Best of Trades, Worst of Trades, Some of the Others too

Just about everything went according to plan on this one - except for the last piece of the trade: I suppose I could have held all the way to the last target, which was eventually hit after a re-test higher. And probably could have been a little less hasty on initial covers...

AFCI is setting up with a potentially interesting reversal pattern - inverted hammer tailing into 200 DMA . Even if I did swing short, I'd probably avoid it heading into big reports manana. For my purposes, though there are some intermittent obstacles in the trading landscape, AFCI looks potentially highly tradable on the short side tomorrow, and worth watching in any event.

 

First, the good news: My first week keeping a journal was also my best week in some time. I generally stuck to my plan and my rules, and I believe that keeping the journal on-line has been more help than hindrance.

The bad news is that I hadn’t been having many good weeks lately, so performance self-comparison can take me only a small part of the distance I need to travel: Merely repeating this performance would NOT enable me to make a decent living, handle other responsibilities, or preserve, much less build, my savings over the long term.

Possibly even more troubling, I did make at least one trade that clearly stepped over the line from marginal/dubious to outright self-destructive. It wasn’t as bad as “Kymar’s Last Stand,” but it was bad enough to make me feel embarrassed. It was, in a word, un-professional. Though it didn’t turn into a “week-killer,” it came close.

This trade had originally been conceived as an “In-Range Breakdown” (IRBD). Coming off a bearish daily pattern, and possibly in line with what I thought was a market overdue for correction, AFCI looked good at least for a test of the LOD, and possibly for extension to the area of the previous day’s low/open. Instead, after a couple of feints lower, including the one on which I entered, it eventually bounced higher.

Further analysis shows that this trade was actually rather obviously a bad one - like an even worse version of my other "worst" trades of the week, which were also marginal-at-best wanna-be shorts...

 

HAS THE RAT-ZOMBIE RISEN FROM THE GRAVE?

Lots of things went wrong on this trade, were already wrong with it before it had even gotten anywhere, and were still wronger in view of the good opportunities it obscured:

1) My market call was wrong and I allowed it to influence my trade management too much – IRBD’s offer very little edge except where fairly strongly propelled by overall market conditions;
2) Even if my market call had been better, this set-up would be dubious as a result of significant long-term support that seems rather obvious now on 30-min and daily time frames – I let my reading of the reversal formation (see yesterday’s notes and above) divert me from the collision with these levels;
3) Further on having id'd AFCI as a short candidate and the downside of keeping a journal: On some level I was probably hoping to show I was on the way to becoming Joe Guru. It overly fit my personal scenario to be on the way to scoring another "brilliant" hit on AFCI today...
4) My initial entry was screwed up: Possibly as a result of Tradestation quote problems, possibly as a result of problems with their trade server, possibly both or more, my initial attempt to short never seemed to post to L2 or to get filled on apparent upticks. I canceled that order, and frustratedly entered an ISLD order a good .06 below the market (a lot for me, esp. on a $16 stock) and was filled at the worst price, not at what I THOUGHT as the inside market. Managing the trade always becomes more complicated when the entry is fumbled.
5) Most distressing and troubling, I let my frog get boiled on this one: After initial stop levels were hit, I let my confusion about the real inside market and my stubborn beliefs/hopes about the larger market and AFCI’s relation to it keep me from executing. Suddenly I was even worse off than in my worst expectations, on the verge of total disaster, praying that the market would come back and give me a chance to get out somewhere closer to my original stop.
6) I did manage to get out, but I had no way of knowing that AFCI wasn’t just going to explode through resistance and ruin my whole week.
7) In the meantime, I was also missing a clear reversal opportunity: If I hadn’t already been in AFCI, clinging to a decreasingly credible short-side scenario, I might very well have tried trading it from the long side. Maybe if I’d been more confident, in myself and in my data, I’d have executed.

I should have scratched this trade early on, and either have gotten with the flow of the market or called it a week. Instead, I spent more than half the session with a single losing position, trying to figure out just how bad it was, thinking I might be able to get it back to breakeven, seeing the whole market from the perspective of whether it might not get in sync with my hopes for this trade.

The only things I did well on this trade were resisting panic on the spike up against me and then closing the trade more or less efficiently on the pullback.

 

...desire to show up TV gurus who id'd AFCI as a long op. months ago... other relationships to prior trades... resonance with scenes from another sci-fi novel I've been reading...

...interesting how it's the bad trades that seem to trigger self-analysis - almost as though I inflict these trades on myself in order to learn about myself... like the research scientist who needs to kill the subject in order to study it... self-destruction as auto-vivisection...

...that's gotten old...

 

Could have gotten a lot more out of this trade or out of this set-up, but, despite having survived a test of the early HOD, I traded it kind of scared, and I liked another set-up better - one in the opposite direction on another stock that produced a couple of trades that almost worked out.

Short ADRX was in line with the open, but against the developing market impulse (a gap fill), while long OVER was in line with the latter. Other extraneous influences also got in the way of the trade: OVER had been a virtual market leader (at least technically) until a recent consolidation and then, on this day, an analyst downgrade. Though I'm happy to trade the reactions to analyst comments, part of me wants to shout, "Why does anyone listen to these people anymore!? " Sheesh... So I'm happier trading against them, I guess... Really, I do accept that it's better just to shut out the reasons for such moves...

The other thing crossing up these trades was worry over possible reactions to additional economic data at 1000 EST. As is so typical of this bull-move market, the initial reaction to mixed/negative data was a spike down and a whipsaw up. It happy-footed me out of the long fade on OVER that I had taken instead of continued focus of this rather nicely set up, and already once-successful short fade on ADRX. TS data and order execution problems didn't help my confidence in OVER or my ability even to take scalp profits...

But here's the ADRX trade...

 

OVER - problems especially in and around the release of economic data and the resultant "whipsaw" bar. As also earlier noted, TS data and execution problems did not help, but, if not for happy feet, I could probably have completed this pass for something, and probably have avoided the loss on the intial trade, too.

In effect, I was closing the position ahead of data - even though the most significant data (unemployment) had already come out before the bell...

 

Taking a longer view, the month of October was a hard one for me, but I think it led to some authentic progress.

I felt off-balance for most of the month, and increasingly so as the month went by, especially as a result of data problems. As I've already mentioned several times above, Tradestation’s formerly dependable L1 and L2 quotes have been out of sync and inconsistent. Accurate, "execution-quality" data – as accurate as practical – are fairly critical to my approach. At my current level of trading, I can cope with being however many milliseconds behind traders who have T1 lines direct from the exchanges into their skulls, but trading in a cloud of confusion around the inside market, never knowing whether whatever bids and asks are real, current, and executable, is maddening.

I’ve always accepted that quotes may not be perfect, especially at the open or during high volume events, but I now wonder just how much worse the data may have been than I previously realized, especially for my favorite gap fades. The extra emotional and intellectual energy devoted to managing such uncertain trades may not leave as much left over for new opportunities or for correctly identifying reasons to stand aside (or reverse). The effect may also be to reinforce my own tendencies toward stubbornness and toward overcompensation for lacking self-confidence

All the trades I took are still my trades: I take full responsibility for them, and I can’t blame my worst losses directly on TS’s problems. I also suspect that even if I had recognized early on that the problems might not take care of themselves, the process of adapting to some new set-up would also have led to upsets and glitches: Every time I’ve changed means and methods before, there have been losses attributable to trading errors and other effects of friction.

Anyway, I did pull back, both in size and frequency, even as I let the account drift toward PDT minimums, never re-funding it to make up for a disaster at the end of September and additional losses over the course of October. (I haven’t been utilizing my full buying power as is, and so rarely let my account stay very far over $30,000.) Undertrading in this way may even have improved my performance or at lesat my discipline to some extent, but I do need to get more aggressive, sooner rather than too much later, and I’m thinking that, instead of waiting for Tradestation to get its act together, I may open a second, fully funded account at IB, perhaps the E-Signal integration package. Even if TS solves its problems, and rolls out TS7 soon, it still might be a good idea to have a fully funded 2nd account and data-backup.

 

So far, I'd have to say yes, even though I expected a bit more feedback then I've been getting. I have been trading with great discipline - among other things with the sense that I really don't want to take some utterly idiotic set-up then have to explain myself later... True, I may have succumbed to temptation at least once, taking a trade in the hope of showing what a Trading God I was becoming, but I've always found one or another reason to take such trades even without the journal.

I have gotten a couple of PMs and other messages indicating that at least a handful of people are finding this effort worthwhile, and, really, I never expected much more than that. I had an okay week - better than a lot of weeks - but I've neither proven nor even advertised myself as a trader deserving of emulation, so why should large number of ET's stream to these parts?

Maybe more photos of dogs and favorite passages from literature would help, but I'm not really trying to be entertaining, or even educational. If I manage to be so, in whatever way, then that's fine, too, but I believe a journal ought to be externalized internal work - akin to psychotherapy: It helps to have someone "listening," and, if no one was downloading my trade files, then I might indeed have to pay someone to do it, but, so long as I could think that at least one interested person is paying attention, then that would probably be fine.

And at least I have reason to believe that my superduper trading secrets aren't flushing the market and turning un-tradable as a result... Phew! A whole week showing some of the stuff I do, and the set-ups still seem to be okay! Wow!

 

To begin with...

1. Trade more expensive stocks, or cheaper stocks in bigger size - with clear understanding of alterations of relevant parameters (including maximum allowable loss);
2. Have a larger number of higher volume market-leaders and sector-followers ready to trade along with clear market moves;
3. Trial E-Signal and perhaps other alternatives - even if Tradestation's promised data fix occurs;
4. Continue writing journal, at least as long as performance continues to improve...

 

KF,

It's not so much that the bad trades trigger self -analysis....
it's that the bad trades require self-analysis. The problem is not the set-ups, or the hardware or software problems. Those issues come with the territory. The problem is ourselves
The reason no one has yet come up with the ultimate black box that wins consistently is because a mechanical system can't factor in random events and human emotion. And it's funny that
many who are capable of writing software and strategies can't execute them because of their own emotions. That's where the problems lie with many of us. It's more important to analyze yourself after a trade than the set up itself.
There are so many careers that require so many rules,
yet people adhere to those rules day in and day out. While trading is certainly complex, there are only a few basic rules that if we could actually follow every single day, I believe the financial rewards will come.
1. Trade with the trend (there's nothing wrong with counter trend trading as long as you understand that and are not trading against the trend because your gut feeling is telling you the market is going to turn)
2. Know you stops the second you enter a trade and stick to them no matter what. Do not think, react.
3. Know your profit goal as well. No exit unless profit stop is hit. At that point you can begin to trail your stop if the stock continues to move.
If the stock doesn't hit your profit stop and falls, you exit at your entry no matter what you think...don't think just react!
If after your exit it continues to fall and at some point turns and your indicators are still telling you it's a good trade, you can always re-enter, and sometimes at a better price. This takes the same type of reaction that exiting a losing short position and being fast enough to then take a long position. It's about reacting to what we see instead of first messing it all up by introducing our thoughts into the process.

I know there's some other rules, but if we could follow those 3 to the letter every single time, I believe there will be greater profits.

I hope that makes at least a little sense.
Keep up the journal regardless of how many responses you get. Do it for yourself. I keep a daily journal and it allows me to analyze myself as well as my trades.
I narrowed down greatly the stocks I follow and trade. 90% MSFT. Liquid, has a good trading range over the course of the day, and a good proxy for the market itself. My first goal is to be
a good trader, then my second goal, money, is really a by product on my being a good trader.
If I can't trade one stock really well, then there's no point trying to trade ten or twenty....at least for me. There are different methods that work for everyone. These are just some of mine.

Anyway, keep fighting and ask yourself if you think those three rules are reasonable, and then look at your good and bad trades and ask yourself if you had applied those rules to those trades. If you did not, ask yourself if the outcome might have been more favorable if you did apply them.

Keep in mind this is just my opinion. To each his own. Good luck

Scott