Sep 222011

I’ve recently written here on the blog and in my tweets that the rally into options expiration was very suspicious.  Frankly it reeked of bullcrap to me.  But I don’t try to fight such things any more.  A year ago I would have loaded up full short.  However a year ago I would have been way too early and probably broke even.  So now I know better.

Two days ago we had that late afternoon selloff and I tweeted “someone knows something”.  Well they did.  That’s why it’s extremely important not to fight it.  Today I traded only on the short side.  I didn’t trade that well as I didn’t get any major runners.  And one trade I did 1 contract, if I had done 2 I could have gotten a lot more.  But each trade is a lesson to be learned.  What’s important is that today I traded on the right side.  Short only.

When there is a strong move like that, pick your spots and be patient and wait for the the market to come to you.  I waited 90 minutes for my first trade this morning and didn’t take another trade after that.  Then today in RTH I was quite patient as well.  If I was a better trader I could have made a killing, but I’m not and I know that.  I know my limitations.  I know my edge and when it’s valid and when it’s not.


  15 Responses to “Don’t fight the trend”

  1. “I know my limitations. I know my edge and when it’s valid and when it’s not.”

    Fantastic line.

  2. Very well done. Is that 7.25 MAE real or mistake?

  3. It’s real but that’s for the position so you have to divide it by the number of contracts (2) which puts it < 4 which is my goal.

  4. You know, I’m sure other traders I know made many thousands of dollars today. I just hope that some day I will be able to do that.

  5. Ah ok, I thought that was per contract !

    Hey, 500$ is not bad at all, be proud of that..

  6. I’m going for consistency and more mechanical so I miss what may be some good setups if they don’t meet my entry criteria. I’m ok with that as it is working for me so far. I’m close to my best week ever so if I don’t mess it up tomorrow I should have it.

  7. Nice work today. You will get to the many thousands / day. I am sure of that. Your consistency is impressive and inspiring.

    Can you tell me what MAE stands for?

  8. MAE = maximum adverse excursion = most a trade went against you

    in this case I entered 1/2 size (was a bit shy with the volatility) and it went against me so I added the 2nd half on the next signal at the next zone and then I think I scratched that one ASAP.

    If I can learn to time better, I could make a lot more. It’s frustrating being early. The other choice is to use tighter stop. I’m still investigating that. So I’m collecting data on my MAE to analyze it. Will take some time.

  9. Thanks for explaining MAE. I also track that and have been experimenting with stop losses. I have been finding that by increasing my stop loss and reducing my contract size my performance has increased. I also tend to be early on my entries and tend to take quite a bit of heat on my trades. I have this tendency to think I am going to miss the trade. I will continue to track my MAE.


  10. Paul – this is exactly my problem (early) and my finding (4 pt stop works better than 2). If I’m very early and it goes against me 4 pts then I usually scratch it as my cost basis is too poor to hold it. But if i’m just 1-2 pts early I can hold it and go for my targets. A lot of the ones I scratch would have been losses had I used a 2 pt stop.

    That said, the 4 pt stop is like a bandaid. The real solution is to try and enter “late” which should be me more “on time”. If my entries were timed better, a 2 pt stop would be adequate. So this is something I’m currently investigating. Maybe I can post some examples from real trades on the blog.

  11. I focused on waiting for my trades today and I was able to get two trades both of them had a MAE of only .75 which for me is great. I am finding the same thing as you describe with a four point stop vs. a two point.
    I have another question for you or anyone else for comment. Do you have a daily profit target and do you stop trading when you reach it or do you just trade all day regardless? I guess this would fall into the fear of losing category.

  12. Good job on your trades Paul.

    I do not have a set target because it doesn’t make sense to me. I have an edge so every time I get a setup I want to take it. However, I have noticed that I do better earlier in the session. So what I do is when I’m ahead, I will be a little more conservative and look for better quality setups. This helps to keep what I have and also helps to trade less in the middle of the session. I think some of those who think they would do better by quitting after making a certain $ amount may actually do better after quitting by a certain time. It’s hard to know the difference without looking over past trade stats.

    This week I did quite well so I tightened up and I only took 2 trades today.

    So I prefer to think of it as “tightening up” rather than hit your target and quit for the day. But really this depends on one’s psychology.

  13. Just wanted to add to the previous comment that the same thing applies if I’m down. If I’m down I tighten up as well. I’m looking for an outstanding setup. I won’t take a mediocre one. This is where I used to kill myself, revenge trading and taking bad setups trying to make it back. If I tighten up I either finish with my current loss or I get a good shot at making it up. But I have low risk of making my loss worse.

  14. Great points on the time of day having more of an impact than say a profit target. A good setup is a good setup regardless of how much money you have made. I too have run into the revenge problem and that has been my achilles heal. I like your idea of lightening up later in the day when the market has more of a tendency to chop.
    I also had a great week and I am looking forward to the weekend and some relaxing.
    Would you still recommend the book Reading price charts bar by bar by Al Brooks?

    Have a great weekend.
    Thanks for the blog.

  15. I had my best week every. Will post about that this weekend.

    The Al Brooks book has tons of useful nuggets. Unfortunately the book is poorly written and it’s a real challenge to read. I can take about 10 pages at a time before my head wants to explode. so i do recommend it but I don’t trade like he does I just use it for ideas.

    There are very few trading books I can recommend.

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