Friday, February 26, 2010

One week done!

Well the first weeks results are and they are astounding. 5 days, 5 WINNING days, 3 losing trades, 17 winning trades, 14 pars for a tick, 85% win/loss, 92% win+par/loss, and a 6.136 PROFIT FACTOR!!!

On Friday's the action dies down even more quickly than a normal trading day so i'll only be trading a two hour trade period from 9-11AM CST. I looked at the trades after 11 but honestly the good moves were done and the chop had set in. The trades ended up being net profitable but only by a bit. Again, the efficiency of spending my time when the most and best trades come along is within the first two hours of the day.

The action today was fairly congestive and I didn't get any huge runners (I had a 10 tick winner but it was at half price for 6.25/tick in the 6B) and had two losses. Prior days on this blog with two losing trades usually ended up with my being pseudo suicidal, my account having a huge drawdown, and certainly no profit being made. Not anymore!

Trade Results:
5 Wins, 2 Losses, 3 Pars
Gross P/L: $132.50/per

Weekly Trade Results:
Net P/L After Commissions: $947.75/per

Thursday, February 25, 2010

Another Day in the Bag...

Traded really really well today. The morning kicked ass and while I didn't have any huge runners (and one of my winners was @ 6.25/tick in the 6B) there were solid consistent gains to be had. What i've noticed (and this is not a revelation) is that the moves in the afternoons just really aren't there. I think when i'm going to go live next week i'll be focusing on a 3 hour trade window from 9AM CST - 12PM CST.

Literally 85% of our trades this week have occurred prior to 12PM. And of that 85%, 92% were winners! If I include pars, 96% were winners! By contrast 12PM - 2PM has netted $-10.55 after commissions. Simply not worth the time. Previously I had only traded from 9-11 or 12 and never bothered with the afternoons and I will revert back to this practice. Once the European markets close down the odds of catching some good moves are outlier at best. Things go into consolidation and die down - not the optimal time for me.

Best thing thus far was checking out my running "live" profit factor results. Came in at a solid 6.17! Which is right on target with the backtest results as I am using two different pullback entries and one had a backtest of around 5.15 and the other at 6.00. Its very cool to see backtest results actually mesh up with real results for a change!

Trade Results:
5 Trades, 3 Wins, 2 Pars
Gross P/L: $168.75/per

Wednesday, February 24, 2010

A Loss! *GASP*

First loss of the week this morning... 7 ticks fixed as always. But within 15 minutes I was back in black on the day. Then I followed the early morning action with some awesome trades into the afternoon. I got stopped out by a tick from getting a +20 tick runner (I walked out with +7 instead) but it was just one of those kind of fluke things where I got a 5 tick wide bar on a 4 tick range bar chart. OEC calculates their range bars differently from TradeStation and NinjaTrader and doesn't use "fake ticks" to fill in and create new bars so occasionally 5 tick bars can occur. No big deal... I took a kick ass trade and managed it perfectly. A nice move in the Swissy capped off the day with a solid +9.

All the other trades were just pars, but unlike anytime before pars aren't a commission loss. Each par I take I take a tick of profit out of the market so not only am I covering commission expenses but i'm adding (albeit very tiny) to my account balance with each non performing trade. You think it doesn't add up over time but it really really does. This week alone i've had 10 par trades with a gross profit total of $86.25 Without taking that tick of profit my account would suffer a $54.50 loss from commission expenses. This way i'm sitting pretty with $31.75 worth of additional profit which isn't much, but its a $140.75 swing in profitability!

Trade Results:
8 Trades, 1 Loss, 4 Wins, 3 Pars
Gross P/L: $203.75/per

Tuesday, February 23, 2010

Pullback Revelations 101

This might end up being a pseudo novel so I recommend only to continue on if you are really bored or under the influence of something mind altering. That being said, I think there might be something of worth in the jumble that follows.

That massive losing day last week slapped some sense into me (and rightly so). What I was doing was fighting the market like usual. For the past year my entire method had been created around support and resistance - sounds good right? Well actually it was created around trying to catch reversals at support and resistance, double tops and bottoms, etc. All that is awesome save for one very important fact - each time I was fighting market momentum. Price may move into an area of prior S/R but unless it is dead set on reversing on a dime you stand to lose a lot of money very often. Typically there might be some reaction, maybe enough to get to par but rarely did you get a clean V reversal at those levels.

Whats worse was I was using fixed targets for profit so my winners were cut short every time and my losers weren't fixed and never really made up for anything. I was hitting 71% (Win+Par/Loss) on a good day. My account suffered to say the least.

I had been doing a lot of reading on different sites about profit factors and how important they are (much more so than win percentages) and so I did some simple calculations on my results of my S/R method.

Win/Loss (No Pars) %: 56%
Avg Win: $48.10
Loss % (1-56%): 43%
Avg Loss: $-81.37
Profit Factor: .76

Drrr.... why can't I seem to turn a profit? We are now entering Dumbassville, population me. My 71% rate was inflated by useless commission decaying pars. I was an idiot and I just never got around to realizing the fallacy of "But I have a 71% win rate INCLUDING PARS). Win rates mean nothing, especially including your pars. Profit factors are what keep you consistently profitable or not.

If you curious about trade expectancy and profit factors check out this excellent article by Richard here.

So I needed to do a 180 and change everything.

The issues I had to correct were simple and obvious:
  • Achieve a method with a Profit Factor of 1.5+
  • Increase my ACTUAL Win/Loss ratio.
  • Increase my Avg. Wins, while limiting my losses.
  • Limit and have a FIXED risk.
  • Uncap winners.
  • Focus on reducing pars.
  • Getting paid for my par efforts to cover commissions.
First thing I did was switch to range charts. I had traded minute, volume, and tick charts my entire career and thought they were the cats meow. The problem being they still don't filter market noise well. I thought ticks did this great in comparison to minute bars (and they do in my opinion) but in comparison to range bars, well there is no comparison. They truly make the "picture" more clear for me by showing me the IMPORTANT movement of the market.

But the other big thing with range charts is this: They are a constant size. Obvious right? Well that obvious fact allows me to do a number of things. First off, I can have a fixed stop on every trade AND know what it is prior to me getting into the trade. Second, I know what my entry price is going to be before the bar ends, thus I can place my orders well ahead of the fact and get in when the market is making its move without scrambling for a fill only to be passed up.

Finally, it allows me to have a fixed target to get to par and a fixed loss each trade. I have been measuring off the size of my entry bar for par and target levels forever (and I like this method), problem was depending on the size of the entry bar on a tick or minute chart your par might be 4 ticks away or 14. It wasn't consistent. With range bars it is the same each and every time.

So now that I had part of the equation figured out I just had to come up with a simple entry method. I knew what I needed to do. One word - Pullbacks. I'd been slapped by trending markets more often than I cared to talk about so I decided to get on board rather than continue to hand over my stops to the trend traders. But the problem with pullbacks has ALWAYS BEEN this: "The trend is you're friend until the end". Well shit... if it ends that means i'm guaranteed to take a loss at the end of each trend - or does it?

In years passed I had recognized this inherent flaw in the ideology of trending pullback entries but I worked to avoid this problem by trying to utilize indicators and divergences in the markets. Problem was they were just as hit or miss as anything else. Turns out the answer had been in front of me all along - I just didn't SEE it until now.

If the issues with pullbacks is catching the "end of trend" where is the most obvious place to look for the highest probability of avoiding this losing trade? Why at the BEGINNING of the trend of course. By attempting to trade ONLY the first pullback from the start of a new L, H, HL, HH or H, L, LH, LL sequence you could avoid the situation almost entirely. Not only that but I found that typically these "first pullbacks" were the strongest and had the tendency to run the farthest. I know its rudimentary and blatantly obvious to all of you, but I hadn't had this "aha" moment until right now.

The following should illustrate what i'm talking about quite well:

The example is from a typical day in the currencies, not particularly trending at any one time... but the idea remains the consistent. The first pullback trades are the biggest runners, the most likely to run far enough to get to par, and the most likely to work in favor. Is it perfect? Nope. But its a good logical analysis of price action that seems to have a practical application.

But in the back of my mind I continued to think "but doesn't all of that extra profit from the smaller continuation pullbacks make up for the one "end of trend loser"? So we tested and tested and tested and came up with some pretty interesting results. **AND YES I RECOGNIZE THAT THESE RESULTS ARE NOT STATISTICALLY SIGNIFICANT**

ALL TRADE Results (5 Days, 9AM-2PMCST):
Gross Ticks: 106
Gross P/L: $1,088.75
Commissions (@5.45/RT): $288.90
Net P/L: $859.85
Win/Loss: 74%
Win+Par/Loss: 86%
Avg $/Trade: 20.47
Total Trades: 42
Profit Factor: 5.6

FIRST PULLBACK Results (5 Days, 9AM-2PMCST):
Gross Ticks: 43
Gross P/L: $513.75
Commissions (@5.45/RT): $81.75
Net P/L: $432.00
Win/Loss: 86%
Win+Par/Loss: 93%
Avg $/Trade: $28.80
Total Trades: 15
Profit Factor: 5.1

First things first... BOTH MADE MONEY. That in and of itself is a pretty big objective. And the second biggest thing to note is the profit factors on both. WELL ABOVE 1.5. This was in no small way due to the fact that I got BIG winners and had a small fixed risk. Actually you could make more profit by trading EVERY pullback but look at what you give up...

The efficiency of your system takes a huge dive. Taking only the first pullback requires nearly 3X's less trades, and increases the efficiency of each trade up 41%! Basically the added profit was due to a slight increase in winners but those winners were smaller overall compared to the 1st pullback trades, and you had more losses (6 vs. 1) and a LOT more pars which confirms our theory on first pullbacks. They simply run farther and are more consistent.

Frankly, i'd rather take less trades and have more consistent results even if it means less net profit at the end of the week. 15 trades over 5 days is still 3 a day and that's right about where I want to be.

So that's the story, that's what i'm doing, that's my revelation. The results this week speak for themselves:

Results Mon (2/22):
4 Trades, 1 Par, 3 Winners.
Gross P/L: $260.00/per.

Results Tues (2/23):
6 Trades, 3 Pars, 3 Winners.
Gross P/L: $402.50/per.

Wednesday, February 10, 2010


Turns out yesterday knocked me under margin by 20 bucks.... On sim mode until further notice.

Tuesday, February 9, 2010

Day 2 Results

In months past days like today would leave me scrambling for excuses or at the very least wallowing in self pitty - no more. Was there volatility? Yup. Did I get f**ked by it a bit? Yup. Did I take a trade I was not supposed to? Yup. Did my method have more losers than winners today? Yup. Plain and simple - didn't have a good day, took one I shouldn't have and overall just didn't get profitable signals (4 losers, 1 winner). Draw downs happen. Tough shit. Bring on tomorrow.

P/L (in ticks):

Monday, February 8, 2010

Day 1 Results

Gonna keep these daily posts pretty short. I traded perfect today. No missed entries, no mis-managed trades, perfect in's and out's on everything. Now that doesn't mean that there were many profitable moves today, but I took what was there. I didn't catch any nice winners (in fact I only had 1 smaller winner). So no insane profits today... lots of pars (4 to be exact, 1 that slipped a tick on exit). But I walked away with more than I walked in with. Solid day any way I slice it.

P/L (in ticks):

Friday, February 5, 2010

Is anyone still out there?

I've been working overtime on a lot of new ideas and like usual most seem promising up until the point they fall flat on their asses.

A lot has transpired since I last posted. The highlights are this, I ditched TradeStation and opened up a brokerage account with Infinity Futures (Talk to Anthony and tell 'em I sent ya!). I've been nothing but impressed with the level of service i've had from them and the speed of execution in comparison to TradeStation is astounding. You don't realize how bad you had it until you switch to something this much better. Kudos to them.

But my leaving TradeStation also meant I needed a charting platform so I opened up an account with Open E Cry and have been using their platform. Really nice platform considering the cost (FREE!), has EasyLanguage support which was the key for me, live data to any market I'd want to trade and they too have had AMAZING support. All in all - leaving TradeStation is something I should've done a LONG time ago. The only thing I miss is the historical data - but if you can get around that DO IT. I cut my monthly expenses from 110.00/mo to 0.00.

I finally cut all the bullshit off my charts. No oscillators, for the most part nothing. I came up with a simple idea that offers me the lowest entry risks yet and the most consistency i've seen in any method i've ever traded. Furthermore I switched to range bar charts (*Gasp* I know right? But i've been amazed with the clarity I find!) Then again, we've all heard these bullshit lines out of my mouth once or twice before haven't we? The difference is this - trading (granted it was on sim) but as realistically as possible I was able to walk out not only a winner every day this week but a BIG winner in some cases. At least a big winner relative to my previous experiences. Today I ended up with a damn sight more than 400.00/per and ended up the week more than I ever have before at any time. Period.

Next week is put up or shut up time quite literally. Its time to put it all on the line once again and try and make a go out of it. I'm tired of losing, i'm tired of spending hours upon hours backtesting ideas, i'm tired of seeing my dollars get transferred into some other guys account, in short - i'm tired. Hopefully in one weeks time i'll be sitting here writing about how kick ass I feel and how great this past week was. To be honest, I literally can't wait to find out.