Mar 182012
 

A while ago I mentioned listening to Dan Gibson’s Solitudes while trading.  Lately I’ve found something good: Spotify.  There is a ton of music there and lots of boring, relaxing, meditation type music that I wouldn’t normally buy but that I like to have on while trading.  I think Spotify is going to revolutionize the music industry.  For 5 euros/month you can have unlimited music.  My favorite at the moment is the music you’ll find searching for “bansuri”.  I like it so much I am going to buy me one of these bansuri flutes.

This past week was a very interesting week because, for the first time ever, I decided that I would only enter when my automated order flow algorithms gave me a signal.  I’ve been developing these algorithms for over 2 years and I’ve been using the signals in my trading for many months.  Last year when I was pretty consistent, I was using these signals.  For some reason I kind of unknowingly stopped doing that as I changed my plan around and learned some new setups from other traders, setups that weren’t really compatible with my signals.  That didn’t go so well so last week I decided that I would not enter without a signal.

The biggest impact this had on my trading was that it kept me from being early.  And that was a very good thing.  It also helped me to be more mechanical and make my entry decision easier (get the signal, hit the bid/ask immediately).  I’ve posted charts every day showing the signals (the blue & red markers) along with my trade markers (cyan & magenta).  I was especially proud with my signals which have performed well when taken at key S/R areas.  I plan to make these available publicly in the future but I’m still working on how to do that.  For now I am using a private Twitter account to tweet them real time on Twitter.  In the near future I hope to have a Ninjatrader indicator that will display them on your own charts in real time.  If you’d like access to these signals, please let me know via the contact page.  All I ask in return is your feedback in order to help me improve the signals.

This week was a pretty good week but I’m not out of the woods yet.  I picture trading as a series of levers, with the profit & loss a result of how we move those levers.  On Twitter there is a guy who tweets “if you do … you’ll win 80% of the time”.  He’s talking about the win rate lever.  But you can’t trade with one lever!  Expectancy needs at least two, the remaining being the risk/reward.  If you win 80% you can risk a lot for a small reward.  The opposite end would be to have a low win rate but a very high reward compared to risk.  Looking at my results last week it’s easy to see which camp I am in:

 

I will point out that I did not take excessive risk and the majority of trades were 1 lot.  I used to use very wide stops, 4-6 pts and sometimes even more.   But my goal at the end of last year was to use tight(er) stops to avoid the emotional drain when taking a large loss.  So this year I have used 3-4 pt hard stops but I’ll bail out earlier if I need to.  So I had a high win rate but I didn’t take excessive risk.  How did that happen?

I simply cut any trade that didn’t take off in my direction.  This wasn’t intentional, it just kind of happened.  If went 2 pts and then turned around I got out with 1-1.5 pts.  If it didn’t go 2 pts I just scratched it.  I’m just now realizing this while writing this post.  It wasn’t a conscious thing.

The advantage is I didn’t have a lot of risk and I did quite well.  I exceeded my 2 pts/day goal.  The disadvantage is I got myself out of many trades that would have been big winners as well as a few that would have been losses.

So which is optimal?  I’m not sure.  But I think if I had been more patient and given my trades more time to work and trusted my stop, I think I would have done better.  So that’s my focus for the upcoming week.  I don’t care if I take some losses.  I want to give my winners room & time.  And I’ll see if that improves my results.

There are more levers than just two, and I’ll write about them in a future post.  What’s fascinating is that every time I think I’m ‘there’, I experience some kind of set back that sets off a personal discovery process where I learn a lot more about myself and trading.  It’s amazing.  I’ve thought I was ‘there’ many times.  Each of these experiences adds to my knowledge and skills, so it’s a process of going two steps forward and one step back.  January & February were 1 step back and I think I’m back on track again, moving forward.

So the plan for this week is simple:

  1. Only trade at key areas.
  2. Only take trades with good R:R.  If the R:R isn’t good, wait for a better entry with lower risk.  Avoid front-running key areas.
  3. Only enter with an automated signal
  4. Be very patient with winners, allowing them to stop out if needed.
  5. Be very selective scaling.  Go for 2 pts minimum and ideally 3-4 on first scale.  Target the next key area with the second half.

 

Good luck to you with your trading for the upcoming week.

 

 

  3 Responses to “Week in Review 2012-03-12 to 16”

  1. I like your plan for next week. Judging by the signals and the trades that you took last week you can get more out of your trades. Your signals were great and with another contract and a scale I think you will have confidence to let your trades work and attempt to get a runner. Looking forward to watching your signals next week.

    Paul

  2. I am glad to hear you had a good week. I so appreciate the honesty of your blog. I am finding that if I only took trades around the EMP zones, my week would have been a solid week. But unfortunately, I’m still a bit skeptical about those zones (only been subscribing for two weeks now) and am reluctant to trust in his read. I want to learn to fish, not to be fed the fish, if that makes sense. I would be very interested in having more information regarding your signals or triggers to help you confirm the entry of a trade, especially on a short. Since this market has been so bullish, I hesitate to take a short around the zones, but there have been plenty of rotations off of the Resistance Zones to capitalize. Thanks, again for your posts.
    Robin

  3. Paul – I feel if I add a second contract and give myself permission to cut the first contract quickly, it’s still cutting winners short. Yes it’d be better because I’d still be in with half the position, but I think I need to fix my “cutting the winners short” problem and maybe it’s best to do that with 1 contract. I’m still undecided, for now if it’s a perfect setup I’ll do two and if I consider it risky I’ll do 1. I’ll see how that works out. But even if I do 2, I want to imagine it’s 1 and not scale too quickly.

    RPK – This blog has been a huge learning & self-discovery process for me. So if I wasn’t honest then I wouldn’t get any benefit. It’s easy to pretend to be a great trader and cherry pick winners but that’s not going to help anyone improve.

    I agree about skepticism in general and about the zones. I’m very skeptical and I can say it’s taken me months of observing the EMP zones and a few months without them to really start to trust them. I don’t trust them blindly but I use them to compliment my own homework. One major reason I do that is because the zones aren’t updated for Globex, so I have to do my own homework. A perfect example of this is my first ES trade this week. Price dropped below the EMP support zone however it stopped at Friday’s low which was a key level for me – even more important than the EMP zone which is leftover from before Friday’s RTH session. The lack of a signal going into the EMP zone kept me out of trouble and then the signal right at Friday’s low was perfect for a 2 pt bounce. I was hoping for 3 but I took 2 because ES found resistance.

    http://screencast.com/t/IEfOToWnCM

    I hope this example shows why it’s important to do your own homework and how the zones can be a great compliment to your homework. And the signals help confirm the zones/areas too.

    Whether I short a zone depends on my read of the market, its strength, my read of order flow, etc. A signal at a resistance zone is usually good for at least a 2 pt scale and if lucky a trip down to the support zones.

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