Trade Diary

Good Job, Buddy Boy

2010-03-12T18:26:00.005-05:00

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!

2010-03-10T09:12:00.003-05:00

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!

2010-03-09T16:23:00.002-05:00

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

2010-02-05T10:25:00.011-05:00

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?

2010-02-04T19:42:00.005-05:00

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.

2010-01-31T20:51:00.026-05:00

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

2010-01-28T18:28:00.005-05:00

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:

Successful traders tend to be instinctive rather than overly analytical. -- Joe Ritchie
Any investment opportunity that everyone else is doing is by definition a bad idea. -- Mark Ritchie
Know when to break the rules. -- Ed Seykota
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
To some extent, to be a good trader, you have to be a contrarian. -- Paul Tudor Jones
Good systems tend to violate normal human tendencies. -- William Eckhardt
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
When nobody wants to touch the market, that's the time you have to step up. -- Blair Hull
It's better to have the wrong idea and good timing than the right idea and bad timing. -- Linda Bradford Raschke
Missing an important trade is a much more serious error than making a bad trade. -- William Eckhardt
The market usually leads because there are people who know more than you do. -- Bruce Kovner
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
Anticipate and plan, rather than react. -- Tony Saliba

Today's Trade

Check This Out

2010-01-27T18:19:00.003-05:00

I know from lots of experience how dangerous it is to assume that you will get the same results from live trading that you do from backtesting. It is simply amazing how much your emotions come into play when you're actually in the fray. However, backtesting is essential. It is educational; it helps structure the strategy; and it helps with perspective and expectations. The data in the spreadsheet is from a backtest. The last three trades in the spreadsheet were made in real time, though.

Murphy's Law came into play when I decided to use the strategy with real money, and Mr. Murphy handed me the first loss of the month. Emotions had nothing to do with that loss; the signal simply put me on the wrong side of the market.

Nevertheless, the results of this backtest cannot be ignored. If it were complicated, I'd be very wary of replicating the results. But this is simple.

I'm using only one component of the Better Sine Wave -- the support and resistance lines. I'm then simply looking at the Rainbow MA to see if the trend is up or down on the higher time frame. If I get a long signal from the Better Sine Wave and the 4500 or the 500 trend is decidedly down, I don't take the trade. If the 4500 is in position to be pushed up by the 500 soon, I'll wait for the 500 to cross in anticipation of a 4500 cross up. If the Better Sine Wave support is still in place then, I'll enter.

You can simplify this by insisting on both of these "permission" charts be in an uptrend (the lightest yellow line would be above the other seven moving average lines). That strategy has had similar results during the backtest period and takes less thinking.

The other rules are as follows:

Accept no entry signals until 0930 ET.
Accept no entry signals after 1159 ET.
Exit on any END signal by the Better Sine Wave.
Hold the trade until the 1614 ET bar if there has been no END signal.
Place a stop loss one tick beyond the maximum MAE of all winners during the test period.

The bottom line of this strategy is that it doesn't make sense to trust the Better Sine Wave indicator unless it is confirmed by price action. That price action is vividly displayed in the Rainbow MA. I want to always be in the direction of the higher time frame, but I'm not going to fight the lower time frame. When they get in sync and I have the Better Sine Wave signal in place, I'm in.

Tweaking Again

2010-01-26T08:52:00.010-05:00

The support and resistance levels on the 1500 are good as long as they are supported by the trend. The trick is identifying the trend that should be supporting them. To this point I have used the trend as I have interpreted it on the 4500, but that has fallen short of being reliable.

Rather than measuring the trend on the 4500, I have been using volume signals to identify such patterns as stopping volume and no demand. Since these patterns might have developed in a down trend while I am long, this is tantamount to calling tops and bottoms -- not a good idea.

So, I began looking for alternatives. I have found an indicator resident in TradeStation that has served the purpose well so far in paper trading. It is the Exponential Ribbon Moving Average. This, combined with the Better Sine Wave Support and Resistance lines, is a good combination.

Rather than jumping in front of moving trains, this strategy has forced me to go with the trend and simplified things even further (and that's always a good thing). So, simply put, I will take a Better Sine Wave signal if it is supported by the trend as identified by the Exponential Ribbon Moving Average on the 4500 and 500 "permission" charts.

That strategy has produced 15 consecutive winning trades this month; there have been no losers in January. The system has identified the overall direction of the market for the day; and I have stayed with it until the closing bell, producing one trade per day. However, that one trade daily has harvested 95.25 points through January 25 (an average of more than 6 points per trading day).

Today's Trade

This was not a big winner, because a good trend never developed in the market. However, the strategy did identify the overall direction of the market for the day.

3 for 4

2010-01-13T06:55:00.002-05:00

There were four trades the first two days of this week. One was a small loser, two were picture-perfect winners, and the other was not so cut & dried but a winner nonetheless. Today's loss of 5.25 points wiped out those profits.

A Good Day

2010-01-07T14:43:00.006-05:00

Though it was a good day, there are some things about this trade that deserve discussion. Everything is not black and white (is it ever?). Here's the trade:

Entry

Exit

And here's what's worth discussing:

The bearish momentum signal (four bars prior to the exit) on the 13,500 took several bars to paint on the chart, because the divergence occurred when the momentum line was far away from the zero line. The divergence must be confirmed by a move back to the zero line; then, and only then, is the momentum divergence dot posted. So, in this case the crossover of the sine wave line supported the bearish momentum that showed up late and was reason enough to exit.

Bad Start to the New Year

2010-01-05T11:48:00.000-05:00

All in all, this was a messy trade. I think this should be considered a mistake. Here's what happened:

Although the latest signal on the 4500 was bearish, it was followed (after the entry) by a bullish momentum signal. It appears on the chart that it was there prior to the entry, but it wasn't. The momentum dots don't always appear immediately, and that has to do with how the indicator is calculated.

I knew about this behavior prior to today, but I don't fully understand it (sad to admit). This has to be researched. Nevertheless, I entered short upon the break of support on the 1500; everything was in order on the charts at that time.

After a short move in my favor, price turned around and took me out. Here's what happened:

First of all, I immediately changed the time frame on the 4500 to 13,500 to monitor the trade. That was a mistake. As a result, I didn't see the bullish momentum pop up. At the very least, I could have put in a breakeven stop. From now on, I will keep all three time frames visible.

Secondly, the break through resistance on the 13,500 at #5 on the graphic was accompanied by a bearish ST signal. With the resistance line on the 13,500 in place, the bias was still consensus bearish. A stop loss at that point would have been better than a market order to cover, and you can see that I suffered from the decision.

Waiting for the New Year

2009-12-31T12:52:00.003-05:00

I continued to paper trade until the Christmas holidays. My experience has been that the holidays are difficult times for day traders.

I'm in no hurry. The plan is set, so I just continued to gather data and experience. This is the worst that I expect, based on the trades for December:

The Results Are In

2009-12-21T07:57:00.004-05:00

Granted, this is a very small sample. However, the implication is clear. Jumping up to a higher time frame to find an exit is the way to go. Here is the comparison.

Profit per contract when exiting from signals on the 13,500-tick is more than double that of exiting arbitrarily after three, nine, and 27 bars. The number of trades is cut by almost 60%. And the win rate goes from 74% to 83%.

Arbitrary Exits 13,500-tick Exits

How to Contribute

2009-12-20T14:24:00.000-05:00

If you want to be a part of this, the greatest contribution you can make is as a researcher. The hard work in trading is in the research, particularly backtesting.

Backtesting helps you learn the methodology. It gives you confidence in the system (or lack of confidence, if the results are no good). It's a great way to practice the strategy without losing money.

Backtesting manually is tedious, time-consuming, and laborious. But it is invaluable.

So if you want to contribute, get set up and help with backtesting.

Welcome

2009-12-19T15:56:00.013-05:00

Hey, I finally have a follower. That thrills me.

I haven't publicized or promoted this blog, because I have no reason to. My motivation for using this as a diary has been honestly stated. I have no ambitions to become a guru and start selling stuff. My only interest is successful speculation.

Trading is a lonely business, so a cohort of some kind is welcome. You can learn from anybody, even when they don't know what they're doing. I'm looking forward to more comments from whomever might be reading this.
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Now I need to be more careful than ever with my words, because I don't want to do a disservice to anyone who is following my strategies. So, this is a recap to get off on that right foot for the new year:

The Barry Taylor indicators that I'm using are the most effective tools I've found in my long and frustrating search for something that works. I have no affiliation with him; he doesn't even know I exist, I don't think. I paid for them just like everybody else, and I don't benefit in any way from recommending them.

Specifically, I'm using the following three:

Better Sinewave
Better ProAm
Better Momentum

Here is how I am using them:

Better Sinewave: I use the paintbar feature of this tool to see support or resistance form when a cycle has apparently run its course. Used on just one timeframe, the Better Sinewave is as mediocre as anything in the public domain; used with two or three timeframes, it is far above average.
Better ProAm: This gives me the equivalent of traditional candlestick patterns that purport to spot accumulation or distribution. I use these formations to evaluate the support or distribution that may be gathering and for exiting my positions.
Better Momentum: This is simply another indicator of strength or lack of it in the market. I use the divergence patterns in the same way as I use Better ProAm.

The methodology is simple in its execution:

Wait for a support or resistance line to print on the 1500-tick chart. This could be a pure support line, a pullback (PB) in an uptrend or downtrend, or an End of Trend. It could also be a break of support or resistance in either of these lines. Any one of these occurrences in the 1500 is a setup.
That setup alone is not enough. Next, look at the 4500-tick chart. If the latest signal on that chart supports the setup on the 1500, then you have the trigger (permission) for an entry. Here are some examples:

A support line forms on the 1500, implying a move up.
The latest signal on the 4500 is a bullish momentum divergence.
Permission is granted for the long entry.

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A support line on the 1500 is broken, implying a move down.
The latest signal on the 4500 is a resistance line.
Permission is granted for the short entry.

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A pullbck in an uptrend forms on the 1500, implying a move up.
The latest signal on the 4500 is a bearish profit-taking (PT) volume pattern.
Permission is not granted for the long entry. You must wait for the next 1500 signal.

Though simple in execution, this strategy depends on the sophistication of the indicators. Are they complex enough to signal dependable patterns on which you can trade? My experience with them thus far is positive.

For me, the entries are the simplest component of the trade. The most difficult part is deciding when to get out. I have been able to identify an edge in simple arbitrary exits after 3, 9, and 27 bars. However, I'm not satisfied with that logic (or lack of it). A better system might be to use still a higher time frame to time the exits. Take a look:

The Entry

So, when do you get out?

Is this the answer?

I think this is the answer, but we need more backtesting to validate the strategy.

Fridays Are a Bitch

2009-12-04T12:09:00.000-05:00

Fridays seem to be the most difficult day for me to make money, and I lost some today. I was a winner after one trade, but the second one cooked my goose. I've already limited Friday trading to exclude Friday afternoons in my plan; I may limit it to one trade only, just to cut down on the exposure.

I'm using the 4500-tick to grant permission for Long or Short. My losing trade involved a support level on the Permission chart that didn't hold, and I got stopped out. The problem seems to be that I'm likely to get multiple volume exhaustion points after a support or resistance level is broken, but price just keeps driving on. It's the proverbial "jumping in front of a train" scenario.

I'm researching it further, but I think that I will no longer consider a support or resistance level that is broken on the higher time frame valid. I will, instead, regard that as the probable beginning of a trend. No more jumping in front of trains.

Now

2009-12-03T17:16:00.023-05:00

This blog has been great for me. It has created a focus for my trading that I've never had. It has highlighted my weaknesses and enabled me to strengthen them. It has enlightened me.

As a result, I feel better about my opportunity for success going forward than I ever have. In these three months I've blended the experiences I've had and the lessons I've learned into a plan that I am confident will generate substantial profits.

I know that the postings have made me look scattered, uncertain, even foolish at times. Not many people bare their soul like this. If they did, they might look the same. I'm telling you (whoever might be listening) that I'm 1000% more competent now than I was three months ago.

The plan I will be using is simply a refinement of the plan I started with September 1. It includes all the trading principles that I believe you must employ to be successful. It actually takes me back to 1999 and the Drummond Geometry days when I felt like I was first learning strategies that made sense. I have certainly floundered since then, primarily getting off track with the hype of Forex, but I'm positive that I've pulled it back together in this last quarter of 2009.

Here is the plan:

Market
     ES

Strategy
     • Day Trading
     • Multiple TimeFrame Decision-making

Indicators
     • Cycles (Support & Resistance)
     • Volume Patterns

Trading Hours
     • 0930 – 1500 ET Monday through Thursday

Trade Types

Support
Resistance
Break through Support
Break through Resistance
Pullbacks
End of Trends

Filters
     • No entries from 1130 to 1300 ET

Circuit Breakers
     • Any string of consecutive losers that wipes out the profit for the previous week
     • 10% closed-trade equity drop from the day’s opening balance
     • 30% peak-to-trough closed-trade equity drawdown
     • Less than 50% Win Rate (without mistakes) – Paper Trade Until at least 50% Win Rate is Restored

Capital Control and Risk Management
     • The initial risk level on base capital will be set to 0.5% or 1 lot, whichever is higher. The risk level on profits will be set to 2%.
     • After 60 trades and profit the risk level on base capital will be raised to 1%, and the risk level on profits will be raised to 3%.
     • When the account size reaches $200,000, the account growth plan will be reassessed.

Method
Entry – Long (Support Pattern):
The 1500-tick (Focus time frame) establishes Support. The latest signal (a bullish momentum divergence) on the 4500-tick (Permission time frame) supports the direction of the 1500-tick signal.

Entry – Short (Resistance Pattern):

The 1500-tick (Focus time frame) establishes resistance. The volume distribution pattern on the 4500-tick (Permission time frame) supports the direction of the 1500-tick signal.

Entry – Short (Break Through Support):
The 1500-tick (Focus time frame) breaks Support. The cycle resistance pattern on the 4500-tick (Permission time frame) supports the direction of the 1500-tick signal.

Exit:
Exits are made on the Open of the 4th, 10th, and 28th bars. All signals (from either chart) are ignored after entry until the assigned exit bar.

3rd Month Summary

2009-11-30T13:58:00.000-05:00

As you can see, I lowered the intensity of my trading this month. However, I had 20 trades and won 55% of them. I was a net loser, but for only $58. This was a vast improvement.

There is no question in my mind that this blog diary has been of great benefit to me. I will go forward from here with greater confidence and more solid plans than ever before.

Finally, a Mistake

2009-11-18T13:14:00.000-05:00

Plan Trading Today = + $123 per Contract
My Trading Today = + $115 per Contract
Mistakes: Inadvertantly left an order open.
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I made a mistake today for the first time in awhile. The scary thing is that I caught it by chance, and it could have cost me a lot of money.

I made a couple of trades to use in the trading training course I might be developing, so I was partially distracted. It was negligible today, but I cannot afford to do that.

Rough

2009-11-17T13:05:00.006-05:00

Today was a very tough day, with long wicks on the overnight candlesticks and nothing but chop during the regular session. I took one trade, which was justified, and lost $72. There's not much more to say about it.

I found out today that I might start a new project and have to work on-site at a client's location next week. If so, that might require a hiatus from my day trading.

I'm Comfy . . . As Long As This Lasts

2009-11-16T11:42:00.000-05:00

Plan Trading Today: + $240 per Contract
My Trading Today: + $233 per Contract
Mistakes: None
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The market was up 69 points over the weekend by the time I got a 938 buy signal at 10,313, and there hadn't been any significant consolidation since late Friday prior to the runup. The trade didn't lose momentum until 22 minutes later at 10,368. I was stopped out on a trailing stop at 1112 for a very nice and orderly 47-point profit. As per my plan, I'm done for the day.

What Color Is My Parachute?

2009-11-11T15:51:00.012-05:00

I took a $300 loss in my position today because of a reversal signal and was glad to get out of it. Swing trading from intraday charts is not for me.

As you can see, I'm really struggling here again. This time it's with my identity. Nothing is fitting my temperment. For the moment, I've narrowed it down to either scalping or normal day-trading. So, here's what I plan to do.

I will be trading in a simulator until November 23, probably alternating the scalping strategy with normal day-trading (trying to catch small trends). I might not check in until the end of next week.

It Has to Be Practical

2009-11-10T20:10:00.001-05:00

I question whether I can sustain the focus it takes to trade my current strategy. The trades are few and far between. The entries and exits can come at anytime throughout the 24-hour electronic market.

I'm short now and in a $200-$300 per contract drawdown. A new signal could come at 3:00 AM tomorrow morning or anytime. I'm sleeping on a bed in my office, but is this the way I want to live? I don't think so.

So, there's much more than just entries and exits to this. The methodology has to not only fit your personality (as I've heard a million times), but it has to be practical.

Which Is It?

2009-11-10T11:19:00.003-05:00

The very next day after the Fade the Logic (previous) post, I changed my mind about the strategy. Now, is that waffling or what? Or is it just good sense to be sure before committing? Or is it some subtle mind game I play (and surely don't understand) to perpetuate a losing mindset?

All I know today is this: At 1445 last Wednesday the strategy I'm using now signaled a Long at 9883 in the YM. A reversal was not signaled until today at 1107. For the first time in almost four trading days the sell volume increased, buy volume decreased, the maximum selling volume happened at a lower price than on the previous bar, and my Money Flow index declined . . . all within the most recent 25-point range. That's my criteria for a Short.

These signals make the move up a swing trade . . . for 319 points ($1,595 per Contract). That's typical for the signals within the last month, and I can live with that.

It was an agonizing wait for that reversal signal, but I'm now short with real money at 10,196. I guess that makes me a swing trader, but my intentions are to monitor the market around the clock to make the entries and exits.

Fade the Logic

2009-11-03T14:26:00.001-05:00

I have spent the past two days reviewing and tweaking the trading plan for November. With the modifications I've made, the strategy has been a Holy Grail system today and yesterday through 25 trades.

To accomplish that, I had to quit trying to make sense of the market. Inevitably it does what you least expect, and what you least expect seems to make no sense. What is logical to you and probably 90% of the other traders in this market is apparently what makes 10% of the speculators I'm up against rich.

So the November trading plan will deal with cycles, support and resistance, and volume just as it has to date . . . but in an unconventional way. A non-traditional approach has served me well during one period in the past, so here we go again.

2nd Month Summary

2009-11-02T07:59:00.000-05:00

Plan Trading This Month = + $617 per Contract (13 Days)
My Trading This Month = - $1,036 per Contract (13 Days)
Mistakes: A total of 5 / Focus = 3 / Preparation = 2
-------------------------------------------------------------------------------------------------------------The money I lost this month was a slight improvement over the first month, but it is still unacceptable. These losses came with far fewer errors, and that is disheartening.

You can't run a business that loses money month after month. At the same, you have to expect losses in the beginning.

I accomplished my goal of cutting the errors down to an acceptable level, so I don't have to sit out this month. However, I might anyway in order to do more research.

It's Cycles -- Not Trends, Dummy!

2009-10-27T17:37:00.000-04:00

Plan Trading Today = - $403 per Contract
My Trading Today = - $259 per Contract
Mistakes: None
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At this level -- 377 through 987 ticks -- the cycle is your friend, not the trend. The Better Sine SR indicator would have limited the day's losses to $75, but I used the VWAP for trend identification instead. That's not a mistake; it's just necessary experimentation.

There was a $335 per contract loser today that nothing would have prevented, except getting out earlier. Trust me, entries are easy. Exits are a bitch.

An Apple a Day . . .

2009-10-26T17:59:00.000-04:00

Plan Trading Today = + $571 per Contract
My Trading Today = + $255 per Contract
Mistakes: None
-------------------------------------------------------------------------------------------------------------
How did I miss out on $316 per Contract without making mistakes? Doctor's appointment; that was a costly medical visit. Obviously, I need to do everything I can to stay away from the doctor's office.

At the end of this month I will disclose in detail what has made me a much more relaxed and confident trader. This might not be the Holy Grail, but at this point it is a superb strategy.

Halloween Party

2009-10-26T07:06:00.000-04:00

Another trip to the beach and a Halloween party took me away from trading this week. It would have been a very profitable past two days. We had three losers and 13 winners Thursday and Friday for a $593 profit per contract.

I Can Change My Mind, Can't I?

2009-10-21T19:38:00.002-04:00

Plan Trading Today = + $16 per Contract
My Trading Today = + $96 per Contract
Mistakes: None
-------------------------------------------------------------------------------------------------------------
I didn't trade since my last post until today, because I was engaged in research. The research had to do with the addition of volume analysis and the squawk box to my trading.

At the moment, the squawk box is of value to me for one primary reason -- it keeps me focused. I feel like I'm really trading and "in the game." I think at times it can be used to alert me to other things in the market that I just can't get from a chart. It saved me about $80 today when the commentator reminded me of an imminent news release. I think I'll keep it.

As for the volume analysis, I don't think I can be ultimately successful without it. It just makes sense to be able to see and analyze the order flow as it is happening. The MarketDelta platform then is a keeper, too.

I've changed my mind about reporting daily results as they are above. I can look back at the charts and objectively see what should have happened. I need a system with parameters that are tight enough to backtest and apply it with other markets and add another trader without starting from scratch.

Evolution II

2009-10-14T18:29:00.002-04:00

Plan Trading Today = + $25 per Contract
My Trading Today = + $60 per Contract
Mistakes: None
-------------------------------------------------------------------------------------------------------------
Some recent discoveries are causing me to evolve into a completely different way of looking at my trading. As a result, it is becoming more and more discretionary. Therefore, I'm going to drop the recording of trading results as you see above. That doesn't mean that I'm going to hide anything or be less critical of myself. Doing that would only defeat the purpose of this diary.

I have a trial subscription to a squawk box service that enables me to hear the bids and asks as they are being called out in the S&P pit. A moderator clarifies them and helps me understand what the pit activity means for the moment. Having this assistance caused me to beat my written system today.

I don't know if I'll continue with it, but you can see how that makes identifying certain decisions as "mistakes" or not and how it works more discretion into the process. I'm also going to be using a data feed that will help me see volume more clearly. I'll comment on that after I have some experience with it.

I'm Warm and Fuzzy Again

2009-10-13T14:46:00.002-04:00

Plan Trading Today = + $425 per Contract
My Trading Today = no trading today
Mistakes: None
-------------------------------------------------------------------------------------------------------------
I spent the session incorporating the refinements into the plan on paper. I'm taking some advice on a few things that I've chosen to ignore in the past, because they didn't sound exotic enough for me.

Revised Trade Plan

2009-10-12T17:46:00.019-04:00

Markets: Mini-sized Dow (YM), 10-yr US Treasury Notes (TY), and Soybeans (S)

Time Frame: 377 tick for focus / UMT 233 tick, Sectors, and Tick Bias for direction permission / 126 tick for execution on breakouts

Trading Hours:

0730 - 1130 Exchange time for Cycle and Breakout entries.
0830 - 1430 Exchange time for Opening Gaps and Tick Fades
Exits can be made at any time.

Trade Types:

Cycles
Breakouts
Opening Gaps
Tick Fades
Pivot Levels

Cycle and Breakout Strategy:

Setup - 377 tick establishes Support/Resistance/END of Trend/Breaks Out.
Permission Filter - UMT 233 (6 of 6) grants permission; Tick Bias and Sectors support direction.
Entry Trigger - 126 tick shows Support/Resistance/END of Trend/Breakout/Pullback.
StopLoss - Set stop at 3X ATR.
Exit - 377 tick establishes new Support/Resistance. Exit profitable positions with next 126 tick exit signal. If position is not profitable, maintain the StopLoss and manage the trade until profitable or stopped out.

Exit Longs any time Tick Data registers a minus 800 tick reading. Exit Shorts any time Tick Data registers a plus 800 tick reading. Take profits any time Tick data registers a plus or minus 1000 tick reading.

Daily Terminators:

Any string of consecutive losers that wipes out the profit for the previous week
10% closed-trade equity drop from the day's opening balance
30% peak-to-trough closed-trade equity drawdown
Less than 2.00 SQN (cumulative, without mistakes)
First three trades are winners

Capital Control and Risk Management:

Beginning capital is base capital. Any addition to account capital will be included in base capital.
Additions to account capital will be considered after December 31, 2009.
The initial risk level on base capital is set to 1% or one contract, whichever is higher. The risk level on profits is set to 2%.
After 60 trades and profit the risk level on base capital will be raised to 2%, and the risk level on profits will be raised to 5% (maximum 50% margin).
When the account size reaches the pre-determined target, the account growth plan will be reassessed.

In Search of the Holy Grail

2009-10-12T14:12:00.001-04:00

Plan Trading Today = - $42 per Contract
My Trading Today = -$42 per Contract
Mistakes: None
-------------------------------------------------------------------------------------------------------------
I cut back my trading hours to 0930 - 1130 ET based on additional backtests. The one trade today just went nowhere, so it was a pretty dismal session.

I'm also taking only Cycle and Breakout setups, and the Breakout I took today was a breakout through an END of Cycle. I think that is a poor strategic decision -- not a mistake, because it was in my plan. However, the END of Cycle indication is a pretty good one; and I think it makes more sense to go in that direction (which I will do from now on).

One of the reasons I cut the hours back is so that I can devote more time to trading education. I have found a book that I think can help me a lot, so I want to get through that. Listen, I'm not searching for the Holy Grail anymore; I just want to be thorough in my skill set.

Murphy's Law

2009-10-09T17:44:00.003-04:00

Plan Trading Today = + $347 per Contract
My Trading Today = $0
Mistakes: None
-------------------------------------------------------------------------------------------------------------
My internet connection went down at the start of the session, so I decided not to trade. My backup is too slow, so I think it was a good decision. I have to keep remembering what Mark Douglas often refers to as "an endless stream of opportunities." Sounds good, doesn't it? That perception helps with your patience.

Since I didn't trade, I experimented with tick data as an additional indicator. Wow! Entering and exiting on tick data signals would have yielded $400 per contract on the NQ alone today. Simply fading the NQ signals on the TY added another $280 per contract. I'll pay very close attention to that next week and may work it into my plan.

Focus, Damn It!

2009-10-08T17:16:00.000-04:00

Plan Trading Today = - $148 per Contract
My Trading Today = - $26 per Contract
Mistakes: Mis-identified a signal.
-------------------------------------------------------------------------------------------------------------
I'm honestly not sure how I got confused at one point today; I just did. I'm sure it's a matter of focus.

Finish the Drill

2009-10-07T16:46:00.012-04:00

Plan Trading Today = - $293 per Contract
My Trading Today = - $123 per Contract
Mistakes: Trading an instrument that was not backtested.
Lessons:

Trade like you are engaged in a competitive battle, because you are.
Be persistent.
Be aware of the differences in pre- and post-market environments and plan for them appropriately.
Backtest all instruments before trading them.

-------------------------------------------------------------------------------------------------------------
Today was like a war compared to any other day included in this blog to date. Thus far, I have averaged four trades per day. Today I had nine; I reversed my position several times. It was a good day for the broker; not so much for me.

The NQ was very choppy, creating the reversals. I also traded from 7:30 AM to 4:30 PM, because I planned an earlier start and wasn't profitable by 12:30 PM. The NQ had six losing trades in a row, so it was difficult keeping the discipline required to finish the drill. The drill was to make myself available for whatever the market offered me throughout the day. But even though I wasn't profitable, the discipline paid off with a much lesser loss than I would have had under my old schedule.

As a matter of fact, had I not taken a trade in Soybeans, I would have been positive for the day. Soybeans is not in my plan yet, but I saw an opportunity and I took it. I'll consider that a mistake for now, because I hadn't backtested it.

I will start earlier from now on and trade longer. There are opportunities in the pre- and post-market that I ought to be taking advantage of.

I have discovered that the NQ market has a different behavior after the regular session closing bell. It is feverish and usually involves a trend into the close of the day that can be exploited. I used trailing stops at the bell today, and that worked out well. However, I haven't decided precisely how to handle it.

Mo' Better

2009-10-06T14:35:00.003-04:00

Plan Trading Today = + $233 per Contract
My Trading Today = + $253 per Contract
Mistakes: None
Lessons:

Keep the strategy simple.

---------------------------------------------------------------------------------
This plan is simpler and much less prone to error. I'm still focusing on the 377 tick chart, but my permission filter comes from a set of indicators other than the Sine Wave. I'm looking at only two charts for entries and exits. I think this might finally straighten me out.

Stepping Back

2009-10-05T17:01:00.002-04:00

Plan Trading Today = - $430
My Trading Today = - $430
Mistakes: None
Lessons:

Have a method to know when your system is not working.

-------------------------------------------------------------------------------------------------------------
The strategy is not holding up, and it's too complex. Tomorrow I will simplify it, and I will post the new rules later.

T. U. I.

2009-10-02T15:27:00.003-04:00

Plan Trading Today = + $14 per Contract
My Trading Today = - $221 per Contract
Mistakes: Took a drug before trading.
Lessons:

Be in good physical condition for trading; if you are not, don't trade.

-------------------------------------------------------------------------------------------------------------I took a small swig of medicine this morning to quell a cough; it had codeine in it. Don't do that and try to day trade. I was sleepy and confused the whole session. You can see what it cost me. There's no need for details. Just do not Trade Under the Influence.

Perspective

2009-10-02T08:10:00.004-04:00

Lessons:

Go with the flow.

I believe that the ability to gain and maintain perspective on what is happening in your trading environment and outcome is one of the most important traits to being successful. Obviously, I haven't mastered that skill. However, I'm aware of my struggles with it and its importance.

Here's what I'm talking about: I must remember that the charts from which I'm making decisions and executions are a tiny fractal of what most people see. The tick chart that represents my highest time frame and the direction in which I will trade is the equivalent of about 30 minutes a bar. The lowest, from which I am timing executions, usually represents one minute bars.

In the heat of battle it is easy for me to assume that the action I'm seeing is visible for all to see. That is not the case. This becomes most important when price breaks a support or resistance level that my indicator has identified. I am a contrarian at heart, so when I see the move through the line I think it is a fakeout designed to suck me into a trend that won't develop; and I'm more inclined to fade that break.

I believe this thinking has worked against me, because most traders don't see that breakout (I just think they do). Rather than a fakeout, it is more than likely the start of a trend or at least a significant move. My records support that tendency, and it makes sense when putting my environment in perspective with the big picture.

Hell Bent

2009-10-01T16:37:00.006-04:00

Plan Trading Today = + $6 per Contract
My Trading Today = + $22 per Contract
Mistakes: Missed an exit signal. Missed an entry signal.
Lessons:

Quantify your mistakes; calculate the cost of errors.

-------------------------------------------------------------------------------------------------------------
It's amazing what a threat will do for your performance, even when you're threatening yourself. After laying down the law and vowing to punish myself for these mistakes, I was fearless and focused during this session. Yes, I missed a couple of signals; but things were moving fast. As you can see, no damage was done.

I will count these mistakes only if my trading is worse than the plan trading. I'm watching three time frames and using a fourth to execute entries and exits. This is being done in two markets simultaneously. I'll make notes on these "mistakes" so that I maintain my focus, but I'm not going to penalize myself under these circumstances when I recover from them.

I added the 10-yr US Treasury Note to the plan today. This expands my hours and opportunities. It also gives me a hedge, because they are negatively correlated. Today the T-note saved the day, because I was on the wrong side of a 30+ point NQ move.

1st Month Summary

2009-09-30T15:23:00.026-04:00

Plan Trading This Month = + $2,272 per Contract
My Trading This Month = - $1,477 per Contract
Mistakes: A total of 19 / Focus = 12 / Fear = 7
Cost of Mistakes: $3,749
-------------------------------------------------------------------------------------------------------------Without a doubt, it is high time that I took a very careful look at what I'm doing wrong. This diary has enabled me to do just that, and that makes me optimistic.

On the other hand, the number of mistakes I've made this month trying to conduct this business profitably is embarrasing and humiliating. The record of these mistakes has also been enlightening. Nevertheless, I have to put my foot down.

It's appropriate to tell whoever might be reading this and remind myself that I didn't just fall off a turnip truck. I've been at this for almost 15 years now. I got hooked when I took $10,000 to almost $100,000 in one year with other people's systems. It is important to remember that time, because I was inexperienced and naive enough then to execute the orders without question or hesitation. These systems weren't automatic, so I did have to place the orders; I did that without trepidation. I was fearless and totally unconcerned about whether these systems worked or not, and the results were astonishing.

I guess, though, that I didn't think a 1000% return was good enough. The next year, because I felt invincible, I changed my game plan and started developing strategies on my own. I couldn't leave well enough alone (does that sound familiar?). I probably made every mistake possible then, mental and in terms of execution, and busted out my entire account.

Since then, I have done a lot of paper trading and finally got together enough money to give it another try for real. Fear and greed have had the best of me during this comeback. So, I am where and what I am now -- trading scared all the time and never able to convince myself that the edge I have is good enough. In fact, it's more than good enough.

The strategy that I am trying to implement grades out at 4.90 for the month on Van Tharp's System Quality Number scale. That makes it an excellent strategy, just .20 shy of superb. It is not difficult to execute, but I haven't done it with any consistency.

If I read this blog without knowing who I am, I might come to the conclusion that these mistakes were being made on purpose. Trust me, they are not. That's what's so embarrasing. If I had hired myself to run this operation and found mistakes this costly to my business, I would fire myself. And that's why I either have to put a stop to them or quit this nonsense.

I think, for the first time, that I really know what other traders mean when they say:

the mental part of this business is the most important
you must focus with 100% intensity
"I could give you my system, and you probably wouldn't be able to make money with it."
choose a strategy that fits your personality
strive for mistake-free trading

None of these statements made much sense to me in the past. My thinking was that if the system is good, you can't miss -- just follow the system. This blog serves as testimony to the fact that such thinking is terribly naive.

I love this business, and I don't want to have to quit. However, I cannot go on like this; so I have to establish some requirements for myself and the month of October.

I have come to realize with certainty through this diary that paper trading is useless for anything other than testing the edge of a strategy. Therefore, I cannot quit trading real time in favor of it to correct my errors. All I can do is trade small, in order to ensure my survival, and demand mistake-free trading of myself.

I doubt if I'll ever become mistake-free. That isn't any more likely here than it is with any business, or life itself. Nevertheless, there has to be a level of mistake-making that is acceptable; and I have to get there.

I've been able to lump my mistakes into two categories -- focus and fear, with focus being the most prevalent. Focus should be the easiest to correct, so I will go after it more vigorously. I want to see the instances of my losing focus cut in half to no more than nine next month, or I will quit trading for the month of November. The instances of fear mistakes must not exceed seven or the same consequences apply.

So, that's the plan. Wish me luck.

The Mental Plan (12-step Program) - Part Deux

2009-09-30T12:17:00.003-04:00

Plan Trading Today = + $553 per Contract
My Trading Today = + $58 per Contract
Mistakes: Missed a signal. Became distracted with other issues.
Lessons:

Keep the trading plan simple.

-------------------------------------------------------------------------------------------------------------
Already I have to revise the Mental Plan. The plan, as it is, created a mistake this morning. And the revision of the plan itself caused me to become distracted, costing a significant amount of money.

The market sometimes moves too fast, as it did on the 0842 signal today, for me to check things out as carefully as the current plan calls for. The problem is with the alerts. Turning alerts on and off distracted me.

Since I missed an alert from the 126 that triggered this trade, I will leave that alert on all the time from now on. (The rules posted in My 12-Step Program are after this revision). By the time I saw the trigger bar, the market had moved on without me to the tune of almost 18 points within the next 15 minutes. I compounded that by becoming confused on the second signal, because I became distracted with revising the plan, and bailing out of that trade way too early.

My 12-step Program

2009-09-29T19:10:00.009-04:00

My trade plan is devoted to execution; there is nothing in it that address how I manage my mind or the decision-making process. And, obviously, my mind needs managing. So here's the plan for tomorrow and the foreseeable future:

Ignore the news. Let the chart and indicators interpret the news.
Take the signals and manage the trade exactly as the trading plan's execution rules call for, without exception.
Ignore anything that happens before the session starts. Do not extrapolate the future from the past.
When the session starts, focus on no chart other than the 377 tick.
Turn off the alert for the 3393 time frame.
Make no decisions until the first 377 alert is sounded. At that point, define 377 support or resistance.
After analysis of the permission and filter time frames, make the decision to trade or not.
If the decision is to trade, do nothing until the next 126 alert sounds.
When the 126 alert sounds, verify that signal conditions still exist on the other time frames.
After entering a position, place the StopLoss and focus completely on the 1131 tick chart.
When the next 1131 alert sounds, determine if the alert constitutes a signal to exit.
Wait for the next 126 alert to exit the trade.

Wait for the next 1131 signal.

Stay Tuned (In)

2009-09-29T16:33:00.007-04:00

Plan Trading Today = - $7 per Contract
My Trading Today = + $13 per Contract
Mistakes: Did not follow a system signal. Missed an exit signal.
Lessons:

Take what the market gives you, not what you expect.

-------------------------------------------------------------------------------------------------------------
I will once again forgive myself for not taking a signal prior to a major economic news announcement, but I will accept it as a mistake for the record. The first signal came today 25 minutes before the release of the latest Consumer Confidence number. I didn't take it; it would have been a profitable trade.

There was a second signal which I did take, but somehow missed the exit sign. It would have been a loss. Note: It might make sense to trade beyond 1130, if the session has not been profitable. A third trade at 1131 today would have made this a respectably profitable day. Tomorrow I will watch the screen for the full three hours without distractions and implement a decision-making plan that will control my mental state.

Bad Start

2009-09-28T12:16:00.002-04:00

Plan Trading Today = - $286 per Contract
My Trading Today = - $555 per Contract
Mistakes: Tinkered with the system during the session.
-------------------------------------------------------------------------------------------------------------
I hate to start the week with a loss, but it is what it is. Of course, I compounded that loss with some system tinkering. I didn't change any rules (or so I thought), but I messed with the interpretation of them on the first trade. It was tinkering none the less.

The END of Trend trades are killing me right now. With limited experience, I've won only a third of those. They are expensive on a day like today, when the trend seems to last forever. There is a slew of influential news this week, and that will cause me to be extra careful with END of Trend signals.

Week 4 Summary

2009-09-27T20:34:00.011-04:00

Plan Trading: + $320 per Contract (3 days)
My Trading: - $209 per Contract (3 days)

Mistakes:

Did not follow system signal.
Hesitated to pull the trigger after getting signal.
Mis-identified pullback in a downtrend as Support rather than Resistance.

Cost of Mistakes: $529 per Contract

I cut my mistakes in half from last week, but they were more costly. I don't think this is progress, because I only traded three days; therefore, I can't really compare the number to last week. The system is holding up well, and that's a cause for optimism.

Inside Information

2009-09-24T10:57:00.005-04:00

Plan Trading Today = + $413 per Contract
My Trading Today = - $107 per Contract
Mistakes: Did not follow system signal. Hesitated to take system signal.
-------------------------------------------------------------------------------------------------------------
I could just as well have titled this post I Need a Drink, but I'll be positive about the missed trade you'll see in the charts. The only way I can be positive is to chalk it up to experience.

The images below describe the experience graphically and beg the question: Can this strategy detect "insider trading" before news is released and anticipate the market's response from the public sector? With this limited amount of information, you'd have to conclude YES.

Limited though it may be, it supports my casual observations and beliefs from way back in the Merrill Lynch days. This is not the first time I've clearly seen rallies before good news and declines before bad.

My entry signal came seven minutes before the news announcement that I knew was scheduled. It was fear that created this mistake -- fear of being on the wrong side of the market after the news. Or was it a mistake? Is it not good practice to stay out of the market when a news release is imminent? Maybe not, if this kind of signal calling repeats itself.

Officially, I'm calling this a mistake. Unofficially, I'm cutting myself some slack. This is not black and white. I don't have it in my trade plan to stay out of the market during news events, but some good traders do.

Warm and Fuzzy

2009-09-23T12:11:00.017-04:00

Plan Trading Today = + $139 per Contract
My Trading Today = + $128 per Contract
Mistakes: Mis-identified a Pullback in a downtrend as Support rather than Resistance when exiting.
Lessons:

Make sure you are comfortable with your strategy.
Make the rules of your strategy decisive.
Use multiple time frames in decision-making.

-------------------------------------------------------------------------------------------------------------This was a good day -- not only because I made money, but because of the way I felt during the session. I am very comfortable with this strategy. I feel like I know where we are at all times. Not where we're going, mind you, but where we are in the cycles of market flow. I'm not jittery as price bounces up and down, and it's calming that the rules are decisive.

I've struggled identifying support and resistance with all the other methodologies I've tried (trend lines, horizontal lines, candlesticks, envelopes, etc.) Seeing the cycles in multiple time frames is more trader-friendly to me. It is also bringing together a number of other principles that have always made sense to me, but I haven't been able to assimilate them profitably.

I am now seeing market flow in a different and more vivid way. The multiple time frames are making a big difference. Barry Taylor has done a great job of refining the Hilbert Sine Wave so that it's more useful as an analysis tool. I'm feeling good about the whole deal.

You can follow today's one and only trade by clicking on the graphics below:
1. 2.

3. 4.

The Trading Plan

2009-09-22T15:17:00.018-04:00

This is the revised trade plan:

Markets: E-mini NASDAQ (NQ) and 10-yr US Treasury Notes (TY)
Time Frame: 377 tick for focus / Better 3393 tick and UMT 233 tick for direction / 1131 tick for filter / 126 tick for execution
Method: Better Sine Wave Support & Resistance
Trading Hours: 0720 - 1130 Exchange time for entries. Exits can be made at any time.

Other opportunities occur before and after these hours. Some of these trades may be taken, if practical.

Trade Types:

Cycles
Overshoots
Breakouts
Pullbacks

Strategy:

Setup - 377 tick establishes Support/Resistance/END of Trend/Overshoots/Breaks Out/Pulls Back.
Permission - Better 3393 tick and UMT 233 support direction.
Filter - 1131 tick agrees with 377 Setup.
Entry Trigger - 126 tick shows Support/Resistance/END of Trend/Overshoot/Breakout/Pullback, confirmed by Volume.
StopLoss - Set stop at 3X ATR.
Exit - 1131 tick establishes new Support/Resistance. Exit profitable positions with next 126 tick exit signal. If position is not profitable, maintain the StopLoss and manage the trade until profitable or stopped out.

Daily Terminators:

Any string of consecutive losers that wipes out the profit for the previous week
10% closed-trade equity drop from the day's opening balance
30% peak-to-trough closed-trade equity drawdown
Less than 50% cumulative win rate (without mistakes)

Capital Control and Risk Management:

Beginning capital is base capital. Any addition to account capital will be included in base capital.
Additions to account capital will be considered after December 31, 2009.
The initial risk level on base capital is set to 1/2% or one contract, whichever is higher. The risk level on profits is set to 2%.
After 60 trades and profit the risk level on base capital will be raised to 2%, and the risk level on profits will be raised to 5% (maximum 50% margin).
When the account size reaches the pre-determined target, the account growth plan will be reassessed.

Back to the Drawing Board

2009-09-22T15:16:00.000-04:00

I did not trade today. I spent the day in research, looking further into this methodology. Based on what I learned I thought I should refine the trading plan. So I did, and it will be implemented tomorrow.

Crap!

2009-09-21T17:21:00.003-04:00

Plan Trading Today = - $232 per Contract
My Trading Today = - $230 per Contract
Mistakes: None.
-------------------------------------------------------------------------------------------------------------I was really hoping for a profitable day today; but it wasn't to be, even with no mistakes. Just one of those losing days. There isn't much more to say.

Week 3 Summary

2009-09-18T14:40:00.012-04:00

Plan Trading: - $209 per Contract
My Trading: - $390 per Contract

Mistakes:

Missing signals.
Allowing other activities to distract me from trading.
Entering an order in the wrong direction.
Substituting strategies for the original plan.
Being unaware of contract rollover.
Mis-identifying signals.

Cost of Mistakes: $181 per Contract

It's very interesting that I thought I had improved this week. But, did I? Barely. The cost of my mistakes went down, but look at the number of them. I made more this week than in the previous two weeks combined.

It's hard to believe that I feel more optimistic at this point than I have in the past, but I do. I know that I cannot keep embarrassing myself with these blunders. Admitting to them on paper and making them public cannot help but improve my trading.

Endlessly

2009-09-18T14:37:00.002-04:00

Plan Trading Today = + $104 per Contract
My Trading Today = + $93 per Contract
Mistakes: Mis-identifying signals. Being unaware of contract rollover.
Lessons:

Know the specifications of the contract you are trading.

-------------------------------------------------------------------------------------------------------------
There are apparently endless ways to make mistakes when doing this. Of the 11 mistakes I've made so far, only one has been repeated -- losing focus or letting something else distract me. They are the difference between paper trading and real time execution. The one I made today wasn't costly by itself; but when you lose a million here and a million there, all of a sudden you're a billion in the hole.

First of all I identified an END of Trend pattern as an Overshoot, and that in itself caused me to delay my entry. Secondly, I was unaware that the September contract had rolled over to December. So when I tried to execute my entry, the platform rejected the order. I had to specify the new contract first. By the time I had done that, the move was underway (and I was late).

Explain This to Me!

2009-09-17T14:24:00.010-04:00

Plan Trading Today = + $161 per Contract
My Trading Today = + $3 per Contract
Mistakes: Substituting other strategies for the system rules.
Lessons:

Excercise 100% discipline, as called for by your trade plan.

-------------------------------------------------------------------------------------------------------------
If you're watching this, you must be asking yourself, "What is he thinking?" This is a little bit humiliating at this point, and a full explanation is in order.

The strategy I got from Barry Taylor was no doubt well tested by him. I believe that, because I believe him to be sincere. I then backtested about two weeks of trades and got a very favorable result. That should have been enough to stick to the plan for at least a week. Even if every day had been a loser, the drawdown shouldn't have been enough to scare me away. But, you can see from this diary that I didn't do it the first week; and I haven't done it yet.

I'm seeing more clearly than ever what I have suspected to be my biggest weakness: I'm never satisfied. I always think that I can improve on any methodology. Maybe I can, but that thinking is not working out. I'm, apparently, not willing to leave well enough alone for at least a week.

Looking back on these posts, the common thread is my propensity to tinker with the established strategy and even go out looking for something else. I'm not talking about the "10% Art of Trading" either. I think that's inevitable and correct.

I've done this even though I've convinced myself that this strategy is good enough. I now have 45 paper trades on record; and, so far, it appears to be an excellent system. Why would I do this? Am I engaged in self-sabatoge? Is this not the most compelling evidence you've ever seen that stands as testimony to the notion that the psychological aspect of this business is the most important part?

Just Short of a Disaster

2009-09-16T14:02:00.018-04:00

Plan Trading Today = - $305 per Contract
My Trading Today = - $307 per Contract
Mistakes: Placing the wrong order. Attending unneccessarily to technical issues while trading.
Lessons:

Be an expert at using your trading platform.
Attend to issues other than trade decisions and execution after session hours.

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This was anything but a boring day. On the second trade I hit the wrong button and bought when I should have been covering a Short. All of a sudden, I had twice the risk I wanted to take. A quick recovery by me saved what could have been a disaster.

If I didn't want to learn from this, I would never admit publicly to the following foolish mistake. While I was in the last position of the session, I decided to upgrade to a newer version of TradeStation. What an idiot! Never do that when you're in a position.

As Murphy would have it, an aborted installation locked me out of the platform. Fortunately, this didn't result in a botched trade; although I was stopped out while I was on hold to TradeStation Support.

The mistakes I made today are summed up in one paragraph of Mark Douglas' Trading in the Zone. Page 53 says, "Losses that result from self-sabotage can be just as damaging, but they're usually more subtle in nature. Making errors like putting in a sell for a buy or vice versa, or indulging yourself in some distracting activity at the most inopportune time are typical examples of how traders make sure they don't win."

The Twilight Zone

2009-09-15T15:45:00.005-04:00

Plan Trading Today = + $112 per Contract
My Trading Today = + $53 per Contract
Mistakes: Missing signals.
Lessons:

Focus intently on what you're doing.

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That's where I think I am a lot of the time -- The Twilight Zone. I somehow missed the first trade of the day. So although I had three trades (just as my strategy did), they were all different from the plan. I vow to eliminate such mistakes tomorrow. This lack of focus has to be corrected.

I noticed something when reviewing today's trades that caused me to rethink my exit strategy a bit. I will be revising the exit trigger to include END of Trend on the lower time frame confluent with HTF Support/Resistance. This is not an addition, just an oversight in the original plan.

Tied To a Whippin' Post

2009-09-14T14:35:00.011-04:00

Plan Trading Today = - $281 per Contract
My Trading Today = - $232 per Contract
Mistakes: None.
Lessons:

Have patience.

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The one trade I had today lasted four and a half hours, getting within one tick of my stop and retreating, not once but twice, before finally stopping me out. I was underwater from the first tick after entry, and this required an agonizing amount of patience before they took my money.

I began paper trading a trend line strategy on the side today to see if I could generate more (and better) opportunities. Regardless of how it works out, I won't take any of those trades for at least a week.

Week 2 Summary

2009-09-11T13:26:00.011-04:00

Plan Trading: + $165 per Contract (4 days)
My Trading: - $72 per Contract (4 days)

Mistakes:

Not trading because I "felt bad." I wouldn't have slacked off like this in any other job.

Cost of Mistakes: $237 per Contract

My week was fouled up by the trip. It was further complicated by trying to trade when my wife kept interrupting me. I think that encouraged the nap, during which I missed the profits for the week. All I can say in my defense is that this week was an improvement over last week.

Sleepy

2009-09-11T13:21:00.005-04:00

Plan Trading Today = + $267 per Contract
My Trading Today = no trading
Mistakes: Took a sleeping pill last night.
Lessons:

Treat your trading business as if it is your livelihood.

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I didn't trade today, because I didn't feel well. I'm also not sure about trading on Fridays yet, and there was no news today to move the market. None of that mattered; it was a good trading day.

Boring

2009-09-10T13:11:00.006-04:00

Plan Trading Today = - $106 per Contract
My Trading Today = - $72 per Contract
Mistakes: Missed an earlier exit point. Result would have been the same.
Lessons:

Learn to interpret volume implications.

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Today was an uneventful day. There's nothing to say about it, really.

The better performance was a result of interpreting volume to make my entry. I'll add that officially to the trade plan at some point.

Labor Day Holiday

2009-09-10T07:28:00.006-04:00

Plan Trading = + $4 per contract
My Trading = no trading
Mistakes: You can't make mistakes at the beach.
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I didn't trade for the past two days because of a previous committment to attend the birthday party of a relative.

Week 1 Summary

2009-09-05T10:01:00.004-04:00

Plan Trading: + $1,736 per contract (3 days)
My Trading: - $322 per contract (3 days)

Mistakes:

Trading on a Friday before a holiday
Changing the strategy during a session
Second-guessing the system
Losing focus

Cost of Mistakes: $2,058 per Contract

Obviously, this was a miserable week for me. Had I not kept this diary I'm not sure that I would have been as aware of such pathetic performance. All I had to do was follow my plan, and I didn't do it. In that sense, this looks like a great start to making improvements.

Oops!

2009-09-04T12:17:00.017-04:00

Plan Trading Today = no trading
My Trading Today = - $374 per Contract
Mistakes: Trading on a Friday before a holiday. I'm a slow learner.
Lessons:

Be aware of news that may affect the price of your trading vehicle.
Beware of days before and after holidays.

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Today was like one of those Larry Williams' Oops patterns, where everything lined up perfectly on my indicators as a "can't miss" move. The problem was that after a short spin in my direction, the market took off like a scalded cat in the wrong direction and stopped me out.

The better-than-expected Non-farm Employment Change report had already generated a rally, so I felt good about the short entry. Besides that, both the 801 tick and 89 tick charts signaled END of Trend at the same time. It worked for awhile, until something created an intense, non-stop assault on my position.

After writing the last line in the above paragraph, I thought the day was over. I just received another short signal . . .

About 30 minutes later and with $25 in profit, I placed a trailing stop 3X the ATR for the day. It's not in the plan, but it's a Friday before a big holiday. Chart bars are starting to look funky because volume is drying up (you can't put an observation like that in your plan or robot), and I think the decision is judicious.

The 10% Art of Trading

2009-09-03T08:26:00.018-04:00

Plan Trading Today = + $300 per Contract
My Trading Today = + $45 per Contract
Mistakes: I changed part of the strategy during the trading day, going against the conclusions found in my backtest. I don't even know what to say about that!
Lessons:

Have a written trade plan.
Manage risk with proper position sizing.

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I have been a very big fan of auto-trading in the past. I think it all started when I made 1000% on my account (in one year) in the 1990s using a few systems I bought. Although most of that money was made from my interpretation of system signals and manual trading in Soybeans, a significant amount of it came from automated black box systems in other markets.

That experience caused me to think that I was a trading god, so I started developing my own strategies. I busted out my entire account (again, in one year). Everything that happened to me in those years was luck or fate (good and bad). I had no idea what I was doing. I was gunslinging without a plan, with no concept of position-sizing or money management.

Then along came Forex. I bought robots out the yang-yang and developed my own. You couldn't call it the lazy man's way out, because I worked my ass off on system development. I guess you could call it the lazy man's dream, but it never worked for me.

So now I'm not a big fan of auto-trading. Besides the fact that it doesn't work consistently, it's boring as hell when it does work. I now think the better approach is mechanical, like this one, requiring about 10% artistry. The artistry surely comes from experience but may also come in the form of special indicators. This is an example of it:

The Plan

2009-09-02T15:33:00.015-04:00

This is the trade plan:

Market: NASDAQ (NQ)
Time Frame: 89 tick for execution / 801 tick for filter
Method: Better Sine Wave Support & Resistance
Trading Hours: 0700 - 1130 Exchange time for entries. Exits can be made at any time.

Other opportunities occur before and after these hours. Tracking them shows additional profits. Some of these trades may be taken, if practical.

Trade Types:

Trend Ends on Lower Time Frame Confluent with Support or Resistance on Higher Time Frame
Overshoots of S/R on LTF Confluent with S/R on HTF

Long Strategy (Short is exactly opposite):

Setup - LTF price overshoots/breaks Support line (indicator shows a dot) or signals END of down trend.
Trigger - HTF has Support within StopLoss distance of price.
StopLoss - Set stop one tick beyond largest MAE observed.
Exit - HTF establishes new Resistance. LTF price breaks Support or signals END of Trend while HTF Resistance is in place.

Daily Terminators:

Any string of consecutive losers that wipes out the profit for the previous week
10% closed-trade equity drop from the day's opening balance
30% peak-to-trough closed-trade equity drawdown
Less than 50% cumulative win rate (without mistakes)

Capital Control and Risk Management:

Beginning capital is base capital. Any addition to account capital will be included in base capital.
Additions to account capital will be considered after December 31, 2009.
The initial risk level on base capital is set to 1% or one contract, whichever is higher. The risk level on profits is set to 2%.
After 60 trades and profit the risk level on base capital will be raised to 2%, and the risk level on profits will be raised to 5%.
When the account size reaches the pre-determined target, the account growth plan will be reassessed.

Rebirth

2009-09-02T10:36:00.034-04:00

Plan Trading Today = + $263 per Contract
My Trading Today = + $56 per Contract
Mistakes: I second-guessed my system. How many times do I need to read or be told not to do this?!
Lessons:

Follow the system signals religiously.

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The following three graphics show the first trade of the day. As you can see, questions are raised and resolved throughout this transaction. They always are, and I always wish it were cleaner.

Point 10 on the last set of charts is a clear Red, White, & Blue volume pattern; and it clearly says to get out. I saw it but ignored it, because it is not yet part of the Support & Resistance strategy (though it should be). Nevertheless, it is these colored bars I was dicking around with yesterday when I missed more than 50 Support & Resistance points. Therefore my decision to stay away from the volume interpretation for now. I'm not skilled enough with these indicators yet.

Point 11 is even more perplexing. My rules say to wait for a HTF Resistance line to develop before looking for an exit on the LTF. But the one that existed while I was in this trade developed after I got in way below my price at the time. So when the LTF Support appeared and was broken, should I have exited (if not sooner)?

Note: A confluent HTF Resistance line did develop above my price after I was stopped out, accompanied by an overshoot of the LTF Resistance line. This triggered a reversal. Had I waited for this proper signal, I would have profited by 55 ticks instead of the five I realized on the stopout. Please! Leave well enough alone.

Genesis

2009-09-01T17:41:00.032-04:00

Plan Trading Today = + $1,173 per Contract
My Trading Today = - $49 per Contract
Mistakes: I fiddled around with some more advanced indicators and lost my focus on the strategy in my trading plan. Am I in this to make money or play with colorful indicators?!
Lessons:

When you find something that works (proved by testing), stick with it.
Don't tweak your system during trading sessions.
Keep a trade diary.

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First things first: There's nothing original here. Credit for the indicators goes to Barry Taylor. He also gets credit for the strategy. He also gets credit for the volume studies you see on the charts in the form of colorful paint bars. He does not get credit for my fascination with them during a day when the simpler approach would have yielded almost $1,200 per contract with two winners and no losers. My scattered brain gets credit for missing that. I have always been a tinkerer.

But my greatest shortcoming as a trader may be attention to detail. I make mistakes and miss trades because of it. Everybody says that you must keep a trade diary, but I never have. I have also never been consistently profitable with my own methods. So, this is it -- my diary.

Harooki, this is for you. You can keep up with the trade plan and its results right here (and, hopefully, we can both learn from it), and I will have my diary. If I am successful, you can join me if you want to.

The posts for today serve as testimony that I need this blog to force my focus. All you have to do is look at these charts to see what I missed today, because I let something else distract me. Today is the day that broke the "undiscipline trader's" back. No more! I pledge to focus solely on this strategy until there is a compelling reason not to do so.

There is a compelling reason to dedicate myself to this system, based on what is in these charts and my backtests. Instead, I jacked around today with something else and lost almost $50 of my capital rather than adding more than $1,000 to it.

If you want to ask anything about this trade plan, just make a comment. I'll be notified of it; and I will post the answer. That way, we have a record of the rules and a history from which to learn.

Mahalo.