Weekly Review Feb 7/09

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The good:

• Made some coin
• gained better understanding on the difference between predicting market direction, as opposed to knowing when the odds are in my favour for a certain move to happen. Chart analysis should be done with a view towards where the odds are in my favour for a certain move/chart pattern to happen.
  

The bad:

• Wasn't aware of trend confirmation after entering a trade
  
• If playing a chart pattern, don't switch gears mid-stream, at least not unless I figure out how to do it properly. With the ES Box Play pattern, the only reason to continue holding was if there was a continuation move shortly after the box range. Will need to investigate some time-based stops for this.
  

The ugly:

• It didn't take too long for some bad habits to re-surface again. Overtraded ES on friday.
  
• Unable to erase bad trades out of my head. Shouldn't be trading after a bad mistake until my head is clear.
  

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Summary...

Review of October

The Highly Effective Traders says, "Confidence is all about trusting in your ability to perform."

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I made just over $2000 this month. The funny thing was that the majority of those gains came from two big days that I had near the end of the month. These two trades are certainly the highlights of my month. The funniest thing of all is how those two trades came after I was no longer trading on a full-time basis. I'm not sure what to make of that, I will have to contemplate it some more.

The low part of the month was near the beginning, where I spent a lot of effort into planning out and making trades that never came to fruition. I kept looking for big moves that never materialized. And to add to the frustration, I became impatient with the trades that I was in, and the market would taunt me by moving in my expected direction only after I exited the trade. Disgustingly frustrating.

I have also started trading the overnight session on a consistent basis. The good part about night time trading is that the action is slower, but no less volatile, so you get more time to think and react to make a decision. The major downside to night time trading is that sometimes it is not volatile at all, so there is nothing to act upon.

This month, I've noticed that I am relying more on trader's intuition. In the Euro trade, it went against me not long after I put on the short. But I kept my stop in place, and I had a sense that it would not hit my stop. I just "knew", and it was only later when I reviewed the trade that the indicators (Fib retracement, and downtrending VWAP) confirmed what I just "knew" at the time. In the S&P500 eMini trade, I just "knew" it was a First-Thrust-pullback reversal pattern, and was undeterred by my initial failure at trading the pattern. I am at peace when I am in synch with the markets. I get flustered and am prone to taking impulse trades when I am out of synch with the markets. That's when I try to make the chart look like a pattern that I know, or stubbornly cling on to the belief that the reversal is right around the next tick.
Knowing what to expect really helps to create your edge, regardless of whether you arrive at it from using a set of indicators, or using your own trader's intuition, or a combination of both.

Having a hypothesis or mental model of the market session is like saying, ".... my analysis says that there should be some buying support at xxx, so if it reverses at that number, I will go long.", or, "the markets run-up 6pts and now it's 705am, if it drops below this number, I will go short." So, it's not like calling a top or bottom at all whatsoever.

So, time permitting, I will continue to publish my daily numbers, because that helps to form my own mental model of the markets. I actually had worked out the daily numbers for today, but just didn't have time to publish them. In fact, I know my numbers are good, now I just need to figure out how to make use of them and control risk at the same time.

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Summary...

Review of September

Summary

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I made just over $1500 for September. I'm not making enough obviously. It's the same old same old reasons which are preventing me from making triple that amount.
I continue to lack the patience to either let my trade properly develop, or hold on longer for larger profits.

On the discipline aspect, I have fortunately gotten into the habit of planning out many of my trades. Now I just need to reinforce that habit by planning out all of my trades. I overtraded I think about three times this month, so that is actually an improvement for me. However, sometimes, I lack the confidence in pulling the trigger. On more than a several occasions last month, I have seen the market tag my support/resistance numbers and bounce from it. I'm not sure why I lack the confidence in pulling the trigger to enter the trade. Could it be the prior mistakes that are feeding my fear of making a trade? Could it be that I am starting to trust less in my ability to perform? I don't know the answer myself.

Obviously the dollar figure of my profits is very inadequate to make ends meet. If I am unable to improve upon these results soon, I may have to put this dream of mine on hold.

The biggest thing for me to work on is to reduce the number of mistakes that I make. Sometimes I just lose focus and don't think often enough about measuring the risk of a trade. Obviously I should be assessing the risk of a trade at all times, but sometimes I just forget to do so, and I wind up entering into a high risk, or a low probability trade.

So, the three process goals for October:
1. Always be mindful of assessing the risk of a given trade. The majority of my overtrading problems could be reduced from constantly assessing risk.

2. I am a scalper by nature. Many of my trades are usually 5min. or less. I may as well start working with that reality. If I work from the assumption that every one of my trades will start off as a scalp (even though it could develop into something more), then that would go a long way in improving my consistency.

3. Document the losing trades. I've noticed a recent tendency to sweep my losing trades under the carpet. But I should be doing just the opposite, and shine a bigger spotlight on them so that I can learn from those losses and use it to improve my trading.

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Summary...

Review of March

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March has not been kind to me. I lost just over $800 overall for this month. This is considered a drawdown.
The reason for my poor performance was my attempt to transition into trading futures. I had just finished coming out of my slump in February, and was having a little bit more success with my trading in the early part of March. When I tried trading futures (again) near the middle of this month, I tried trading the Russell (ER2) again, with mixed success at best. That was when I made the post containing words of wisdom from some great traders, in order to draw some inspiration and turn my mental state around. Then at the suggestion of one of the commenters, I expanded my horizons and tried trading other futures contracts. I had initial success with trading Gold Futures. Then after a couple more mistakes, I learned when NOT to trade. Then came the FOMC day, which was my best day of the month. From there, things started to turn for the worse, which was this past week. I started to forget about when NOT to trade. I started to forget about doing what it takes to wait until the low hanging fruit appears. If you look at the history of posts in my futures trading, you can see how things progressively went downhill. I started to scalp more and more.
Frustrating doesn't even describe it anymore.


This is not the first time it's happened. I've noticed that I seem to periodically forget the rules that have proven to work for me in the past. It's not that I can't make good trading decisions. For example, in the Gold Futures trade, I made my analysis the night before, and knew about the support levels, planned, prepared for the days action, and acted decisively when the opportunity arose. The analysis and planning is what I attribute to my successful Gold futures trades.

Why did I stop doing that? The OMNI has to my knowledge, absolutely the best freely available and documented 4 month track record in SnP eMini Futures trading out there, and I threw their recommendations out the window at the first trading loss that I took. I am still trying to fathom how and why I am doing that.

The problem is that I periodically get into bouts of bad trading decisions as well. Once I make some bad trading decisions, I think I start shutting down my good habits. When it all boils down to it, the true root cause of the problem is that I start to lose confidence. Confidence is all about the capacity to trust in your own ability to perform. Things are unfolding exactly as I wrote about them in my post about the Habits of the Highly Effective Trader (see the Best Of tab). Each bad trading decision that I make robs my capacity to trust in my ability to perform. I start to ignore my analysis and planning more and more, and I begin to trust less and less. That naturally makes me more vulnerable to making even more bad trading decisions. The simplest example is the past couple days. The OMNI provided the day's recommendations. I worked out some of my own entry/exit levels, and the likely scenario of the day. Once the trading day started, the first loss I took resulted in throwing all trust in my own analysis and planning out the window.

The solution is blood simple.
Trade less often. Stop trading for the day when I make two bad trading decisions. Be even more picky about the high probability setups. Follow my trading plan even more religiously.

Now, the hard part is to execute this solution. Wish me luck.

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Summary...

Review of February

Could have been a google times better, but fortunately, it wasn't a lot worse.

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I made $2136 for the month of February, but had almost that amount in costly mistakes.
If I made fewer mistakes, I could have avoided up to $1931 in losses. That's frustrating to know. Not the kind of frustration that leaves you not knowing what to do, but the kind of frustration that just makes you annoyed, and leaves you thirsting to do even better on the "second chance". I feel like I need to redeem myself. I can't go on making these mistakes, it's just too costly and painful. I can't even believe that I have such a high threshold for pain.

It's been two months already, but I haven't made any visible signs of improving my performance in terms of mistake free trading. Sure, everyone says don't be so hard on yourself. Well, my thought is that there's a lot of things about the market that I cannot control, but I can control the mistakes that I make. That $1931 in mistakes did not have to happen, at least not all of it.

So how do I work on decreasing the mistakes that I make, but without dwelling on them too much? What a fine line to walk. What would the Highly Effective Trader do? He would focus on the setup. So perhaps that's what I should start doing, grading the setup like how TraderX does. If the setup doesn't have at least a greater than 50% probability of winning, or if there's a greater than 50% probability of my stop getting hit, then why am I even considering the trade ?
The next trade is not about the pressure to perform, it's not about the fear of protecting profits, it's not about my own unrealistic expectations, it's all about the setup, pure and simple. The trading plan should be centred around taking setups that have at least a 50.1% chance of winning, and less than 49.9% chance of the stop getting hit.

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Summary...

Review of January

This January marks the first month that I have been able to keep stats of my trading for a whole month (see System tab for the stats page).

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Where shall I begin? First is the format of these stats. These stats don't tell me certain information that I want to know. I will add some extra columns for next month's trading stats so that it will be more informative. I'm not sure how to record the average win and average loss in an easy and convenient manner for all of the different markets that I trade, so I will chew on that one for the next few weeks.

According to the stats, I made around 20 options trades, 21 US equity trades, and 31 Canadian equity trades, and 14 Futures trades. Sounds like quite the busy month, but there is no context to provide some meaning to this statistic. How many trades is too many for a trader with my kind of style and multi-market approach? I'm not absolutely certain of the answer, so I think I'll start with the highest numbers as a yardstick -

• 8 options transactions in one day,
• 9 Canadian stock transactions, and
• 9 US equity transactions.
  

Let's see what happens in the coming months.

The next re-assuring statistic is that I made $3641 this month. Whoo-Hoo! It feels gratifying, comforting, and stupendously divine to know that I can make money doing this! That is the great news. Pat, pat.

The bad news is that I've made 9 mistakes this month, which is way more than the average. What's really telling is that these mistakes cost me $1756. Those are some very painful and costly mistakes. Usually I sell too soon and leave a lot of profit on the table when the stock runs up after I sell. In the GS option mistake, I waited too long and sold too late. I think what is happening is that there is still a lot of hope lingering around which causes me to make these mistakes. Some days I am mentally focused and resolve to sell according to my trading plan. On other days, everything is a grey area and I think everything should be given a bit of flexibility to move. Even so, there's just no excuse for leaving almost $1/contract of profits on the table. I may as well start using $100 bills to start a fire. It's frustrating to even think about it, so I'll just stop now - no need to build up excess negative energy inside of me.

The other thing is that I've stopped trading the Futures market. My style and approach to trading Futures required me to be in tune with the market, much like how a dance partner knows the other partner's idiosyncrasies, behaviours, and patterns. It worked for a while, but it was required all my attention (ie. I couldn't trade or watch other charts while I was trading ER2), and was hard to keep up the mental focus. In fact I remembered being quite drained at the end of the day. Until I can figure out how to trade the futures while I trade the other markets, or until I find someone who is willing to teach me how to trade futures and other markets at the same time, I will stay away from futures.

That's about it for now. My advice to myself is pretty simple. Start making less mistakes.

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