Friday, February 27, 2009

I Like Money

It fun making money isn't it? I think i'm going to do more of it. Its kind of addicting. I'm done at 9:15 this morning. I made money this week. Yup.

This morning I took one setup... it stop gunned me a little bit, took me out for -2.25 and then got me back in and popped for a TEXTBOOK +5.25. Done deal.

I screwed the pooch so often this week i'm sure the animal control authorities are on the way as we speak to put me in handcuffs and yet I was able to make money this week with this method. I took a loss I wasn't supposed to, I passed on over 25 points of profits through mismanagement, I wasn't live on the 10 point ES day on Tuesday, and I only traded two days and FIFTEEN minutes and I was still able to make money. Why?

Basically... it goes a little like this:
  • I can identify pullbacks that are actually momentum shifts and avoid them (Never had this ability before).
  • I have less risk on setups than ever before.
  • I have more consistent entries than ever before (no more getting faked out into a market due to one candle!)
  • I have more profit target options than ever before.
  • I can catch runners and manage them (I've never traded without upper target profits that would cap runners).
  • I have not one but THREE ways to get to par. Which allows me more safety, more of the time, in more conditions.
  • MY SETUPS ARE SIMPLE. No divergence, no counter trend, stupid simplicity. Why complicate things?
Next week is going to be epic. I don't THINK it will be, I KNOW it will be. Even after the huge screw ups this month finding my initial entries were flawed, changing tactics and realizing yet again I was overcomplicating the easiest concept in the world, and changing tactics slightly again and finally finding profits and consistency in a manner i've never witnessed in my trading and I feel like i'm ready to do some damage.

We go to War on Monday. I'm going to make the SPOO's my bitch and I invite you all to watch!

Trade Results:

ES: +150.00
NQ: +0.00

Thursday, February 26, 2009

First Day Traded Correctly!

Well not a huge day, but today I traded each signal that came, and did so without fault. I got perfect fills, had the balls to wait for my par levels to be hit and took profits appropriately.

I passed on an early trade because the EIA report was due out in about 20 minutes at the time so typically I wait to trade after they are released. No biggie. I took the next two signals and made +4 points in the morning. I followed the afternoon by taking two back to back losses. But they were both text book signals and I am completely fine taking those losses. I had a couple trades, even in the NQ that got up a good amount (+2-4pts) but just hit some major resistance and backfilled against me really really quickly before I could take profits. That's trading and it happens.

Oh how I wish I would've traded correctly yesterday! But whats the lesson gents? If I trade the method as it is supposed to be traded even with basically a 50% win rate today, missing a few winning trades (morning and lunchtime), and being screwed out of profits on a few more, I still made a tiny bit of money. And that's just what was offered up today. There was a lot yesterday, there was a little bit today, there may be losses offered tomorrow but as long as I stick with the method and act upon it more often than not i'll be profitable at the end of the day.

I'm also going to be just posting up my spreadsheets at the end of each week as it was getting a little out of hand posting it everyday.

Trade Results:

ES: +50.00
NQ: +0.00 (Slipped a tick on a par trade)

Wednesday, February 25, 2009

So Much Opportunity!

Today coulda, woulda, shoulda been the best trading day i've ever had. I screwed it up. I took a nice trade in the NQ in the morning got to par, was high ticked out before it went for +10... this however was the best trade of the day as it was appropriately taken and managed. No biggie.

I took another short in the ES, and then shorted it again. I lost but it made me realize a very simple thing about my patterns and something i'm stupid for not realizing sooner. So i'm more than happy to pay for the lesson. 2.25 points? Cheap considering what its going to save me in the long run. With that lesson in hand I used it later on it the day to avoid pullbacks that were actually momentum shifts and was able to avoid losses. Yay.

Then I started really screwing the pooch. I took a long trade in the es, the actual entry was 57.75, but the market had jumped so quickly on the bar close I jumped in at 58.25 rather than the actual fill. Those two ticks ended up causing a lot of problems. Par came as ordered, but because I wasn't in at the right price I was ticked out for par before it went on for a TEXTBOOK +11.75 points. Yea. Would've been my biggest ES trade ever. Fun times.

Later in the day I took another signal, this time I got in at the right price, but I got too ancy getting to par, violated the rules and was ticked out before it went TEXTBOOK +7 points. Yea.

Overall the method was TITS. I was ASS. I'm encouraged yet again by what i'm seeing now that i've been blind to for so long but i'm disappointed I haven't capitalized on it correctly. I have screwed up as much as I intend to. Tomorrow its on like donkey kong.

I'd also like to point out to Awais that I didn't use "We" once in this blog entry. :)

Trade Results:

ES: -150.00
NQ: +5.00

Tuesday, February 24, 2009

We're Live Tommorrow

I needed one day to prove what I suspected was true. Does it pick out every winner in the book? No. Can I get every signal out there? No. Today I missed out on two trades in the NQ that were signals for over +17 points that either I passed on because other markets had broken the patterns or because I was already in ES trades. The point is this. It works. Done and done.

Was today volatile and a nice trend day? Yup, and guess what? I just bought it all the way up. Obviously i'll still have losing days. But from everything i've seen the losers are much less frequent, the winners are much more consistent and profitable more of the time and I don't find myself fighting the market momentum hardly ever.

The results are entirely 110% how I would trade this method real time, live with my account. That's how I sim. If its not real, there's no point.

I think the results speak for themselves... so i'll let them.

The one loss on both the ES and the NQ was a stop run. That crap happens regardless and it can't be avoided. Otherwise, can you spot a trend here?

Monday, February 23, 2009

Your Regular Scheduled Programming will NOT be Shown...

I got smattered today. My triggers are effin' lame. Too quick, too jumpy. My targets don't get hit without a direct act of god. My pars are too aggressive. My entries are too elaborate. Too ineffective. The method is vulnerable. My account is vulnerable. And in the disaster I had a revelation. The concept is simple. The setups are even more simple. Logical. The targets are dynamic and more accessible. The entries are more consistent, more momentum based.

All of this builds on an idea I had one day not so long ago when I was making a free "how to trade video". I remarked at the time that it looked good enough to trade (even though it was an idea that I had pulled out of my ass in about 30 seconds). It wasn't complete at the time. I spent 4 hours today reading a thread on the notorious Elite Trader forums. The idea in the thread wasn't to my liking - but in the process it gave me ideas, ideas that evolved into whats sitting in front of me as I speak. And it looks good. Damn good. It makes my "holy grail" that killed me today, all last week, and would've tortured me for the rest of eternity look like chicken shit.

I'm going to sim it this week. I know what the backtests suggests... Check back tomorrow and we'll see how the results come in. I make this promise to you all right here and now. If this shit works... like really works... it will be the most annoying truth in trading i've ever faced.

Friday, February 20, 2009

No swings = No trades

Today was an odd occurrence in price action that does happen from time to time. This morning there were no Pivot Highs/Lows being marked on my charts in the ES (and NQ for that matter). This told me something VERY important. It says that price action is messy enough that a simple algorithm to point out highs and lows of swings can't be calculated. So its at that point I sit on my hands because my edge disappears. I'm not able to gauge relevant swings, and thus not able to gauge trend direction, price patterns, everything. Now the NQ did kick into some normalcy by around the time i'm writing this but the ES has yet to show one swing high or low. So basically, there were no trades today because there weren't any swings I could measure and apply my methodology to. (The NQ offered no valid setups on the swings it did print up).

So this week ends with a net loss overall. We simply recognized our failures and weaknesses too late to save face with our overall profit. But i'll be burning the backtesting oil yet again to get final outcomes of trades using our revised stop management to lock in profits and our discretionary filter.

All things considered the fact that we only ended up down about 45.00 net after all the mistakes we made is a testament to the new systems potential. Lets put it in very real terms. On Tuesday I took -262.50 worth of losses I DIDN'T NEED TO. Discretion filters those trades now. Wednesday we corrected our mistakes and while we didn't knock it out of the park, we didn't lose money. Thursday we took a great trade but didn't take any profit on it so we missed out on an easy +150.00 worth of profits there. All said and done, we were missing a 412.50 swing in profits and we still ended the THREE DAY week only down 45 bucks? On this fantastically crappy and choppy expiration week? Um yea.

So we'll be finalizing everything over the weekend. Setting it in stone and getting ready to finally start our equity growth again next week!

Trade Results:

No Trades Taken.

Thursday, February 19, 2009

Step 2: Locking in Profit

Today I was in a trade and Emini Player (Awais) and I were chatting at the same time. At this point the trade had gone +4.5 point in favor in the ES ($225.00) and I had my stop at par + 1 tick as per my rules. My target was up higher at a little over $325.00/contract. Price stalled out and was giving indications that it was vastly oversold. I held out and let the $225.00 dissolve into $12.50. Awais called me out on it and he was right. Its one thing to hold for targets but sometimes you need to lock in profit on trades as well because as I know all too well - targets aren't hit that often. Had I been a bit more vigilant and accepted that my indicator was vastly overbought I could've easily and systematically reduced risk and locked in profit on the trade and walked away with +3 points ($150.00).

Awais made the point (and rightly so) that its more important to take whats offered and walk away with something rather than nothing more often than not. Backtesing supports this furthermore. Yea, you'll miss out on some of the big winners, but what you give up there on occasion you make on the day to day range bound conditions that exists more often than not. So when I get a reading that a move has overextended itself now rather than getting to par, i'll start trailing my stops to 2 ticks off the high or low of the last candle. This can keep me in minor pullbacks in a trend but will jettison me when price stalls. Its the best compromise I can come up with.

It is frustrating to see my results this week. I know i'm not performing as well I should be. I left SO much on the table. My only excuse is that just like the first week in January when I started trading the first version of this method there were things I needed to tweak, to learn, to adapt to. The same is true this time around. This should've been a wildly profitable week for myself. The moves were there. But until I learned what flaws were still in my trade plan I couldn't capitalize on them.

So we are moving forward and hopefully in a much more profitable direction!

Trade Results:

ES: -50.00
NQ: +60.00

Wednesday, February 18, 2009

Next Step: Discretion

I've been trading in a way in which I take EVERY signal that fires. I've done this for a couple reasons. First and foremost, I didn't ever want to be "missing" signals. Back in the day I used to psych myself out of trades by looking for anything and everything to say "Nope. Be a pussy. Don't take this setup". Problem was then I was passing on EVERY setup. So to fix my fear problems I would just take everything that came down the pike. And while that did help cure my hesitation and fear issues now that i'm over that part of my trading its time to move forward and use some VERY basic discretion in my trades. We're talking a effin' trendline simple. Many of the losing trades I take all share something in common. Because i'm taking pullbacks into a trend sooner or later that trend will end, i'll take the pullback and i'll get stopped out. Well it turns out something as simple as a trendline can be a powerful tool for this type of pullback trading and so i've decided to start implementing a straight forward discretionary trendline analysis into my setups.

The thing is - the break away trades from consolidation aren't affected, my reversal setups aren't affected, but those trades that are in a trending environment and start breaking support and resistance are the ones i'm going to pass on. Yesterday for example, using this simple idea I could've filtered out all trades the 11 trades taken in the ES down to 7. 5 of which would've been par's or winners, and two losers. Changing the outcome as follows:

  • Win Rate: 54.54%
  • Net Profit: -137.50
  • Win Rate: 71.42%
  • Net Profit: +125.00
This should have a couple of impacts. First, less trades which will reduce commissions and overall market risk. Second, it should boost win rates and overall profitability. Is it perfect? No. Do I expect this change to give me overall 71% win rates? Of course not. This method will still hit lower win rates but what I am trying to do is filter out the setups that already are experiencing a transition of market bias and keep those that are free from confusion. Will I miss winners? You bet. But i'm betting on the fact that i'll miss more losers than winners which will help keep money in my pocket and moral high.

I applied the same ideas today and was again able to AVOID losing setups that would otherwise be valid. Did I still lose on some? You bet. But I was in on setups that had a much better chance of success and it was reflected in my profitability on the day.

Trade Results:

ES: -12.50
NQ: +80.00

Tuesday, February 17, 2009

First day out of the gate!

And we lost! Yay! Actually lets not make any qualms about it - today's price action sucked. Yes? Can we take a vote? Did anyone think it rocked? It was truly hard to trade but I did what my method said to do and at the end of it all I was down on the day in the ES and up marginally in the NQ. I got stop gunned not once, not twice, but three separate times today all on trades that would eventually go to par or to take profits, but the point was that three times I took a loss on setups that were valid and that would go onto work.

As far as the method goes, its working about up to expectations. It doesn't fair that well in stuff like today (does anything?) but I think it was a great first day because it got me situated with the new reality behind my entries - more losses. Its hard to wrap my head around but today really put it into perspective. The system is hitting round about 57% win rates which is EXACTLY what was expected. So no big deal - I lost some money today. I traded it correctly. I must confess I need to hold better for my targets. I gave up a point and a tick of profit today because I didn't think price would get to my targets (it did) so i'm disappointed in that aspect. But by the end of the day I had that licked and we're good to go!

The silver lining? My old entries would've been even crappier today! I'm sticking with this and am confident that we can turn a profit by the end of the week! (But until we do I must admit I have a nervous knot in my stomach!) Its always one thing to "know" it works in backtesting but it becomes a different kind of "know" when you are seeing account growth. Ya "know"?

Trade Results:

ES: -137.50
NQ: +15.00

Monday, February 16, 2009

Revising Expectations

This weekend was spent entrenched in the charts. I know that I had a good change in my methodology - a more profitable one. But with that I had to do a couple things. First, was to reconfirm over my "baseline month" that the changes were worth it and valid. I always test my ideas over the same one month segment to see how various changes in stop management, entries, etc all fair out. It gives a nice comparison and you can see if your ideas actually have merit. Second, I needed to revise some of the setups. *Gasp* Right now you are all rolling your eyes and saying to yourselves "This guy is full of shit. he said in his last post he wasn't changing his setups!" Hold up and let me explain!

My old setups bought into stop runs essentially as sell stops were getting hit I would try and ride that wave of orders into the market to profit. That means that all of my setups already had defined swing highs and lows, thus creating the support and resistance points in which I placed my bets. Now, while i'm looking for the same patterns, I am undoubtedly trying to call tops and bottoms here. With that comes two changes. One, you will get stopped out more often. Two, you will get more profit and have better risk : reward when you are right. But this means that we have to redefine our expectations. I flat out won't be hitting 80% win rates or anything close to that. The setups rules needed to be modified to allow me to re-enter if I had called a top or bottom too quickly, got stopped out, only to have the move reestablish itself and allow me in.

The other big change was the removal of one of my setups - the "Untouchable". The big U was problematic for my new entry method because it took moves that had divergent behavior but relied on an indicator to be SO overbought or oversold that the odds it would continue on were worth betting on. Well that worked with my old method because I was jumping into that move once the swing was already established. What it didn't to take into account was the 80% of the time when it flat out failed I would already be in the move with my new entry methods and I would get nailed. So it had to be removed. So what were the results?

Below is the initial baseline using the new entry criteria. This included all the setups (including the Untouchable, my older stop management, and no re-entry allowance).

  • Win Rate: 57.25%
  • Net Profit: $3,362.50
Here is the revised test using all of the changes and the removal of the Untouchable setup. Note the equity curve slope and draw downs compared to the baseline.

  • Win Rate: 58.87%
  • Net Profit: $4,075.00
Conclusions? I was disturbed by the massive draw down at one point through my initial test batch. However, I found out what was causing this (the Untouchable) and was able to correct it. There is a decent upwards sloping equity curve with minimal draw downs and continual growth. But gone are the days of 80-90% win rates. I will lose - a lot. That's part of this methodology. Expect to be checking this blog and seeing me posting up days with much larger losses and down days more often than I ever have. On the flip side I will be making more money that if I was taking those high win rates but unprofitable entries.

The other thing I will be doing starting tomorrow is trading the NQ along side the ES. The NQ is a market that works perfectly with this entry method. In fact, i'm almost ashamed to say its more efficient in its execution and overall profitability than the ES is. The NQ moves in a smoother, less backfilled environment which is perfect for this type of trading. I've done significant testing with this idea and comparing the ES and NQ charts side by side they are usually spitting out tandem entries (in which case I will defer to the ES) but sometimes what one market misses, the other catches and in those situations I will be able to profit where I have been unable to previously.

So we are going to give it a go tomorrow and see how the first week goes. Hopefully it doesn't end in an epic failure but I'm confident that this methodology is more robust and powerful than it ever has been before.

Friday, February 13, 2009

A Win, A Loss, A Par, and a Profit

Well, the system worked just how it should this morning. Caught a nice upward move, paid up to get in 1 tick more than I was supposed to but who cares... I didn't get greedy with the exit, just took what target price that was set and went on with my business. A second long signaled which I entered and got taken out on a stop run. But I was able to re-enter it and get to par for a tick.

All in all i'm pleased. Why? Because my old entries this morning wouldn't have even given me the opportunity to get into a move. More than that I took a TINY win this morning, still had one loss of a normal size with this method and I was still in the black on the day... One loss with the old entries would wipe out gains and then some. I'll be simming for the rest of the day on and off but we are getting dumped on with 2" of snow an hour here right now and I think i'll be outside shoveling to keep pace with it for the rest of the afternoon.

So from a P/L standpoint this was my worst week ever - but I couldn't be happier about it. It forced me to accept my weaknesses and correct them. I went through the charts last night for this week had over 1800.00 in profits from taking pure, no interpretation signals, entries, management, and exits right down to the tick off a 1 minute chart was available. That's the kind of opportunity I have from now on and i'm so excited about it I could barely sleep last night. This is a turning point in my career and I am happy to be able to share it with you all!

Have a great extended weekend traders and enjoy Monday off!

Trade Results:


Thursday, February 12, 2009

A revolution in my methodology

Over the past couple of weeks i've been secretly festering a growing fear in my mind. The fear that my edge was not as robust as it should be. Looking back over my results the real profitable trades in my arsenal were NOT the core of my method. Those trades that were profitable took low risk, high reward setups that may not always get you to that target profit, but when they did they paid bank. And when they didn't they lost me less than two points on most occasions. In contrast, my "Big Three" setups I currently use were getting into trades using large stops and take profits that even with the best case scenario yielded less than 1 risk : 1 reward. I couldn't shake the feeling that I was vulnerable and exposed trading like this. And I think this week pierced the crack in the armor.

The funny thing is i've been following an indicator that I use daily for years now and i've damn near mastered interpreting it. I use it to confirm ALL of my setups currently but I also have watched it enough to know with a good probability when the shift in a swing takes place. I simply have been getting in near the top of these swings. However, that causes a couple problems. First, it requires my stop to be wider, and second the chances of rejection at a double top/bottom is much more dangerous to me because I have full exposed risk when the rejection occurs rather than being safely at par if I were to enter sooner on the swing. The bad? Sometimes your going to get stopped out jumping in before the top or bottom is actually established. However, I really can hit a very good win rate with this. More than that i'm able to hit similar (if not better) overall win rates with LESS RISK and MORE PROFIT than my current entry and management method. In fact I developed this idea about a year ago and traded it with mild success in forex for about six months. But that system had a flaw.

At the time I was trading it the method didn't have two key things. 1: A way to get to par and a way to get out of the trade at a target. 2: I used a proprietary S/R ATR stop indicator (Invivo Stops) to give me a market bias, rather than following market structure. But now that I follow price patterns first and foremost and I can perfectly cross apply the entry trigger, stop management, and take profits from my double top/double bottom and "You're Screwed" setups the difference is night and day.

For those of you who are going to caution me against switching things up here and changing my method I want to make a few things clear. These basic setups are exactly the same as my old setups and I look for the exact same patterns, indicator confirmation, and price behavior. I am simply trying to enter the market to take a different chunk of the swing, and a chunk that statistically has significantly less risk, higher win rate, and thus profitability!

So first let me explain how I currently have been entering two of my trades. I'm going to be using an example from 2006 when the market was crap just to prove that this idea and methodology is robust enough to work throughout all market conditions.

Here is a swing that I would trade and how I would enter the market and manage the position.

And here is how I would take the exact same setup and enter it using the new entry and management.

Same swing, vastly different results. And in the long run of trading day to day the lower risk and the higher rewards are whats is going to keep an upward sloping equity curve.

The other thing that's very important is that currently my entry window is very small. Price has to usually get within one or two ticks to get a valid signal and can't exceed usually one or two ticks without me already in. Price has to close at the EXACT price i'm looking for to get in. With the new entry method I can get in at whatever price so long as the swing hasn't already overextended itself so I can get in many more valid setups that I normally would be able to.

Here's price action from today and 110% every valid entry and exit down to the tick with no interpretation, fudging of the results, etc.

The results thus far would go like this:
  • 6 Trades, 5 Winners
  • 83% Win Rate
  • Largest Loss: -75.00
  • Largest Win: +175.00
  • Net Profit: +512.50 (Is this a sign? The exact amount I lost the other day? lol!)

While I hate changing things up more than most I feel that this is a valid and necessary change if I ever want to accomplish the goals set forth in this blog. I hate the feeling of changing a system, especially one that works (albeit not great) but feel compelled to do so. I can rationalize it simply because its not a "new" system. Its the same one i've been trading, but i'm just choosing to take a different entry on the same signals and manage them differently.

I've done the backtesting as well. The same stuff holds true on ANY timeframe, in ANY market. And i'll be honest, the results from everything i've seen with the revised entries are much much more profitable and much much more consistent that my current entries.

I'll start trading it live tomorrow. I can't wait.

Wednesday, February 11, 2009

Nothing much to report...

Sideways day. Lots of consolidation that would explode out in a direction without warning or a spot to safely enter. I took a trade in the morning but caught the end of the trend and took a small 1 pt loss. Then I took another signal that would've been par (+.25) but again a violent whipsaw back at my stop slipped my exit not one, not two, but three ticks. So it took what would've been a -37.50 net into a -62.50 net outcome. Shit happens right?

So i've been doing a lot of observation and i've been becoming increasingly concerned with my stop to par +1 tick decision. About a handful of times in the past week i've been in positions that stopped me out for my tick of profit only to go up straight to my target. Or moves that backfill just enough to come through my entry price by a tick or two only to go up to my targets. So tonight i'm going to do some extensive backtesting on my live entries to see what relaxing my stops in general might alter my profitability. I'm thinking of rather than getting to par maybe getting to a reduced risk that would keep less than a point of risk, but still gave room for some backfill to occur. As it sits right now the winning trades I do get are a result of basically straight line moves without any backfill. The problem being, this is the S&P and backfill is the name of the game. So the hypothesis is that if I relax my stop management slightly and take on slightly more risk i'll get more marginal losses but get more winners that can more than make up for my losses and commissions. I'll report back with the results later.

Trade Results:

- 50.00

Tuesday, February 10, 2009

New Worst Day v2.0

I mean really worst day. Not much to say. I'm pissed now but i've traded today perfectly. I just caught some nasty losses and some bad luck. First trade had a 1.5pt stop, got nailed into the down spike this morning and got slipped two ticks on exit for -2. Then we got into another trade which should've been par but by the time it hit that level price was already back above my entry and racing upwards. By the time I market ordered out of the position I took a -2 pt loss rather than a +.25 win. Nothing I could do, markets were moving so fast I was lucky to get out when I did. Between the par level being hit and price rallying 1.5 points above my position wasn't more than 3 or 4 seconds. Shit happens. Yet another example of how your backtested results get skewed in live trading.

Afternoon was dull but again fired off a buy signal that flat out didn't work. Max loss. Then took another setup right after it that was a valid double bottom per my rule set and bam got nailed again.

All totaled we really screwed the P/L pooch today. Not for a lack of trading correctly, fear, hesitation, or emotion, but simply trades not falling my way. Regardless its hard to muster through a day like today when you can't seem to get anything to go right. I'd be lying if I said I wasn't livid right now - I am. But I traded my method and my method got owned today, plain and simple.

The only way I can make this loss back by the end of the week is to trade flawlessly and I intend to.

Trade Results:


Monday, February 9, 2009

A slow day...

Nothing really happened. Got passed up on a couple trades, got into a couple trades, par'ed out on a couple trades. Nothing eventful. One trade went up to my target order for an exit but failed to trade through it so I wasn't filled. No biggie. There just wasn't a heck of a lot to do. I mean I only had 3 setups the entire day? I think that tells the story. Last week I had days with over 8 signals in one day. Just nothing happened but with what DID happen was I traded my plan perfectly. Four more days to go!

Trade Results:


Friday, February 6, 2009

End of Month 1

Meh... its 10AM and i'm done for the week. Markets went ape-shit in the A.M. and left little opportunity as they consolidated their 20 point burst upwards this morning. No trade setups occurred.

Soooo... weekly recap. No B-dub's for me yet. Sad. We traded better this week than we ever have before but we still have a long way to go. I only screwed up once this week but one little screw up does affect the bottom line. So I can't honestly say I traded a perfect week yet. But it leaves something to strive for next week! Overall, I think most would agree it was a tough week in the markets and profits were scarce. But we made money this week and that counts for something.

Today also ends the finish of month one. January 5th to February 5th is now over and we have some reflection to take care of. First things first, our profit goal of $2,000.00? Failed. The stats go something like this:
  • Gross Profit: +925.00
  • Account Growth: +17.26%
  • Win Rate: 71.43%
Look, while I can't say i'm happy with the end results I can't say i'm too ashamed either. We made money EVERY week we traded. Furthermore, the first 60% of the month we didn't trade two of our most profitable setups AT ALL. More than that, we didn't take profits on par setups that would cover commissions during that same time period either. We missed trades, not a lot but that first week there was at least 500.00 in profits I didn't take because I wasn't properly focused and I missed the entries. It all adds up. Backtesting results in that perfect environment would have easily surpassed our goals, but the first month out of the gate things go wrong, and its just part of the profession. The end fact remains that this is the first month I have made money in the better part of a year. Furthermore, I made more money this month than I have in three years - since I started trading. That is progress in my eyes.

So what did we do to improve our results for next month?
  • Improved and refined existing setups.
  • Realized errors in our trade plans and fixed them.
  • Stop to par take 1 tick of profit to offset commissions.
  • Added "The Untouchable" setup.
  • Added the "You're Screwed" setup.
  • Changed the no reversal rule out of our two setups (this one thing could've saved 600+ in profits)
  • Relaxed entry rules on our DB/DT and YS setups to allow for more entries.
  • Increased focus intraday so setups are not missed anymore!
All of these changes are just part of the evolution of my method that I was fully expecting to take place during this month. We didn't expect to make tons of money and in the back of my mind I was afraid that we wouldn't make any money at all. We hit our first goal at 500.00 and was able to get a haircut (thank god - it had been 3 months). We failed to hit our second goal by 75.00 this week, again attributed to the one mistake I made. But the point is we are making progress. I am without a doubt a better trader today that I was last week and I am without a doubt a better trader today than I was on January 5th. Did we make millions? No. But we did turn a profit and we are already trading in a much more efficient and profitable manner than we were at the start of the month.

Bring on February!

Trade Result:

No Trades Taken.

Thursday, February 5, 2009

Do you have the Resolve?

Today started off with 5 pars and then a tasty loss. I was sitting down -87.50 going into the 2PM hour. I had been faked into a loss, and passed by on numerous winners that blew away from me throughout the day - BUT I had traded 110% correctly.

It's at this point where i'm starting to feel a little down in the dumps because my equity curve is starting to take a hit and I don't seem to be getting any of my successful trades I saw so plentiful in the past weeks that I hadn't taken because they weren't in my trade plan yet. Then when they are, they don't appear. Isn't that always how we feel? If only we had done this two weeks ago we would be up X amount, and on and on. Its how our mind works. But the key to getting through those periods is making the rationalization that if we simply wait and keep our setups consistent (rather than try and retool everything week to week) the same batch of new trades will appear and reward us.

Then a gorgeous setup appeared. Well let me rephrase that, it was a setup that was very valid but VERY big. Frankly it scared the shit out of me because I knew that if I lost I would be down -200 on the day. But it was valid and I don't get paid to be a pussy, I get paid to execute so I did. The thing went to par and I fully expected it to reverse in my face. I mean, I was asking this thing to move huge distances in favor without retracing to my stop? Yea right says me. All right says the S&P. The damn thing worked and I held it for my target. There were numerous times that looked like the death nell of this thing but the point is this gentleman...


Because this trade is that trade that rebounds the equity curve. Cutting out and bailing for 2 points to get me to par on the day wasn't my trade even though its exactly what my emotions wanted me to do about 100X's throughout this thing playing out. Its the setups like this that work and work big that are so key to your backtesting results coming true in your live results.

So as i've reiterated 90x's before on here and am doing so again... STICK TO YOUR DAMN RULES. Because that and that alone can truly be the holy grail we've all been looking for.

So the question is: Do you have the resolve?

Trade Results:


Wednesday, February 4, 2009

The Conundrum of Scaling Out

Some do, some don't. Almost every trader has an opinion on the subject and each are as adamant as the next behind the logic of their decisions to either scale out or not. So lets dive into it just a bit. (I'm bored this evening in case you couldn't tell.) I don't intend to sway you one way or another but explain what I feel are the pluses and minuses of each argument and finally present data from my own trades showing the difference in profits between scaling half out at a par level and holding an all-in-all-out strategy. I don't want to make a novel out of this as its been hashed about by traders way smarter than me before so we'll keep it short and concise.

Reasons to scale out:
  • Probability of hitting smaller profit targets are larger.
  • Emotional feeling of success "locking in a profit" allows one to hold (in theory) for larger gains.
  • You take more profit more of the time.

Reasons to manage all-in-all-out:
  • Keeps your risk:reward in check (we'll get into this in a bit)
  • You don't cut your winners short.
  • You don't allow yourself to "feel like a winner" until you indeed, are a winner.

So my biggest problem i've had justifying scaling out relates to the risk and reward that results from scaling. Here's an excerpt from AustinP (my mentor) as explained here in his write up on this very subject (which I recommend everyone reads!):

50% Win Ratio Using Two Contracts
Two ES contracts: 50% win ratio
+4pt profit target = both contracts: $400
-2pt initial stop = both contracts: ($200)
Average winning trade: $400
Average losing trade: ($200)
Average trade: $200
Ten average trades: +$2,000

Two ES contracts: 50% win ratio
+2pt profit target = one contract: $100
+4pt profit target = one contract: $200
-2pt initial stop = both contracts: ($200)
Average winning trade: $300
Average losing trade: ($200)
Average trade: $100
Ten average trades: +$1,000

His full discussion dives into the win rates of each, scaling out in even more progression but the end results always seem to be the same... scaling out doesn't make as much money.

So I decided to do the same analysis on my live trades i've taken. First I just ran outcomes on this week alone, a week that has been rife with par trades. And would you know it - it was more profitable to scale out in that scenario. Wow. But then I expanded the data to include the past two weeks as well and the end result flipped on me. Scaling out netted no money whatsoever and staying in trades all-in-all-out netted 375.00. That's quite a difference.

The folks at Trade The Markets take the insanity to the next level. I think JC scales out at +4 ticks, +8 ticks, and then goes for a runner all with around a 4 point initial stop... That's all well and good but that means that he has 600.00 worth of risk on each trade and cuts out 66% of his position when he realizes 150.00 worth of gains! Really? So to even get a 1:1 scenario on the trade he has to have a runner go 9 points in favor!!! And what happens if they do hit a 80% win rate and get 4 trades that get their first two targets for a net profit of 600.00 (4 X 150.00 = 600.00) and then the fifth trade comes along and stops them out for -600.00 they are back to square one. So their profitability would be directly correlated to the amount of runners they got (which I don't think is THAT high). But even so, why not JUST HOLD ALL THE CONTRACTS FOR THE RUNNER? I just think this kind of stuff can't actually be justifiable in the long run. Thankfully the TTM web site netted good ole JC over 1 million bucks last year alone.

I think a lot of new traders scale out because it allows them to feel successful, safe, and profitable more of the time rather than holding for what their trade was really supposed to do and getting paid for it. And then there is the possibility that i'm full of shit and I don't have a clue what i'm talking about. All I know is if I was learning to trade and someone told me to manage like that I would love it because I would be able to tell myself that I was reducing risk, locking in profits, and yada yada all while I can't seem to be able to turn a profit.

Every scenario i've seen with my own method of trading can't justify scaling out as a more effective management scenario. There are certainly counter arguments here (many of which i'll hear about in my comments) and I welcome them, but on my data, my systems, and my real trades there is just no cold hard benefit to my bottom line.

So... this is just my opinion. Its pretty obvious where my thought lies, but at least when it comes to my setups and my methodology I have the data to back up my opinions. Different methods, systems or styles may very well favor scaling out but i've yet to see one that can really prove it to me with numbers.

Thoughts? Comments? Want to call me a bad name? Lets get some dialogue going!

New Worst Day

Only seems fit to follow up the new best day no? Nothing really to report. I traded my game but caught two back to back max losses on pretty big swings, which means they had pretty big stops. Statistically I was expecting this sometime this week. I mean thus far the methods had produced 17 winners (pars count) out of 18 this week? Yea, losing trades are an almost certainty after a string of wins like that. No big deal. Traded correctly and this was the result! Bring on tomorrow!

Trade Results:


Tuesday, February 3, 2009

New Best Day

Yesterday I wasn't paid for my execution. Today I was. We made more money today than any day in the past and you can bet your balls to a bandsaw it was because my execution was perfect. Even today we had a ton of trades that ticked me out at my stop before dropping 2-4 points in favor but that's not the point. The point is the market did what it does and I kept my implementation of my plan perfectly consistent. So day two is done and it was correctly traded through and through. A perfect week just might be a reality.

You may be asking why am I quitting early? Because I can. I accomplished something here today and I fought to get it. There is a difference between capturing 2 ticks and calling it a day like you accomplished something and capturing more profits on a day than you ever have before and then calling it a day. I have no problem walking away an hour early after the later of those two scenarios without regret to go live life. I can get my workout done early, play with my dog, or go see a movie - DO SOMETHING. At the end of the day we all trade so we CAN go do those things that enrich our lives but far too many of us fail to ever truly follow through on those goals because we trap ourselves in front of the screens day in and day out. I feel successful today and I think I deserve to ride that feeling for the rest of the evening and ENJOY LIFE.

Trade Results:


Monday, February 2, 2009

Execution is a Constant

We are trying to execute perfectly this week and so far, so good. We ended the day down after 8 trades. That's a lot of trades for me but as i've added setups its only natural that the occurrences of setups and thus my trade frequency increase as well. Our goal this week was simple; to execute our plan perfectly and I can honestly report that as of 2:30 this afternoon we did just that today.

Today I took 8 trades, seven of which were par trades and we had one loser. No bid deal. We actually lost a full stop out on one of our par trades simply because the market spurted up and then reversed so quickly (it was literally within 2 seconds of it hitting the par target and stopping us out) I could not move my stop in time. I don't hold that against myself though because i'm pretty sure no human in the world could've done any better. And in volatile markets like these this kind of stuff happens - its the reality that you don't get, comprehend, or experience in your backtesting results.

Anyway, we actually had each of our 5 setups occur today and we traded them all. Just quite simply, none of them ran to profit targets with me. A lot of them just went to par levels and no further, some setups just blew away from me as I was waiting to pounce on them and others low ticked me out at par before exploding up to my targets. That's trading, it happened today, it will happen again, and it has no bearing on my execution performance.

In my view execution is paramount to becoming a successful trader and is 90% of what I focus on improving in my personal trading. Individual trades come and go and their profits are as random as the price level that your buying or selling at on any given day. But the point is, by having consistent execution you are always ready, able, and willing to take the next trade that just might pay you handsomely. Today I executed perfectly and I wasn't paid. Some might say the trades just "didn't fall my way". But tomorrow I may execute perfectly and every trade will fall my way. By remaining consistent and vigilant with your execution you create a constant in your performance within a medium that is based largely on random outcomes. And that and that alone gives you an edge many traders lack.

Trade Results:

- 50.00