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I should really be upset today. Should I? I don't know why, but I feel oddly good about today. Definitely, absolutely, without a doubt, NOT the kind of results that I want to see. But I guess I gained enough insight from the mistakes and am strangely accepting and clear about the takeaways.
Maybe a sport psychologist, or a sith lord, would say: get angry, man! Feed on the anger! Stop sucking! I don't know, maybe it works for some people.
SO, here's what happened. I got to the computer ready to rock and with only one thing on my mind. Only take setups where price has traded into a S/R level. That's the most basic absolute fundamental thing I need to do. And I did that. Check.
My first entry/stop (pictured in the M3 chart below) in CL wasn't a great entry, but it was the right idea. I just manufactured the entry point in my head and got in too early. Price hadn't finished rolling over, and I got a little stop out for a small loss of -.32 R. I took a little punch lower within a pull back that still hadn't finished, and paid for that. But I didn't stop looking for a true "A" setup, and I got it just a few minutes later. That's another thing I did well today. After taking a small loss I remained open to another better setup. I went ahead and entered on the real break lower, only to make an idiotic move to BE and let myself get taken out of a real winner.
Takeaway? Clearly I've given myself a death by a thousand tiny stops. Too eager to limit losses. This is a risk-aversion type mistake. Without consideration, this might be a "throw in the towel I'm never going to figure this out" moment. But it isn't. I have the data that shows exactly what would have worked here. I'm testing out several alternate stop-management ideas in my log sheet, and they are starting to show valuable insights.
As time progressed closer to the market open, I was half-heartedly flipping through the charts. I had a bit of ammo left after only losing .4R on the first two trades. But just before 9:30E, I saw what I would call an absolute textbook setup sequence develop on ZN. I decided that I wouldn't take it because I had no way to effectively auto-manage my trade, and I needed to go tend to the regular morning business of being a normal person.
For sake of demonstration, below is that textbook setup that I didn't take. I even noted it all in my log and was about to put the order in, and then decided against it. Do I regret that? Actually, no. I said I wouldn't initiate trades when I had other things to do. But what I liked about today was I SAW what was there to be had. And I can easily conceive of (when I move back to ninjatrader) implementing one of my auto-trade-management strategies that would let me take these trades for wins, even if I have to walk away from the machine. But I need more trading data to officially make that call.
ZN M3 chart. Heading into the open ZN trades up into previously identified resistance and makes a low and a lower high. Sell the break to a lower low with a stop over the pattern.
And that's all she wrote. My target would have been far too conservative. This is another thing I am tracking, a la the "benchmark" value from @BigMike 's log.
That's it. Next trades, continue to focus on quality entries, and move stops less aggressively at the onset of the trade, in light of variables such as current trade MFE and typical swing size of the instrument. I wasn't going to look at performance metrics until 20 trades recorded with all new data capturing. I did take a peak today, though. Still essentially Break-Even results over the last 8 trades, with the last 6 being losers. Risk aversion does have that advantage . . . you can bleed for quite a long time and not die. But with confidence now that I am starting to SEE things again, now I need to give the trades a chance.
Thank you to the folks who mentioned they are following along here, either posting or just thanking a post or two. Since I've kept a trading journal privately in one shape or another for quite a while, I definitely doubted whether this public journal would be of any value to me. I am now starting to see that I think it might be helpful. I think it comes down to something like, "if you can't explain what you are doing to someone else, then you probably don't really know entirely what you are doing." It is definitely motivating to keep things moving in a productive forward path, knowing that folks are out there reading.
No trades yesterday. Today was somewhat a repeat of Monday. Old lessons and new lessons. Another day of lessons.
First off, I still haven't taken my risk aversion / fear of loss medicine. It was a little better today - I at least had a clear rationale of why I moved in my stop. But that decision still cost me a bit of money. The data seems to be telling me that I should give all trades at least 20 minutes or so to let them work before reducing risk or jumping out. This morning's trade in CL moved a bit in favor, then moved a bit against, and then moved back to 0, at which point I moved my stop under the assumption that if the trade wasn't going to work from there, it was likely just a bad setup. On top of all this, my confidence in the entry was vanishing (actually, rightly so, more on that later), but even then it turned out to be unwise to jump out of the trade when I did.
Second, and almost as important, was that this entry wasn't as good as I wanted it to be going into the trade. In hindsight, I was forcing an entry in the middle of a congestion zone. I saw this going into the trade, but rationalized my way around it by picking a little mini 1-2-3 to trade off of. The lesson there is a reminder that S/R isn't just lines on a chart. And not all S/R is the same. The price action on each side of the line, the amount of distance between that line and the next, tells a story about people making decisions, what stakes they hold, and what will motivate them to act as price moves through those areas.
All of my best trades have a clear story behind them. The basic lower-low, lower-high, higher-low, higher-high Long setup is just a story reduced to a pattern "sellers are exhausted, buying to cover at a price that some buyers have previously identified as value, buyers have stepped in and re-asserted their view that this is a value, a last gasp of sellers come in late to the party to push price down again only to be met by more buyers, and then the buyers confirm with price breaking higher that they now hold the baton."
But notice I said ALMOST as important, above. That's because, with an intelligent exit-management strategy, founded in real data about what works and what saves/makes money in the long run, you can get bailed out of mediocre trades like this as often as not. It's not like this was the worst possible entry ever - there was definitely some resistance there and with a bit of luck the short may have even worked.
CL M15 below, illustating consolidation areas worth stearing clear of.
Detail on the CL M3 below:
I absolutely need to work on taking clear cut entries and not force myself in, which is what I did today. When I give my entry a grade going in, I find myself down-grading it in hindsight. Have to close that gap.
All of this is related. Confidence in the plan is first. Next, confidence that the trade you initate IS alligned with the plan. Having that confidence will make it easier for you to let the trade work itself out . . . which helps resolve the stopping-yourself-out fear of loss problem. One leads to the other, and any weakness upstream makes the downstream next to impossible.
Finally, props to any one who got this little long on the 6E. Nice clean one. I was waiting for this but it ended up happening too late and too fast for me. Keeping my eyes open for the next one of these.
Since Friday I've gone into each day with a very simple directive. Take only "A" entries. Took me until today to catch any, probably due to being very selective, but I finally did. Took two trades today, both of them entries that I still consider good.
You have to learn to follow the rules before you can break the rules... And you have to learn what the rules are before you can follow them.
If I'm finding the right spots and the right direction to take entries, then the primary thing that will keep me down is a crappy exit strategy. Despite getting sorely shaken out of a great trade again today, there is a silver lining. The rules are becoming clearer, so that I might follow them.
Do I have confidence in my strategy? Can my entries lead to profitable trades? So far I have only 11 trades recorded since I started more robust data collection. Obviously way too few to make any definitive statements, but I've got to work with what I have. There are 4 trades, including the 2 from today, that I called "A" entries. Although I was only able to hit my target on 1 of those 4 trades, my "idealized" result (MFE if I had a wide stop) is a target hit on 3 out of 4 of those trades. For the 7 non-"A" entries, idealized result only hit the target in one of those trades.
Translation: Focus on "A" entries, and continue to diligently track the quality of those setups as objectively as possible without revising the grade after the trade finished. If continuing to see good idealized results, and crappy actual results, then . . . fix your exits and good things should start to happen.
Have confidence in the "A" setups to let them have wider stops. A quick re-entry strategy after shakeouts might help also, but that takes agility and practice. It's pretty obvious what I'm doing wrong with stop placement. I'm mixing time frames. I'm using a 15 minute to pick my spots and form the basis for my "thesis". But for stops I'm often using inflection points on the lower time frame that are irrelevant to the higher structure that actually underpins the thesis. The lower time frame is useful to help pick out the detail and get entries that I might otherwise miss, but I need to be realistic about how price has been swinging and allow for that motion. I used to do a better job at this when I was only trading off the 15 minute chart, with no "trigger" chart. I like having the lower time frame though - I think it helps my decision process overall - I just need to adapt.
Not expecting this to be a light-switch change, but my main objective over the next 5 to 10 trades is simply to increase the % of "A" entries dramatically, and get further data to help me confidently develop a sane exit strategy that doesn't sabotage my winning trades.
First trade was counter-trend in 6A. Price had impulsed down off of a high and retraced up to the previous support. The trend was up, but this had room to fall and so I took the short. Got stopped out really fast but there was nothing there anyways. Canada had their rate announcement right there and it pushed the other way.
And here's the doozy. Just made an absolute perfect call on 6E for a long off this support zone I pulled off a 4 hour chart. Was waiting on this to develop for a bit, and then got a nice entry on the first attempt to break higher. Let myself get shaken out and then missed the second break higher for the real move.
Thanks for asking, as it will force me to write it out.
I always decide on a target before I enter a trade. I usually eyeball a measured move or use the next s/r or round-number level where I would expect the market to pause or maybe pull back / reverse. I'm always going for minimum 1:2 risk to reward. Even with a reasonably loose stop I usually find myself closer to 1:3 risk to reward. Most of my charts should have a green line marking my predefined target. To see if my targets are helping or hurting me, I am also tracking idealized profits to see how much I leave on the table and whether a target-less method that simply trails a stop might yield more in the long run.
As for taking profits on a trade that hasn't yet hit the target, that is a lot tougher to nail down. Basically the reasons to take the money and run are the inverse of the reasons I entered the trade to begin with.
If I am entering a short because price has made a LH at resistance, and broken down to a LL. Then I want to stay in that trade until it makes a HL and breaks up to a HH, thus confirming that selling momentum has fizzled.
But it gets much more complicated than that. This is primarily due to the constantly changing "pot odds" (poker term), and a need to keep loose when there is more to gain, and tight when there is more to lose.
I haven't fleshed it out in enough detail to get much more specific with my exit rules. I intend to move my stops in to take profit if my primary thesis is voided, however I also intend to avoid significant inverse risk as the trade moves toward the target. So if a trade starts out risking 20 ticks to make 60 ticks, then when I have an MFE of 50, I don't want to have my risk at BE or worse. I want that stop to pull in a bit tighter as the trade moves closer to the target. This may end up be a max-allowable-retracement rule where I will bail out if price retraces more than 50% or so from the latest swing that hit the MFE.
Obviously, I'm still working this out so any suggestions are more than welcome.
Below is a picture with some further thoughts. This is a setup I saw develop in CL this morning while getting ready for work. I did not take this trade, but I did identify the levels before it played out in real time.
Let me start off that I'm still in the learning phase, results are looking good for the past 10 weeks only, I have not had my 10.000 hours of screentime, feel flattered by your question, etcetera...
That having said:
I used to be looking for confirmations …
which led me over to this thread as well as viewing the FT71 webinar which brings this up as well as various other topics:
I've just watched FT71's superb webinar on Risk Webinar: FuturesTrader FT71 on Risk, Sizing, Scaling and Trading Probabilities (
I've created a new thread because I think that thread was already cluttered and I wanted to focus on this one …
It has me re-thinking the approach I've taken recently, taking trades on confirmation. I don't necessarily think it is a flat-out bad approach, but at this moment it is an aspect of my trading that is up for reconsideration. I've certainly seen people successfully trade break-out confirmation-style "price risk" entries, and perhaps it suits a certain personality, works on certain markets / timeframes better than others, gives its proponents a more comfortable win/loss ratio (better psychologically) in exchange for lower expectancy, or simply requires a certain nuanced approach that takes a while to get.
The fact is, I've gotten to a point where at least 2 things are sticking out at me that I need to fix. 1. I'm shaking myself out of trades because I'm trying to limit risk and end up with stops that are not at a point where my initial idea is proven wrong. 2. I'm missing some trades where the market comes to exactly the level I was looking at, turns in exactly the way I thought was likely, and yet I am sitting there waiting for the market to stand on one foot, tap its nose, and recite the alphabet backwards so that I can have my confirmation and get into a trade. Then if I do get in, the risk is higher (if I place my stop correctly) or I stand to get shaken out if I don't give it enough room.
The only way my favoring Confirmation makes sense is if the confirmation I get from taking all that Price Risk is tipping my win/loss ratio to where the additional price risk is not detrimental. Conversely, if I start taking Information risk and get a better price on my trades, the stop-placement issue is much easier to resolve, and the concern then would be whether my market-reads are enough information to maintain an edge without that extra Information baked into the trade entry point.
So, in the spirit of "structured learning", I'm not going to just jump in and change everything all at once. For now, I'm going to continue looking for the same confirmation trades, but I'm going to make sure that the stop is always in a place where the trade no longer makes sense. This may make it a lot harder to find trades within my R/R profile, and so be it.
And while I'm waiting for the market to touch its toes and roll a cigarette one-handed, I'll be noting some different trades on paper just to get a feel for how I might transition from Reactionary into a more Anticipatory mode of trading. Funny thing is, when I first started trading futures, this is how I traded, entering with limits on perceived inflection points before they panned out. It didn't work for me back then, but I've had a lot of screen time since then to study price action.
I sometimes struggle with waiting for confirmation (like at this moment!). Other times though I found I've swung to the other side of the spectrum, which is anticipation trading. If you trade on the first sign on a signal, I find many times, it's way too early, though does represent the least risk. I don't know ....I feel like it's one of those things that need to to be balanced by couching in the trade in the longer-time frame.
Just a thought...have you considered experimenting with putting in a second order where you would put in a stop, i.e. average down? That's what I've been toying with lately.
I think the average-down approach may work, especially fo highly skilled traders, if you go into the trade with the idea of building a position into a zone where you anticipate a turn. At my skill level it would be dangerously close to just adding to losers, so I haven't thought to go down that road. If getting in too early is the problem, I'd rather fix that by just waiting and putting my 1 entry at a more favorable spot. Also, I think I should be able to make 1 lot trades work, but I do understand that there are some benefits that I am missing by not scaling.
There's a good discussion around this topic again over at @GruttePier 's journal pages 16 - 17, with input from @Inletcap and @Tap In and @choke35
GruttePier, for what it's worth, the following is this traders way of looking at this messy business...
If a trader is truly picking quality entries, price should be getting to +1R well more than 50% of the time. If this is not happening, then …
It starts there with Tap In giving what I would call very logical advice about being able to make 1-contract trades work, and assessing edge by seeing 1R MFE more than 50% of the time.
A bit later, after some great trade-stat-analysis and back and forth, and some good points from choke35 about looking at risk in comparison with market noise, Inletcap comes in with what I can only describe as an attempt at "freeing the prisoners from Plato's cave"
I know there is something interesting going on in here because it literally breaks my head trying to understand the implications of it. If any one as ever looked at their trading results and thought, "what if I just did the exact opposite of what I'm doing now... would that work?" Well, I don't think it would in most cases, but in some sense that may be the first thought toward real progress. Flip it on its head. (not unlike entering at where you would have put your stop!) Now, I didn't understand exactly what was going on here, but then I read GruttePier's de-construction of it, which was pretty on point I feel, and that helped me get a bit closer to it:
Anyhow, that's where the head is at right now. I don't think I'll be live-trading this week and I'll be using the pre-holiday-week to play with some ideas, do some coin-flip trading on sim, and generally mess around with my head-space a bit. Happy trading.
Like you mentioned, I've tried to average down on a pull-back, and have ended in disastrous results, as my initial interpretation was wrong. However, other times, many times in fact, I would have been smart to average down, as I had the right interpretation of price action/market conditions. So do does a beginning trader differentiate from those two circumstances??
Another component of risk aversion is avoiding profit loss. How many times have you let a trade go in order to maximize profits, just for the trade to come back to entry point and go back the other way? For me....that has not been an uncommon occurrence.
So it seems to me having multiple contracts on at the same time allows one to deal with the ability to secure profits, as well as reduce that component of risk aversion.
I mean, how often have you put on a trade and be completely, instantly wrong? I would guess not that many times. So let's you're at least partially right most of the time, very right some of the time, and very wrong some of the time. Wouldn't it work to be able to trade multiple contracts, and at least secure some profits most of the time?
My apologies in using your journal to think aloud.
