Spydertrader's Jack Hershey Futures Trading Journal

Great_conclusions + Great_drawings - No_disagreements = FoundTrader

 

Chart for November 12 2007:

 

one more tips...

<img src="http://www.elitetrader.com/vb/attachment.php?s=&postid=1676610">

 

True! That falls under Clues for Change
and the game is to collect as many clues as you can!



Perhaps, I should say, the Challenge[\b] is...
should one choose to accept it.

 

My chart today -- RT was only the first 3 hours, then I got distracted. Sure looked like a nice day!

I love being able to say that when the market goes down!

 

This is an issue I've been dealing with on the charts.
sample2.gif shows price in a trend with a very angular retracement. This type of price action is very ideal because, alongside the gaussians, the geometry is very easy to tape because of the clear cusps at the tape changes.

sample1.gif shows a similar kind of trend, but the retracement is very sinusoidal in nature. The up to down tape transition happens on light pace, but the pace quickens (slope steepens) to a maximum at the center of the retrace. The pace slows again as the price progresses back into the dominant traverse.

The initial tape lines of sample1.gif are drawn. We can see how the pace increase in the retrace causes the bars to gap away from the RTL of the tape. Obviously, this is because the tape is drawn from the first two bars of the retrace that have the lightest slope.

One solution is to keep widening the tape until the RTL is broken. My approach however, is to observe each incoming bar. If the pace quickens with that bar, I rotate the RTL (in this case clockwise) so that the tape has the deepest slope (sample3.gif). If the following violates the RTL, I keep the tape in place and wait for a stall or a tape in the opposite direction.

This enables me to catch the earliest shift from traverse to traverse. If the tape had bee successively widened, then the tape violation could occur well into the next traverse.

Any thoughts, comments on what you guys do about these tape pace changes?

RT

 

November - Putting it all Together

Hard to believe we've reached the point in the Journey where (almost unnoticed by many) the 'hand off' had already occurred. For quite some time, each of you has had the ability to 'carry the ball' on your own - requiring little (if any) input from me. Nicely done. I commend all the effort made, and I appreciate many continue to struggle toward this end.

For those who have not yet reached this stage of the Journey, no need to fret. This month's post contains plenty of information which should assist the self- analysis process in order to allow everyone to focus on the exact areas which need attention.

The single greatest flaw most struggling traders have is not trading undercapitalized or using too much leverage. No, the single greatest weakness in struggling traders (and most people in general) is an inability to perform the self-analysis required, at an accuracy level needed, to focus their efforts on the correct areas of concern.

M-A-D-A

Monitor
Analysis
Decide
Act

Our self-analysis begins with Monitoring the market correctly. We begin this process with the often mundane task of annotating our charts correctly. Always, begin with the YM first because when you need the information, you’ll quickly find it, rather than, have to spend time performing ‘housekeeping’ tasks first.

We need to have the charts fully annotated – FTT’s, 123’s, FBO’s, Flaws, Formations, channel lines and Gaussians (complete with B & R annotations) all need to exist – without exception. Why? Two reasons. 1. Everyone needs to insure the pathways needed to correctly distinguish between continuation and change have been fully constructed within the brain. Not partially, not “I’m starting to ‘see’ it”, not, “I’ve almost got it”, but fully constructed. 2. One cannot know if one can correctly ‘see’ the market signals in real time unless one can accurately annotate the market in real time.

Now, some will say, they do not have the time to annotate in such a fashion. Some will say, they miss signals when they annotate in such a fashion. I say, complete and accurate annotations occupy your time (as long as the correct moments are used for annotation) avoiding the temptation to make decisions outside one’s resolution level. In additions, if one has already placed all the required information on their chart, when the time comes to use that information, the trader already has that which is needed to accurately arrive at the correct decision. Now, to be perfectly clear, extremely fast markets (middle of an FOMC breakout bar) do not represent the normal context here. Think back to when many of you first started to annotate charts. Quite a few thought, “How in the hell can he get all that information down, chat in the ET chat room, post in the thread and trade?” As many of you came to realize, with practice and experience, the annotation process vastly improves – requiring significantly less effort (and time) than when everyone first began. Taking the time to develop this skill (producing quickly and correctly fully annotated charts) has the added benefit of automatically preventing someone from trading before they have the requisite skills to perform.

Once fully annotated, one can then compare their charts with others in an effort to compare viewpoints, and to know whether this possible source of error (an inability to correctly annotate) has merit as an area which needs additional focus, attention or improved expertise. It doesn’t matter how long one has practiced drawing channels (recall the story of the carpenter who built things incorrectly for 20 years), or whether or not one thinks they already have the expertise required to annotate in their sleep, everyone must know whether or not annotations should remain on the list of possible areas of concern. Quite frequently, we all have seen chart examples posted to this thread where clearly the person posting the chart doesn’t yet possess the skill they believe themselves to have. It isn’t for me to say what does and what does not constitute ‘correct’ in terms of annotations, but each of us does know what ‘correct’ looks like. All I ask now is that everyone remain honest with themselves in their efforts to focus on what must be done.

continued next post .....

 

November - Putting it all Together Continued

Analysis

Incorrect Monitoring will lead to improper analysis as surely as the sun rising tomorrow morning. As a result, we want to always make sure, not only monitoring, but also, analysis, occurs on the correct resolution level. In addition, if one has neglected to correctly annotate their charts, then one has inadvertently increased the opportunity for incorrect analysis. In the Analysis portion of M-A-D-A, we want to think in terms of what ‘must’ come next, we want to anticipate the future and note the sequences which occur as the future moves into the NOW. We perform this task by simply understanding the fundamentals of the system itself. The Jokari Window, Harmonics, Pace, P-V Relationship, Flaws, Formations, Breakouts, FBO’s, FTT’s and 1,2,3’s all represent some portion of the methods discussed within these many pages. Now, learning what these items are is only half the battle. One needs to also understand what they are not. What I often call the “Flip Side of The record” logic refers to the fact that a trader can often know what must come next, not by what they ‘see’ in the market, but by what they do not see. For example, we all know the transitive property which states, “If A = B, and B = C, then A = C.” Unfortunately, what most people fail to comprehend is the very simple “C also equals A.” Now, using variables the examples almost appears trite, however, when applied to the real world, and to these methods, one can clearly understand how knowing the fundamentals from both sides of the record allow one to profit. For example, decreasing black volume in a downtrend means Non-Dominant movement (retrace) back toward the right trend line. At the same time, decreasing black Volume in an Uptrend means Non-dominant movement – laterally. Same color, same amplitude, but one indicates change has occurred, while the other, indicates continuation. As you can see, one must understand the fundamentals and have the ability to instantaneously ‘see’ both where we are, and where we must go next.

Traders must take in all aspects of data from the Monitoring Section in order to correctly analyze the signals at hand. Pace, Time of Day, News, Holidays all play a roll in what one can expect to come next.

A trader must always know where he / she stands with respect to the ‘right’ side of the market. Within the analysis stage, we use the signals provided by the market in an effort to constantly update our mental compass with respect to dominant and non-dominant movement. Whether one trades only dominant traverses – entering on the RTL and exiting on the LTL – or trades at an SCT skill level commensurate with the appropriate resolution level doesn’t matter. Every skill level must know the ‘right’ side of the market. Volume (and by their function, Gaussians) lights the way for the trader to ‘see’ what comes next. The Jokari Window provides the Decision Matrix needed to correctly analyze the NOW.

If a trader does not have the ability to instantaneously arrive at a correct analysis, then clearly more work needs to be done at this point in the process prior to moving to the next level. By that I mean, incorrect analysis increases the likelihood that a trader arrives at an incorrect decision. As a quick drill to aid the process of having the correct mindset, take a chart (any chart will do), and count up all the FTT’s which materialize on your specific resolution level. You should note (roughly) 10% of the total bars labeled as FTT’s. Since this number represents a significantly smaller number than the total number of bars in a trading day (81), ask yourself why so many people decide so many bars are FTT’s in real time. knowing every bar cannot be an FTT, allows the brain to begin to look for clues which do signal an FTT. Such is the process for teaching oneself to focus on the important data, and de-prioritize (not ignore) the less important data.

Decision

Once the dominos of correct Monitoring and Analysis have fallen into place, the trader then needs to determine the market mode – continuation or change. I have recommended, in previous posts) looking at the market from the standpoint of waiting until a bar closes in order to determine continuation or change. Once a trader ‘filters out’ the formations (which we will call areas of uncertainty) what remains is clear and unmistakable. The market either broadcasts change or it doesn’t. Again, most of the day contains nothing but continuation signals (remember the ‘Hold’ button?), and as a result, we (as traders) have very little to do. The market has made our decision for us – do nothing and sit on your hands to avoid doing something stupid.

Here, we must insure we have followed our correct resolution level maintaining our resolution specific rule set in an effort to avoid overtrading. Since we know from our correct analysis where we stand with respect to the ‘right’ side of the market, we can then know whether or not this specific signal for change applies to our specific resolution level. Do we trade 1,2,3’s or do we trade FTT’s, or do we trade both? Do we trade dominant traverses only (like easyrider did with rockets), or do we trade from both sides? Taking care not to make decisions based on a Single Data Element, we look for signals of change in order to take us to the next step – Taking Timely and Appropriate Action.

continued next post .....

 

sample2.gif

 

November - Putting it all Together Continued

Action

The first step to taking timely and appropriate action results from knowing that you know. By this I mean, what “sufficient data set” provides the signal required for a trader to know the time has come to act. For some, ‘take action’ means immediate clicking of the sell button as Price exists the RTL on increasing volume while trading long. For others, Action results when Price heads higher on decreasing Volume. While the sufficient data set required for ‘take action’ differs greatly among each trader and on each resolution level, one thing remains fundamental to the process: Everyone must have rock solid understanding of the fundamentals involved with the methodology in order to effectively (and immediately) take action when the data indicates.

Failure to take timely and appropriate action often results when a trader allows emotional baggage from the past to override their common sense. Fear or Greed become powerful adversaries when the trader’s psychological state opens the door. Without rock solid fundamentals no amount of ‘willing’ or ‘hoping’ for the next step in the process ever works. By having full and complete confidence in the methods after weeks and months (sometimes years) of correct annotation, analysis and decision making the ease in which the trader then takes action becomes perfectly clear. Self-doubt, uncertainty, guessing and the big ones fear and greed – each fall by the wayside.

Think back to the beginning of this Journal when many here chose to Sim Trade (or even Live Trade) against all advice at the time. Some felt ‘ready’ to take on the market, when in reality, they had not yet developed the skills needed. Clearly, many then realized how jumping ahead before fully ready hurt their development (and some even posted this same observation). What these traders lacked at the time, was a rock solid foundation of the methodology. A foundation which at any instant, in any market environment, allows the trader to know two things: when he / she anticipated correctly, and when he / she did not. Secondarily, this rock solid foundation then permits the trader to immediately take action to fix that which resulted from error. One simply cannot hope to survive, let alone profit, in an environment where one’s adversaries come to the arena fully prepared – unless the trader does the same.


So how do we go about shortening the time for each step above and thereby give ourselves the greatest opportunity for success?

We begin by first looking for, and then correctly identifying, the areas which need attention. By this I mean to say, statements such as, “I’m confused” provide no guidance as to where one might search for enlightenment. Contrast the previous statement with, “How can I avoid entering on a retrace of a retrace?” and now you have an exact recipe for producing successful improvement of your trading.

Nwbprop used to say that his favorite time of the day was the ‘debrief’ because he often learned so much during this time. Hopefully, the lessons he learned and articulated have helped others do the very same thing – debrief daily (even several times a day if need be). After all, once one can correctly identify a problem area, one can then set out to locate a solution. More often than not, you’ll find the solution between your ears.

So we begin this self-analysis process just as we begin any journey – at the beginning – checking to see if we annotate correctly, efficiently and fully. If we do not correctly annotate, then we must begin to make changes in order to correctly build the pathways needed within our brains to ‘see’ the signals provided by the market. Once the required annotations have taken place (and an appropriate time has passed allowing the brain to actually build the pathways, and not the traders setting some arbitrary deadline), we move onto the analysis phase. Here we check to make absolutely sure we know how to read the basics. Do we understand how Gaussians lead Price? Do we know consistently what must come next? Can we ‘see’ (on our specific resolution level) where we are always with respect to the right side of the market? If not, then we need to go and review.

The Journal is set up for review multiple times. Each pass, something which once made little sense, or appeared to come across with one meaning may appear different another time through. Why? The context has changed, and as I always say, when the context changes the answer changes. This time the change in context resulted from a change in the trader. As a result, the trader sees things differently than before, and hopefully, this difference results in an ‘Aha!!’ or two along the way.

Once we have answers to our questions, and the number of questions begins to decrease on a regular basis, the time has come to move to the next phase of the process.

Once everyone begins to think along the lines of continuation or change, you’ll notice something quite remarkable. You’ll actually begin to ‘see’ the change forming before you note the FTT. Why? Because you’ll expect it, in advance, right at the point in time specified. Many of you already have this ability without even realizing it. Its just that the subconscious part of your brain hasn’t let the rest of your brain in on the secret just yet. Therefore, to improve one’s decision making, we need to make absolutely sure we understand the definitions of each based on our specific resolution level. Remember, we do not need to take action until Price has crossed our lines in the sand. No rush. No panic. No fear. What is more, we must learn to anticipate the possibilities which exist at the beginning of each bar, and then, learn to mentally eliminate each possibility as time passes. In such a fashion, the trader learns to mentally walk through each bar and arrive at the “at some point” moment where decisions occur. Arriving early results in over trading, arriving late cuts into profits. As such, mentally walking through each bar (as a drill) teaches us what must come next.

Once we have placed the entire set of dominos upright, all that remains is to knock them down. In other words, we take immediate and appropriate action. If we have correctly followed the steps above, then we should have no worries at this step. However, if we allow the emotional baggage of the past to enter into the M-A-D-A process, then we need to focus on discipline. Mentally learning to build walls around these memories of poor performance is a top priority. Never focusing on one’s P & L during the trading day (in fact, don’t even bring it up on your screens) helps this process immensely. The market does not know when someone entered or exited, and it certainly doesn’t care about what you need Price to do, so why should you?

The market does its job – provides signals – and the trader does their job – push buttons. No need to do the market’s job, because the market has no plans to do yours.

A few may find my words not specific enough for their needs, or some may feel no need exists to follow the path described above. I cannot answer such thinking because I am not in the mind of the individual. The decision to focus on areas which need improvement remains a matter of personal choice. One need only have an honest conversation with themselves in order to easily determine the next step in the learning process. Hopefully, the one’s who need the advice the most recognized themselves in the many examples, and by doing so, they can find the motivation they need to push forward.

The bottom line with this wordy post is this: Learn to know what specifically provides a challenge, and then, one can seek the specific plan need to eliminate the obstacle in your path. ‘I can’t draw channels’ requires a completely different focus than, ‘I can’t seem to hold through the retraces.’ By learning to focus on the obstacles, as well as, celebrating the small success along the way, eventually everyone can learn to build upon the lessons of the past. And really, that’s what this near year long journey has been all about.

Good trading to you all.

- Spydertrader