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.