Trader Quality Number (TQN) - Measuring Trade Management
|May 17th, 2016, 06:09 AM||#1 (permalink)|
Futures Experience: Intermediate
Platform: Sierra Chart
Favorite Futures: HSI
Posts: 28 since Oct 2014
Thanks: 4 given, 23 received
Trader Quality Number (TQN) - Measuring Trade Management
I thought I would share something I track to contribute to the forum as I have been taking a lot from it with lots of questions recently. Thanks everyone for all your answers.
This is about how I measure my exits, or trade management. The following caveat applies to this post. Trading is so unique to every person so I hope there may be something you can take away from how I measure my exits.
Managing your trades is in a lot of people’s opinions, more important than entry. I actually treat it like a separate system and measure the performance and statistics on it.
I trade very simply with a 3 Vol chart and a reconstructed T&S with a filter set to show only “big” trades, so no indicators. This for me allows me to see price action, volume contracting and expanding (more or less volume bars per 3 minute period) and also “big” traders participating. I use these variables as filters for entry and more pertinent to this thread, trade management. I am also an “all in and out” trader with one profit target. My R:R for each trade is 10:1 (4 point stop and 40 point target and I generally enter with a market order and pay the spread).
Now here is the rub on trade management for me / my exits. My discretionary entries generally keep me out of trades I shouldn’t be in i.e. against my tape reading rules and I am doing ok in this department. I make mistakes like everyone else from time to time (jumping the gun and getting stopped, or hesitating and missing a move). That said I can’t automate tape reading. I’ve spent a long time working on my psychology for my entries. It has taken me the good part of a year to trade the market in its reality, and not my ideas about the market. That means I’m not projecting my mind onto the market I am trading the market action. It sounds simple but it actually isn’t. Try making a trading decision based on the market truth and not the voice in your head. It takes time to not think about the market but see what the market it thinking. I’m no master but I am certainly a long way down this road.
However for my second “system” i.e. my exits/trade management I have not dedicated nearly enough time to it as I have with my entries. My belief, like with my entries, is that it is mostly if not entirely psychological. I intend on getting onto this in good time and I plan that once I am trading my entries at 95% efficiency (i.e. making 5 or less mistakes in 100 trades) I will be in a position to tackle my exits. So until that time I measure my “trader quality number” or TQN for short for my exits. The term is from a guy at the Van Tharp institute called Ken Long who is simply an unbelievable stock day trader and a good bloke, however the tracking metrics are what I made up. You can make up your own tracking metrics also.
Basically for all my trades for the day I measure the following;
1. What the mechanical exits were if I sat on my hands and did nothing. This includes moving stops to break even at any satge, and choking trades before the targets.
2. What my results actually were by “saving” points by moving stops to break even, or “protecting” profits by taking trades off before their targets.
So these metrics are;
• CTW - Choke Target Goes Winner i.e. you choke it early then it hits your target anyway
• CTL – Choke Target Goes Loser i.e. you choke your target you bank some then it hits your original stop for a loser
• ASW – Adjust Stop Goes Winner i.e. you adjust your stop to break even (at any stage) and it stops you out and the trade goes for a winner (Doh!)
• ASL – Adjust Stop Goes Loser i.e. you adjust your stop to break even (at any stage) and it hits then hits your original stop.
My results continually shock me (in a bad way which reminds me how important it will be for me to move onto working on my trade management). Take for example yesterday. I made 30 points on HSI which is a below average sort of day for me at present (note I have only just moved to this instrument from FDAX however they are very similar). Also note this is simulated trading whilst I get used to the instrument during my changeover before going back live again.
The picture is a separate spreadsheet to my trading journal. I simple add up all my CTW, CTL, ASW, ASL and populate the spreadsheet. Then it tells me my TQN i.e. is my trading exit discretion better or worse than a mechanical exit strategy (simply a stop and target). Check out the Green Box at the bottom and the numbers and text. Yesterday I left 46 points on the table by messing with my stops and targets. It’s not usually anywhere near this bad but it does give you an idea on how powerful it can be measuring your TQN. I got nailed on two ASW yesterday (i.e. I “saved” 8 points of stops by going to B/E and maybe a slip or two but left 80 points of winners on the table – OUCH! ).
I have some serious work to do here and I am aware of it. I am coming to the conclusion that my entries take a long time to setup and for the market to show its hand, however when I am in the market tape reading becomes less effective for me. I need to ponder on this more. I may even just end up with a mechanical exit strategy. Who knows?
I am also aware that I am identifying with a conversation in my head and a part of “me” which is telling me to adjust stops to B/E and choke my targets early. It is not a useful part obviously. There is certainly a part in me which is scared, fearful and driving this behaviour and I am choosing to identify with it. I could probably write another column on this alone!
Anyway I hope this experience from me was some assistance to anyone who has read this novel ;-)
Last edited by samsupertrader; May 17th, 2016 at 06:58 AM. Reason: Error