Happy New Year

I wish you all a healthy New Year 2007

May you have the discipline to make your dreams come true

Bias

Trading on a longer timeframe is something of a goal of mine to be achived next year. I follow news bits -as we all do most likely- and when I find something, which might affect the longer term bias I'm storing it in the back of my mind letting it influence my bias. Nothing for a daytrade on the 5min chart, but starting on the 60min chart I expect such bigger moves to become apparent
I just read this article about the Emirates selling US-Dollars, 2 days ago there was a news clip about the UAE Central Bank adjusting it’s reserves out of the US-Dollar as well. I also read this article about the Euro/Yen being bought through the Majors, by buying Euro/USD and buying USD/Yen, which is USD neutral for the trading firm. Still the transaction pushes Euro/USD and USD/Yen higher.

As a Euro trader it means for me, there are now 2 good fundamental reasons to see the Euro appreciate further and I would expect moves on the longside to carry further than countertrend moves down

Healing

For the last 2 1/2 weeks I'm struggling, I have lost considerably

but I'm not really willing to change my trading approach, as it has proved to be correct

I've made trading errors, I know them,

the markets have changed in the last 2 1/2 weeks as a look on any daily index chart will confirm

we have no longer a smooth ride, we have high volatility

and being wrong means

even when you might be right at the end of the day,

my disaster stop is likely taken out first

This wide stop approach has proved correct the last few months, but now it turns against me

as i can not really afford having series of disaster stops taken out. Someting which happened to me the last weeks

Yesterday even the good signals seemed to stop working and you know the feeling

you consider the best approach might be fading yourself

I stopped trading when I got that feeling

and then I found a post from Bruce in NQoos old Yahoo Group

actually it was a sentence prepared by the addmission of having gone through a big streak of losses

 

Jim chatted with me for oh well hour or so maybe more  and basically showed me that I was tired really tired I had done the work it was now time to back off back right off and “Let it be easy”

 

I put your post into the hall of posts to be saved for reading when there is need

I shut down the computer.

I went to bed early

This morning I removed the distractions from my workspace

 

I kept the 60min charts of certain instruments I follow, but I removed the tradecharts of the 2 or 4 instruments I usually follow, replacing them with different timeframes of 1 contract

 

At 7:30 I started trading the HSI,

a contract I had struggled the last weeks, as it moved out of sync of it's peers. Something I'm definatly not good at, as part of my method uses the "a trend is seen in all comparable instruments at the same time" approach. So Nikkei being up 100-150 points and HSI selling off, actually crashing doesn't fit that assumption.

At 8:15 I was up 76 ticks doing 3 trades

 

I had removed any reference to other charts, looking at this contract alone, and suddenly it worked again.

I saw support, I saw resistance, I was able to take a signal and was willing to take the stop as it was again clear where it belonged, where my signal would have failed.

No need to add on a loser in the hope it might come back

 

I took a break then, as HSI was trading at an hourly resistance which proved to be a deadly trap for any longs taken near it in the last few days

 

Now I will see, if I make another trade today

I will let it come to me

I have certain ideas where a trade might develop, but if not,

fine

 

A deep cut with a sharp knife, a broken bone, an accident

it happens in the blink of an eye

 

The healing

it takes weeks

take the time and the bone will be stronger, it will never again snap at that point

it might at another point, but broken and healed you've become stronger

Two Datafeeds

Do you use one datafeed for trading and another for charting?

EG: your broker is IB, but your charts are build with ESignal data

I used to do so. I had ESignal for years, then for a time I used DTN/IQ.

 

Some time ago I realized that for my trading it was more important to have one reality.

 

Trading is stressfull enough at times. In a fast market you might want to enter now, as you got a signal, you might have to decide in a split second whether to exit or to add to your trade.

 

But in a fast market datafeeds tend to diverge and at times ESignal and DTN/IQ tended to diverge considerably from IB's data.

 

What did that mean for me?

Do nothing, I couldn't because I did not know what was real, what was the reality I could trade.

 

My charts showed me one reality, the reality ESignal was giving it's customers, IB gave me another reality printing higher or lower prices. Which was real? I could not decide what was real and I missed trades. In retrospect I realized that especially in fast markets IB's approach to send price snapshots instead of every tick was a lot more accurate than ESignals or DTN/IQ's approach, who are committed to give you every tick creating a backlog in fast markets, as suddenly the Internet is no longer able to transfer every tick fast enough to your computer.

 

I have an IB account, I trade IB prices and I realized that I could trade at IB prices even in fast markets, so why should I not trust that reality?

I use minute charts, no Tick or Volume or Range charts, because it just doesn't matter what charts you use. Minute charts don't care whether you use a real tick datafeed or a snapshot datafeed as IB provides it. The charts will look the same.

 

Having a backup broker, having a backup datafeed is fine and a good precaution, but I prefer to have my chart data and tradedata coming from one source. That way I don't have to question my data and worry whether the signal I got is really there or just caused by a divergence between datafeeds.

Stop Reverse

I suggested trading with a Stop Reverse might be a possible approach, if your signal is faded by the market. I tried that today in the HSI. Unfortunatly I tried it when the market was about to enter a consolidation. As you can imaging I went long near the top of the range and short near the low. 3 – 0 for the market.

I will return to using regular stops and waiting for a countertrend signal

Dumb Trade

You know these trades. You enter and immediately you have this feeling “oh shit, that was an error”. It goes against you 8 ticks in the blink of an eye and you should just reverse the trade. But no, you stick to it, hoping it would come back, allowing you a decent break-even exit.

But that’s not how the markets operate. Markets paint pictures, they set traps and you just fell into one. Your setup triggered, you entered without thinking twice and the alarm in your head: “Beware it’s a trap” goes off too late.

I fell into such a trap this morning taking an IBEX35 trade short against the open price. Everything fit: IBEX35 was weak, actually I had problems exiting an IBEX35 long just minutes earlier at a profit, DAX sold off, FTSE struggled after being up 10 points already.

So I took the short, but the spread widened to 7 ticks in IBEX35, DAX no longer sold off, but held support and turned, FTSE reversed and was up another 4 points. It was a trap.

I hesitated, not believing it, thinking about the 100 Euro I just lost in 3 seconds. And that was too long, IBEX35 squeezed up and my 30 tick Stop was hit 1 minute later.

A good day turned red (I made 2 good HSI trades earlier).

As trader we have to leave revenge feelings behind, we also have to shut out any grief or longing for lost money.

It’s our job to look for the next trade opportunity and it came as it always comes. IBEX35 made a 50 tick run, but neither DAX nor FTSE looked exhausted. IBEX35 was trading below yesterdays high, so I considered a Long, I took one, which went +10 max and then was stopped +2. I reentered a few minutes later again at the same level and was rewarded with a +30 trade. A trade seen also on the DAX and the FTSE btw.

One thing I learned in my losing week as well. There is no need to trade the same class of instruments at the same time. You may watch DAX, FTSE and IBEX35 or ES, NQ, YM and ER2, but take a trade just in one of them. They usually move in sync, so taking multiple trades does not diversify your risk, it multiplies it. And that’s better done by increasing contract size and focusing on 1 contract to trade.

Loss

It had to happen eventually. After five months during which I experienced nice growth I run into a roadblock last week. The worst ever week it actually was. I had strings of 4 or 5 losses in a row all taking out my increased Stops, which had helped me gain so much the last few months. The higher volatility offered chances to make it back, but I could not take them, as I was away from my computer on other business. The ranges had increased and the stops I took on positions would have been eventually winners just an hour later.

I questioned my trading approach, I questioned my charts, but came up blank. I knew, I had made 2 trade management errors and paid for them. One was adding to a losing position in the HSI, as I did not expect a -600 point day and I started a long position when it was down 450 points. The other was not reversing a trade, where my charts told me the market was going up. The break came for about 150 points in the DAX in the afternoon, but then I was away and had closed my losing positions in the DAX and FTSE  at -25 each already.

I then asked myself if changing my trade management rules would help and came up with a Stop Reverse set at -10 to -20 ticks. It’s an approach which I confirmed in backtesting works nicely in volatile markets, as usually a failed trend move causes a violent move in the other direction, which easily would cover the previous loss. Still in real trading I’m not yet comfortable with this approach. It’s something I will work on as the markets continue to show this higer volatility.

One thing I tried to avoid to do was thinking, that holding my position would have resulted in a winner. That way led to disaster once, I won’t go that road again. No, I trade with big stops for a reason and I have to accept, that these will get hit eventually and that I will have losing streaks. It’s just normal. It’s a reason to question my trading approach, it’s a reason to look for small signs, which might have alerted me, that problems are coming my way.

But if the approach is still sound, if the trading method works, then let’s go back to work. Trading is a business and losses are just cost of doing business. You can’t complain, if you need to buy inventory as a sales man. And some times you will have inventory you can’t sell. It happens. It’s bad luck, but to stop doing business, just because you couldn’t sell some of your inventory would be foolish.

And so I’m back to business this week, trading a bit more cautious and starting to make it back.

Doing it the right way

Non-Farm-Payrolls

One of the most important data of the month.

I had a plan, I executed that plan and got 10 ticks in the Euro, I was green and waited for the next trade in the Euro setting up.

Short 1.2750

Dogs barking

“Honey could you please help me getting all that stuff in the house I bought at IKEA.”

Exit 1.2749

“Sure my love”

30 min later the Euro trades at 1.2725, I would have taken 15 ticks at least on that trade.

Plus another 15 on the DAX which decided to scream up from 6260 to 6290 at the time my wife came home.

Yes I was a bit frustrated, but just for a short while because the question is:

What is important in life?

Sitting in front of a computer or

having a family?

I’m sitting in front of a computer a very long time each day, but important is my family. Yes I missed a good trading opportunity, but so what, I made another DAX trade later today for 15 ticks. There are so many trading opportunities each and every day. If you miss a good one, go on, take the next one. It might not be a home run, but it will provide you with all you need.

I wrote about the subconscious mind and the conscious mind being in sync. For me my family is important, so the answer: Honey, I’m a bit busy right now, can it wait 15 minutes is no longer acceptable, because I know, she would do the task herself then. Would I ignore that knowledge I would set me up for failure again.

I can’t change, I don’t want to change that feeling, that the family is important and I know my subconscious mind will find a way to show me, that the family comes first.

Unfortunately my subconscious mind is a devious bastard. It knows the one sure way to get me off the computer: Let Chris have a big loss and blast to his ego. Then he feels frustrated at himself and he will be no longer able to press the trigger. Most likely he will shut down the trading station.

Goal accomplished.

But I can learn and doing it the right way gave me 5 green days and the best weekly result of the year.

I’m away next week, so see you Monday in a week….

Get your mind in sync

How did you manage to get your subconscious mind to work with your conscious one? Usually, the subconscious mind reminds one of one's past failures, mistakes, etc. It actually creates doubts and confusion to one's thinking.

You are absolutely right. It doesn’t work that way or it wouldn’t be the subconscious mind we are talking about. I did not get my subconscious mind to work with my conscious mind.

It was the other way around and it’s a daily struggle for understanding, listening for the small voice, not the loud one.

The first step is accepting that your subconscious mind has an agenda of its own.

Then you need to consciously identify this agenda of your subconscious mind. Sit down, take your time, have no pressing matters at hand, keep distractions out and just let your thoughts come to you.

Make a list of any worry, be it trading related or not, any unfinished business, anything you think you need to do, personal problems in your relationship, with your kids, with a friend or former friend, anything else your thoughts drive around for a while. As you say, often you will think about failures, mistakes, doubts. Write it down.

Now start working on that list.

Do the chores you had put aside for something more important.

Find solutions for your personal problems. Often it helps to see a problem from a different angle: Let’s say after living together for some years your partner starts developing an irritating habit. Nothing big, but for you it becomes a problem. You could start nagging, you could tell your partner that that habit is driving you nuts, but usually you can’t change another person that way, because there is a reason for your partner to have developed that habit. 
Maybe you are able to identify the source of that habit, maybe you can identify the reason why your partner is doing it. And if you do, you actively take it in your hands to remove that reason. Do it for a while and then talk with your partner, show him that the reason for the habit no longer exists, that it is taken care of and that -to tell the truth– this habit drives you nuts. Most likely your partner will listen.

Or identify why you are not able to take a stop, why you let trades go out of hands. There is a reason. It might be fear to admit that you made a failure. It might be, that you are just plain stubborn, ignoring evidence, that the trade is not working. Maybe you actually can’t afford to lose that amount of money. Maybe the risk you take is too big and your subconscious mind is interfering and trying to shield you from the reality, that you have a big loss in this trade.

I can’t tell you, what to do to actually solve these problems. There are professionals available, who can help you, if you can’t find a solution for yourself. I can only tell you, what worked for me: Writing

The need to bring thoughts in sentences structures and sharpens your thoughts and you can consciously work on understanding your subconscious mind.

What’s the goal?

Our conscious and unconscious mind shall work together towards a common goal.

We can’t tell the subconscious mind, that a certain reasoning, thought, action, emotion is wrong. It just is, it happens, and no reasoning will change that. We can teach the subconscious mind through repetition, but we need to be very careful what we teach our subconscious mind, as we might as well see unexpected results from our well meant teachings.

So the best way I found to bring the subconscious and the conscious mind in sync is:

Take your subconscious mind serious

There is a reason for the messages and signals it is giving you. Take them serious, accept that you can’t change the emotion you experience, find the reason, why you experience that emotion and see how it hinders your trading.

Now you just need to find a way to change your current trading in a way, that you don’t trigger that emotion, that subconscious response. You do that not by avoiding the situation, but by actively changing it, so the emotion no longer needs to be triggered, because you took steps to prevent the reason, why it was triggered.

The result will be, that your subconscious mind will start helping you instead of being a nagging hindrance to your trading success.

Statistics

I'm a discretionary trader. Meaning I'm not able to mechanise my trade selection and trade entry and exit rules. I really tried, but failed miserably in real trading, even if back-testing looked so promising.

But for a long time my %-Win, %-Break-even and %-Loss trades remained relatively static.
So this June instead of defining hard trade entry and exit rules, I decided to trust myself to be able to achieve about the same statistic results next month again.

It was a very difficult process for me, as that meant giving up control and relying on my intuition to provide me with a feeling that a certain setup seen on the screen would fit my trade selection criteria, even if I'm not able to verbalise them all.

It was exactly what I had to do to become a profitable trader.

It's nothing to be recommended to a novice trader, as you need a lot of screen-time to train your intuition. For me it took 5 years looking at charts, which today still have features I had on my charts 5 years ago.

If you can compile statistical data about your trading over a long time and you see consistencies, you don't need to come up with a objective trade rule, you can replace it with a trust in yourself to achieve this result again. And you can then build on it and try identifying the areas in your trading which need improvement.

For me it was bringing down the average $-Loss / Trade proving market lore again right: Take care of your losses, the profits take care of them self.

Results

While I don’t think it’s a good idea to post the individual trade to any forum, as one single trade is not important, daily or monthly results are very important. They don’t lie and you better don’t ignore your own statistic, as it’s the only measurement you can apply to your trading.

These number tell you whether you improved in your trading or not.

This is not only measured in your account being up or down on the month, but it’s in the statistics. Did you manage to reduce the average $-Loss / trade, did you increase the $-Profits / trade. What are your %-Winners and %-Losers numbers, what’s the actual Risk : Reward and how many ticks did you make on average / day.

So I have decided to continue posting my results. It will not help anyone seeing them, as you can’t copy them for your own trading, but maybe it gives you at least an idea, a number of what is possible to achieve.

October turned out to be a good month for me. 

Here are the daily results

And here the statistic

As you can see, the month was a good one, the account is up 37% from last month. But it’s even better, that I managed to have just 2 red days and was able to bring down my average $-Loss significantly from 282$ to 178$ / trade.

My trading method worked fine and I achieved approximately the same results as in September.

My average $-Win was down a bit, but that might be, because I was quicker to pull the plug on a trade reversing on me, avoiding big loss trades. Sure I missed some big home-runs as well, but for now, bringing the average loss down was more important.

The market is an ocean full of opportunities

It’s only up to you to swim in this ocean and explore what it has to offer. You can take as much as you like, there will be always enough.

I wrote this mini “Trading is no war” article series and today a reader provided me with a link to Ruth Barrons Roosevelt’s website.

I don’t know her, I just found her website worth exploring.
She wrote an article about trading metaphors and the good and bad they can do to you, which I really urge you to read.

Maybe you will change the way you think about trading. I can only tell you, that I found this way on my own and that it was a very stony road I took, as you all can see, if you read some of the older articles. This article now gave me the answer, why this approach to trading really works.

Rules

There are rules and there are Rules.

You know what I mean. Adding to trades at a loss, moving your stop against you because you still believe in the trade, we all have done it. (If not I truely admire your discipline)

But as a daytrader there is one rule you should never ever violate:

If you leave your screen you are flat with no open orders

Yes you miss opportunities and it will mean a trade you close at a loss would have shown you a profit. But it also means that there is nothing to worry about. You will have a sound and refreshing sleep and a clean slate the next morning.

I now apply it also intraday. If I have to go for 1 or more hours I’m flat. You just don’t know, what will happen and if you have no chance to interact with the market, you better stay flat. There are so many opportunities when you are at the screen, why take the risk to have a trade go against you, when you can’t intervene. Sure you have bracket orders, but these can fail, the exchange can go down, your computer can crash…

Just don’t do it, your first and foremost interest is in protecting your account. You take enough risks, when you are at the screen. No need to add to that by letting your computer trade automatically when you have no ATS

For me trading is no longer war

Again I urge you to read christophe’s comment. And yes Christophe, I know, that trading is not comparable to real war. Still you chose to make that analogy. I just took it to the extreme, as your previous comment was one I thought about a very long time. Actually I finished the article only the next morning, as it took me some time to understand, why I couldn’t support your statements about what is needed in the markets to make it 100%.

Your observations are correct:

You need market knowledge, which most of us gain through very long and very tedious screen hours. The charts tell you all and if you have no one telling you when the big players enter, over time you will notice them in the charts, in the tape, as size leaves footprints and if you know where to look, you see them.

You need financial backing, so you can continue trading after a loss. And you need resources to finance your learning to trade the markets.

I disagree, that you need size to learn trading. Yes sure you need to trade size, if you want a good return. But once you know how to trade you can make 30 to 50 ticks a day with one contract, which gives you 300 USD to 500 USD per day or 75.000 USD to 125.000 USD per year. This will allow you to live and continue trading. Actually it will allow you to increase your trading account, even when you need to take out monthly amounts to live. It’s nothing big, but it’s not so bad either. Size and over-leveraging are the most common factors, which lead to the downfall of a trader. So size matters, but for a private trader, Risk– and Money-management are a lot more crucial. And they will tell the private trader, that it’s better to add another month trading “just” one contract to build up a bit of extra safety margin.

And you need mental preparation. I fully agree, that chat-rooms can be a lot more distractive than helpful. But once you have a trade on, haven’t you made the observation, that leaving the trade alone instead of micro-managing the trade by being totally focused on it cost you more than it was worth? It all depends on your trading style. When I’m trading the HSI or Gold, I would never ever take a look at a chat-room, but when trading say the German Bund, the ESTX50 or the FTSE and everything is going as it should, the market is working to reach my target, bounces show lower lows and lower highs or higher highs and higher lows, why shouldn’t I take a look at a chat-room or stand up and let my program manage the trade. Micro managing has cost me a lot in missed profits as suddenly the fear to lose profits comes into play.

But for a new trader, for learning, most chat-rooms are a distraction, which will cost you a lot of money eventually.

So it seems I agree with all the points you made, actually I also believe that trading naked might eventually be the way my charts look. For now, my mind is still drawing clues from additional information I have on my charts, even if I trade price only. But I will take a look at a bare Line on Close chart and see, if it makes it even clearer to see than now.

Still I felt uncomfortable, something was not right for me. And that was the analogy that trading is a war. Yes it is competitive and more so in a trading room full of different traders and personalities, less when sitting alone at your computer at home. Yes for years I saw trading as a war I was waging against the market against other traders to take their money. A war i was about to lose.

But somewhere along the road I changed. I realized that I was trading only against myself. It was my mind which interfered with my trading success. It was my mind playing games, using emotions to play havoc with my trading plan.

I was at war, but not against the market, not against other traders, I was at war with myself. And you can’t win this fight. It’s impossible.

So I changed, I decided to stop trading against myself. I was no longer at war against myself. I tried to analyse what it was, what bothered my subconscious mind. I wrote about it and long time readers will know about all the struggles I went through, ideas and trading approaches come and gone, once correct now discarded.

And then my subconscious mind started working together with me towards a common goal. It started giving me new ideas, which I tested, which I traded and integrated in my trading plan, if they looked solid. All the while I kept my promise to listen, to recognise the feelings, when my subconscious mind tried to warn me, tried to tell me, that it felt uncomfortable with a trade, a decision made by me. Or when it saw other pressing matters at hand to be done, before I would be able to continue trading free of any worries.

This all might sound strange and maybe a real world example will show you what I mean. I’ve a mountain rescue dog named Sully.

When I trained him, I couldn’t let him go and do what he had to do: Finding people in need for help. Tests were average at best, but suddenly that changed. I had come to the conclusion, that I couldn’t do the job I had trained my dog to do. I couldn’t run for hours, search 100 to 300 meters left and right of me in the forest, when we searched for a missing person and I had to cover a distance of 3 to 10 kilometres. I had to trust my dog that behind me would be no one, that we hadn’t been in the vicinity, might had even found that person still alive, but my dog hadn’t found him. I think it was, when I was looking for hours for a missing girl in a forest, that I decided finally to trust my dog, that he would do his job 110%. That if he did not tell me that there was someone, then there really was no one. The missing girl was found weeks or months later in a totally different part of that forest, a part no dog had been assigned to search in. But since that time we are a team, I trust my dog and he trusts me.

I still know the feeling, when I decided to let go, to give up that control I thought was necessary. And I did the same with my subconscious mind. We had been at war for so long, because I was neglecting it’s, my other needs. because I had a lot of unfinished but important business to do, before I was free to trade.

My subconscious mind and my conscious mind now trust each other, they work together to do the best for me. 5 years after I started trading futures, 10 years after I started trading, I finally trust myself to do what’s best for me.

Of course you don’t need to go through all that struggle to trade, but it might be worth to start listening to your subconscious mind. It has a lot to tell you and it will provide you with analysis and insight you would never be able to come up with in time for a trade, when you consciously thought about it.

Trading is war - isn't it

I hope you don’t miss Christophe’s comment. I’ve known him for some time, saw him struggle and now he seems to have found his way. I don’t know, whether he still trades his own account or – as it seems to be- whether he is now employed by a trading firm learning to be a trader.

His comments speaks of knowledge, of being sure of himself, of finally knowing which way to go. And I could leave it as such, because he has written a true statement how he now sees the markets, what he believes is necessary to be successful.

“Trading is a war, we try to beat each other up and take each other money. If you don't agree let me ask you what you feel when you are taking up a beating and having a red day ??? are you totally zen or do you feel the pain? well guess what, someone else whilst you are feeling the pain is having a good time enjoying the good feeling of making money. The people who don't feel the pain are the people who can afford to loose.

Whenever the price goes up or down, someone is smiling and counting the money whilst another is praying and suffering. This is trading in few words.

Most traders start trading as if it was a nice social activity without realising that they throw them self in an arena full of sharks and lions. “

Ask an US soldier coming back from a tour in Iraq, if trading is war?

If you take a loss, do you lose a limb, do you lose an eye, do you face abduction, torture or death every single moment you are in a trade.

No Christophe, trading is not war and don’t think so one second.

Yes some elements are the same, but one element is not: In trading, if you lose, you can stand up and trade yourself back to where you were and do better next time. You have another life as long as you push yourself up and start again.

In war, if you're dead you sure stay dead for eternity.

As far as I know more than 1 Trillion US-Dollars are traded every 24h seven days a week. And I’m carrying contracts worth between 50.000 USD and 1.000.000 USD. Does this amount really matter, does it change anything at all, does the grande scheme of things care whether my trade is executed or not. Is there any chance at all, that I will learn who is the counter-party of the trade, which blew up in my face? I’m not Amaranth, the hedge-fund who blew up 5 Billion USD in the Natural Gas markets. They know their counter-parties, they know who profited from their losses. These losses can be personalised. But still it’s not war.

Taking profits and losses in a Zen like state of mind, being detached from it isn’t the way for me. In trading I feel emotions, I allow myself emotions as it helps me to prepare for the next trade, to find back my calmness necessary to objectively analyse the markets.

I’m happy about a great profit, about a plan succeeding.

I’m angry about a loss and I vent it, because it helps me to take the loss.

But in both cases I analyse the trade, I think about it, so I might redo the profitable setup and I might avoid the losing setup the next time I encounter similar circumstances in the markets.

When taking a profit, does my counter-party have to take a loss? Most futures trader would answer: Yes!

But let’s look at it, because it’s not as simple.

My best trade on Friday was a short in GOIL Z6 (that’s the December Gas Oil contract traded on IPE in 0.25 increments with a tick value of 25USD)

GOIL was trading around 548.00 at 09:58:00 and I placed a Short at 556.75. At 09:59:30 this order was filled in a spike, going up to 561.00. I exited the trade at 10:00:25 at 550.25 for a 25 tick profit or 620USD including commission.

Had my trading program placed an automatic stop I would have been stopped out of the trade, because I never ever would have let GOIL trade above 560.

But I had learned this lesson a few years back, when such an event actually happened and instead of a 500USD profit when the Russell broke 8 points I was sitting at a 200 USD loss due to a stop triggered in this spike, as the Russell continued another 3 points before reversing all the spike range upward again. 

As it were at one point, right after my entry this GOIL trade showed a loss of 500 USD, so the trader going long against my short had the chance to exit his trade at a 500 USD profit. And he was not alone because there were a few trades happening above my entry. Profits and losses made by automatic programs. 

But nothing happened for me, I just held my short during that 1 minute spike, actually oblivious about what was happening, because I was getting myself a cup of coffee at that time. Back at the screen GOIL was trading right above 550 after dipping below 550 and I decided to exit the trade happy about the profit I made. I thought about the trader going long at 561, but I actually will never know, if he rode it down all the 11 points or if he took a stop at 560.25 or if he actually was happy about his loss, because it was a loss executed according to his plan.

Trading and losses are inseparable. You can’t trade without losses. It’s how you handle your losses, how you take a defeat, which decides whether you will succeed or perish in the markets.

But it’s not a war. 1 Trillion USD is like an ocean of money with waves of opportunity and the only thing I’m doing is turning small drip-lets into my account and trying to make sure it’s getting filled faster than money is running out of the natural hole every account-bucket has.

 

Recommended Reading

Life is wonderful

A sunny, warm autum afternoon. I was playing frisbee with my daughter in the garden and suddenly she smiled over all of her face and told me: Papa!

Life is so wonderful

She did not think about a bruised arm. She did not worry about tomorrow. She just enjoyed herself in the present.

When I came back today after I brought her in the kindergarten, this statement still vibrated in my mind.

Think about your trading. Do you worry about your last trade gone against you, do you fear taking the next trade, because suddenly your setup isn’t so sure any longer, do you hesiate and because you hesitate you lose the next trade as well?

Life is truely wonderful. Trading gives you the opportunity to make all your dreams come true. But you need to stay in the present, you have to focus on what is happening NOW. Don’t dwell on the past, you can’t change it. Don’t think about the future, you can’t influence the market with your trade. But you can influence the present.

Marc Douglas calls it being In the Zone. What it really is, is being in the present and doing what has to be done without hesitation. You have a plan, you know what you will do regardless of the situation you find yourself in, you trust yourself to do whatever is best for you.

Worth trading

This morning I was thinking “Are the contracts I’m trading really worth trading”. So I thought about a way to rank the contracts I look at.

I looked at 9 Minute, 60 Minute and Daily charts, as these are the charts I look at and here are the results

First I’ve looked at the Average Range in Ticks made in 9 Minutes, 60 Minutes and during the Day and then I’ve calculated the US-Dollar Value for this period. The contracts have been sorted to show you, which contract gives you the highest Return on average on a daily basis. The higher the return for the 60 minute period compared to the daily return is, the more the contract is ranging, the lower the return for the 60min period, the more the contract is trending.

Why so many futures trader fail

Most of the futures traders I know have started trading stocks and somewhere along the road decided to try their hand at futures. And most trade something between 2 to 5 contracts using the margin given to them by their broker to the fullest. For example, for trading 5 Russel contracts intraday an account of 10.000 USD would be sufficient. You know I don’t recommend that, actually I consider that reckless trading and a sure way to disaster and bancruptcy, but it is possible and it is done.

Have you ever stopped to consider how many shares these 5 Russel contracts equal to?

I don’t look at the contract value. I use a very simple approach to determine this. I just say a tick is a tick. It doesn’t matter if this tick represents 0.1 (eg. the Russel) or 1 (eg. the Dow futures) or 0.0001 (eg. most currency futures) or 0.000001 (eg: the USD/YEN currency futures) points.

A single tick usually pays 10 USD to 12.50 USD. (I know the Dow pays less and the Bonds pay more, but let’s concentrate on the most common tick value)

To earn 10 USD per tick with a stock, you need to trade 1.000 shares, as stocks are now priced in pennies and the tick value is 0.01. Of course there are a lot of stocks, which move in bigger increments, which never ever have a trade at every 0.01 increment. But there are also futures which move a lot faster and jump easily 10 tick levels. If you ever tried trading the ZG Gold futures you know what I mean.

On the other hand there are a lot of stocks (examples coming to mind are MSFT, CSCO and a lot of other high volume stocks) which trade at every 0.01 tick level quite heavily and for our comparison to work we will look at these.

So if you trade 5 contracts ER2 with your 10.000 USD account, could you trade 5.000 shares MSFT as well?

To trade 5.000 shares MSFT fully margined (4 : 1) you need an account of at least 36.000 USD and that’s the absolute minimum. Considering the volatility of most of these high volume stocks a 2 : 1 margin rate would be more appropriate for most traders, meaning with a 36.000 USD account you would reasonably trade something between 2.000 to 3.000 shares MSFT.

Still, I’m sure, most futures traders would think nothing of trading even swing trading 3 Russel contracts with a 10.000 USD account, not to say 5 to 10 contracts with a 36.000 USD account.

This has nothing to do with inappropriate risks. This has to do with perception.

Most consider trading 1 contract not worth the effort. But trading 1.000 shares, well that’s something different. Most start trading 1 lot or 100 shares and work their way up to 1.000 shares or 10 lot sizes. But with futures, if you compare them with stocks, most start with a 20 lot.

Do you now really wonder why a lot of traders fail trading futures?

Woodie's CCI

BBC wrote this comment:

I read on your blog that you used Woodie's CCI and learned trading futures, I listened to their chat room and it was helpful using their software....would this be a good route for me? I am new to trading although I have managed our portfolio to good advantage. However I distrust any system software reliance due to chaning market conditions. Thank you.

BBC I’m taking your comment and answer it in its own article as it touches so many aspects of an aspiring traders mentality.

There is the obvious, the clear question whether to trust or distrust Woodies CCI due to changing market environements.

But there is also the statement, that you are already managing a portfolio to good advantage, even if you are new to trading.

And you distrust any software based system because it might not work tomorrow, even if it did so the last year, the last week, yesterday.

The first and maybe the most important point popping up in my mind is, WHY?

Why do you want to change something which is already working according to your own statement. You are already managing a portfolio to good advantage. In trading to be better than yesterday, to have bigger profits today than the day before, you increase size. You don’t change your trading system, you don’t change the kind of instruments you have traded successfully yesterday, you just trade bigger size. And you do exactly the same you did yesterday. This makes sure that statistically over the long run, you will have bigger profits, IF you were profitable in the past.

If you want to change something, if, as it seems to be the case, you have decided to play a more active role in the market and start day or swing trading futures, something you haven’t done before, be prepared to go back to school, be prepared to learn and be prepared to do what is necessary to learn (day)-trading futures.

Learning to daytrade successfully encompasses a lot of things. Some you will learn in Woodies CCI Club. I was there for 3 years and what I learned there still helps me today in my trading. But I was not profitable in Woodies CCI Club. I learned to recognise patterns, something which now helps me extremly in my trading. The money I payed for learning was well invested, as I’m now in a position to earn this money back and more. You might tell me, that Woodies room is free and that is correct (if you don’t count the Trade-a-Longs), but as you can’t learn trading by Demo-trading year in and out, you will see, that being in Woodies CCI Club will cost you money.

CCI Patterns work, when they work. They are never 100% and I would be surprised if they are 65%-70%, if you look at them in realtime. There is a way to increase this ratio of winning to losing patterns, but this can’t be accomplished by introducing more and more filters you need to be aware of, before you take a trade.

Nothing in trading works for eternity. There is no Holy Grail, no 100% system. You will have losing trades. It’s up to you how much you pay the market for your losing trades as it’s only you who decides where you put your Stop.

But I tell you something obvious: Something will not change in the markets: Markets will always oscillate between Trending and Consolidating Conditions. The problem is, you don’t know in advance what type of market we will have today. Technical analysis can help you here, but it also only works when it works. It will fail and maybe as often as it is right.

You need Money Management and Trade Management tools to cope with that. And you need to trust your system 100% that it will in the long run provide you with profits.

I have the CCI on my charts. And I have had this CCI on my charts for 5 or more years, with a brief interregnum when I left Woodies CCI Club and tried some other oscillators on my charts (Stochastic, RSI, Ergodic A/D and some oscillators I developed for my own). It made no difference at all. They all show the same, so I came back to the CCI, which I can read with more accuracy than any other oscillator, just because I was in Woodies CCI Club for so long.

I will not discourage you going to Woodies room, but I will not tell you to go there either. I can’t. You need to find the way, which is right for you. Try it, if it feels right, maybe it is (for now). Because what is right now, what helps you today, may hinder you tomorrow. Adapt to yourself as you change and evolve as a trader.

I’m now usually logged in on IRC #Tradingspace on Othernet, because I can chat with fellow traders there. There is noone teaching, but we are sure willing to answer questions if time permits.

Being profitable

Are you profitable?

Let me quote you a lesson

A martial arts student went to his teacher and said earnestly, "I am devoted to studying your system. How long will it take me to master it." The teacher's reply was casual,,,,,,,,,, "Ten years."

 

Impatiently, the student answered, "But I want to master it faster than that. I will work very hard. I will practice everyday, ten or more hours a day if I have to. How long will it take then?"

 

The teacher thought for a moment, "20 years."

 

Make the following commitment

 

I will learn for as long as it takes

I will stand up everytime I find myself at the bottom

And somewhere along the road I will decide to win

 

It is possible to trade successfully, but you need

• an edge
• a commitment
• discipline
• a will to win
• the ability to look at your failures and learn from them

Does it help to see results? I know, I was looking for proof for quite a long time. So it might be the same for you reading this blog. I became profitable in June this year after 5 years of struggling and trying to keep myself somehow afloat so I could continue on my way. Looking back now, I know, I had a string of luck in June and July and was able to resist the temptation to increase the leverage used.

10k$ per contract traded. I will goto 2 contracts with an account balance of >20k$.

May I lose it again? Maybe. Everything is possible in trading and I can’t rule out a string of 15 losing days in a row or one freak trade, which wipes the account. It’s the risk we all take, the risk we have to accept in this profession. Limiting leverage is one, is the only way to deal with it. And to tell the truth I feel a lot more comfortable now, than in June, when I had to trade with the 5k$ / contract margin.

I’m sure there are traders out there saying “what is this jerk showing us here, I’m making 2k$ / day” or “I have 50k$ in my account and that’s the bare minimum I would consider for a trading account”

Never forget:

If you can’t trade 1 contract profitable, do you really think you can trade 5 contracts profitable?

Better trading

In a newsgroup someone suggested taking just one profitable trade in the morning and then walk away from the markets for a while, for the day.

I’m not sure, this is really a way to cure for always giving back profits made

What do you do if the first trade is a loser

What do you do if you are trading good and make your daily goal

What do you do on a losing day

I thought the same way this trader did for a long time. I took one or two trades a day. I stopped when I made my daily goal, or just one profitable trade. I stopped after 2 or 3 losing trades ending the day red.

But does it get you nearer to your real goal?

What you learn is discipline

And it's a very good lesson to learn. But it will not help you to learn trading.

Being a daytrader means

• You trade your edge
• You follow your trade plan
• You adhere to your money management rules
• You know your statistics
• You are flat at the end of the day
• And at the end of the day your statistics will again tell you, you had on average x% winners and y% losers

It is your job to trade your setup

You don't ask, if it might be a winner or loser. Your statistics already give you the numbers and it wouldn't be your setup, if you did not know 100%, that this setup gives you a chance to be profitable on the long run, that it gives you your edge in the market.

Having the daily goal is good, taking just one profitable trade is good. But it is just one step on the way.

You need to prepare for the inevitable string of losers, you need to finance them. And you can do that only with a string of profitable trades. Embrace the days, where you exceed your daily goal in such a way that you make your weekly goal sometimes within just this one day. Because you know, that tomorrow might be the day where you lose everything you made today.

And if you stop today because you made one profitable trade you might not have enough to finance tomorrows loss

What this trader suggests teaches you discipline, but it also might be

Fear to lose the profits already made

Do it for a while, but leave it behind when you are ready to really trust yourself.

Never go broke booking profits

You think so?
Think twice.

You have profits and losers. If you continuously have less profits than losers, you will go broke, even when you take profits on your winning trades.

So the correct rule for any aspiring trader is:
Make sure your profits pay for your losers and commission.

That way you will still have an account when you have found your edge in the market.

Risk or Can you make a living from trading

Say you want to make 50k$/year.

And as for so many aspiring traders your account is somewhere between 10k$ and 20k$.

 

We all know the compounding spreadsheets and it sure appears to be possible. The problem is the risk part, we usually overlook in these compounding examples, which tell us, that in 50 days we will trade a 5k$ account upto 50k$, taking "just" 2 or 3 points ES or Russel a day.

 

Let's take the 10k$ the 20k$ account size example.

You start trading 2 contracts as so many do.

And as a lot of traders (actually somewhere between 80% and 90%) you will fail after a while.

 

Why?

 

As I see it, these traders fall for the lure of overleveraging themself, of taking too much risk for their account size.

 

After trading for a while, your statistics will tell you what you lose on average on a losing trade. And unless you microscalp, it will be usually somewhere between 10 and 20 ticks / trade, so somewhere in the range of 100$ to 250$ loss per contract traded.

 

For our aspiring trader trading 2 contracts that makes a risk of 200$ - 500$ / trade. Let's take it in the middle, so it's a 350$ / trade risk.

 

Now we all know, losing trades come often in a row, so you need to decide what is your worst case scenario?

3 losing trades, 4 losing trades in a row? Most likely, if you start trading the risk might actually be 5 or 6 losing trades in a row, but say you have decided after 4 losing trades, you pull the plug for the day.

 

4 losing trades * 350$ = 1,400$ risk / day

 

4 red days in a row, sure not unheard of, so our aspiring trader is down 5,600$ on his 10k$ - 20k$ account

 

Does it happen? Oh yes, I know at least 1 trader, who had this happen to him and it wasn't such a long time ago that that happened to me and I recently wrote about it (more bang for the buck)

 

For me it meant imposing some strict money management rules and setting the internal margin / contract to 10k$.

 

This limits the profit potential, but the profits really take care of themself, once you get the losers under control. (At least, if you have recognized your edge in the market)

 

Most important it means this measure is getting the daily risk under control.

Not the risk in the individual trade, but the overall risk you take every day, because you know you have statistically x% losers, which means you will encounter losing streaks as sure as you wake up every morning.

 

So does that mean, it's impossible to trade a 10k$-20k$ account so you can take out 50k$ / year?

 

It most likely is, yes, because the risks you have to take are too high and statistically you will encounter the losing streak, which can bust you.

 

Therefore, you will first need to trade your account up, living from some other funds or a second income, before you will be able to take 50k$ out of the market on a regular basis.

My Tradedesk

Someone asked about it, so here it is

(Bit difficult to make a picture of a Flatscreen, so the desk appears a bit dark)

Dealing with a red day

Yesterday I had a very deep red day after 2 weeks of green ones and all the feelings of

• am I able to trade
• is my system sound
• why am I such a mooron
• can’t I recognize a trend, when I see one
• is my good fortune over and the swing down starts again

were back.

Ignoring these feelings will led to them being fullfilled. You need to deal with these thoughts to reach an emotional neutral state again. But how?

Negating them, telling you, your system is sound, you can trade won’t help. It’s too easy to say so and the one you have to convince is

You yourself

So you know, that it’s just a saying and you are just trying to convince you, that the feelings are not valid.

You need to do more.

The first step I have already taken by writing this article, by writing about my feelings, as this forces them to light so I can deal with them, instead of having them linger in the background of my mind doing their subversive work, which would destroy all I have build so far.

Next comes a mind-playback of the trades to relive the feelings in the trades, which went wrong. Was there something in common?

The first was a HSI trade. I went short and was totally convinced the trade would eventually be a winner. It lingered around my entry for 10 or 15 minutes, going a few points up, then down, then up again. I saw selling in the contract, HSI had not followed the US markets down, so I thought it would eventually and became complacent, when suddenly HSI squeezed up and hit my disaster Stop.

Shit, it happens in HSI and I told ‘em HongKong traders names. It helps to vent your feelings if something went wrong to regain composure, to regain an emotional neutral state.

But besides going against me this trade shattered my downward bias I had had for the day. And this was the real error I made yesterday. After seeing HSI squeeze 100 points up after a strong down day in the US, I traded the european markets with the same bias. I traded to the long side waiting for a squeeze to happen, which never came. Instead I was stopped out twice on DAX and twice on FTSE, before I realized my error. 5 red trades in a row. It was a long time that that happened to me and it was a very costly error, as I give the Dax and FTSE 20 ticks Stops.

The Stopsize is not the problem, not being able to switch back to my shattered trading plan was. My charts told me go short, priceaction told me to go short, but instead I waited for a squeeze which never materialized. Had I traded the long side as countertrend trades, I would have waited for a support to be hit and entered within 1 point of it. but something held me back. Only when I saw DAX going 5 points or more I took the long side, seeing it as sign, that the european markets took the lead from HSI and would trade to the upside. 1 or max 2 points green and then the sledgehammer was there again driving DAX and FTSE down.

About 1400$ down in 5 trades on 1 contract after 1 hour of trading was sure a hit to my confidence.

I took a deep breath, stopped looking for a trade and stepped back from the screen.

What had I done wrong?

I had been too confident about the HSI trade. I had been proven wrong and therefore the short side, which had failed in the HSI, must be the wrong side for the european market as well.

Even after I had recognized this false conclusion, I wasn’t able to switch back to the short side. The first trade still lingered in the back of my mind, asking questions like: Chris, what will you do, when you are again caught in such a squeeze. Will you be able to pull the plug? Are you prepared for another defeat? So I traded without confidence and therefore late on the long side. And for this I paid.

To stop trading wasn’t an answer either. I’ve done that, been done that road and it usually lead to strings of red days, as I then question my trading, my signals more and more. The last year gave me confidence. I see the trades, I can trade. So I did, what I usually do, when I get no clue on a market.

I looked at a different market. Natural Gas was even more erratic than usual, so I looked at the Gold market. ZG provided a good setup and I made the first 300$ back. Another one brought  the balance down to -900$.

In the meantime it was afternoon and Dax had broken further down. I took it short, got caught in a reversal, as one would expect after Dax was already down 80 points for the day, reversed after -10 ticks and was out +10 ticks on the long side, bringing the balance back to neutral.

Another 2 Gold trades were stopped at Breakeven +1. And while being down huge in the first hour of trading was no reason to stop trading, as string of Breakeven trades in the late afternoon (usually around 5 to 6 pm my time, which is noon in New York) is a sure sign, that I’m done for the day. And I have come to respect that sign.

So I closed the day deep red with the knowledge, that the week was still green, that I was still able to concentrate, to pull the trigger and take good trades after a string of real bad trades. I got 1/3rd of my morning loss back, and had I been really fit in the afternoon, I could have made it all back in a Short Dax or Short Gold trade, which both ran about 40 ticks after I got the signal.

I did not take the trades, but I saw them and hesitated. Something to work on and a lot more productive, than thinking about the losing trades. Still writing this lengthy article has brought some closure, has brought some understanding to the why it happened, so I will not again fall into this trap, but recognise it right away and profit from it.

Commentary

Don’t continue reading, if you like to read my blog just because it might provide you helpful insights into the mind of a trader on the road.

Yesterday I received a letter from David Taylor, whose Blog “Dismally” I sure like to follow on a regular basis for the insights it provides to my trading.

Hey Chris...

I know you keep your blog out of the political world, and I know you're not even an American, but I've written something about the recent articles that are coming out on the Canadian who was tortured by our government.

muddling through the fed release

I'm wondering if you have any interest in doing your own write-up. I think as a group, as bloggers, we may be able to make some noise in regards to this.... and maybe make some change.

 

To tell the truth I wasn’t sure how to respond to it.

 

Should I write David, telling him a polite “No, I won’t, I will stay quiet”?

 

There sure are a lot of reasons to do so.

• Mr. Arar isn’t the first and won’t be the last torture victim in this war against terrorism
• I haven’t written about the innocent Mr. Kurnaz, released in August after being held captive for 5 years
• I haven’t written about the innocent Mr. El-Masri, who is sueing the CIA for torture in Syria
• Writing about it might make me an unwanted person in the US, when I have to go there next time. I sure have some IP addresses looking like US official ones in the list of IP’s accessing my website and this blog.
• The current administration has been not only elected, but reelected by the American People. The facts where known then already. The Film “Fahrenheit 9/11” by Michel Moore had raised a lot of questions, had told a lot of facts, and still the people elected to keep the administration in the White House.
• So who am I, a German, questioning the will of the American People.

On the other hand there are a lot of reasons to raise questions, to speak-up for the people not able to speak for themselves .

• I’m a child of the German post war generation. I never had to endure the horrors of war
• When I was in the military it was clear that no German soldier would ever be allowed to serve outside of Germany. And it was also clear, that the communist block would in fact never make war against the western european states. For me it was a clear decision to serve, but to tell the truth, there was also this voice inside me, telling me: Hey Chris, go for it, it’s the easiest way, it will make it easier in the future for you, it’s an adventure, it’s just 15months and there sure is no threat for your own life.
• After the reunification of Germany the political landscape changed. Now German soldiers are serving around the world and we are faced with the truth, that we can’t hide behind others to do our job side by side with our allies.
• But if we go to war in the name of peace, in the name of democracy, in the name of a greater moral authority, telling other people, what political system is best for them, then we should make damned sure, that we ourselves follow these moral and legal guidelines.
• Then no western government, no superpower, noone can put himself outside of the law or circumvent the law, so the rules setup by it’s own people may not apply to him.

As you all can see, I’ve decided to speak-up , not only for Mr. Arar, but for all torture victims. History has told us, that staying aside, not speaking up, going the easy way can led to total disaster and destruction.

 

The American People have a new chance to make it more difficult for the current administration to work outside of the law. This has nothing do with voting for Republicans or Democrats. This has todo with the Balance of Power which has to be restored.

 

The Government has to be held accountable for every act it is doing in the name of the People and I sure hope, that the American People on November 7th, 2006 take the necessary steps to make sure, that this will be again the case.

Stuck

Short

Your broker is down

and the market is rising

A predicament not just one trader found himself in yesterday.

What do you do? Do you have a plan or do you revert to Hope?

I for myself prefer a plan. And this plan first calls for analysis of the problem.

1. What is down?

• The Internet
• Your broker’s servers
• The exchange

2. What is your response?

• Always have a 2nd Internet connection connection installed, tested and ready for use Cheapest solution is a dial-up connection, but you might also consider having one using your Laptop and Handy. Even without datapacket subscription, you can establish a Dial-Up connection using your Handy to connect to the Internet. A data-cabel connecting your Laptop with the Handy is much more reliable, than the already existing Infrared or Bluetooth connection and will cost you about $2 on Ebay.
• If that’s not working call your broker and exit immediatly. You will need the phonenumber nearby.
• Have a backup broker. Then you have the option to offset any open position at any time
• If the exchange is down, then you need to have a list of contracts traded on other exchanges, which will enable you to offset any position you have at least partially. You just need to calculate how much they move on average for each tick the contract you have the open position in, will make, so you know what size you need to trade.
  During the US markets RTH the German DAX as well as the Eurostoxx50 are both actively traded on Eurex and might be used to offset any open US index position.
  The Bonds may be offset with a position in the German Bund.
  Open currency positions might be hedged with a Forex position, if you have a Forex account. Otherwise, at least during US RTH EUREXUS offers currency futures as well, even if these are not very actively traded.
  Energy contracts on NYMEX can be offset with contracts traded on IPE

Being stuck in a position is no excuse for a loss. There are options available to you.

 

More bang for the buck

=> Overleverage => Blown out account

Trade the contract which gives more bang for the buck. It took me nearly a year to climb back out of the hole I had been falling in following this advice.

I new them all. Books telling me to trade the ER2 with 8k$ margin, ZB with no less than 10k$ margin in your account, regardless what your broker was offering you. But also old traders, I respected for their wisdom, for their market knowledge. They said to me, Chris, don't over extend yourself. I thought, why? I have it all under control. Not only the market, but also my reactions, my feelings, my emotions. But tell you what, I hadn't. I felt bad one week, the market did not care, I traded as if I were fit, but made errors, did not believe them, hoped, made more errors and lost more.

 

I made it back. Trading 1 contract. Slowing increasing my daily goal from 10ticks a day to 20 now 30 ticks a day. The final goal will be 50 ticks a day. I'm not there yet, but it sure is possible, I sure see the trades, I'm just not yet able to take them all. I'm on the way.

 

A daily USD goal is fine, but it is a huge difference, if you can consistently make 500$/day trading 1 contract or 5 contracts. If you make the 500$ consistently trading 1 contract and you increase size to 5 contracts and you are able to do everything else identical, you will make 2500USD / day. Very simple

If you make 500$ trading 5 contracts, to earn 2500$ you will have to trade 25 contracts.

I sure know which of these 2 traders I would like to be.

 

My Money Management Plan now allows me trading 1 contract / 10k$ account size regardless of the contract I trade. 1 year ago I allowed myself trading 1 contract / 4k$ account size. I wasn't ready for it. I now see my errors, actually it was one major error I just recently identified and which is at the core of the "able to do everything identical regardless of size" statement.

 

I tweaked it. I thought of scaling in, of scaling out of positions, when everything I had to do, was trading bigger size. Everything else had to remain identical. Not similiar, not tweaked, identical.

 

Why? Because otherwise the statistics I had accumulated about my trading, the statistics which are the basis for my belief, that I have a trading edge, are no longer usable, no longer valid.

By changing the way I trade I made them obsolete. I had no idea, whether I had an edge using my new scale in/out technique or not. And by subcontiously recognising this problem, doubts and hesitation came into my trading. And these finally led to my downfall and disaster.

 

Then I did not see it. Just recently, when I increased size again and repeated my error, I saw, that I had travelled that road already. That I was about to repeat what I had done a year ago and today I understood why it would not work.

 

Today I aim to increase the ticks/contract I make. This tells me that I really make progress as a trader. The number of contracts I trade becomes insignificant. Because when I've mastered these 30 or more ticks/day on average, I will slowly increase the size I trade, get used to it and be able to trade this increased size without tweaking my trading plan.

Get-Out Now Feeling

Took the HSI long at 17194, exit at BE+2 (17196)

My trading plan would have worked nicely, but I got a bad feeling about the position. As you see it dropped slightly after my entry before it took out the 17200 resistance level.
This dropping action caused me to exit as I saw selling come into the market and better out at Breakeven +2 ticks than paying a 20 tick Stop.
My feeling was not correct this time!
Is that a reason to trade differently the next time?
No, I don't think so. I've come to trust my feelings. If they scream out, I heed the advice.
And there was enough reason to go out where I did.

HSI is down for the day, so 17200 could have proved a double top (on the 1min in the first picture) in a falling market.
It did not, but so what. Next time it might.
No, when I enter a position, especially one against the current longer term trend I expect it to get me into profit fast, so I can move my Stop above entry. If that plan doesn't materialize, or if I just hesitated too long and got a late entry (good entry would have been 17180-85), then chances are enhanced, that I will get stopped or take myself out of the market at a small profit.

A very good question

and one I asked myself over the weekend as well:

Hi Christian,
Can you explain to me what major changes you made in your trading for better results.
How do you define the trend now?
Kind regards

I have to admit, that I have no clear answer.

I still do very dumb trades, I still have lucky trades, my Loss$ / loss trade ratio is still higher than my Win$ / winning trade ratio. Lucky I have a lot more winning trades than losing trades, which takes care of this imbalance. It still leaves me with an uneasy feeling, when the shit hits the fan and I have a losing streak.

This eMail forced me to think about my trading, what is my edge, what is working now, which did not earlier, what did I change, that makes trading now so much clearer?

Most notable change was the switch to use Linecharts and admitting

I’m not interested in the high or low of the previous bar

I’m just interested whether prices go up or down when I take a trade

Look at the black line, which is the German Dax. It dropped nicely from 5816 downto 5780 after the open (09:00) of the regular market.

If I go short, I like to see the black line pointing DOWN

If I go long I like to see the black line pointing UP

Difficult rule? No, of course not. But this rule makes sure I trade With the Trend in the timeframe I have chosen to take my signal from.

All other information on my charts helps me decide to take a trade or to decide where to expect Support or Resistance

To make sure I don’t miss that prices on average are going down, I have a Blue-Red Regression line on the chart. It tells me the trend:

Blue = Trend Up
Red = Trend Down

Next you see No Grid on my charts. A grid is arbitrary, it fools us in thinking, that there might be resistance or support, when there is none. Instead I have certain lines on my charts.

I mark the following pricelevels with a line on the chart:

Yesterdays Close and Todays Open for Gap trades (blue / green line)
Hi-Volume price levels (red dotted), as here I expect a lot of 2–way action on a retest
The High and Low of the previous bar of different longer timeframes

In regular candlestick theory a long trend is defined by showing successive higher highs and higher lows. Take a trader, which uses a 60min chart. He would expect the previous bar low not to be violated for the trend to remain intact. By marking this hourly Low on my chart I know, that there may be traders looking for a retest of this price level, as it would give them a second chance to board the train in the timeframe they trade.

I mark these priceleves on the right side of the chart

The daily High (red arrow), Low (blue arrow) and 50%-Level (yellow arrow) This gives me an impression where we are trading in respect of the days range
The highest and lowest High and Low of the previous 10 bars, to know with a quick glance whether we are consolidating a move or trending again. This information is secondary and might be removed from my charts at some time.

I mark on my charts also Bollinger Band Zones and Exponetial Moving Average Zones. I use Zones, as I don’t think there is one correct EMA or BB setting and all the other settings are wrong. There is no holy grail, there is not one correct technical indicator. But of course a lot of traders looking at similiar charts and similiar indicators will react predictable. A 20ema and a 34 ema are not a lot different. In a trend move I expect prices to bounce somewhere between the 20ema and 34ema.

On the other hand I expect the Bollinger Band Zone to act as Reversal zone. I know once prices penetrate the BB-Zone that the price move is extended and I expect a reversal or sideways movement which brings prices out of this BB zone before the next trend move lower starts. Trades taken from the BB are usually Countertrend, so I take a small stop with these trades, while Trend Trades get a lot more room. Violating this rule usually leds to my worst blunders and very costly experiences. Something I just did today on the HSI, when I took a Short in an Uptrend and it really got very expensive, as I did not believe, that the HSI would disregard precedences set by the Nikkei and the SPI which were down intraday.

The Short at 17053 cost me an 80 tick loss this morning.
Compared to my trading just a few months ago, this did not freeze me, seeing my account down 500$ on 1 contract just 1h into the trading day, but I took advantage of the DAX short I posted above and made 40 ticks or 500 Euro on it.

A lot of traders might ask, why did you not stop the trade? And I ask myself that question. I did in the trade, but I saw a clear downtrend in the longerterm chart and most likely tomorrow HSI will be down, retracing all of todays move. But as I don’t swing trade the HSI I let it run into the disaster Stop I use on HSI. Just bad luck, that the move was so strong today. Nonetheless I learned a valuable lesson for my future HSI trading, as I took the short with HSI being up 170 ticks on the day after the morning session and that means in the future I will let the HSI prove itself first before I assume a trend change in the afternoon regardless what other markets are doing.

Oscillators

On my charts I use a longer and shorter Commodity Channel Index. I learned a lot in Woodies CCI-Room a few years back. And after trying the STO, the RSI, the A/D and even a few selfmade Oscillators, I came back to the CCI. It’s as good or bad as all the other Oscillators. You need to know, how they work in trending and ranging markets, you need to know how they are calculated or more exactly, how they react when a consolidation turns into a trend move and vice versa.

But what is most important:

Oscillators are secondary information

They don’t lead prices, they might spike, when a small range suddely is broken and tell you that a stronger move might be expected, but that’s it.

First you look at prices, they tell you that something might happen at certain price levels.

Second you look at the oscillator and if you see a confirming pattern forming you take the trade.

Look at the first Gold trade I marked above. Prices test the EMA-Band. On the CCI a real nice sling is forming. So when you see the EMA-Band rejecting prices and gold trading again below 621 you go Short with the sling on the CCI present.

What turned my trading around was most likely being sure about my edge, knowing what I trade and what I look for in the market. Add to that a lot of screentime and not looking for home runs. Of course knowing how far an average trendmove will carry you, can keep you a lot longer in the trade which helps with the win$ / winning trade ratio.