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:
- Only trade at key areas.
- 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.
- Only enter with an automated signal
- Be very patient with winners, allowing them to stop out if needed.
- 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.