Feb 272012

Trade 7 – I took one gold trade that stopped out.

Trade 8 – This was my big plan for today.  Either the edge of the micro-composite profile holds or it doesn’t.  I could have been a little more patient with my entry (I kind of jumped the gun) and took 6 ticks heat.  I also jumped the gun on the exit.  I didn’t know it at the time but the audio on my PC wasn’t working and so I didn’t get a news alert for the news release.  When the news came out I saw a ton of activity right at a minor resistance level and so I took my profit.  Way too early.  I had a good R:R setup and I didn’t profit from it.

Now is a good time to explain my thoughts on trading 1 lot and scaling out:

I went back to 1 lot because I wanted to work on having a tight stop and test out some modifications I did to my trading plan.  I’m still not finished with this however I feel I’m missing out on opportunities by not being able to take a scale.  My bund trade (Trade 2) was practically the low of the day and it zoomed up into the stratosphere without me.  My scale there was per my rules, so I executed ok.  If I had 2 lots on, I could have captured a larger part of that move.  And the same exact situation happened in ES (Trade 8).  I actually jumped the gun on the exit, it wasn’t per my plan but was based on my read there (which was disturbed by the news I didn’t know about).

So now I’m convinced I need to trade at least 2 contracts.  However, I’m not convinced that scaling at 2 pts is a good idea.  Someone today asked me when I scaled on Euro and they said something like 6,8, or 10 ticks?  I don’t scale on Euro.  I want a 2:1 minimum and my risk is 10-15 ticks so I’m going for 20-30 ticks.  I know this will have a lower win rate but I’m not yet convinced that a 1:1 ratio on half the position is a good thing.  My thinking is that the first contract should be able to stand on its own and be profitable.  If one risks 10 ticks and takes the first contract at +4 that is not likely to be profitable because it would require an extremely high win rate.  A 1:1 ratio would be the minimum I’d accept on a first target and I’d really like this to be 2:1.

So starting tomorrow I will trade 2 on ES, Bund, & Stoxx.  However Euro, Gold, & Crude are still experimental so I’ll continue doing 1.  I don’t want to risk $500/trade on these markets when I trade with real money.

Also, since my audio wasn’t working, I didn’t get alerts for gold & crude and I missed some trades that would have worked.  That’s bad luck.

So today 4 pts trading 1 contract on ES (trades with orange boxes).  That’s a really good day money wise but had I been patient & trading 2 it could have been better.

All feedback is welcome, thanks for reading.


  4 Responses to “Afternoon Results 2012-02-27”

  1. Michael,

    If I may ask, what do you see as the purpose of your first scale? Making money, yes, but given your trading style and personality…

    Do you take the first scale so that you feel more confident holding the later scales as runners? Take a first scale rather quickly improves your average position, too. If your entries are good, but not great, and you’re not giving them enough time to work because your stops are too large, this might help. What does the Max Favorable Excursion look like on your trades? If there are often a certain number of ticks in your favor, then that might be the place for the first scale. Especially on the ES where 2 pt rotations are common, so if you don’t get a good entry, the first scale will likely be at 4-6 ticks.

    I ask, because if you want the first scale to have a 2:1 reward:risk and make money on its own, then why scale? If that’s working, then just increase size. But, to me, that’s the more difficult path to take. The first scale should have a high win rate; the second scale (and so on) should be more like a trend following strategy–lower win rate, but much better risk:reward.

    P.S. My wife and I are in Paris at the beginning of April, if you’d like to meet up with a fellow developing trader.

  2. Hi Jeff, with ES lately (2012) I go for 3-4 pts and I take my scale earlier (which means exiting since I’m doing 1 lot) if order flow justifies it. So my first scale will be variable and I hope, optimal.

    If the 1st scale is 2:1 then you ask why have a 2nd? The reason is the 2nd can be 3:1 or an even bigger target (gap fill for example).

    I understand how people use the first scale to “pay for” the 2nd. but it doesn’t make sense to me. if that first scale isn’t profitable on its own then one could remove it and trade only the 2nd lot and the expectancy would improve. so mathematically it doesn’t make any sense at all if the first scale isn’t profitable on its own.

    Psychologically I can understand how it feels good and lowers risk and allows one to be more patient with the rest. I guess I have to determine if I have that psychological need. I’d prefer to work on not needing it rather than just do it.

    Of course if one can get that first scale with a high win rate then it makes sense. And trading off key levels usually does produce a 2 pt bounce.

    So still up in the air on all that. This year has messed with my head more than anything else and I think psychology could be holding me back more than anything else. once one starts losing the psychological costs are high and it’s hard to climb back out. like an alcoholic who has a few drinks.

    I think it’d be nice to meet up in Paris if you have the time, I’ll drop you an email about that.

  3. Michael,

    As someone who watched you last year and follows you FT71, and Rob everyday, I’m really wondering why you’ve gone for this more scalping style approach. I understand your desire to tighten your stops but tightening your targets does nothing for your win ratio and kills your expectancy.

    Outliers (in your favor) are still the key to good trading even when the market has been indecisive (which it has been for the last month). If you had held trade 8 to the logical conclusion of the 67-70 levels on even a partial position it would make your month.

    I totally agree that your 1st position must pay for itself. The logical scale out points from your trade 8 were 1356, 1359, 1362, and 1370. However, the first scale out that makes sense from an R:R is 59 (5 point target, 2 point risk). If you had 2 contracts go out at 59 on 1 and hold the other for the fences (70 was the fences this morning). That gives you 10.5 points average on 2 points risk. This will give you the expectancy you want but it takes patience and conviction to trade it.


    P.S. hope that doesn’t sound too critical. I really like your blog and twitterfeed.

  4. Edward – I appreciate your honesty and I value your feedback. this is precisely why I like to do the blog, to get good constructive feedback. And I’m glad someone agrees with me that the first scale must be profitable.

    I totally agree with you on the “scalping style”. I think that is a result of having been robbed so many times in the low volatility environment we’ve had this year. Many times I go for more and give it all back. So now I have this urge to take 2 pts when they’re there. I know this is not good. I do not have this problem on Gold, Crude, & Euro (you can see that by looking at the MFE in trades 5 & 6). These are on sim so that could be a factor however I think it’s more due to the fact that I know these markets are capable of hitting my target and I believe in it. With ES I’m full of doubts. I’ve taken many 2 pt trades in ES lately. If I had tried to go for 4+ on those many would have ended up losers.

    I have been using volume & footprint to time entries. Unfortunately this also can encourage me to get out of a winning trade. I must avoid this. There will always be sellers when ES moves up 2-3 pts. It doesn’t mean the move is over.

    If I trade 2 contracts it will make it much easier to stay in for the bigger trades. So when everything lines up I’ll be entering with 2. If it’s not perfect, I’ll enter 1 and wait for more information. this way if I take the first scale too early I’ll still be in the move.

 Leave a Reply

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>