Dec 262011

It’s time for yearly maintenance on the trading computer, the house, and our lives.

The computer is no easy task.  I do not have a dedicated trading PC so my PC always ends up with software installed that I no longer used or remnants of software that I’ve installed and uninstalled.  So I reinstalled windows from scratch.  I haven’t done this in 2 years so I figured it was time.  I underestimated how much work it’d be.  Especially reconfiguring all my applications.  But I took advantage to upgrade some of the software I use to the latest versions.  A lot of work but if this holds me for 2 years it’ll be worth it.

I also reinstalled my charting applications from scratch.  Their databases were bloated and it’s best to start the new year with a clean install.  This means reconfiguring lots of things such as audio alerts and preferences so more work but worth it to have a lean machine.

The house has some small things that have been put off and a week without live trading is a good chance to catch up.  I say without “live trading” because I still have some studies I’m working on to backtest ideas and prepare for the new year.

And our lives.. it’s time for the New Year’s Resolutions.  Mine are always similar:  Spend more time with the family (until the kids drive me crazy enough that I spend less time).  Less time spent unproductively at the computer (surfing).  I remind myself to eat less sugar (cookies, cakes, etc.) see “Sugar the Bitter Truth” if you do not know how sugar is a toxin.  This video will motivate you to reduce your sugar intake.  I also remind myself to exercise regularly.  With the exception of the week before Christmas, I’ve been doing runs / hikes in the woods 4-5 times per week for several months now and it’s really great.  So I just need to continue now in the cold wet winter.

I enjoy this “downtime” and will be very refreshed for the first day of trading in January (the 3rd).

Happy Holidays!



Dec 212011

First, I’m trading on sim this week and next week.  But I’m trying to trade as if I was trading real money.  That’s important.  I wrote out my new plan and I’m testing it.  I will trade it with real money on January 2 and will be posting my progress.  I seem to do better when sharing my results and getting feedback from others.

Second, I did not trade well today.  I reviewed my trades with another trader and my entries were rushed.  My biggest weakness is being too quick.  My wife tells me the same thing.

Today I was not having discipline problems but rather just not seeing it properly.  Ok I think Trade 2 was partly a revenge trade but I really believed in a long there.

And I was also unlucky.  I had two stop losses that were 2 ticks off the high/low of the move!  That usually doesn’t happen twice like that.  Could be bad luck or holiday trading who knows.

But what I wanted to share is this:  Even though I traded badly, misread the market, was early, and was unlucky, I still finished positive!


Because one winner made up for the 3 losses!

This is exactly how I want to trade.  Well I don’t really want to start every day with 3 losses, but I do want losses to be so small I don’t care that much and I want winners to make up for them.  Instead of the other way around.

I’m quite happy with my day today because it gives me confidence that I’m on the right track with this Risk/Reward idea.

Dec 192011

It was brought to my attention that there is a trader who has a very consistent daily profit over the past few months.  So I took a look at his stats:

This is very familiar to me because this is how I’ve been trading for the past couple years.  I typically used a 6 pt stop and have even taken 10 pt losses (about $500/contract).

This can “work”, but is it optimal?  I have been trading 2 contracts for 2 years now because I was not comfortable increasing size knowing that at $500/contract, a $2k loss could happen any time.  And what if I had two $2k losses?  It’s bound to happen.  So that fear kept me at 2 contracts.

Even trading 2 contracts, I’m still scared because a $1k loss could be around the corner.  So every time I put on a trade I know this could cost me $1k.  This is a bit stressful.  The result is I’d scratch trades that came back to my entry, and I scratched a lot of winners that way.  And I’m convinced that this isn’t the best way for me.

Lately I’ve been learning a lot from RomaTrader & GoldTrader740 on Twitter and how they use small stops, 2 pts on average.  RomaTrader will aggressively trail his stop so I’d say his average loss is probably much less, I’d guess around 1 pt. He’s not fearful, when he sees a good opportunity he takes it.  There is a lot to learn from these guys.

RomaTrader has made a very strong case for tight stops and says you can just re-enter if you want so best to just get out.  So why wouldn’t one just stop out at -2 and look for another entry?

Commissions is one reason.  Every time one does that it costs $3.80/contract (or more depending on your broker).  So that weighs in the decision making, at least subconsciously.   When I’ve tried using “tight” stops, it was usually 4 pts.  And when I stop out -4 and re-enter, I usually re-enter at a worse price than my stop out, meaning it would have been better not to stop out.  So I had a delima and that’s how stops got to be more flexible and quite large.

What I learned from these two traders is that my timing was off.  I knew I was always too early.  GoldTrader says to watch and see how it trades there.  You might miss a few but you are less likely to be early.  Entering early requires a bigger stop.  If one enters late, one can use the recent high/low for the stop.  So one advantage is smaller stops.  The disadvantage is missing a few.  There’s no perfect answer here so everyone has to find out what works best for them.

For the past month I’ve been trying my best to use 2 pt stops and trail aggressively.  It hasn’t been easy and my performance has decreased a bit.  But I really feel like I’m on the right track.  When I know a trade will cost me at most $250 for 2 contracts, I have less fear to take it.  As soon as it moves my way I trail my stop and then my risk becomes $100 or even $0.  When a loss is on average $100 and winners are $300-$500, I really don’t care about taking losses.

At least in theory.  In reality I really hate losing and I hate being wrong.  But I am making progress in accepting this reality.  And once in a while a really good R:R comes up where I can risk 3-4 ticks with a potential reward of 4 pts.  These types of trades don’t have to win often to be profitable.  So I feel I must take these.  One winner will make up for several losers.

Lately I compute the R:R for every trade and if I can’t get 2:1 on the first scale I will pass on the trade.  As a result I’m taking less trades, but so far the results are encouraging.  My results are improving each week.

I’m rewriting my trading plan again, it’s a never-ending process.  But with input from RomaTrader & GoldTrader, I really think I have a plan that will work well.  I’ll trade this plan in January without any fear.  My max loss will be 2.5 pts/contract and I’ll have loss limits for each session, day,  & week.  I’ll keep detailed records on every trade so I can track my progress of each setup.  I’ll have a written plan before the start of each session and I’ll only trade my setups. I’ll review my trades every day.

I’m really excited about this and I can’t wait for January 2.  In the mean time I’m working on my plan, practicing on sim, working on some programming projects, and just enjoying some time off.