Process

My Three Watchlists

• Penny Stock - Sub $5 stock that are primed for an intraday breakout. High flyers but also they can lose +30% in a day.
• Stock - Any +$5 stock primed for an intraday breakout
• Backburner - Any priced stock that is setting up nicely but a day or too early from an ideal setup. Examples include a stock near all-time highs but overextended on the daily timeframe or a stock testing a key price level but stop placement would be too far away.

Intraday Routine
Typically I cycle between the following steps from the open -> market close:

1. Monitor existing positions for signs to reduce risk. That can range from selling because of weakness or selling to lock in profits
2. Monitor Penny or Stock watchlists for potential breakouts.
3. Monitor Backburner watchlist for developing intraday setups (& move to the appropriate watchlist)

After-hours routine

1. Review my open positions and place stops on any positions that are naked (ie trail stops that expired @ EOD)
2. Review watchlists & triggered price alerts. Move setups to the appropriate watchlists/remove completely
3. Add stand-out setups to the short list on my trading spreadsheet
4. Use broker platform to scan for new set ups
5. Upload Scanner results to charting platform for easier analysis
6. Review set ups and post standout setups to my trading spreadsheet. (Looked at about 220 charts today)
7. Step away from the markets and do something (anything) for at least and hour to clear my mind.
8. With fresh eyes, revisit and rank the stand-out setups. For those with a passing grade, set contingency orders for the following trading day.

End of the Trading Week Routine

1. During the week, I try to avoid P&L as much as possible and just trade the charts. During the weekend, I allow myself to look at P&L.
2. Review my notes for the last week of trading
3. Review some completed trades in TraderVue
4. Run the scanner for +$15 stock (The results are so broad for this scan that I only use it weekly)

Trading Costs
Every month has at least $100 in trading-related costs. It is not breaking the bank, but it's worth defining the fixed costs:

• $50/mo for Alphatrends Analysis - I rarely trade the suggested watchlist, but it is good to hear a professionals perspective when I've gotten overly bearish thanks to Covid and didn't listen to what the markets were saying.
• $23.20/mo for TraderVue Journaling - This has paid dividends already in terms of avoiding future mistakes. I may try to create a trading dashboard on my own though.
• $7.50/mo for my charting platform's Pro subscription - ThinkOrSwim offers free charting, but TradingView is just fluid AF and works well with my Chromebook and any other device I own, without any installation needed.
• $8/mo for data feed - The free data isn't quite as reliable apparently. I'm usually a penny-pincher but if it saves me one bad trade, it was worth it.
• Occasionally pay $13.90 round trip for OTC penny stock trades - Maybe 2-3 trades per week?

Process
My Watchlist Types

• Penny Stock - Sub $5 stock that are primed for an intraday breakout
• Stock/Options - All other stock with setups that look primed for an intraday breakout. Rarely are they option trades, so, like this thread, the word 'option' could probably be removed.
• Backburner - This watchlist is for stock that are close to being on either of the other watchlists, but the stup isn't quite ready. Examples include a stock near all-time highs but overextended or a stock testing a key price levels but too far from a reasonable stop.

Intraday Routine
Typically I cycle between the following steps from the open -> market close. I am working on being productive doing other things because idle hands do the devil's work... and they also overtrade.

1. Manage existing positions
2. Monitor Penny watchlist or Stock/Option watchlist for potential entries
3. Check Backburner watchlist for any setups worth upgrading to another watchlist

After-hours routine

1. Review existing positions
2. Place stops on any positions that are naked (ie no emergency exit plan due to an expired order)
3. Review watchlists and intraday price alerts. Move setups to the relevant watchlists
4. Move standout setups to a separate trading spreadsheet
5. Use broker to scan for new set ups
6. Upload scan results to charting platform
7. Review set ups and post standout tickers to my trading spreadsheet. (Looked at about 220 charts yesterday)
8. Step away from the markets and do something (anything) to mentally remove myself from trading
9. The break should give me fresh eyes to review the stock I thought looked good earlier in the day. I set contingency orders for the worthwhile setups to be executed in the morning.

End of the Trading Week Routine

1. As a rule, I try to avoid P&L and trade the charts. During the weekend, I allow myself to look at P&L.
2. I jot down thoughts and strategies and ideas during the trading week and on the weekends I review my notes and tie up any loose ends.
3. My typical scanner looks at sub $15 stock, or very highly traded stock of any price. On the weekend, I allow myself to also include a search for +$15 stock with a lower market cap (still a minimum of 1,000,000 shares daily volume though)

Risk on and increasing my size (back to where it was prior to being stopped out many many times in the past 1.5 weeks). I see a lot of setups that are my type and so it is going to be balls to the wall potentially. I will have to work on managing multiple positions so that if/when the markets sell off, I'm not losing 1R per trade out here.

Risk
Defining My Risk
When I first started this journal, I was risking ~1% per trade since that is what the literature tells ya. In retrospect, it was either too much risk for me mentally or I was guilty of watching my P&L too intently. Whichever one it was, it had a negative effect on my confidence whenever I would get stopped out and I would 'feel' the money leaving my account.

When I restarted trading this summer, I had a larger account size, but I decided to trade smaller size relative to my account size but also as a dollar value. I risked 0.33% of my account per trade which let me watch the charts with a more detached perspective instead of being in a hurry to take profits.

0.33% might seem like a small amount but it is worth noting that I often have at least 4-5 positions open at once, sometimes as much as 10 at once. Put that way, a worse case scenario would be an account draw-down of 3%.


Strategy Risk
There are some not-so-blind, blind spots in my trading strategy. Here are the two issues that I am conscious of:

• Most stock follow the general market to some degree. If the market moves against me and I have 5-10 positions open, then there is the possibility that I lose R x open positions in a day. This isn’t something I overly concerned with intraday thanks to alerts/frequent check-ins, but if there is a strong gap lower, my open positions can/will take a drubbing. I do move my stops higher as soon as feasible. My main concern is a general market reversal... if there is no distribution and the markets just drop like a rock, I will be exposed very exposed.
• Technical Analysis dictates what charts I will enter. If the chart looks great, I will take it. Whether is trading at $0.0001 or $450. The chart is all that matter but I think there is an inadvertent industry risk as a result... For example, if BioTech is on fire and I trade four pharma stock, my portfolio will be overexposed if the sentiment changes quickly. I am trying to make myself more cognizant of this where possible.

Managing Risk within a Trade
In a trade, my risk management in it's purest form is 'sell larger chunks when the stock shows weakness, sell small chunks when it is showing strength'. It is simple and feels obvious but now that commissions went the way of the dodo, it has been clutch for me.

• If a position shows strength but feels overextended, I look to lock in up to 1/4 of my position as profits. This can take the form of a stop below short-term support or a limit sell near a key resistance area but, more often nowadays, it is based off of a trailing stop because it is a great balance of discretionary and automated decision making.. I dictate how much of my potential profit I want to risk, and the markets dictates what price I get.
• If a position is showing weakness, sell a third.

I rinse and repeat those two steps until a position is so small that I close it out. I think what makes the strategy so great is that psychological, it has made me a more mature trader. It is easier to stomach giving back gains when at least some profit has been locked in. As a result, I have been much more open to holding overnight after a strong trending day to see if trend continues. Alternatively, seeing a position down a sizable % intraday doesn’t have the same effect if I've already reduced risk and lost less money during the downturn.

Risk
Increasing Risk
I think that once I'm consistent, the key to making money is to sustainably increase my position sizing. The benefit is that my winners will be larger, but the drawback is that as my size increases, the total # of positions I can hold at once will decrease. I might throw some extra money in my account if this becomes an issue but I only have finite savings available. We'll cross that bridge when we get there.

As long as I am not focused on P&L gazing, I am hoping that increased size won't affect my trading. To be safe, I will stairstep my risk to increase as my net profitability increases. Here is my though process currently on how I plan to increase size:

Starting point R = $100

• When cumulative net profit = R x 10, then updated Risk (aka R1) = R x 1.5 = $150
• When cumulative net profit = R1 x 20, then updated Risk (aka R2) = R1 x 1.5 = $225
• When cumulative net profit = R2 x 30, then updated Risk (aka R3) = R2 x 1.5 = $337.50
• When cumulative net profit = R3 x 50, then updated Risk (aka R4) = TBD % of portfolio per trade

As my size increases, the goalposts moves further away. The final goal (R4) is to risk a % of my account per trade that is challenging yet manageable.

Decreasing Risk
On days where price action leads for me to exit multiple positions and/or the market looks uncertain directionally, I will switch to 'Risk Off' mode and drop size back down and/or sit things out. This has been helpful so far because I noticed a lot more failed breakouts during uncertainty & so I want to minimize risk at that time.

Using (Better) Stops to Manage Risk
I use stops religiously to automate mandatory exits of losing trades as much as possible. Ironically, although I have worked to stamp out greed in my trading strategy, it managed to manifest itself through stop placements... Tighter stops allow for larger position sizing and greater profits, so I used to have these razor tight stops with the greedy belief that when I winner that starts to run will make bank.

The downside is that price action will have little freedom before -1R is hit. Walking that tight-line puts undue stress on every position that doesn't push higher almost instantly. There is a lot more shakeouts and little room for discretionary action.

My updated strategy is to try to expand my stop to include another higher low. Even with the larger stop, I still keep track of where my 'aggressive' stop placement would've been as a discretionary exit option.

This is probably easier to explain visually so I have included the chart below. Let's say I am bullish on Amazon and want to get in above $3,157. The chart shows my old stop placement & my new stop placement:


Rarely do I let price reach my actual stop loss order so my losers outweigh my winners but they are much smaller in size.

Frustrating start to the day. I had a lot of trades in play that didn't execute because my broker (ThinkOrSwim) went down right before the open. A lot of the trades are looking great now that the platform is back up. Going to take my time and not revenge trade or anything. I am making profit regardless so I shouldn't be too upset.

There will be more opportunity and so there is no sense dwelling on the past. Proud of my (lack of) emotions in response to leaving so much $$$ on the table.

Trading Stats (Trades through 8/14)
There's been a lot of theorizing in this thread on my end but I do track stats as well ( TraderVue). Below are the stats of my trade account since restarting in May. Moving forward, I will do monthly reviews to track incremental progress.
Stats



Analysis
Garbage in Garbage Out
My review is only as good as the data I track. I think I do a good job of note-taking and uploading my results, but I initially wrote up this analysis without realizing that a third of my trades were omitted. It led to an incorrect takeaway and changed my personal beliefs about my trading. Bad data is worse than no data at all.

Don't stray from the Game Plan
I typically risk less than 1R in a trade but my largest loss is close to -4R. That trade was when I did multiple things against my normal strategy, including:

• Fading the larger term trend
• Trading a complex options position when my bread & butter is stock or long calls/puts
• Listening to the news instead of the charts

I know that mistake by heart and I won't be repeating it ever again hopefully. The ironic thing is that a -4R trade nowadays is actually equivalent to like 8 different stop outs lol.

Cutting Losers and Letting Winners Run
My trade duration tells the story better than I can. I'm in the average winner 4x as long as I'm in the average loser. On top of that, my average losing trade is -0.46R and my average winning trade is 1.53R. That means that I win 3x more than I lose. Sounds money management ftw.

System Quality Number
I had to dig around to understand this number lol. To the uninitiated:

My strategy is so poor that my score (1.3) isn't even listed on the table lol.

It doesn't seem like it, but this is imo the best stat from the entire analysis. My strategy (or the way I'm executing it) is shit, but good risk management keeps me in the game. I'm profitable with a subpar strategy and so as I optimize my entries/exits, ideally I can expect profits to increase.

Kelly Criteria
I had to do some googles to understand Kelly Criteria. My understanding is that based on my expectancy, the optimal way for me to be profitable is to risk 10.4% of my account per trade? If so, that isn't ever happening lol. I will look into Kelly Criteria some more via Chan's risk video on the F.IO YouTube channel.

Overall Market Correlation
My portfolio may be dependent on overall market strength more than I sometimes acknowledge. I jump across various sectors and industries so it is hard to pin down but I want to keep an eye on this. QQQ looks to be the most correlated:


Commission
In the old days, my profits would have been eroded by over 10R due to commission attrition. What a time to be alive.

Follow Ups
Path Forward
I am at a crossroads in terms of next steps. I see two options:

1. .312 is my winning percentage. A career batting average like that would make me Hall of Fame material. One path is to continue to aim for the same rate of success, while optimizing the strategy with smaller losses and larger winners. As I gain more profits, I will steadily increase my account size over time.
2. Blame my ego, but I think I can do better than 31% winners and so my strategy (or how I'm executing it) needs major revamping. With this path, there is an implicit belief that money management is why I'm profitable, not my trading strategy, so I should swap out my current strategy for something more efficient.

I go back and forth with those two paths. On the one hand, as long as I'm consistently making money, does it matter what % of times I'm wrong? In my trading and personal life, I do have a desire to be right that can get me in trouble. I will say though, that over time, I have become more content with stop outs, so perhaps it is publicly sharing my % winners that is triggering me a little...

Currently I'm doing a little bit of Column A and a little bit of Column B. I have tried not to stray too far away from what is 'working' (or at least what is profitable) but I have been reading up on price action trading and implementing some of the tenets little by little. I will do a more in-depth post on the transition to Price Action trading but it has kept me out of trades while at the same time encouraged me to take trades that were previously off limits.

Overtrading?
I need more data, but I am actively looking into my stop outs to see if there are any patterns. Questions I have include:

• Are there trades that can be completely avoided? Is there any additional criteria I can add to my entries?
• Do excessive stop outs matter as much if there is no commission & I am risking a fraction of 1R most times?

Oh & I'm trading options again .

August 2020 Review
Notes
Today I followed my rules and 'lost' close to a grand today which stings. I say 'lost' because a large chunk of it was just giving back paper profits from Friday's bullishness, but as you've probably experienced, it's easier to mourn losers than celebrate winners. A humbling experience to end the month is probably what I needed. FWIW, I refrained from checking my P&L until after the close but it is still affecting me more than it should. I think I need to come to grips mentally with the idea that the larger my risk becomes, the larger a normal, one standard deviation changes will be for my overall portfolio.

I was overflowing with confidence and definitely got knocked down a peg. Today took the wind out of my sails so I need to regroup and refocus on the charts this week. Normally I'd review charts after the close and wait until the weekend to review my stats, but I'm unsure about the market's continued ascent for the short term, and today I needed a reminder of my general overall success, so I decided to get this out of the way.

Stats (August 2020 only)




Note: ^ The last two charts have different scaling so losses look larger than the profits at a glance

Risk
Does Size Matter?
I spelled out my Risk journey previously in the journal:

Quoting 

As long as I am not focused on P&L gazing, I am hoping that increased size won't affect my trading. To be safe, I will stairstep my risk to increase as my net profitability increases. Here is my though process currently on how I plan to increase size: Starting point R = $100 When cumulative net profit = R x 10, then updated Risk (aka R1) = R x 1.5 = $150 When cumulative net profit = (R x 10) + (R1 x 20), then updated Risk (aka R2) = R1 x 1.5 = $225 When cumulative net profit = (R x 10) + (R1 x 20) + (R2 x 30), then updated Risk (aka R3) = R2 x 1.5 = $337.50 When cumulative net profit = (R x 10) + (R1 x 20) + (R2 x 30) + (R3 x 50), then updated Risk (aka R4) = TBD % of portfolio per trade

My risk for most of August was R1 (the italicized section). Last week, my total cumulative net profit met the threshold for R2 (bolded) and so today was the first day I was trading with increased size. Of course, I was stopped out of pretty much every position I opened and the markets closed bearishly which also has me concerned about my existing positions but c'est la vie. The same thing happened when I hit R1 a few weeks ago and the markets became uncertain. What I did to counter a skid was immediately reduce risk until the markets were acting in a more predictable way and then increased risk back to the earned level.

Takeaways
It's Nice to Have Options
My history with options is pretty mixed. After educating myself on option trading and starting to use them, I remember viewing stock traders as inefficient suckers. On the other hand, I also remember consistently losing money when I was trading options lol.

When I restarted trading in 2020, I stuck to stock at first. When I began trading stock with $200+ share prices, sometimes smaller stops would call for purchases that made my portfolio inefficient (ie: my metrics were suggesting I put over 30% of my pre-margin portfolio into a single trade).

The ability to trade larger-priced stock in a diversified manner is the main reason that I was nudged back into option trading recently. It has been about 2-3 weeks since I started trading options and I'm already remembering why I found them so efficient. My transition back to option trading is the driving factor for this month's major stats: expectancy metrics for winners and losers:

• Prior YTD Average for Losing Trades: -0.43R
• August 2020 Average for Losing Trades: -0.41R

• Prior YTD Average for Winning Trades: 1.53R
• August 2020 Average for Winning Trades: 2.59

In spite of leverage, I've managed to keep my average loser constant.

My average winner on the other hand is able to take advantage of the leverage. My average winner is now 6x larger than my average loser, which I believe means that I can break even if I'm right 16% of the time (before commissions). My % of winners was a mediocre 23.4% but thanks to my strategy (and sound risk management), that is more than enough to keep my equity curve ascending.

Follow Up
Preserving Mental Capital
My overall capital has been steadily increasing but my mental capital hasn't had quite the same trajectory. Drawdowns aren't something I encounter daily, and it doesn't lead to revenge trading or increased risk, but they definitely throw me for a loop for 1-12 hours and have me questioning the point of all of this in the short term. I know that I won't be as prepared for trading tomorrow as I could be because I mentally checked out after seeing the $$ I lost today.

I have been reading a lot of highly rated trading books on strategy recently but I think I need to (re)visit some of the trading psychology books. Given that I have had more good days this month than in my cumulative trading career, I shouldn't be as dejected during down days.

I need to structure some personal 'circuit breaker' type actions during drawdowns. I already know not to trade but perhaps I can redirect myself to more affirming actions like meditating, exercise, going for a walk or participating in a hobby. I will dig deeper into that in September.

All work and no... work?
I have been treating trading like a full-time job, but I actually have a full time job (currently WFH status). I am struggling to find time to do both efficiently. Trading has a lot more potential imo but it is not where it needs to be to pay the bills yet so I need to dedicate more efficient time to my 9-5 as well. I actually carved out some time over the weekend to work on some deliverables which I rarely do. I don't need the stress of feeling unproductive at my gig so I will have to find a better balance moving forward.

Just had one my biggest loss ever. Greed got the best of me.

Ironically, it wasn't even related to trading. I signed up for a paid study that took place in the first hour and a half of the market open.

Thought I could multitask and I was not fast enough when it came to two of my positions. I even had one of those scenarios where I ended up long calls that I don't recall purchasing. I gave back gains and then some. The sell off was fast and fierce in a way that the trading Gods had to know I was preoccupied but c'est la vie.

I will live to fight another day. There is an obvious irony of losing close to $1,000 (between two positions) to take a study that pays $100. My frugality will be the death of me lol.