Wednesday, September 12, 2007

Sep 12 $600 on 51c

The NASD A/D showed bearish divergence, so I was able to take advantage of that and get a short runner. Traded the first 3 hours. Pretty light volume so far this morning. Going to work now. The best thing to do right now is to look to fade volatility spikes, and when the fade doesn't work, try to get in the trend and ride it to the next volatility pop.

Anonymous wrote:

If your strategy is so good, why don't you simply trade it? As that other anonymous said, your "high probability" comes from taking small profits and letting losses run. I've "traded" that way myself in the past (and it took me a lot of time and effort to mend my ways) and had spectacular winning streaks of great consistency (the longest was 34 profitable trading days in a row), interrupted by devastating blowup days, so I know what I am talking about.

On normal days, you buy, it goes down a little, you buy more, it goes up a little, you sell some, and keep doing that. At the end of the day you've traded hundreds of contracts and made a fraction of a tick on each, but hey - you made money, so your "system" worked.

On blowup days, you do just the same, but it never goes up, so you just sit there and watch you losses get bigger and bigger. After you finally get out near the bottom, you claim that you traded against your "system", and that following your "system" would have actually made you money on that day - and you have all those profitable days to prove it.

That "How I Trade" section is actually quite good and what made me follow your blog in the first place - the problem is that it has very little to do with how you really trade. The money management rules you posted were also sensible, but you never followed them either.

Thanks for this comment. I don't know what is going to be the final nail in the coffin for me to start following my trade signals properly. It seems as though, when I have made a good months profit I become more relaxed, and I end up screwing up on one day. This is because I stop following my rules and let emotions take over. I never want to have a losing day, and that is my problem, I will fight to the end of the close to make back any losses, and this as you can see is where the pain comes. The added stress I put on myself to get back to breakeven impaires my judgement, and I never shut down the computer until the market closes. It is my failure to except a small loss, which amounts to me breaking my rules, letting emotions take over, and thus having huge blowup days. Now, if I implemented a strategy, where the computer would lock me out once I've hit a max loss for the day, these types of days may have been avoided; however, I have failed to use such a program and have suffered the consequences. I think it is now time to start using such a program, because I obviously can't control blowup days from occurring. If any of the readers have suggestions on what I should use, I'm open ears. I think buttontrader has a program like this.

I'm also looking forward to reading Dr.Steenbargers new entries over at TradersFeed, where he discusses when traders prefer action to emotion.


John - MarketPilot on 9:40 PM said...


I wanted to give you some words of encouragement. While I'd say the trades we take are very different, we both seem to have had problems following our systems. For me, I had to look deep and determine what was triggering me to trade differently than I felt I should have. Definitely look at Dr. Brett's work to be a great help in this area and I’d have to say he has helped me in this area already.

I was letting my emotions of being wrong about a trade mess me up. I started taking more and more impulsive trades. When I did my trade reviews, I proved to myself day after day that these impulsive trades were killing me. While I had no doubt that I needed to stop taking impulsive trades, I still had troubles "turning off" these trades. While it seems like it should be so easy, old habits are easier to fall back into.

One of the things that helped me was to be very detailed about my trades. So I graded the quality of my signal, how timely my entry was (good, too early, or too late), did I allow the trade to start working or choke it out too soon, and I also evaluated if I tried to let the trade run when I should have taken some profits. Before the detailed trade stats, I was too depressed that I had once again taken impulsive trades when I told myself I was not going to make even one impulsive trade that day. So I'd figure out the percent of impulsive trades and stop, still not believing how hard it was for me to just stop making impulsive trades.

Why did I change my stats? I knew I should, but I was thinking about driving to Chicago to see Dr. Brett and wanted good statistics to discuss. I discovered that I had two major problems. I either entered trades extremely late or improvised a breakout trade to not miss a move. It was interesting to see that it was not just my improvised trades, but also poor entries on valid signals that were hurting me.

All of the "bad trades" caused me to doubt the validity of my signals when I had really developed bad habits of entering trades much later and crowding stops too quick trying to guarantee a "free" trade because of my losses. My late entries not only reduced the profit potential, but also increased the probability that my stop would get hit even if I had the major direction right.

I'm sure your trading journey will be different than mine, but you will get there if you choose to. Just yesterday (two weeks after starting details stats) I was able to get through an entire session without any impulse trades. I still need to work on not choking the trade out too soon trying to force a break even or winning trade. But this feels like a huge step for me and also a big positive change in my trading emotions as well.

There were many times I'd see your blog and be frustrated how often you could turn what looked like an initial losing position into a winning trade and usually a winning day. I suspect the trend days where you get in against the trend could be a challenge. Every trader would loves to end every day positive (even if it is small), but from my experience the market does not let you force something to happen. For me, it seemed every trade where I decided what the market had to do, I ended up being proved wrong by the market.

Hang in there and I hope this helps some.


MikeH on 9:41 PM said...

"for me to start following my trade signals properly"

You're still denying. This is about basic risk management. I've done it enough also. Now I simply come up with a max risk for each product I trade based on current volatility and tolerance for pain versus my winners. Every position goes in with a stop. If it trades close to my stop (what I call an unexpected path), I know I'm probably wrong and try to get out before it can hit it. Yeah, sure sometimes you'll get hit exactly at your stop, but I know I can make the loss back in a couple of trades, rather than blowing out a month.

Anonymous said...

First off i am not very successful at trading so you probably should disregard all of this.

I am currently trying to change to longer time frames, it makes trading less stressful and i hope that impulsive trades are a thing of the past.

Since you have a winning strategy, it might be better to adjust it just a bit.

Food for thought, it sure is a tough game, good luck.

Will on 6:55 PM said...

Thank you for your honesty. Sharing your anxiety and doubts with the world takes balls much bigger than most of us have (my left one in particular- that little freak is like, a large pistachio).

I can tell you that in almost 20 years of intensely following the markets and trading, the best move I *EVER* made was in 2003 when I quit trading altogether for over six months.

Fasting, cold turkey, rehab, whatever you want to call it. It was in the suffering which "not trading" brought that I began to clearly see some of my internal motives. Why I was really trading in the first place, for instance, which was to get myself out of my miserable circumstances and show the world that I was valuable (the "I'm gonna show them all" phenomenon).

My trading is for (mostly) different motives now, and in that paradoxical way life operates, it is much more successful.

That revelation made a huge difference in the rest of my life, as well. I wrote an article called "The Personal Journey" which you might enjoy. Let me know if it's ok to link to it here.

Anyway, please continue to post, no matter what you decide.

Best Wishes, and Cheers!

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