Oct 012010

In Part 1, I wrote about the issues I was facing (Part 2 went into this in more detail), and my creation of a new trading plan to make my trading more mechanical.

I started trading the new plan the next day.  For ES, my main market, I took the really great setups with real money and when I had doubts I’d take it on simulator.  Other markets were all on simulator.  After two weeks I had made 8.50 pts on ES in 7 trading days.  That’s averaging a little over a point per day, which is about 1/2 point per contract (I was trading 2 contracts).  The profit factor was 1.45 and I had a 79% win rate.  Sounds good right?

Other markets didn’t do as well.  Collectively I had $502 in profits (not including commissions) with a profit factor of only 1.06 (slightly better than breakeven) and a win rate of 57%.  When commissions are included it was -$266.  Ouch!  Well good thing those markets were on sim.  I’ve never been consistently profitable in any market other than ES.  But I was trading the same plan!  So either the setups worked for ES and not the other markets, or my discretion had provided the edge.

So let’s skip the other markets for now and focus on ES, and specifically the trades with real money.  The results don’t sound that bad but let’s look under the hood and examine the trades:

Whoa!  The same issues I wrote about in Part 2 are clearly visible.  The first few weeks were actually decent, without major issues.  An MAE of 5 is a stop of at least 2.75 pts (since I’m trading 2 contracts).  That’s acceptable, Barry of Eminiwatch uses a 4 pt stop and target.  I even took 3 losses as a result of honoring my stops.

But then later on things got a bit off track.  Notice that after the three losses I didn’t have any more losses.  I was not using stops in order to avoid getting stopped out.  Mental stops are cool but a MAE of 9.25 is 4 pts/contract is not.  That would be the limit of being acceptable however notice the profit on these trades were much less than the risk.  And the MFE of 18.50 pts is a stop of at least 9.50 pts per contract.  I was fortunate to get out of that one with a loss of “only” 9.25 pts but had I lost the full 18.50 or more I would have been way negative for this 2 week period.  So you can see I was really flying by the seat of my pants.  Profitable?  Yes.  Lucky?  Yes.  Trading well?  No way.

When looking at the simulator results, out of 27 trades I only see one that went past a “normal” stop.  It had an MAE of 12.00 (6 pts/contract) and I got out breakeven.  So it seems I didn’t want to take a loss on sim either.  That’s interesting.  I’ve always felt I trade sim like I do real money.  Maybe it’s because I’ve had a lot of sim experience over the years.  Anyway, sim results were a profit factor of 0.73 (I lost money) with a win rate of 41%.  This actually makes sense since I was taking the “great” setups with real money and the less great ones on sim.

BTW if you’re thinking that I’m very mathematical in interpreting these results, you’re right.  I am.  Because the math doesn’t lie.  I find when I think about the past I remember me trading much better than I did.  I remember the winners I took and forget the one big loss that wiped them out.  This is a reason I’m really into keeping stats and journaling.  I’ll be updating that page after this series.

At the time I wasn’t fully aware of the extent of my “issues”.  At the time I probably justified it by saying “Ah that move was bullshit, I knew it was coming back”.  Maybe you’ve heard yourself saying this?  If so feel free to leave a comment if you want to share your experience.

A few days before the end of this period, I decided to start keeping a journal.  Up until that point I always keep detailed stats in Excel, in addition to the detailed stats provided by Ninjatrader.  But I was missing something.  I was missing what I was feeling while in these trades.  So I opened up a Word document and just started writing my thoughts while I was trading.  What I found was really interesting and is actually the basis of this series.  The process of journaling brought out the ideas & concerns I had been having subconsciously.  That weekend, armed with my journal and my stats, I threw out not only my trading plan but the sine waves and all the multiple time frames along with it.  Remember that I had been trading with sine waves for a year and a half, so this was not big, it was huge.  We’ll peek into my journal next.

Continued in A look back on my journey – Part 4.

  6 Responses to “A look back on my journey – Part 3”

  1. Could have written it myself ;o) Isn’t it interesting that it is SO HARD to cut a loss!

  2. I’ve been going nuts with this on simulator. Working on timing my entries and using very tight stop losses. I had some today that were only 3 ticks even on crude oil. Now if I can just imprint this new habit in my brain I’d be good.

    Crude trades:

  3. Very nice blog. Shows a lot of time an effort. One suggestion is that the white font color on the black background starts to hurt my eyes after a few minutes. Just an observation. Other than that, looks great.

  4. I agree with you. The problem is I know nothing about web design. I’ll see if I can make it a light gray. Thanks for the compliments.

  5. Mental stops are not “cool” because they make you vulnerable to a sudden market reversal AND, more importantly, they make you play defense instead of offense. If you have a “researched” stop in the market your defense is set and you can concentrate on managing the trade. (By researched, I mean a stop large enough to avoid the maximum adverse excursion of price after your successful setups trigger an entry. Let the unsuccessful setups be stopped out.) You will find that your stops need to be larger than you think-probably 4 points in the ES ($200). Thus, if you take 1 or 2 points of profit your stops will eat your pricncipal. Fear breeds small stops and small stops are victims of normal market action. As for multiple time frames, use them only as a guide to trend. If you trade a 5 min. chart then check the daily and the 60 min. trend and trade in their direction.

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