Jul 232011

Yesterday someone on Twitter told me when he incorporated bias into his trading plan, he did better.  And I thought about that a little.  For the last 4 days, value has been moving higher:

This is what I use for my “trend”.  Wednesday (the 3rd profile from the left) was slightly tricky in that price went down.  A friend of mine, in email exchanges, challenged my statement that the trend was up and even pointed out that price had went down.  I asked him what value did.  This is something I learned from Dalton.  If price is down but value is still up, then the direction is still up.

Here is my P/L the last 3 days:

I did well from long side and was breakeven on the short side.  Why am I trading short when the “trend” is up?

Even more interesting is Friday’s results:

So the trend is up and what did I do?  I traded the short side.  I thought I did very well on Friday.  I got 7 pts and I traded one lots all day.  My expectancy was 1.75 pts.  I traded very well.

Unfortunately I missed out on a great opportunity on the long side.  I took the short on the pullback to Open Swing Low and I rode it to 35.50 where I had a support zone (yday VWAP & low of yday EF pullback).  When 34.50 was taken out I was no longer looking to get long.  I saw weakness.

But what I didn’t see was that 34.50 was taken out but quickly rejected.  It spent less than 5 minutes there and was back up into the value area.  That combined with the trend being up should have told me to get long.

Actually I did get long but I did it on sim because I didn’t want to risk giving back my profit for the day and because the market looked to me like it was going to be a slow day.  So fear kept me out of a good trade.  BTW I took it with 2 (my normal size when I’m not scared) and got 4 pts total (on sim).  So it was a good trade.

So to summarize:

  • I’m not taking advantage when an obvious trend exists
  • I’m afraid of losing

Let’s look at the weekly PL:

I’ve been on real money for 12 weeks now.  3 of those weeks had disappointing results.  All three were caused by me taking a big loss.  And that is my main problem.

I’m not that good at taking small losses.  So when it comes time to put on a trade, there is some fear that it could be a big loss.  So if it doesn’t look really good, I don’t take it.  This results in a really high win rate (86% in the last 3 days) where losers are infrequent but costly.  I used to be proud of a high win rate.  I went an entire month without a single loss last year.  But now I know that a high win rate is not the most efficient.  I could take twice as many trades, have twice as many losers, and still make more.  All that is required is that trades have a good R:R.

This is why I’m still trading 1-2 lots, I can’t increase size until I overcome these issues.

Next week’s plan:

  • 3 pt max stop, and ideally get out with losses of 2 pts or less
  • Trade more with the direction of the value areas
  • Be more thorough with my homework so that less decisions need to be made while trading
  • Start up the journal again (yes I slacked off)

I plan to really focus on these and report on the status during the week.  As always, writing about this really helps me to confront these issues.  I also really appreciate all the feedback and encouragement I’ve received.  Thanks for reading & sharing in my adventure.



  16 Responses to “Weekly results and plan”

  1. Have you looked to see what taking smaller losses would do to your wins? I think that would be very informative. At one time I feared that taking losses quicker would turn too many of my winners into losses. But it turned out, on inspection, that pretty much all of my biggest winners had essentially no adverse run against me. I have the typical disease where a bug run against me causes me to get out again close to b/e if I can. Maybe that’s not ideal, but that’s the way I still am today. So, when I made a push to take losses faster, I turned a few +1tick trades into small losses, but also eliminated my biggest losers, while letting me keep essentially all my best trades intact. It was a big net improvement, and seeing that in my historical trade data made it relatively easy to make the shift, psychologically.

    Most weeks, even after years of doing this, a big focus for me is R:R and actually obtaining the big reward without cutting it short. Taking lots of good R:R trades instead of trying to pick only a few “perfect” trades is absolutely the best way to make more money, in my opinion. So you sound to me like you are on the right path.

    (and it doesn’t take a market profile to see that Wednesday didn’t break the uptrend. your friend needs to keep the big picture in mind!)

  2. Hey Richard, as always, it’s great to hear from you. Excellent advice there. Sometimes we know what we have to do but it’s not so easy to do it. I’m going to find out what small losses will do. Maybe it’ll make me lose money. That’s ok, I’m ahead enough this month that there’s no risk of losing it all as long as I keep losses small. So that’s what I’ll do. And I’m betting that like your experience, I’ll actually do better.

  3. Hey Michael,
    i really like your blog and its great to exchange thoughts.
    What I wanted to ask you was, how exactly you go to defining your bigger (higher TF) trend? Do you look only at the previous day, so if yesterday built higher value than the day before you’d say the trend is up? Or do you look at multiple days and their value relationships (which i obviously assume)? If yes, when do you switch from uptrend (to sideways) to downtrend? How many days of different value would you look at? Do you define the trend only by value or do you factor in the POC as well (sometimes value can be higher but POC can be lower as compared to the previous day/s).
    I would be interested in your point of view.


  4. Hi,

    it’ s not that bad to take big losses, it is worst not to take the loss during the trading session at all and let it get worst and worst. I tell this by experience, as I refused last week to take 1000 euros loss on the eurostoxx 50 . 1000 euros loss was only going to erase my previous 3 days profits. I finally took a 6000 euros loss and now I will have to work 4 weeks only to recover.

  5. So at least you have the discipline to take your loss during the trading session, and that’s good

  6. Paul – Thanks for sharing that. I have to confess, I have taken losses home many times. And I must say it has very rarely worked in my favor. I’ve let 1k losses grow into much greater losses. So I decided that I must never do that again. Taking home a winner is ok (with a stop) but taking home a loss is never a good idea.

    The bigger the loss, the harder it is to take. So that’s why I’m striving for 3 pt / 12 tick max loss.

    Please let me know if you’re able to do this and if you want to skype about it let me know. BTW if anyone has a gotowebinar account and would like to a host some chats about the topics in this blog, please let me know. I think it’d be fun to have some chats about some of these topics. I’m considering opening an account for this purpose.

  7. domenik – You ask great questions and I wish I could answer them but I don’t have everything worked out myself. I’d like to come up with a more mechanical bias method but it’s not easy. In fact it can be quite complicated. I want to take into account where we are on the daily & weekly. Are we near the extreme of a trading range? or in the middle? If at the top or bottom then it’s much higher risk. So the trend could be up but if we’re at the top then I’m not sure I’d have a strong long bias.

    For now it’s discretionary and if value areas are going up and no major overhead resistance then trend is up. if overhead resistance then I could be more neutral.

    Let me think about this and try to come up with some rules. If anyone would like to collaborate please join in. I did some analysis of my 3 months of trading and my biggest losing days were all due to trades against the value area trend. Something to think about! Eliminating fades would eliminate a lot of small wins but also several large losers.

  8. PS: One could make a case for not fading an obvious trend (like we have lately). if it’s not obvious then play both sides but if it’s obvious, such as Dalton’s “one-timeframing” then don’t fade.

  9. Michael, I asked the same question to FT71 and when he responded I´ll let you know. I want to figure out if trading against value area movement is a lower probability play or not… Lets see if we can come up with a more mechanical way of defining the higher TF trend.

  10. Domenik – in the past FT has been against the idea of a bias. I think he’s good enough to trade either side. I’m not. So hopefully that puts things into perspective. For example today in RTH I trade long only and do quite well. I’m sure FT or others could make good money on short but for me it’s riskier, especially if I freak out and don’t take a stop and the market rallies.

    Looking forward to what he says.

  11. Yea, I hope he responds to my email because im sure he has hundreds of people contacting him all the time… If not, im positive I can find a way to quantify it and use it for my journaling. If in the end I just base it on the previous day (value unchanged, value higher/lower, Value overlapping higher/lower etc.), so be it. Dalton says anyway that the auction only has to be fair in the day timeframe so…
    Im just curious if my trades have a higher probability when trading in the direction of value area movement or only trading countertrend when VA is overlapping or even mainly unchanged. For some reason I think it wont make a huge difference but the mind plays its typical games so I will only know when I journal it. Today I missed all the up action in the ES because I didnt get the long off the open swing high but later today came a high probability short when the ES almost closed the Gap and pierced the naked POC (Timebased). We had 3 reference points lined up together there: yesterdays close, naked POC (time) and naked VPOC. Orderflow also showed a picture perfect sell setup.. If i would have missed that one too that would have been frustrating.
    One question about the open swing trade: Does FT71 have a webinar recording about it where he describes what he’s looking for? DB from OFA goes pretty precisely into that and I wonder if FT71 does it in a similar way?

  12. Domenik – I agree the simplest form is just yday VA in relation to previous days. In the case of ES, we’re in a 3 day balance so I consider the VA trend to still be up. For Stoxx however, yday was clearly lower value so I’m calling the trend down.

    I also look at intraday trend and the best trades are when VA trend & intraday trend are aligned.

    I invite you to keep records of trading with & against “trend” (however you may define trend). I’m doing the same.

    Yesterday there were a few places to get long: on the drive down into support, on the pullback to the OS H, and then again there were 3 more pullbacks to 32.75 (yday low).

    For open swing, I don’t know if that’s in a webinar but the way I do it is very simple: I look at a very fast chart (2500v is what I use but you can use 30 sec or 100 tick or whatever) and after the open I look price to move through the open and I note the H or L. I like it to be more than 1-2 ticks though, 1-2 ticks isn’t really a swing. Then I look for the OS to be confirmed on a retest and if it’s confirmed I will often take the trade.

  13. hey michael, thanks for your explanation on the opening swing. I will keep you posted on my journaling.

  14. Today ES’s value area is lower as is stoxx. That’s 2 days in a row. So I’m very tempted to say the “trend” is down. However NQ has overlapping value (for 3 days, slightly higher). So NQ is neutral. Combine them and I’m going to say trend is down and lean more on the short side today..

  15. That short bias today saved me. I used to get killed on days like this. I took 3 long attempts but since my bias was short, I took them half size and I scratched immediately when it didn’t go up.

    Waiting for a bounce to short..

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