Wednesday, June 19, 2013

Dont do this to yourself

There are various aspects to following a trading system. It hasnt been long since I've been following one, but let me note a few of the challenges one faces:

  1. Directional bias 
  2. Entries and exits / waiting for fills
  3. Taking every setup/trade
  4. Handling losing days
  5. Execution errors/mistakes
The first one is obvious. If you have a directional bias, you cant be effectively trade a system. Infact, the more you shut yourself out from having opinions, reading other "expert" opinions, etc, the easier it is to execute the trades.

The second one, is something I've written about recently. Being patient in waiting for a fill, either to get into a trade, or while getting out is something that comes over time. A few times, the target is hit, but you dont get a fill and then the price may reverse. This has happened to me three times this week, and has definitely tested my patience. But one should just acknowledge that its part of trading. Obviously the worst thing you could do is to let it turn into a loser, so I currently protect the trade with a 1 tick profit stop once the trade is hit. 

The third one, "Taking every trade" is probably the most important among the above and it is something I struggled with today. Today being FOMC day, one can obviously expect a shit show when the FOMC statement is released. The closing 5 min bar before the FOMC statement being released was a short trigger for me in bonds. I was nervous, and did not take the trade. Bonds then happily broke down about 45 ticks to end the day near the lows. Needless to say, I was pretty upset. 
I was upset for 2 reasons - I took every trade all morning, got chopped up and lost money. And when the winning trade came, I sat out of it. What the hell!? I've listened to multiple interviews with systematic trend trades and they all emphasize this fact, that you have to take every trade your system puts out. Win, lose or draw. You have to be in it, to win it. Lesson learnt, and I shall move on and strive to not repeat this experience.

The fourth one, handling losing days is also something I've written about before. No system is going to make you win 100% of the time, there will be losing trades and losing days. Accept it. Once you understand and acknowledge that a system has positive expectancy, and in the long run makes a lot more money than it loses - then this should not affect you too much. Its definitely annoying to have losing days, but if you took all the trades, followed the proper process, then you are good. 

The last one, is execution errors. You have to understand the signals properly. This is key, because sometimes, if you're not paying attention, its easy to get out of a trade early, or reverse position. Price moves fast, so correcting this error can be expensive. Last week, I blew a $1000 just trying to reverse a 5 contract trade back and forth. Ridiculous. One cannot make such mistakes. 

Anyway, I've been focusing on all these aspects over the last few weeks, and I feel I've got a handle on most of it. There's always room to get better at everything obviously. Unfortunately, almost all the above lessons, I've learnt the hard way by being in a trade and screwing up, so here's to hoping that I dont repeat the above mistakes. Hope everyone had a great day.

To end this post, since today is an FOMC day, etc here's a really nice quote from Jon Boorman:

"News is noise. Trade trends, listen to price. Tomorrow’s just another day. The market will still be there the next day, and the day after that. Just make sure you’re trading a strategy that ensures you and your money are too."

Monday, June 17, 2013

Today's trading

Turned out to be a nice day to be short bonds. Was kind of a boring day until some story leak about Fed tapering asset purchases leaked mid day and then equities and bonds sold off, and then equities rebounded but bonds stayed down.

Surprises often happen in the direction of the trend? Atleast it was true today for the bonds. ES longs were tested however.

Something I've been repeatedly writing about and also using in my trading now is trading with the trend. This means absolutely no counter trend trades. There are various trading systems one can use to stay on the right side of the trend. One such setup is using Ichimoku. I personally dont use Ichimoku as trade triggers, but I used to before, and I still keep this chart open during my trading hours. Look at today's 5 minute chart.

Looking at the chart, what would you say is the direction of the trend? In the morning hours, when the moving averages (tenken sen and the kijun sen), along with the cloud, were up-trending  Easy enough yes? So one would need to be long, or buy dips. You need a set of rules to do so of-course.

Second half of the day, once price broke below the cloud, the price is in a downtrend. This only means one thing, and thats you either need to be short or flat. Your stop would be above the cloud.

Anyway, one would need to come up with their own rules to trade this, and then keep track of statistics, etc. But the point is, find a trend trading system, one which helps you identify the trend, and then take all trades in the direction of the trend. 

Sunday, June 16, 2013

Friday, June 14, 2013

Friday night wisdom

Truer words have probably never been spoken. Read this quote from Bramesh Technical Analysis:

"As a businessman, I have concluded that the only rational way to trade the markets is to trade a system. All of the hocus-pocus about predicting when this market will move, and how far, is just that—hocus-pocus. The people that make the big money are the ones who don't try to predict tops and bottoms but who consistently take a little out of the middle. The only logical way to do this consistently is through a well thought-out, well-designed system. It's a matter of good business sense."

Onto today's trading, it was a snooze fest, but managed to make some small profits. Was long ZB this morning into a nice bullish bar which met my target, and then ended the day with a short which I basically sat through the whole day, and then covered near the close for a small gain. I was almost stopped out on that short if the price had closed above '27, but it did not. Thats what I love about trading a system, you know exactly where you will be out, and that takes all decision making out of the picture. I'll post a chart tomorrow.


Here's the chart I promised, like I said - 140 '26 is now key to more upside, but if we break 139 '25, we should get a nice move back to retest lower levels.

Thursday, June 13, 2013

Removing twitter feed

Am removing the twitter feed on the right, adds no real value. Twitter seems to be the play ground of play callers, fake traders and perma bulls or perma bears heckling others at their failure.

I created a new private account, but wont be sharing that with people. I'll be using that as a private trade log, mostly for my own reference.

What a day in the markets today. Today is a day where not a single, yes, not a single trade setup worked for me. How ridiculous is that? And what are the odds of it repeating? Who knows..point is, I followed the rules, took the trade setups, so I should not be unhappy, but I just blew away a shitload of money, so not at all happy about that ofcourse.

1 main thing I need to fix in my trades, when trend changes via a very large bar, typically around news releases, despite the added risk, wait until the end of the bar to change or exit trades because my setups are all about the closing price of the trend change bar. Mistakes from this alone have cost me significantly the last 2 days, compounding the pain.

Anyway, moving on.

Monster rally in equities today, cos of Hilsenrath said something or whatever. Who gives a shit huh? If you traded your plan, and went with the trend, you'd have been long ES all day, and the surprise came in the direction of the trend.

Bonds however, were much worse. Trend chopped around all day, stopping me out all over the place, and making life quite uncomfortable in general. Whatever, tomorrow is Friday. Lets see if it goes my way. 

Wednesday, June 12, 2013

Putting theory into practice

Ha! Well I wrote about dealing with losing days yesterday, and today I got to put it into practice. No hindsight analysis as such, except that I made a few mistakes in executing trades, which cost me more than the over all day should have.

Annoying thing is, my one goal today was to make no such execution errors, and I ended up making a bunch of them! Anyway, tomorrow is a new day, one I'll be fully ready for. Hopefully there's some intraday action left because right now looks like bonds are up huge already in the overnight session.

ES had a very staggered drop today. I saw the trend flip bearish at 1632ish, and I should've jumped on it, but then I have decided to only trade bonds for now. Sticking to what is working, and keeping trading discipline.

ES chart from today, look how every time price dropped below a level, and came back and tested a prior support level, which had then become resistance. So now we have multiple resistances on the way back up. Lets see how tomorrow plays out. NYMO is really oversold however.

Bonds had a very choppy day, part of the reason my trades didnt go as well. The trending moves were missing today.

Tuesday, June 11, 2013

Dealing with losing days

When we go through a day when we lose money trading, as expected, we do a lot of hindsight analysis. I was talking to Debrink about this today, his thoughts:

"When we have a bad day, and we will, in retrospect you can see that you could have had a good day if only you had done x, y or z. That thinking screws everything up."

I totally agree! Why is that? Because the result, the fact that today was a losing day for example is completely irrelevant, if you followed your trading plan. If you took all the setups by your rules, and exited based on your rules, then losing days are simply part of the process, and every trade is one of the many thousands you will take over your trading career. Very insignificant from that stand point, correct?

Like I mentioned in yesterday's post, a trader's confidence should not come from winners, but from managing losers and the trading process well.

Onto the markets today..

Looks like ES made a very important low today, breaking which we target the 1596ish low and below. But then we're also setting a potential Inverse H & S, so will be interesting to watch.

Have a trading plan?

Michael Covel from posting this on his Facebook, looks spot on. 

Another one from Bramesh Technical Analysis -

"It is difficult to tolerate even normal drawdowns unless you have confidence in your methods. This confidence does not come from mere positive self-talk. Rather, it is a function of testing your methods (historically and in real-time) and seeing in your own experience that they truly work."

BTW, 30 year is dumping again this morning, but yields will soon be coming in at important resistance. What I dont know however is what level this maps to on September ZB futures.

Monday, June 10, 2013

Bonds break down!

Huge day in the bond market today. We broke below last week's lows of 138 '30 and made a lower low. Ofcourse, the best thing about it was that I was there, short and happy. Huge day for me in terms of P/L, but I didnt even realize how much money I had made for the day until much later because I was focused on the process of taking each trade the right way, and with the right attitude. Like I've been writing lately, that is everything.

Over the weekend, Bramesh Technical Analysis wrote:

"True trading confidence comes from the ability to control the losers and manage trades properly. Focus on the process."

Great wisdom. And something I've been pretty much completely putting my focus on. Things I'm trying to get better at right now are being patient for fills (hate it!) and relaxing in a trade. Remember, anything can happen in the market, and all you can do is take each trade with positive expectancy, but be ready for it to be wrong, and just move onto the next one.

I dont really have any bond charts to post because I cant really identify a support level here, but be on the lookout for the BOJ announcement this evening. Could be a market mover.

I'll come back later and post some ES, TF and NQ charts. 

Sunday, June 9, 2013

The mindset of Abundance

As traders, we watch our equity go up and down with every win and loss. How we perceive these wins and losses greatly affect our overall trading success, even when you are trading a system with great positive expectancy.

Your belief, your thoughts about money and abundance will not support you in your quest to make money from trading if you have relate to risk the wrong way.

In my case, my main problem seems to be the fear of letting a winning day turn into a losing one. So once I have winners I become aggressive in protecting those profits and this makes me take profits sooner than I need to(not following exit parameters) or hesitate taking trades which in my "opinion" may not work out. Truth is, I need not worry about either. have no reason to have to think about "protecting" profits since the trade setups which made me the money initially are the ones I will be repeating.

I've already largely overcome this, so am just writing about it to track my line of thought in this matter.

There's a lot of advantages to following a systematic trading system, it takes away all the discretionary guess work of where to take profits, fighting emotions while waiting to take profits, etc.  A system tells you where to enter, when to get out and where your stop is. Then the only thing to do is focus on your own discipline in following that system. One of the biggest advantages again of following a system is that you will never have a "blow up" trade, because there's no hoping in a system, you get the hell out of a trade if your exit parameters are met. Half the traders I know who have taken large losses are the ones who held on to a trade hoping it would mean revert, so that they can get out for a small loss. Never ever do that.

Friday, June 7, 2013

NFP Friday!

Happy NFP Friday to everyone. Whatever the fuck that means ha ha, hope everyone makes money.

Dont have too many positions on right now, only weird thing is that I swore at the beginning of the year to not trade options, yet every day of this week, I've bought and sold SPY calls, every time for a very decent gain. QuantEdges was leaning long via all his research, so it gave me some extra confirmation I suppose. Besides this, all I've done is trade bonds, and it has been the best trading, and most educational experience of my life.

Only 2 positions on at the moment going into NFP, long AVP calls and VXX puts. If its a bad report, those VXX puts might be in a world of hurt, but like I posted a couple days ago, VIX is mean reverting and I'm expecting yesterdays bearish reversal bar in the VIX to continue and lead to further downside in the VIX.

AVP chart below, at support.

Wednesday, June 5, 2013

Fading the VIX

I bought some VXX puts today, since the VIX move has been quite extreme, and the VIX sma envelope setup that I've written about before is triggering here. With SPX also very overdone with a NYMO reading below -100, we should see some nice mean reversion happening here in the VIX. Remember, VIX is by nature a mean reverting instrument.

Sticking to a plan

A great trader is able to think clearly from start to finish, and while there may be some mild irritation (enduring pullbacks), minor impatience (if the position stagnates), or slight satisfaction (as the trade begins to work), they avoid letting those emotions drive their behavior. They truly do stick with their plan, making modifications to it not on a whim, but only when absolutely necessary. -

I also found this yesterday, posted by someone on twitter.  Its called the "Trader's creed", very similar to the Rifleman's creed in the Marines :) and I find it highly relevant and motivational.

Tuesday, June 4, 2013

Battle of 1640

Looks like the 1638-1640 level is the primary resistance to more upside today. A breach of 1640 to the upside will get things moving quickly.

Saturday, June 1, 2013

Weekend charts update

Hope everyone has been trading well.

Some charts below. As of Friday, NYMO is below -80, VIX rose sharply, and SPX broke strong support in the 1634 area, so although we're probably in a downtrend, we might see a strong bounce on Monday.

Some quant based evidence for that here as well -> $SPY falls more than 1% on last trading day of the month

ES has strong support coming up in the 1620 area, longs with stop below is probably a good idea. I'm not encouraging counter trend trade ideas though.

TF is a better sell? Held up on Friday better than ES, but broke an uptrend line. Short a bounce targeting 973 & 968?

Bet that end of day move in ZB trapped a lot of people. 140ish area held again (June). Resistance above at 142 '10ish

Last few weeks

Last 2 weeks have been the best trading weeks of the year for me so far, only one reason for it - trading with the trend. 

Cant get any simpler than that. I've tried to catch so many falling knives in bonds,  there have been times where I've thought to myself - "bonds cant sell off unless I'm long!" ha ha. Counter trend trading is a bitch, and very bad for your trading account.

Any new trader goes through the problem of having a bias about the right "price" for the market. As if he/she knows whats too high or too low. So they short when the market goes up, because obviously its "too high" and has to drop, right? WRONG! The price is what it is, and price is going higher or lower, and our job, is to be with that direction. Even if you have a crystal ball to call market tops, first verify it by confirming a change of trend in price to the downside.

The main questions anyone should be asking before putting on a trade is:
  • Is there a trend?
  • In what direction is the trend?

Thats it! If there's a trend, and you know what direction it is in, you should be in it. If price is too extended, buy pullbacks.