I started a journal in the middle of last year, but stopped for personal reasons. I will give it another try, and hope to be more diligent this year. Trading in 2009 was great - I returned ~ 146% in five months trading only Nasdaq100 futures with no losing months. In January of this year I hit a rough patch and everything went down the drain so fast, that I had to take I week off from trading just to clear my head and to re-examine my trading approach. I lost ~ 55% of the account value in a matter of two weeks, for the reasons I could not at the time understand. After that I could not look at charts or read any market related news without a sick feeling in my stomach, but had enough willpower to stop, go over every trade that went wrong, make notes, and adjust my methods. I since recovered somewhat, but am still down from the peak. As I am 100% discretionary trader, losing streaks are exceptionally difficult to handle. It is difficult to keep my head clear and to trade rationally without thinking about how much money I recently lost, if the next trade will be a winner, and doubting if trading is, after all, my game. I hope a public journal will help me with keeping my emotions in check. Beginning balance is $78,372.61
On a high level there are three inputs in the decision making process: price action on multiple time frames - from 1 min to weekly. I use very basic stuff - support, resistance and trendlines, and I do not use indicators at all. The most important time frame is 15 & 60 min chart; this is my "signal" line that determines a short-term trend. I normally prefer trading in the direction of the short term trend on 60 min chart, but am comfortable with countertrend trades on high - probability set ups. Daily and weekly charts are used to get a view of the big picture and to identify possible turning points for shorter - term trends. Time-frames of less than 15 min are used to time entry and exit points. there is a "model". A model is a massive Excel spreadsheet that takes in a mix of inputs, and spits out a most likely price movement for the general market for the period of 1 - 5 days. The inputs in the model are price action itself, relative price action of SP500 vs. to other indices, price reaction to economic news / indicators, price action of other assets (mostly dollar and Treasuries), seasonality, volatility etc. The model is interesting to maintain and to continue developing, but it provides only a slight edge. Using the model alone to trade would probably produce annual returns in mid to high teens, depending on the leverage, with a lot of volatility. I use the model to determine how aggressive I should be trading on a price action and if I should let profits run or do more frequent trading. my personal interpretation of the macroeconomic events. Similar to "the model" approach, this never overrides price action, but determine how aggressive I want to be in my trading. I hope this helps.
After some soul searching and continuous bleeding of the account in the last couple of weeks, I decided that pure discretionary trading is not for me. I kept trading limited, but nonetheless managed to lose some money since the start of the journal. It almost seem that I got lucky in 2009, and the market finally caught up with me lately. I don't think reading charts is for me, as I always had this uneasy feeling on the back of my mind that I am just playing with randomness and somehow getting away with it. I am currently working on automating (what can be automated), testing and quantifying the ideas I developed over the years; the ones that do not pass a rudimentary statistical test are getting a boot. The idea is to transform to a systematic trader from a discretionary one. This should be interesting. I guess I am starting from scratch, as I have never traded 100% mechanical systems. Account balance is at ~ $75,200, down 4% since the beginning of the month.
Would be interesting if you posted a few charts of failed trades to see what is wrong with your reading of the market.
There is no need to post charts, just take a look at NDX from the end of December. I was shorting the rally on the way up, and got stopped out a number of times. Then, during consolidation phase in the first half of January, I was still trying to short at every sign of weakness, and got stopped out every time when market rallied. By the middle of January I was so demoralized with my account in shambles, that I missed the most of the selloff. The fear of the additional loss, and the fear of the unknown (my methods were not statistically tested; therefore, I had no clue if this kind of drawdown was "normal") kept me from participating in the correction that I was expecting since the middle of December. Then fear was gradually replaced by anger that I missed the whole move, and I started getting urges to "revenge trade". It is amazing, but the thought of making an all-in bet (high risk, no stop, "f...ck you all" kind of trade) actually crossed my mind. This is exactly how I blew up in the past, three times, when I made "all-in" bets after significant drawdowns. This time I stopped trading to get my emotions under control. What scares me is that I fundamentally did not change from the early days when I was trading $3K account. Despite of the fact that I have been doing it for years, same demons hunt me at the time of stress. My hope is that if I trade mechanically, I will be able to trade multiple diversified systems with multiple small uncorrelated bets; and because each bet will be so small, I would not even care.
I have been working on systemizing my trading approach last week with limited success, as I find that many set ups / ideas that I use are extremely difficult to squeeze into 100% mechanical framework. As my programming knowledge is light, I was trying to explain what I need to my friend who is a professional programmer, and the feedback that I got was not encouraging - I either have to simplify the rules or go back to discretionary or semi - discretionary trading. I will give it more push in March, but I may have been too fast to abandon "tape-reading". While pieces of the mechanical systems were being developed, I traded Nasdaq 100 futures last week using my old discretionary methods, but with a very light size (not more than 3 contracts) and managed to squeeze a slight gain of $2.6K or 3.5%. Nothing major, but it is a nice emotional relief since I am down 25% this year. Account is at $77,844.40.
I have been reading this thread with high interest. Respectfully, I disagree with your assertions that you are a purely discrectionary or "100% discretionary" trader. And I opine that this may be a large part of your inconsistency. 1) You use an Excel "model' that impacts your trading decisions, by defintion this is partly system-based 2) You allow macro or fundamentals to impact your trading, which is another way of "trading what you think, not what you see". You stated that these two items impact how agressively you trade and whether or not to take profits, etc. etc. Therefore, it is not reality to say that pure discretionary trading is not working for you, when you are in fact not practicing 100% discretionary trading. What I suggest is that you examine this and ponder weeding out the "thinking" stuff such as macro-econs and also the system model that "thinks for you". I saw a trader years ago in one of these threads comment about "system-mess-ionary" trading to describe the type of hybrid trading that you do. Meaning that combinations of price action trading combined with the above mentioned system components rarely work out well in the long term. They tend to tug on each other in a negative way. I believe that pure PA trading works (how I trade). I also believe that pure systems can work for the smarter ones who can code it. I also know that pure investing or swing trading can work for some. But if you are honest with yourself about this, you have a part-PA, part-system, part-swing (fundamentals) method going on here. And I just don't believe this can be a sharp edge. Too many cooks in the mental kitchen.