Friday, January 9, 2009

A Logic Error and Lack of Focus Costs Money!

Its 11 AM, and i'm quitting for the day. I have exactly 0 points on the day and i'm quitting because I really screwed the pooch this morning and i'm frustrated. If i'm frustrated, i'm not in the mindset to make good decisions so i'm walking away. And the funny thing? I took GREAT trades this morning. But one of them got my stop to par (or so I thought) stopped me out, and then went to profit without me (2 points missed). I took one more trade for par which was fine. The more insulting problem was this: I missed not one, but TWO trades this morning! And the insulting fact is BOTH of them went for big wins and a combined profit of 9 points missed! That's a grand total of 4 trades I should've taken this morning, and a combined profit of 11pts, or 550.00/per contract! That would've really helped that bottom line!

So lets explain what went wrong. As far as both of the double bottom setups go, I just simply missed them both by focusing my attention elsewhere and by the time I realized what I had done I couldn't get filled at the necessary price. I had great focus all week, but I let up this morning and it cost me.

The first trade I took was textbook, its a trade that would've been recorded as a winner in my backtesting. Why wasn't it a winner for me here today? First let me explain how I manage my stops. I have Fibonacci levels in the markets that when price moves to them, I move my initial stop to par, price moves to my next Fibonacci level, I move my stop to partial profit, and finally I take profit at my final target Fibonacci level. In the screenshot below you can see the level I was looking for price to hit to move my stop to par. Price DID hit that level so I moved my stop. No problem right? Well what happened was price came up to my stop INTRABAR, took me out, closed lower and went right to the profit target. In backtesting, I move stops on bar closes, I didn't do that here (or all week) and it was going to cost me sooner or later. So the good news is I caught it early in my trading. I've already revised my trade plan to include this and it WILL be the last time this mistake is made.

This does illustrate one point that I want to make about backtesting. You have to use the IDENTICAL logic in your backtesting in your live trades, otherwise the results will skew. That was the case today. My stop movement was based off one logic in the backtest, and implemented with a different logic today. That caused the lack of profit. Make sure you implement the identical logic if you want the same results live!

In other news, I thought I would make a small update on how the other "method" i'm tracking has performed this week. As of right now its up +737.50 gross and hitting a 59% win rate which is pretty much on par with what we can expect from it. Its certainly a performer but to trade it correctly i'll need to be able to use a separate contract to trade it because sometimes it links up with my core methods signals, and they are managed separately. So basically, I like what I see, but I need to grow my account before I can start trading it live.

We ended up the week with +162.50 in gross profits. Keep in mind that (1) I screwed the pooch today and have already passed up on 550.00 in profits this morning, (2) I didn't trade 80% of the day on Tuesday due to FOMC minutes, and (3) ITS MY FIRST WEEK! I'm in the black, i executed very very well this week. I never had a losing week in all of my backtesting, so its nice to know that I didn't screw up enough to alter that outcome in live trading. I screwed up today, but its gonna happen from time to time. Would I prefer +712.50 in profits at the end of my first week? Yup. But the point is that I could never make that without realizing the problems I found today.

The screw ups brought my issues to the surface and I didn't even have to pay a penalty with a loss to realize them. Those issues have been dealt with and i'm excited to start next week and start some serious account growth! Most importantly, I set out to trade my plan without fear, greed, or hesitation. I did just that. I pulled the trigger each and every time a trade came - no if's and's or but's and I truly believe that's what made me money this week. That in of itself is a improvement of gargantuan proportions over my last attempts in the e-mini's!

Trade Results:

+ 0.00

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