Thursday, June 21, 2007

Kinda, Sorta Back, but Not Really

I feel obliged to post an update.....

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Ok, I haven't been posting for almost a month, and my FeedBurner subcribers have doubled??? I'm not really sure what to make of that.......

Anyways, I felt obliged to post an update to my trading journal. But, I'm not sure where to begin. I've still been trading for most of the past 2 months. I've been trading mostly ES, and some silver and copper. It's been a bit of a slow bleed, and as a result, my account has dropped below the SEC's PDT threshold. The damage to my trading capital, while not insignificant, is not as significant as the damage to my psyche. I've been tempted to add funds to my trading account to bring it back above the PDT threshold, but have decided not to for now, until I can work on some of my trading weaknesses. These are the same weaknesses that I always babble on about - overtrading, patience, and discipline. I believe that I have improved a little in these 3 areas in the past 6 months. On the days when I am patient and disciplined, I feel I am "there", life is good, and nothing needs to be fixed. But on those days when these gremlins show up, it causes increasing damage to my psyche. So, I've decided to really, really address these issues to my own satisfaction, and until then, I will not add funds to my trading account. So I am undercapitalized by choice, and that means trading small size until I can practice patience, and discipline.

I've come across a trading service in ES that offers a 66% win rate and a +0.66 expectancy. Anytime you can capture twice as many winners as losers, it's a good system in my books. And nothing helps a damaged psyche more than a system with a high win rate, the higher the better. (Side note - my theory is that win rate is infinitely more important than +ve expectancy when it comes to addressing confidence issues; it only makes sense). So all I have to do on my part, is to follow the service like a trained monkey, and collect my money...... easy as pie, right?

Unfortunately, my 33% INFP personality is fighting that to the bitter end. I actually have trouble following this trading service to the letter !! There are two obstacles here :

1. I think I can beat the system and be smarter than that trained monkey. The service posts signals (long/short, with entry/exit and stop levels in real-time), and I try to tweak the entry and exit and stops to extract more profit, simply because I create the illusion that I think I can do better. But 2 out of 3 times, I wind up with less profits (or worse, a small loss) than if I had just faithfully adhered to the entry/exit and stop levels.

2. I lack the patience to wait for the signals to be posted. So sometimes, I make a trade because I am predicting that the system will post a signal imminently, or I am just plain bored, or I see something in the charts that I find is worth a shot (at least that is how I've rationalized it), or I just get the urge to capture every tick of movement.

Each trade that is placed needs to meet two (distinct and separate) criteria: low risk AND high probability. When I overtrade, I am making low risk, low probability plays, or high risk, high probability plays. A low risk, low probability play would be similar to entering a base and break trade before the breakout has occurred - entering inside the base is low risk, but without waiting for confirmation of the breakout, you're really flipping a coin as to which direction it will be headed.
A high risk, high probability play would be like entering a trade in the direction of the confirmed trendline after a TICK extreme has occurred. Although chances are good that the trade will eventually move in your favour (ie. in the direction of the trendline), you're probably very far away from the trendline when a TICK extreme occurs, so you'll be forced to use a wide stop, which means taking on unnecessary risk.

My New Year's resolution for this year was to double my capacity to carry out mistake free trading. I know now that that capacity comes from exercising discipline and patience. I am not there yet, and it is ever more imperative that I make progress in these two key areas. I look back at this trading journal in the early days, and I sometimes wonder how I made all those trades. I don't feel the confidence nowadays to do what I did a few months back.

The plan now is to follow this trading service to the letter, simply because I can't even do that right now. Yes, there might be a better alternative or approach to following this service and be handheld through trades. But, I am doing this with specific objectives in mind, and once they have been reached I will cut the cord, so to speak. In some strange and twisted way, I do believe that once I can follow this trading service to the letter, then a lot of my patience and discipline issues will be resolved.


Tyro said...

Good to hear from you! I was afraid that something dire had happened or you'd decided to move gracefully into the blogging sunset.

I'm having just the same bumps on my journey so I can't offer any words of wisdom, but if you ever want to grab a beer and commiserate, the first round is on me.

Phileo said...

Hi Tyro,

Thanks. Nothing dire has happened to me, but my motivation to blog has declined (as you can tell).
But I am considering your interesting offer to get drunk for a night.... !!

Bubs said...

Glad to see you back. Also have some struggles with my trading lately so really have no advice but just like Tyro if you are ever in Chicago the first round is me. Once again good to hear from you. You were one of the first blogs I came across. later