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.