Jul 312012

I’ve been reading a couple books on trading stocks since this is something I can do outside of market hours.  The first book is How to Make Money in Stocks by William O’Neil.  I’ve read this book before and used to trade stocks with the O’Neil approach until I switched to ES, but reading it again now was like someone turned on some major lights.  I guess I’ve really matured as a trader and now I’m ready for O’Neil’s teachings.  I thought I understood it years ago but I was wrong.  Just like maybe in another 4 years from now I’ll understand it even more than I do now.  I’ve heard of people reading it 20+ times.  It’s that good.  I’m sim trading some stocks while waiting for my account to be re-opened at Interactive Brokers.  So far the results are ok but it’s just for practice.  Soon I’ll be trading ridiculously small sizes with real money.  I like the fact that we can do that.  If anyone is interested in collaborating on trading stocks using the “O’Neil approach” get in touch with me.  I stopped it in 2008 when the top wiped out my gains and then some and focused on day trading.  So I still consider myself a beginner at this approach.  I’m not necessarily going to trade exactly as O’Neil (buying breakouts), but there are a lot of good ideas in that book.

The next book is Trade Like an O’Neil Disciple which is written by two of his former employees.  They made incredible gains, which the authors claim were audited and verified.  They tell how they did it.  If there was a book written by a futures trader who had his trading records audited by a big accounting firm, then I’d be very interested.  I am not aware of any such book.  Why is it that we have stock traders with verified track records but no futures traders?

This second book is really for people who have read and appreciate the first book.  It goes into detail about various stock trades.  That was the boring part.  The great part was all the little bits of wisdom from William O’Neil.  I have to be honest, I skimmed over some of the details on previous trades but I took a lot of notes on the teachings of O’Neil.

Here is an example quote:

In the end, traders must insist that they trade alone, free from distractions and interference from the outside world, whether such distractions come from business partners, the media, or any other source of external input that can throw you off your path. Remember this rule: Trade your plan, and plan your trade, and do it all with a minimum of outside influence or input, preferably remaining in the Livermorian ideal of “trader’s isolation.”

When I read that, what immediately came to mind was Twitter.  I know what I’m looking for and I have rules telling me when I can enter, where to put the stop, where to scale, etc.  So why do I need twitter?  Since I read that quote last week, I completely exited my Twitter client.  It’s hard to break a bad habit so occasionally when the market is slow and I know I don’t have a trade coming, I’ll run Tweetdeck and read the recent tweets and then quickly exit having realized I’m better off without that distraction while trading.  There are some excellent tweets from FT71 and GoldTrader, but they don’t trade like me so it’s better if I read their tweets when I’m not trading.

Two days in a row that I’ve come up empty handed in my 90 min window.  Yesterday I didn’t take any trades.  Tonight I took a shot at a long at 79 but scratched it for a tick.  That’s one reason I started writing this blog post, to keep me busy so that I won’t force a trade.

We haven’t given back any gains over the last two days so my big picture bias is still bullish.

I didn’t meet the Velocity minimum and they have not replied to two customer support enquiries about it.  So I think they’ll sock me with a 30 euro fee.  In a few minutes I’ll deactivate my platform and trade with Mirus next month.  Mirus has slightly higher commissions but no minimum and since I’ll be on vacation for most of August, Mirus makes more sense.

Good luck.


Jul 292012

I’ve started to settle into a new groove working full time.  It’s not an easy adjustment to make. It’s no longer possible to play flute when my work is slow so or go running in the park during lunch time.  The 1 hour runs 3 times a week has been replaced with 1 hour of walking to/from work (I take the train half way and walk the rest) and a run on the weekend.  Time will tell if this is enough exercise.

In the evening I’ve got the routine down.  I try to get home around 6:30pm and give the kids their baths while my wife cooks dinner.  After dinner we play games with the kids for about an hour and then get them ready for bed.  By 8:30-8:40pm I’m at my desk looking for an entry in my 90 minute window.  I get one good trade and win or lose I turn my PC off and I’m done.

Surprisingly, this routine has worked very well.  Last week I averaged 2 pts/day trading 1-2 lots (so let’s say 2).  That’s 1 pt/contract per day.  That’s very encouraging as it’s on par with my average performance trading full time on good months.  I’m very interested in the possibility of making 1 pt/contract trading only this 90 min period (and it’s usually less than 45 minutes, my latest exit last week was at 9:12pm (3:12pm NY time) 45 minutes before the cash close).  In short I am doing in 45 minutes what I was normally doing in a full day.  Is it realistic?

As I wrote in a previous post, I had to adapt my trading method in order to reliably find an entry in my trading window.  This resulted in what some may call more of a scalping style.  I’m not sure if I’d go that far to call it that but it does mean tighter stops and smaller targets.  The key is getting the market direction correct.  I’m not trying to get a big winner, ideally 1.5-2.0 pts on first scale and 3-4 on second.  When that is consistent then I can add a third contract.  But I want to prove the first 1-2 are profitable first.

Here are the 90min stats since I started trading this window.  I keep these in Excel because it includes days that I traded full time (the excel filters out only trades taking in the 90min time period).

I put boxes around the key metrics.  The win rate is good, perhaps a little high, so I will be watching this.  Too high of a win rate can be one of three things:

  1. an inverted R:R (bigger stop than targets)
  2. short-term luck
  3. a really good read on the market

It will take some time to find out.  My biggest stop this week was 3 pts and to compensate for that I only did 1 lot.  I got +2 on that trade.  That’s the inverted R:R I want to avoid.

The average trade has expectancy of 1.18 pts.  That’s much better than a tick or two which I’ve had in the past.  The profit factor is really great at 3.02.  The avg win / avg loss is less than 1 but this metric is easily distorted by scratching at +1 tick.

Overall results are very encouraging and I’ll continue the same plan next week and see if the results are in-line.  One of my biggest issues in the past has been the lack of a repeatable method due to too many discretionary inputs.  I think I’ve made progress in that regard and that my current method is a bit more mechanical and more repeatable.  Time will tell.

On a final note, these results are all from the time when I knew I was going back to consulting.  That greatly eased several psychological issues such as the pressure of relying on trading for an income and the pain of losses.  I now I have a fixed daily income that is more than sufficient to meet our short-term needs and so the pressure is off.  I think this is very much responsible for the improvement in my trading results.  I don’t have to be afraid of a loss because it will be small compared to my consulting income.  And I don’t have to make any money trading in order to pay the bills.  I think the impact of that is huge.  So if anyone is currently in a similar situation, working full or part time may actually help your results.

On a macro level, the big gains on solid volume the past two days give me a bullish bias for the upcoming week.  But that could change should any bad news come out of Europe.  So really taking this day by day.





Jul 212012

I was discussing with a few other traders about EMP zones and one asked how my zones have worked for me.  My answer is my zones have worked very well for me, however I’m not sitting and waiting for price to come to one of my zones.  I’m just using them kind of as a milestone for how the market is doing and where it might go next, and I’m looking to get in on that move on pullbacks to S/R at a micro level.

I feel like making the zones is pretty easy and repeatable.  I do it myself every day and it usually takes me 10-15 minutes tops.  Sometimes 5.  No magic involved, just looking support & resistance and areas of low volume.  Confluence is best.

What I like about my zones is often they’re an exact price.  So no guessing.  And if I have a 1 pt wide zone, or rarely, 2 pts, I know why.  This gives me more confidence than if I had used someone else’s zones.   I’ve noticed that just about any set of levels or zones will look good in hindsight, so it’s how you use them real time that really counts.

I would make these zones available on my blog however since I’m only trading the last 90min I often make them right before I start trading.  However, when I do, I make them as of the close of the previous day.. I don’t take the current day into account.  I do this because the current day is easy enough to see on my chart and also I want to keep my zones consistent and have them always as if I had done them immediately after the RTH close (which I would do if I weren’t often in bed by then).

Comments welcome.  Do you make your own levels?  Do you use someone else’s?  Do you pay for them?  Do you draw them by hand?

Shameless plug:  My zones indicator will plot them on Ninjatrader.  I use this to make my zones once in a text file and have them displayed on all my Ninja charts.  But that’s half of it.  The other advantage is if I go back over the week, I can see how my zones did historically.  And since I created each one myself, I know exactly why.  I’m considering adding a feature to have each zone labeled with a comment about the zone.