The War of the Chats

• Woodies CCI and 9 other rooms on Hotcomm:Relay5
• TradersHaven on Hotcomm:Relay7 (DrBob’s room)
• TradersParadiese on Hotcomm:Relay (Sport’s room)
• (Teddies FuturesTrading Room on Paltalk) (RIP)
• (OurFuturesTradingRoom on Paltalk) (RIP)
• #ourfuturestradinglearninggroup on IRC:othernet (Anti’s room)
• #safari on IRC:othernet (maybe our new room, but sure not mine )

I’m a blind, dumb, easily mislead cretin…no that’s still too good, … but you sure will be able to add the name you like to read there, even if I don’t allow anonymous posts in this blog as I think traders should be able to stay for what they write, same as you have to accept the results of every trade you do.

Ok, the last development in this drama seems to be, that anti is having a second website, that he is trying to sell something as this second website is registered to an Inc named Stock Market Research and that traders asking difficult questions were banned tonight by anti from #ourfuturestradinglearninggroup.com.

This last development lead to my resignation as moderator in anti’s room. One thing I don’t like is banning people, because they ask questions. One time Teddy asked questions about anti and I stood with anti, as I did not like the way these questions were asked by Teddy. And I still stand with this decision, because the way Teddy posed his questions by being away for weeks and then popping into the room and starting a tirade against anti, wasn’t the way to do it. You can’t come to a party, start shouting and asking accusatory questions without having credibility first. Build your reputation first or you risk, that what you have to say will be dismissed as rantings by someone who doesn’t know what he is talking about. Teddy crashed the party and the party decided to go elsewhere. Now the choice is yours. In my eyes Darth, Shamu or Mike have credibility, I know them for a long time and I like their posts.
Sure they can mislead me again and anti is the real deal, but for now I decided to leave #ourfuturestradinglearninggroup.com

I myself once had a Paltalk room registered, but for me this room really was for all to use. The Paltalk room is no longer available, as Paltalk sees these rooms as commercial rooms and is still refusing to reopen my room, even if I paid for an upgrade to a premium room. It was a 1 month subscription for 7.95$ so no real harm done.

Mike now told me, that there is yet another IRC room, where we can meet. and maybe this room is now finally our trading room, where we can just trade, no bashing of other rooms and no gurus.

• The new room is #safari on the othernet (irc.othernet.org).

On how to setup Mirc, see the my earlier post.

Back to business:

I want to trade. Simple as that. I like to be with friends I know trade for real and which I can respect for what they do and stay for. It seems, when most of us, who at some time where in Woodies room, decided to leave or where forced to leave, we exchanged a stable environement with an ever changing one, where everyone follows his or her own agenda.

Don’t follow, decide on your own. I myself actually considered removing myself from chats alltogether, as all this stuff interferes with my trading. I missed 30 ticks up and 40 ticks down on the euro, just because I concentrated on reading a logfile instead of concentrating on the markets. For now I remain, as I like to have company in this lonely business, but I will not lead. I’m no guru. I go my way and a chat is just that, company when there is nothing else to do but wait for a setup or wait in a trade, not yet developped.

Meet me in IRC: #safari on the Othernet

 

If prices go up here, I go Short

Have you ever had this feeling / intuition that, if prices go up to this round number, that resistance, you see on the chart, you will go short (vice versa for a long of course). You stick with your plan and you place your order, it gets filled and, if you guessed correctly, you will be rewarded with 5 to 10 ticks. You feel fine and you will repeat this trade until.. yes until it backfires badly, because your resistance is not just broken through, but broken through without ever looking back, without ever giving you a chance to get out at a decent stop. Why. Yes because the market has first trained you, that you have to trade these countertrades without or with very wide stops. It takes a while to stop and turn a freight train, so you will have made the experience, that eventually a lot of your trades would have been winners, if only you had given them enough room.

On the chart above a short 640.00 would have netted about 5 ticks after ER made a high of 641.20. Shorting this top into the next run fared a little better as it gave you 1.20 points after making the new high at 641.90.

But is that really the way to trade?
On a trend day sure no. If you think, you have identified a possible Support or Resistance, look for an entry signal now (use a lower timeframe, if your regular timeframe doesn’t offer one), take the trade in the direction of the trend and get out at the resistance you identified, if, yes if  you got a signal to exit.

On a range day, maybe. Look at this ER chart from just 2 days ago. ER trading in a 4 point range until it broke to the upside into the close.

Here you had to fade the previous Top’s or Bottom’s, just to make a bit of money.

But how to distinguish between the two types of markets, before they happen? I have a 20ema on my chart. If the Line on close which you see on the chart swings above the 20ema we are in an uptrend, if it swings below, we are in a downtrend and if it swings around the 20ema we are in a range. Too simple? Who said trading needs to be difficult?

Next simple market principle: After a trendmove follows consolidation aka range follows trendmove. It is rare, that you see V shaped moves, unless they are caused by news events, in which case it’s more like the market oscillating into the new pricerange. So add a few simple trendlines to your charts and you are set to go.

Just one thing more. To fade a market, you still want the market to trade already in your direction before you commit, meaning you trade with StopLimitorders giving up 3 or 4 ticks. Make sure the range you trade is at least 20 ticks, otherwise it is not worth trading. If you enter on a Limitorder be aware, that the train might need a bit of time before it stops and turns around. But don’t give it too much room, as you might just have faded the beginning of the new trendmove.

Virus Warning

I just got a Virus from someone using my own email address as sender

Don’t open the File Kitten.zip. It contains a virus

New Room on MIRC

We have moved to MIRC

You can find us on the Othernet (irc.othernet.org)
Channel #ourfuturestradinglearninggroup.com

Setup:
Select Tools/Options
  Select Connect
  Enter your Nickname
    Select Servers
      Select the Othernet network and as IRC Server: Othernet: Random Server
    Select Option
      Check: Connect on Startup / Reconnect on Disconnect
    Click OK
Select Favorites
  Click Organize Favorites
    Select or just type in #ourfuturestradinglearninggroup.com and click Add
    Click Edit
      Check Join on Connect
      Click OK
    Click Join
For your first steps you should be done

You might find further instructions on the Forum

Our FuturesTrading Room Temporarily closed

Paltalk this morning closed OurFuturesTradingRoom.

They said, we do commercial business there and have to switch to a paid room.

I have now paid for the room, but until this issue is resolved I’m unable to open the room

I’m really sorry about this problem and hope to have it solved soonest

Payout - Payback cycle

A few weeks ago, I got hit hard in the market and, as usual, being shaken, trying to right myself up again, I found a seemingly fitting article, explaining what just happened to me. Bo Yoder wrote about the inevitable Payout / Payback cycle all trader have to go through.

As the excerpt from his book: Mastering Futures Trading did not answer all my questions, I got myself a used copy on Amazon. I know, I know, I stopped reading Trading books about two years ago, but as I said, i was emotionally shaken. And this excerpt prompted to an answer of these shakeouts my account was experiencing now and then.

Last week the book finally arrived and was put to all my other trading books, as I was out of my doldrums and steaming along nicely again. So why look into it at all. Still a nagging thought remained, Fridays trading was shaky with 2 trading errors, so over the weekend I took the time to read chapters 6 to 8. These cover amid other subjects the Payout / Payback cycle Bo discovered in his own trading.

Actually for Bo this cycle means, that due to the cyclical nature of the market your trading signals, when taken exactly according to your plan will sometimes work fabulous with huge follow through, and sometimes just die, giving you one stopped trade after the other. His answer to this cycle he discovered, is identifying the signals, which tell you, that your tradesetup is losing his edge, stepping away from the market or reducing your position size in this case and reentering the market with full force, the moment the Payout cycle is diminishing and the market is swinging back to Payout mode.

Looking at my tradebook and account, I could identify such cycles, even if in my case they are more seasaw like Payback cycles. It was 3 to 4 weeks nice regular trading with about 1 week of payback disaster, which brought me back to zero gains. Actually up to December last year that was a very common experience. Partially it might have been changing market conditions, but mostly it were trades gotten out of hand which started my drawdown periods. Thinking back usually they were accompagnied with emotional turmoil caused from other aspects of my life, which needed attendance and which should have caused me to stop trading at all. But after having broken out of this seasaw cycle, this years drawdowns were usually started by changed trading methods or plain and simple by trading errors I thought I had left behind, which suddenly reappeared under more complex conditions.

None the less, what sparked my disaggreement with Bo’s Payout/Payback cycle theory, was not the theory itself, which sure can explain nicely some of the results we see in our own trading, where sometimes we do everything right and still the trade has no follow-through, but the seemingly unavoidability of the cycle itself.

I recently heard a statement: I don’t know how much I will make each day, but I know I will make something

And tell you what, that is such a positive statement, such a great motivation to take the next trade, that I started to look for the flaws in the Payout/Payback cycle theory, which would bring this statement in line with the theory.

What is a trading edge? It is a pattern, a combination of price behavior and indicators or something else, which on average will give you winning trades with such a follow-through, that it is worth the risk to take the trade. But it is a statistical number. It sure does not give you trades with 100% probability to win. Otherwise noone in his right mind would take the other side of your trade.
Actually the longer I trade, the more it seems, that a lot of patterns in the micro-timeframes just a short time after you open your position have a probability of 50% and it is nothing but random which decides if they work or not. It’s your trade-management which decides whether the trades hurt you or not, not the tradesetup itself. This would explain the Payout / Payback cycle theory quite nicely, as sometimes the patterns you have identified to give you a good number of winning trades, suddenly are faded a bit harder by the traders on the other side of your trade and suddenly its for them to enjoy the Payout cycle, while you yourself with your flawless executed trade are in the Payback cycle until the pendulum swings back again.

But this throws a different light on the inevitability of the Payout/Payback cycle. It might be actually avoidable, if you recognise the signs, which tell you, that it is time to switch sides, to go countertrend instead of with the trend or vice versa.

A double top is usually sold short, but of 100 contracts sold near the top there are as many contracts bought. Are these traders dumb? Sure not, for them the Double Top is a fine reason to buy/add to their position, because they think the price will be higher, when it is time for them to sell their position. Recognize the signs, when it is time to join their ranks, instead of following your plan, which says “Short the Double Top” and you should be able to shorten the Payback cycle.

Sure, this adds an element of discretionary trading to a mechanical plan, but if your inuition says Go Long the Double Top after you trade a contract year in and out, you might better listen to this intuition and look for signs, which will support this thinking.

Short 1200 on the ES on a possible DT on May 23 with divergence between price and cci. The trade gave you about 8 points max in 2 days, but looking at the further development in hindsight, going long the possible DT into the expiration in June proved to be the right decision. Payback for the shorts, payout for the longs. Now, with quadruple witching behind us, it might be, that the shorts finally will get rewarded, that the pendulum swings back again, that shorting the 1224 high, in case it gets retested at all will work again.

Let us know what you see in the mirror

Cantgetadecentnick posed interesting questions about the reasons why I write this blog, which I want to answer in the blog directly.

Writing is a way to focus myself. While usually I have a theme to write about, I don't know what the result will be, when I'm finished writing the article.
The last article was planned to be an article about Stopsize, because I had read a comment in a Yahoo group, where someone claimed to successfully trade the Euro currency futures with a 2 tick stopsize, but then complained about getting stopped out of decent runs.
You all can read what it became instead.

Writing this blog, as writing the Tradejournal I did for about 2 years, focuses my thoughts, it’s a way of my subcontious mind to express itself, if I don’t think about what I write, but just let the words flow. So, while on the one hand I’m interested in your thoughts and ideas, I don’t depend on them. Sometimes very valid points are made about flaws in my reasoning, as you all can see, when you read the comments about my series re the Defense strategy. Sometimes I get no comments, but nonetheless just writing about something tells me, what I’m really worrying  and thinking about on a deeper level of my mind. I’m writing articles for computer journals for about 10 years now and it always was the case, that I never knew, what would be the gist, the spirit of the article I was writing before I had finished the article.

I have had a real big emotional problem increasing my tradesize recently. Why? Because five years ago I got hit hard not being able to manage a size too big for me, losing about 1/3 of my then decent account in 10 minutes. Then I was still trading stocks and I played a hand too big for me with tools not suited for the task. Nonetheless, the wound festered and hindered my further trading career to a point, that I came to a standstill, even when I finally had learned, what to do and should have been able to increase my trade size again.

I recently met a trader, whom I see in the league I wrote about. She agreed to mentor me and help me along on the way. Why? She doesn’t want to sell me something. She has no trading system to offer. Still everything you do has some motive, some purpose. And in trading I became aware of something I intuitively always felt: Helping others helps yourself.

She talked about the size she handles regularily and this alone started the thought process which resulted in the article Risk vs Reward. After writing the article I was able to increase my size without the nagging thoughts in the background of my mind, that I would be unable to manage the risk, which comes with the increased size.

Trading is a lonely business. Most people you met in chat don’t trade real regardless what they say. It’s one thing to speculate, to formulate a plan in your mind, to write it down and to try to follow it in your daily trading. It’s something totally different, if you see a plan in motion, traded by someone else. By someone you respect for her trading ability. If you see how the risk of increased size is managed. If you see, that there still is no Holy Grail. That it all still boils down to your statistics. To do what you already do successfully, just with increased size, so that the return you get increases. Trading should be easy, should be fun. And it is, if you trade your plan, if you have rules, if you follow them and know when to apply them stricly or when to bend them. It is fun to learn. To see new ways to trade the same old stuff. To see, how it’s done successfully and then to build on this to integrate it in your own trading system, to make it your system.

You asked, if I can make the transition to the higher level? A few weeks ago, it was a dream I thought realistically impossible to achieve, because I knew I would not be able to handle that kind of size. The worry was too big. Now I know someone who is doing it. Now it’s reality. And I can achieve something real.

Risk vs Reward

What distinguishes a normal trader like you or me from the super traders?
Have they found the Holy Grail? The 100% winning method? Sure not!
What they do is being able to take extraordinary risks to gain extraordinary rewards.

Most of us have at one time or another looked at a tradingscheme like this one:
How to be a millionaire in 30 days, when you start with 5,000$ trading the ES:

Looks good! But we all know this system has just a tiny flaw. It’s not being able to do 6 trades a day for 2 points ES / trade. This is sure posible, even on a consistent basis. And if you don’t see it in the ES, use the Euro currency futures instead with an average 80 tick daily range minimum, each tick 12.50$ and according to our example you need to do just 8 ticks/trade in the Euro, as this corresponds to the 2 points ES.

The problem is the extraordinary risk this system takes to get the maximum reward.
You think you can swing 6 contracts? Yes, I think so. Even when you experienced a drawdown of 3 losing trades in a row and see your account down to 4250 (10 tick stop assumed)

10 contracts, ..25 contracts, ..100 contracts, meaning 1,250$/Tick? You start to see the problem. On the Euro you might be able to swing 300 contracts max, without the risk of not having enough liquidity from the marketmakers. On ES you should be able to trade 1000 contracts or 12,500$/tick.

But are you made to do that? Are you able to sleep well, if you lost in 3 trades on a 10 tick stop with 100 contracts, or 37,500$, make that 375,000$, if you trade 1000 contracts. And 10 ticks is no extraordinary stop on the Euro.

You will tell me, Chris, I have 5,000$–20,000$ in my account and I’m trading 1 to 3 contracts max. I’m not looking for this 30 day scheme. Correct, but if you don’t think about it, you will never be a super trader. If you can say I’m consistently profitable, I can support myself, my family with my trading. I won’t get rich, but it’s ok, then you are already within the 15% elite of the people trading for a living.

None the less, think about trading a bigger line, once you are consistently profitable. It’s a lot easier to do what you do right now with more contracts, than to invest time and worry into squeezing out another 1% out of your already winning system.

Just make sure, you can afford the losses without losing sleep. This means a good trade and money management system.
This means being able to pull the stop, the moment your Stop has been hit and not freezing, because you see yourself down 2,500$ on 20c and a 10 tick stop.
I don’t say trade with a 10 tick stop. I don’t say, use any hardstop at all. Have a disaster stop in place for sure, but if you use a hardstop or if you wait until the chart tells you your setup is no longer working, is a tradesystem decision you make before you take your first trade. Just don’t screw around with it during the trade. Once the trade is open, you have to know what you do. Where is your stop, or what will tell you on the chart that the trade is no longer working. Where is your exit. What will trigger an early exit in case the intended exit is not reached. When do you move your Stop to Breakeven plus 1 tick.

Learn doing the right thing with 1 contract. Once you can do it, increase the line to 2 contracts, then 3, then 4, then 5 and continue doing the right things, the things you always did, the things which made you profitable trading 1 contract. If you start losing sleep, if you get squirmish in the trade, take a step back. Trade less contracts, take a break. Once you feel well again, return to the screen doing the things you always did and increase the number of contracts again.