I have been reading your postings for couple of days now. Very nice write up. Thank you and keep up the good work.
I have been trading live for almost a month now. After all commissions, I am at slight net loss. I understand that it will definitely take more time and experience to be consistently profitable, but I do have noticed some changes of my trading since I started mini ES day trading from last Oct.. 1. To me, trading live is quite different from trading paper even though I think I follow exact rules when either trading live or paper. The subtle difference is psychological. When real money is at stake, I am not able to act as decisively as I trade paper account. I have been working on this issue. The reason why this is the case is the fear of loss. As a beginner, my number one priority is to protect capital. I'd like to do two things to help myself to overcome the unhealthy fear of loss. 1. control risks of my trades. I use stop to control loss. Depending on my comfortable level of loss, I can use stop to decide whether I am going to take the trade or not. For instance, when the market volatility is high, if large stop is reuqired to enter a trade, I should probably pass it if I am not used to large stops. 2. get a decent account size even when trading one contract. For instance, if daily margin is 500 per contract, an account with 2000-4000 may be needed. 2 pt loss would be 2.5-5% of account size. To trade one contract with 1000 USD account is more like playing scared money. 2. I used to look for confirmations from trading expert from internet or I read many financial news/blogs to figured out whether market would go up or down. Now I realized it actually does more harm than good to my day trading. I am not saying there is no value of other people/experts' opinion. What I mean is various traders have different trading style/time frame/loss tolerance. The reasons that they take a trade here or there now and then are actually irrelevant to my own trading. I have to make my own decision relying on my own judgement. Now I no longer look for other people's opinion when I trade. 3. I find price action is all I need for daytrading ES. I do use channels/trendline/fib level/S&R/volume to help myself to make decision. I feel by watching price action alone, I can sense the balance/inbalance between buyers and sellers. Sometimes, I can tell with high confidence who is in absolute control and who is not, or who is playing who, or whether the buying is good buy or just short covering/a selling is a distressed selling or just profit taking. 4. At beginning of my trading, I like to fade breakout since then I was not used to trade breakout because I fwas afraid that as soon as my stop entry triggered the run would be over and reverse immediately. What I do now is I try to position myself for next breakout. When the consolidation range is small and duration is short, I try to get in before breakout and take profit shortly after breakout. If the consolidation phase is long, I can use stop entry to get into the trade when actual breakout occurs since most time the breakout after long consolidation is often very powerful.
One of the trueisms about risk reward applies to ES. IMHO to trade without emotion it takes a much larger amount per contract to trade the ES. That is what the experienced traders say and I would agree. The magic amount needed, I'd say 10 grand or more per contract. For learning I see nothing wrong with a small amount 5 grand or so per contract since it will probably be lost anyway.
I like this (from initial post) it's important to keep losses less than you can make in a day whenever possible. Something I still struggle with though. =)
1-13-2010 Total trades: 8 RT winner: 3 loser: 5 net P/L: -4 pts Today is my largest loss day since I have traded live. I have made some typical mistakes that beginner suffers. In summary, I didn't cut loss quick enough and didn't let profit run when I was right. There are two trades with significant loss and two trades I took small gain, but I could have taken more profits. I am going to briefly diescribe my mistakes here. From large picture, I noticed there is gap on SPX on 1/12, which buyers might want to close. There is alos a 50% middle channel line may provide some resistance to the price. I was not really in synch with market from 11:30 to 1. I went short after seeing huge vol spike around 12. Price broke out again after very short period of consolidation. The market was really showing the strength and buyers were dominant. I got stubborn here and waited for some pullback until I took 3 pt loss before I admit I was misjudged the price action. At 1:20, went long at 1139.5 as price approaching micro supply line expecting a breakout and to close the gap. My original target was 1142, which is also teh equal distance from the bull flag?consolidation range after new intraday high at 1141. The bull flag/consolidation period went a little longer than I liked. I also noticed that 1138.5 as a strong support (this is last Friday's upper price boundary of the long consolidation period). Price first broke out to retest 1141 and pulled back (a throwback to retest mirco supplyline). Around 2pm, another test and pulled back. I got a little impatient and took 0.5 pt profit as third time it approaching the resistance. Shortly after, it broke out and reached 1142.25 before entering consolidation. The low of the bullflag was actually 38% retrace on YM. These are all perfect signs of trend resuming. Whatelse confirmation do I need? I tried to fade it as SPX closes gap, but quickly exited as price forming a cup/handle (2:45 to 3:15 handle). I didn't have conviction to go long here. Since the bull flag from 12:45 to 2:30 took some long period to form. The final price target after bull flag would most likely be higher than 1142. I did expect another push though I didn't go long here. Went short at 1144.5 after last push at 3:35. I expect some pullback to 1142.5 (the high after first breakout bull flag). Again, I took small profit instead of holding a little longer. Another reason I got out quick was it is near market close. Today's price action was mainly breakout/consolidation and repeat. Either entering at breakout or early entry at middle/bottom of consolidation range would be right strategy. I'll probably stop live trading for the rest of this week and do some paper trading again to get myself synchrronize with market again.
Bighog posted a fantastic description of the psychology behind crowd sentiment and trend continuation, which as I look at the day's chart describes today to a T from the pivot low. (I almost jumped in when the pivot low found support, but had to attend to some things today and since I wouldn't be around to manage the trade, I decided not to trade.) http://www.elitetrader.com/vb/showthread.php?s=&threadid=132626&perpage=6&pagenumber=318 His post is near the end of the page.
1-14-2010 Total trades: 1 RT winner: 1 Net P/L: 1.5 pt Started at 12:30 ET SPX was approaching 1150 (some "magic" round number). I expected it to retest previous intraday high on 11th at least. At 11:30 ES retested open range low and rebounded. price broke supply line of down channel around 12:10, a throwback and brokeout at 12:30. Went long at 12:45 at 1143. Target 1144.5, stop 1142, the low at 12:25 before breakout. Price broke bull flag and throwback, and drift flat until 1:30 (broke a less steeper supply line after first flag). Exit at 1144.50. Another long opportunity at 2:30 as vol dried up and price range tight before broke the micro-supply line. I was away from desk at the time so I missed it. Price throwback at 2:45 before SPX challenged 1150. At 3:00 and 3:04, there were 2 bars with high volume. The bar at 3:04 was a doji. I expected a pull back of 2-2.5 pts from 1147. Since this is against momentum, it would be a quick trade with some high risk. I didn't trade live for this short fading, but did a paper trade for a short entry at 1146.5 (stop 1147.50) and covered at 1145.5. The bull flag was nicely formed from 3 to 3:30. however, since last 2 consolidation took ~ 60 minutes and it is kind of a little later at the day, I didn't expect the price to broke the high again made at 3:05. Again, Buyers are in control for the most part of day. It was breakout/consolidate and repeat. Price made HH and HL from 11 to 3.
1-15-2010 Total trades: 4RT winner: 3 loser: 1 net P/L: 1.25 pt Started at 11:45 ET. Today is good distribution day. After first 30 minutes steep down trend, price consolidated in a descending triangle, a continuation pattern.There were two vol spikes after price broke the horizontal line of the descending triangle (it loked better on YM 2 min chart). Price went consolidation again. From 12:45 to 2:30, price looked like a rising wedge with predominant trend down. I did two real quick scalps inside small risng wedge. Went short 1130.50 at 2:20 as price slowly approaching the lower wedge. As volume dried up, I expect it was time to break the wedge. My original target was 1129, which was a previous level many tight price bars spend significant time there. However, I took a small profit early. Since expected price acceleration didn't occur, and price didn't retest low, this is probably the double bottom. Went long as price aproaching microsupply line at 1129 at 2:55 and took quick profit a minute later. After I closed all my live trading at 2:56, I did a paper trade as price broke the micro supply line and stayed above it for one 2minute price bar. Exited at 1131 the neckline, extended wedge bottom, and 23.6% fib retrace. I expected the buyers might want to push price to 38% retrace at 1133.75, but the consolidation range between 10am to 12pm puts some resistance to teh price here. At 3:30m, the price looks like forming a small bull flag here. Let's see what bull want to accomplish. It is breaking out. The extended trend line between 1:10 to 2:20 on YM is providing some resistance to the price.
An observation here. These days, market has been in very well controlled fasion. The volatility is relatively low. Apparently, there is no panic or any other kind of extreme sentiments in the equity market now. Market makers are doing great job maintaining the order of the market. I have noticed that even the dollar has decoupled with equity trend since last holiday season. When the market is under perfect control by market makers, they accumulate at bottom and distribute at top. When you recognize that big buyers are buying at bottom and walks price consistantly HH/HL during small price range consolidation period, it would be worth holding your position a little longer if you are on the same side with the one in control since market maker often will make ES move at least 3-4 points after all their hard work and time spent during the consolidation period. This is probably like pool operation in the old time. It was very expensive operating pools. Pool managers were not looking for 5-10 % price move since it could not justify the cost to do the business. They were looking for 40-60% minimum.
1-19-2010 Total trades: 4 RT winner: 3 loser: 1 net P/L: 1.75 pts Started at 11:20 ET. All 3 indices moved up nicely and retraced to close the gap from last Friday. Enter a short around 11:30 for a quick scalp. The price found support around 1140.5. I started looking for long entry. Missed long entry at 1141 (hesitated) before 12pm wanting to see more price action as it approaching the previous breakout high 1142.75. This was a good buy at pullback since the price touched 100 min EMA first time after early morning run. Entered long at 1143.5 at pullback after 12:45 breakout, which made new high. Exit at 12:58 for 1 pt profit. Re-enter long at 1143.5 at 1:21 and exit at 2:14 as it failed to break 1145. The price was forming a cup & handle from 1 to 2:30. Enter long again at 2:40 after second attempt to break 1145 failed at 2:30 expecting a third retest 1145 level. Exit at 0.25 pt loss after seeing the previous support trend line from 1:10-2:30 became resistance on YM 2min chart. Price failed to break the micro supply line formed at pull back since 2:30. Most today's pull back were within 2.5 pt range. Price broke the micro supply line at 3:15, I didn't go long at that point. This was another missed opportunity. At 3:18, vol dried up on YM 2 min chart, a small throwback after price breaking microsupply line. At 3:26, it broke out nicely. ES hit 1146. Again since the consolidation spent from 1pm to 3pm was quite long, and there was some sort of shakeout from 2:30 to 3pm, the final breakout was supposed to be quite powerful. This is the best trade I have missed today. Since it is kind of a little late, I did not initiate any position after 3:30. There were not much selling today. It is a perfect trend day. ES has been moving within a 5 pt range since 11. The main strategy today should be looking to go long at pull back/during consolidation to play breakout/retest intraday high. Counter trend trading today might not be very productive due to tight price range.