Tuesday, March 17, 2009

Huge Learning Day

Today I realized something about how i'm trading that had completely gone unnoticed to me before and it really changes the outcomes and filters large scores of losing and low reward setups. This morning was harsh. I got tossed around like a ragdoll but I learned a lot. It reinforces exactly why i'm in sim with this. Because I learned a hell of a lot today about a setup I was already extremely confident about.

First off, some of this mornings losses were completely valid setups but there was some choppy consolidation as a tug of war was being raged around my positions. And in the ES it took me out for a -1.25 loss. In the NQ I took a trade that nailed me for I think -1.75 but then I looked at the setup and it voided itself on the entry bar I took. Slap hand. I played tug of war in both markets with some good trades and some bad trades. I took a -2 point loss in the ES to round out the morning and then was blindsided by what I realized. Almost 90% of my losing setups all had momentum still going against me when I entered. Which meant I had higher risk of outright failure and in many cases you weren't going to see the solid transitional shift in momentum because there was still too much against you when you were entering.

Just take a look at all the signals I could've filtered out. And notice the ones that remain are (I think) really good positions to take.

And this isn't just some fluke from yesterday and today. I started looking back over all my charts over the past decade in every symbol and market known to man and its all the same. Your best bet for profit with low risk and high reward are all on setups that price respects a transitional momentum outcome. The setups that are really heavily moving against you are the ones that offer lots of risk, lots of losers, and the occasional winner that typically doesn't go very far in favor.

So here's how the day stacked up without this filter used in the morning:
  • NQ: -50.00, 3 Wins, 3 Losses (50% Win Rate)
  • ES: -162.50, 1 Win, 2 Losses (33% Win Rate)

And here's what it would be using the filter:
  • NQ: +40.00, 3 Wins, 1 Loss (75% Win Rate)
  • ES: -62.50, 1 Win, 1 Loss (50% Win Rate)

It still would've been a rough morning but the odds (and the profit) are drastically different. So I put this into effect into the afternoon and whadaya know...
  • NQ: +150.00, 2 Wins, 0 Losses (100% Win Rate)
  • ES: +12.50, 1 Win, 1 Loss (50% Win Rate)

So overall i'm stoked about what I learned today and I can't wait to apply it on Thursday. Long story short is this... I screwed the pooch today learning stuff and I only walked away with a -25.00 loss? Really? And knowing what I know now the results are going to get better from here on out. Less market risk, less trades, better efficiency, more profit, less commissions and overall me kicking ass! :) Using what I know now this day should've been a +140 net rather than my loss but this is why i'm on sim! This is how the day actually ended up with all the mistakes and pre-realization trades.

Trade Results:

ES: -125.00
NQ: +100.00


Michael said...

The tight range the market was in this morning makes it hard for lots of methods to make money. Looks like your method's going through lots of changes too, maybe we can turn things around by the end of the month.

Stan said...

Matt -

How are you defining momentum? E.g. what indicator? I haven't ever looked to see how my trades fair when compared to momentum so I'm now interested to go check it out.

I am glad you are still on the sim; you are doing yourself a huge favor in the long-run.


Matt said...

I'm defining momentum as price closing outside of a standard setting keltner channel.

Basically, what I've found is that when price is closing out of the outer bands you still have a pretty good indication that there is momentum in that direction. Its when you gets swings, or high highs, etc that are constrained by the outer bands that its prime time for reversion to mean or outright reversal so that's what i'm going off of.

Hope that helps!

Brian said...

What is your basic strategy? I don't see any indicators at all on your screen shots?

Matt said...

Brian - I'm keeping my basic strategy close to the vest for the time being.

Suffice it to say, I use pivot highs/lows, a slow stochastic and keltner channels among other things for entries.