Jan 132012

Over the Christmas break I rewrote my trading plan.  The idea is to look for specific setups on the big picture and then trigger the entry with volume on a fast chart (tick and footprint).  The main focus is to reduce risk as much as possible.  My ideal max stop is 2 pts but on several occasions I felt I was right but just early and gave it a little more room.  I never had a large MAE and most of my losses were just 5-6 ticks (on ES).  I traded real money when things lined up and if I had doubts I traded on sim.  I kept a journal and a very detailed excel sheet with my trades.  I traded only 1 lot and tried for 3-4 pts but would settle for 2 or less if I had to.  That’s a summary of my plan.

Trading 1 lot was very difficult.  I’ve been trading 2 for over a year and it was hard to adapt to 1.  I think that was more a consequence of the slow low-volatility we’ve seen so far this year.  Many times I had 2 pts open profit and stopped out breakeven.  Many times I wanted to scale but I knew if I did I would be out.  I think it’s very hard to be profitable trading 1 lot.  It’s a bit more like rolling the dice.  You put your stop & target and roll’em.  With 2 lots you can be more active.  You can scale if you need to.  The converse of this is true too:   With 2 lots it’s much easier to cut winners short in the name of scaling or hedging.  so trading 1 lot is a good exercise for this because with 1 lot your R:R must be there.  I plan to continue trading that first lot the same way, whether I have 1, 2 or more total.  I want a minimum 2:1 on first scale but if I see absorption or weakness I will take the scale sooner.  I hope that makes sense, it’s hard to describe.  But I will say I’m very glad to have passed the 1 lot trial period.

The results are quite good.  Trading real money I averaged 3 pts/day.  My sim trading was not so good.  I can give two reasons for that:  Any good setup was taken with real money, leaving the “risky” setups for sim.  I tried the Bund on sim.  I haven’t traded the Bund in a long time, when the interest rates where going crazy I switched Bund for Stoxx.  Over Christmas I mistakenly decided that if I look for specific setups I could watch Bund in addition to Stoxx & ES.  The sim results show that it’s not the case.  Maybe later when I have more experience I can try the bund again, but for now I think it’s best to focus on one market, or in the case of ES & Stoxx, two very correlated markets.  I do Stoxx in addition to ES for the European morning because sometimes Stoxx gives a more clear picture due to more liquidity and volume at that time.

Yesterday Dalton did a webinar on a new book that’s out called Thinking, Fast and Slow:

I haven’t seen the webinar but I did start reading the book.  So far it’s excellent.  I can appreciate just why things look so simple in hindsight but during the stress of trading they look complicated.  As I mentioned, I need to focus more.  I need to stop multi-tasking and really focus & concentrate.  The book cites many examples of how we can be distracted and make bad decisions as a result.  I just started the book but I’m really enjoying it so far and I highly recommend it.

My plan is to increase my size by 1 contract every 2 weeks as long as I’m profitable. This is a bit like the Al Brooks approach where he says to make 1 pt consistently and you can have a $100k/year income.  Last year I was going for big wins and would be proud whenever I got 10 pts in a single day (at 2 contracts that would be 5 pts/contract).  But I was taking a lot of risk to get that, and a few times lost 10 pts in a day, sometimes more.  That weighed pretty heavily on me psychologically.  By using small stops and accepting that I can be wrong 60% of the time and still do quite well, it’s much less stressful.

A criteria for increasing size will be to have a profit factor of 1.5 or greater over the past 2 weeks.  I want it to be obvious I’m profitable and not take chances.  If I loose money I will decrease my size by 1.  If my profit factor is between 1 & 1.5 then I’ll stay at the same size.  2 lots is enough to pay the bills so I’m not going to rush it.  But at the same time I really hope to do more than just pay the bills.  The good thing about this plan is that it allows me to use the profits from the week before to cushion the impact of adding a contract.  I’ve been wanting to do this for a while but I never had my risk under control.   I think I’ve made a lot of progress in this area and am much more willing to accept losses as a necessary thing.  And I think I’m finally ready.  But one step at a time.

So that’s how I did.  I hope you did well.  If you feel like sharing your performance & plan for 2012 please do.

Enjoy your long weekend.




  6 Responses to “Two week trial period of new plan is successful”

  1. Interesting Michael. I enjoy reading your posts as it somehow mirrors my own progress. When it comes to accepting losses, I made some progress as well, but it wasnt something you d wish for :). I ve had some painful emotional moments when I was down and frustrated that I cannot perform better (disappointing my dearest). Whenever I hesitate to accept losses, I try to use the pain, I recall it in my head, visualise it and remind myself that “you gotta lose in order to win !!!!”. I belive that everyone has to go deep and fight his own demons. This is something that worked for me for some time now.

    OK, hope you do well next week, looking forward for your new posts. Have a great weekend and enjoy time with the book and family!


  2. Hey Michael,
    sounds great. You have averaged 3 points – 12 ticks per day with one lot! How many trades have you done on average? 3 per day? Do you have some more stats?
    If you trade 2 lots and you risk 8 ticks you first scale will be at least for 16 ticks (1:2 R:R) ? And then for you second scale? 1:3?

    Enjoy your long Weekend!

  3. Markus – I took 25 trades in 8 days, 2 days I didn’t trade. So that works out to be 3.125 trades/day. I missed a few so I think there is potential to get 5 trades/day. I was very good about not taking trades not in my plan (or taking them on sim where they couldn’t hurt me).

    Before I was concerned with my profit per trade. But now I think total profit per day is more important.

    I have tried to get at 3-4 pts but only a few trades got 3 pts. The past 2 weeks were pretty low volatility and the rotations were often small and having one lot I didn’t want to risk giving it all back. If I see absorption and/or weakness I’ll take that first scale. Friday there were three trades that were “scratched” for 0.25, 0.25, & 1 pt. All 3 would not have made more than 2 pts before they would have stopped out so I did well to scratch them. So far stats, this completely distorts my metrics (such as expectancy per trade and avg win / avg loss ratio) which is why I’m not paying much attention to those. If the two +0.25 trades were -0.25 then the avg win / avg loss would look much better but that wouldn’t have been better for my performance.

    I will say my average win was 1 pt which is what it was last year trading 2 contracts. So I see improvement. And I think trading 2 contracts will allow me to capture a little more and should increase the expectancy. I wrote a bit more on that in the next post.

  4. Michael do you have a specific plan of “getting away from the money”? Something measurable to check how you improved in the “demonetarization” area on a week to week basis. I think this will be very important in the next week when you ll be adding size.

    For example, I can see you check your day to day performance with metrics like avg expectancy and win rate. I will send you (via email) an article from Linda Raschke. In some part she promoting not watching these metrics, she says that can be very stressfull and suppot traders anxiety. Therefore she only checks her equity curve on a month to month basis (she s not a day trader if I got her styl correctly, so that would translate to week to week perfomance check for a day trader).

    Another example of “demonetarization” would be logging your trades in ticks and tick equity.


  5. Petr – You bring up a very good point. I do log my trades in my journal in ticks to help remove the exchange & leverage. Thanks for the LBR article, I will read it.

  6. Thank you Michael for this great blog!

    As Petr says before, I also enjoy reading it because it mirrors well my own progress and difficulties. What comes out from your writing is honesty when you describe your feelings and thinkings, it is not very common when it comes to “real money trading blog”…

    When you come back to Nice, please don’t hesitate to contact me, that’s where I live! (maybe you already noticed this because of my “weird” english…) We’ll have some Rosé and saucisson while speaking about trading 🙂

    One more point: as a professionnal poker player, my brother also learned to only look at his equity once a month, so that seems to be a good way to go in order to achieve “demonetarization”.

    Have a great week-end!


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