculous recovery can not and will not be repeated very often.

On the plus side, I was able to stay focused and continue to execute without getting rattled, and my emotional state was definitely in the heightened end of the normal range, but far from the tilt zone.  However, I would much rather have preferred saving my emotional and mental capital so that I'm not so exhausted at the end of the trading day. 

But that's the past, the deal is done, lessons learned...Don't Fight The Trend!

See this trade on Tradervue:
http://www.tradervue.com/shared/trades/69250

* * * * *
Thursday, October 27
Total gross profits:  $37.50
Total trades:  11
Accuracy:  55%
Contracts per trade: 2

NOTES:  I fought the trend, and gave myself a few extra gray hairs.  And if it were not for the final trade, the day would have been quite ugly.