Archive for February, 2010

How Stella Got Her Groove Back

February 25, 2010 1 comment

So I’ve clearly checked out of the markets the last couple months.  The second half of last year was really challenging for me as my main setups were profitable one month to only give it all up the next.  Had I traded perfectly the last 6 months of the year, the net was result would have been a flat PnL .  That’s tough to stomach.  It’s also tough to feed a family on.  But do professional traders have to face potential stretches like this?  I think some might.  It’s also a very challenging environment to be trading in general right now.  So now I’ve come up with a game-plan to help me get my groove back and hopefully prevent me from losing it in the future.

  1. Trade Percent R Religiously – I plan on trading my percent R signals religiously the next couple of months.  I will  take signals from the 5 min TF Globex chart and the 15 min ES gap chart.
  2. Journal  Religiously- This is probably the most important step, especially if I hope to grow in my trading.  After entering a trade, I will journal my emotions as well as market analysis.  I need to communicate if I think it will succeed, fail, or break-even.  I need to document my impulses to drag stops and targets.  Only after documenting these thoughts, will I determine if there is any legitimacy behind them.
  3. Document Trades – I must record my trading in an excel spreadsheet.  I will probably have to keep 2 spreadsheets.  My actual trades vs. the idealized trades.  Even though my goal is take the trades religiously, I’m sure I will have errors and moments of weakness.  Also, only by documenting my trades, will I learn if my setups are still valid, which leads to…
  4. Analyze Trades/Journal – I will analyze my journal and spreadsheet on a weekly basis, most likely on the weekend.  I will determine if my instincts are correct or if they are hurting me.  I will review the profitability of my setups.

So I’m sure I’m leaving off many additional things I could do to speed-up success, but this will be a huge jump for me in and of itself.  I will review this list as I read more Steenbarger, Douglas, and Van Tharp and add more to it when I’m ready.  Stuart Townshend, a professional British hedge fund manager, has described the evolution of a trader in three major steps.  The first is a one-trick pony, the second is a systematic trader, and the third is an intuitive trader.  I’m wholly acknowledging here my desire to be the best one-trick pony I can be, but I also include steps that I hope will carry me to the next level.  Stuart even states that it’s not a bad thing and is a great place to really get a foundation for trading.  I don’t think this list is for everyone, but I do believe in order for me to be successful, this is the bare minimum of things I need to be monitoring.

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Bad Execution = -$300

February 25, 2010 Leave a comment

So this is an example of how impatience and poor execution cost me $800 today.  As a percent r follower, I know my stats indicate that 9:35 is the worst time to take a %r trade.  It actually is profitable to fade the signal.  However I know that you need to put your entry 1 pt lower than the close.  Well in the chart below, the signal was give at 9:35.  The close was 1088.  This should have put my entry at 1087 however I tried to front run the signal and got in at 1087.50.  The result:  I get stopped on the low print of the day 1084.50.  Had I entered at 1087, my stop would have been 1084 and I would have still been long.  The trade eventually gets to 1099.50 but comes back to hit 1097 for what should have been break-even.

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Shaken Out

February 24, 2010 Leave a comment

In attempt to self analyze my trading, I will attempt to highlight trades and emotions in this blog.  Today I was shaken out of a trade I was confident in, but grew impatient.  The chart below shows a percent r buy signal given from a TF chart.  There were a couple of reasons I was hesitant to pull the trigger here:

1.  Risk Amount – Having traded for awhile now, I have had my fair share of experiences where the market likes to prod nice round numbers.  With a buy signal 1003, this is only 3 pts above 1000.  The market would love to do nothing more than prod to 999 to knock out some stops.

2.  As you can see below, the market appeared over extended.  The TF gave a percent r buy signal but the ES had yet to do so (leaves it still overbought technically).

3.  The 15 min was setup but not confirmed.

So, this is still a valid buy signal.  So in order to reduce risk there are still a couple of things one can do.  Put a half position at 1003 and add half at 1000.  This way if it does resume the uptrend without the prod, you are still benefiting.  Also, if it does prod, you will have an avg cost of 1001.50 and you can have your stop at 998.50 to maintain your normal risk.  The other option is to just wait and try to put the entire position on closer to 1000.  However, if the market does not prod, you may be left behind.

I took option 1.  I bought 1 ct at 1003.  The mkt made an immediate push and hit 1005.  This is not my 2.5 pt target but I could tell the mkt appeared out of gas so I exit for +1 tick.  The mkt then pulls back a little more.  Not prodding 1000 yet, but prodding 1002.  I take a long position with 1 ct at 1002 which is also the IB high.  The market bounces for the next hours between 1001 and 1003.  This is torture for me psychologically.  But I recognize this and know the mkt is just teasing the longs here.  When I pose the question to myself, who is getting screwed here the most, my response is the longs, not the shorts.  The market is telling me it wants to go higher.  After another 30 minutes of chop I exit at +1 tick again just before the mkt launches into a 3.5pt rally.  The morale of the story here is when I have a legit signal + a legit gut feeling for something, buckle up and hang tight.

After all this, if I had traded this exactly to my current plan, I would have ended up exactly as I did.  After buying 1003, the mkt hits 1005.50 exactly (2.5 pt target) and then falls back down to knock me out for BE.  For some reason I like to think I would have been smart enough to pull some off up there, but that’s for another day.

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Olympics and Trading

February 21, 2010 Leave a comment

I love watching the Olympics.  These athletes are absolutely incredible.  They have practiced over and over and are now are on center stage to reach the pinnacle of their sport.  One of the things I have noticed while watching, is how many of the athletes take time before their competition to close their eyes and mentally run through their plan of action.  What’s interesting is if you thought anybody would not have to perform this exercise, it would be these athletes.  I’m sure they’ve trained thousands of hours and have done thousands of runs of their respective sports.  Most don’t even have to think about what they’re doing, they’ve trained for so long most of their movements on the course are from reflexes.  Yet almost all still saw the importance for visualizing their runs.

All of today’s major trading psychologists like Mark Douglas, Dr. Steenbarger, and Van Tharp all recommend practicing visualized imagery for trading.  Steenbarger recommends taking 15 minutes before every trading session and visualizing yourself acting appropriately when taking both winning and losing trades.  He argues that the visualization technique actually equals increased screen time:

Imagery is important because it multiplies experience.   That is, a person can face a situation many times in imagery (and practice efforts at mastery) when it would be impossible or impractical to do the same in real-world experience. For instance, it would take me days of actual experience to comprehensively rehearse responses to various opening range situations in the market. In imagery, however, I can generate a panoply of scenarios and rehearse my desired responses to each. If, for example, my research suggests high odds of breaking a two-day range to the downside, I can vividly imagine this situation (repeatedly, with variations) and walk myself through how I would enter, scale into, and exit positions; where I would place my stops; how I would honor those stops; etc.

So if these Olympic athletes who most have trained at their respective sport since they were kids, recognize the importance of imagery before their competition, shouldn’t it be important to me as an amateur who is trying to be successful at trading.

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