Good Job, Buddy Boy

I know how frivolous and amateurish I must look to whoever is reading this, because of my waffling on methodologies.  I don't care; I just want to make money consistently, and I'll do whatever it takes.

Fact of the matter is, I went back to the basics today.  You can't get any more traditional than this, except for Barry Taylor's volume and momentum indicators.  You might see a lot more of it from now on.

In addition to this trade, I had one more for about +$30 per contract.  I allowed the market to stop me out because it was Friday afternoon, and I wanted to go to lunch.

The Entry

The Exit

Aha!

As I advanced in my learning, I began to see and absorb more and more about using multiple time frames in my trading.  Most advice was along the lines of using at least two different time interval charts and ensuring that trades were always made in the direction of the Higher Time Frame (HTF).

Drummond Geometry pounded this concept into me more than any other training course; DG advocates the use of a Focus Time Frame (FTF), Higher Time Frame (HTF), and Lower Time Frame (LTF).  Each has its purpose: The HTF rules; you must trade in the direction of it and respect its support & resistance levels.  The FTF is what you are actually trading, and the LTF is mostly for timing.  I never mastered that, but it made perfect sense to me.

All the testimonials from folks who have mastered the art of multiple time frame trading say something like, "this technique has changed my life" or "this is the holy grail of trading."  So, I have been seriously disappointed in my inability to prosper from the discipline.

After my aha moment yesterday, I think I may have been missing the point.  The images in yesterday's post clearly show that I was not trading a specific time period;  I was just trading the ES.  Rather than using the HTF for trend and S&R or using the LTF for timing, I was using them all for the same purpose -- to make sure they were harmonious before taking the trade.  This is akin to driving a car.  You're driving only one car, but you need to look at least behind, ahead, and to the side before you make a move so that you don't get hit by a truck.

I was looking for what Joe DiNapoli called "confluence" in his book about Fibonacci trading.  When I took that trade late yesterday afternoon, I wasn't thinking in terms of "trading the 1500 tick chart, using the 4500 for trend and the 500 for timing."  I was just thinking about confluence, harmony, complementary events, evidence that there was no disparity among the three time frames.  That was the aha moment.

My tendency has always been to use any of the techniques I have learned in a very systematic way.  The rigid rules of a system can get in the way of common sense, and I think that has been a big problem for me.  Consider this: If I had adhered to the systematic method of using the HTF for trend and support & resistance, I couldn't have taken that long trade shown below.  It would have been against the rules.

I didn't break the rules by going long.  I just rearranged them by using less compartmentalization in my thinking.  Yes, the HTF trend was down at the time; and the chart showed some resistance just overhead.  However, the momentum exhaustion supported the long trade; and the signals on the LTF were also supportive.  All three charts were screaming, "Up!" at the same time.  As it turned out, they were right.

Will this make a difference for me?  I think it will, but we'll see.  Right now, I'm counting it as a giant step forward.

I Give Up!

It's not what you think.  I'm not quitting, but I simply cannot produce a profitable automated system or even a manual system that has strict rules.  I think everybody's chasing that rainbow, but it's not going to happen with me.

I can't call this an epiphany, but I know in my heart now that you just have to work at this as hard as anything I've ever done and be thinking constantly.  There is no magic bullet.

That said, here's what I mean.  The tools I have to work with in the charts below are as good as they get.  However, I still have to work my ass off to make them work.  The graphics should make that clear.

Trade Entry

Trade Exit

Yes, as you can see, I'm waffling a bit.  These charts don't look just like the ones that preceded them.  I'm back to the original thinking, with three time frames and three indicators -- momentum, support & resistance, and volume patterns.

Don't Be Such a Chicken

With more screen time and experience with the Better Sine Wave, along with the comfort level that comes with the Rainbow MA, I feel like getting a little bolder.  This appears to be a superb strategy as is, but I just hate seeing those moves that left me at the post, and I hate the almost immediate drawdown that I always seem to suffer.  Here's what I mean:

As you can see, there's a lot of anticipation in this decision.  It will take some conscientious paper trading to validate such an approach.  Furthermore, I'm not trading today; so I am calling this after the fact.  There was already a 10-point profit when I took the picture.  The rest of the day is yet to come, so I'll update later.

. . . Fact of the matter is that the strategy shown in the graphic could have produced some very good profits today.  (I know that now, because the day is over now.)  The exit rules would have had to be changed to accomplish that; and those rules, too, would be soft and require anticipation (see the graphic below).  However, this requires you to think as patterns develop rather than react to a pattern that has fully matured.  Thinking calls forth more emotions than reacting, and few of us are capable of coping with that.  That's why we lose money.

Everything is here, though, to trade like this.  I've tried all along to develop and leave a more structured, concrete "system" that my friend Harooki can pick up and use to make a living.  Maybe I still can.

However, in a sense, this is the easy way out.  How can anyone truly expect to make the kind of money this market makes available to us without intense, focused thinking throughout the day?  I need to ponder that.

Is this telling, or what?

Today and yesterday serve as testimony to the thrill of victory and the agony of defeat handed to us by the market.  These days are the best back-to-back examples of our on-going market experiences that I could hope to find.  Just take a look at these two charts.

Today

Yesterday

If it isn't obvious to you, our system is at the mercy of the market.  Today, using the same indicators and parameters as yesterday, we made 22.5 points.  Yesterday, we lost 9.25 points.  The difference was the nature of the market -- one trended, the other chopped.

So, what can we do about this?  Or, should we try to do anything about it?  The answer probably lies in the issue of temperment.  If our psyche allows us to accept the losses that a choppy day brings in exchange for the easy money of a trending day, we could regard the whipsaw losses as a cost of doing business -- much like scrap parts on an assembly line.  Or, we could try to devise some way to forecast a choppy market and go for all scalp trades.

I don't know what to do about it at the moment.  My inclination is to understand that chop happens and I just have to put up with it, hoping that my stops and exit points are placed well enough to survive it and maybe even profit from it.  That's my strategy at the moment.

OK, so here we are now.

When I get better, maybe I'll grow into more anticipation.  In the meantime, this is what the current strategy looks like, being only slightly aggressive:

The Standard Entry Signal

The Entry Signal With a Higher Time Frame Lag

The Entry Signal With a Lower Time Frame Lag

A Standard Second Entry

A Second Entry After the END Signal

A Second Entry and Exit After the END Signal

 The Reverse

The most interesting thing about all these signals to me is that none of them look particularly promising.  The focus time frame chart alone usually looks messy and a bit confusing or intimidating.  However, these seven signals were all winners and resulted in more than 50 points profit; and the only thing aggressive about some of these entries is that the HTF or LTF had not crossed at the time of the Better Sine Wave signal.  We pulled the trigger after either the HTF or LTF made the cross (but remember, the Better Sine Wave signal must still be in place when the late cross is made).

Anticipation

It has always frustrated me that every indicator is a lagging indicator.  I think that's why automated systems never work.  Every tool available to the robot builder lags price action, and robots don't think (yet).

I once transcribed every strategy recommendation/nugget of knowledge/kernel of wisdom I thought was worthwhile in Market Wizards into a notebook that contains only those transcriptions.  I created the following categories for them: Learning, Money Management, Psychology, Selection, Strategy, Systems, and Timing.  There were 225 of them, and I probably missed a lot.

Here are the ones that have to do, in some way, with anticipation:

1. Successful traders tend to be instinctive rather than overly analytical.  -- Joe Ritchie
2. Any investment opportunity that everyone else is doing is by definition a bad idea.  -- Mark Ritchie
3. Know when to break the rules.  -- Ed Seykota
4. The nerve and skill required to step on the accelerator at the right time is certainly one of the elements that separates good traders from exceptional traders.  -- Michael Steinhardt
5. To some extent, to be a good trader, you have to be a contrarian.  -- Paul Tudor Jones
6. Good systems tend to violate normal human tendencies.  -- William Eckhardt
7. Many people think that trading can be reduced to a few rules.  Always do this or always do that.  Trading isn't about always at all; it is about each situation.  -- Bill Lipschutz
8. When nobody wants to touch the market, that's the time you have to step up.  -- Blair Hull
9. It's better to have the wrong idea and good timing than the right idea and bad timing.  -- Linda Bradford Raschke
10. Missing an important trade is a much more serious error than making a bad trade.  -- William Eckhardt
11. The market usually leads because there are people who know more than you do.  -- Bruce Kovner
12. You don't have to know a lot about the physics of tides, resonance, and fluid dynamics in order to catch a good wave.  You just have to be able to sense when it's happening and then have the drive to act at the right time.  -- Ed Seykota
13. Anticipate and plan, rather than react.  -- Tony Saliba 

Today's Trade