Gordo, good job tracking your errors in the spreadsheet. Do you feel you are making fewer errors than before? Do you have a process now to not just identify, but work towards eliminating errors?

Can you explain the 10 day moving average in your spreadsheet? There are two columns...

Mike

Friday, Big Mike asked a tough question: "Do you have a process now to not just identify, but work towards eliminating errors?"

I spent the whole weekend digesting that question. There are several answers that come to mind.
· Yes
· No
· Yes, but I can't tell you (which means no)
· I will just do better (which also means no)

Not good answers. So I did some research on futures.io (formerly BMT), did some soul searching, and did some real deep contemplating.

I thought back to 1981 and a very good friend of mine who was also a fighter pilot (back in the day). We were in the same squadron for three years over in Europe and then transferred back stateside as Instructor Pilots at about the same time. He was selected to attend Fighter Weapons School (the Air Force version of the Navy's Top Gun program).

Now keep in mind, that only about 10% of the Air Force pilots make it as Fighter Pilots. So this is a very select group. Then the fact that each base only gets one FWS selection per year reduces the number even further. So my buddy, Tim, real was Hotel Sierra. He was among the best of the best. He went to the school and came back with all the Top Gun awards for his class and for the year. You could say he really was the ‘Ice Man’ from the movie. Now to talk to Tim on the ground was to talk to the nicest, friendliest, easiest going, person in the world. He and his wife were great friends of ours and a joy to be with. But when he strapped that jet on his butt, his whole demeanor changed. It was all business and no room for error. He was focused. He truly was a steely-eyed killer.

So how does that apply to me? Even though I was in the elite Fighter Pilot group, I was average. I wasn’t the best, but I wasn’t the worst. I could do the job but didn’t focus. I was good enough to get by, and I would have a promising career, but not the top dog. My heart just wasn’t in it.

I am back at that same juncture with trading that I was when I was in the Military. I didn’t like the regimented, military life style, so I bailed. Now I am looking at trading. The regimentation required to be a good/successful trader is the same regimentation required to be a good Fighter Pilot. I know I can do this. I know I can follow rules. They are my rules after all. It’s not like someone is forcing me to do this. I chose this occupation of my own free will. So the question is, do I want to be disciplined?

I enjoy playing the free game that comes with MS Windows, Minesweeper. The rules are straightforward and the play is not that difficult, but beating the “Expert” is a tough task. In my recollection, I have won the game twice in my life. Yes, I know there is a cheat out there that tells you how to beat the game. That is not the point. The point is that if you can sit down and play that game 30 times in a row, as fast as you can and not lose your cool and not be frustrated and follow the rules, you might be ready to trade.

These are questions of discipline. Can I be disciplined? I can. Do I have a plan? Yes, remember what it was like to be a Fighter Pilot. Engage those skill sets. Focus!


TODAY

So how did today go? Yes, I made money, but how did the day go? It went well. My first trade looked good but all the indicators started to go south so I got out. The reason this is interesting is I don’t have a method to get out of a trade that goes south other than to hit my stop. It is not part of my trading plan. Trading plan? No I don’t have one of those either, but I after reading David’s journal, I am working on that very thing. I put it in here when I get it done.

Trade #2 was a loser. I did not do a good job in reading the charts and went short when I should have been going long. Trade #3 was also a loser, but I followed my plan to the T and sometimes it just doesn’t work out. I can live with that. My next four trades were right on the money. I followed my strategy flawlessly. It felt good. I wasn’t pressured to do anything I didn’t want to do and the results speak for themselves.

Going forward, I will continue to focus. Keeping stats keeps me honest. Writing to myself in my journal keeps me accountable. All is good.

G

P.S. Mike, I fixed the column headings. Thanks for catching that.

It was the best of times. It was the worst of times....

Who are the two traders? Me today and me yesterday...two traders!

Today was once again an opportunity to relearn EVERYTHING I already know. My mistakes for the day were to listen to outside influences and consequently NOT trade my plan. If I trade my plan, I will be successful. If I listen to everyone around me, I will be confused. The problematic outside influences are my trading buddies and the naysayers on television. Neither of those entities are going to pay my bills.

Wasn't it just yesterday that I was extolling the virtues of my newfound knowledge on how to be a steely-eyed, cold, calculated killer? Yes it was! What happened? Success happened. I got a big head. The result? I lost six out of the first seven trades.

I did have an excellent day in that I dug a HUGE [and I mean HUGE – 136 ticks] hole and managed to get myself back out. But...not until I came to grips with what I was doing wrong. I was not trading my plan. When I traded my plan, I was successful and came out $59 to the good for the day. Now that doesn't pay the rent, but I know something. I know that with my money management setup I can lose half the time and still make money. So when I lose, I don't add to my misery, I can still recover. And recover is what I did. There was a time when I had a reward to risk ratio of less than 1. Back then if I lost a trade, it would take me two to three trades to break even let alone make money. Now my ratio is 1.27 [8/15/15 tick profit, 10/10/10 tick stop on three contracts]. I know there are all sorts of different schools of thought out there, but this makes sense to me and it works for me and I don’t feel bad when I get stopped out.

I have attached the first hour of my trading debacle with in-depth analysis on the seven trades. Not a testimony I am very excited about sharing.

[Sidenote: Today I had a thought. I think I will build a new indicator that shows the relative movement of the Heinken-Ashi with the color-coding I am currently using. I envision it to look very much like my MACD chart. That would allow me to free up a panel on my display. I am not changing my plan, just improving the visual part of my plan. Building indicators helps me stay focused and keep out of trades.]

With 16 trades to my name today, one could argue I over-traded. I think I traded well [when I needed to!]. It would have been better if I traded smart from the get-go.

I spoke to a friend that used to work for me. He just lost his job. Being in his boots would be very sad for me. It WAS sad for me when I lost my job. Corporate mergers have a funny way of working things out. If you aren't on the right side of the merger, you are toast. This is the life that awaits me if I don't learn how to be smart when I trade. I don't want to go back. I CAN DO THIS!!!! I haven't even had to discipline my employees!
G

So another day. I continue to dwell on that question that Big Mike asked me: "Do you have a process now to not just identify, but work towards eliminating errors?" The question plagues me.

I mentioned yesterday about my friend that was terminated from his position. That is actually the fourth manager (not counting myself which would be five) fired as the company goes through cleaning house and terminating everyone that used to report to me. The scenario is basically the same. The supervisor meets with the manager and hands them a Personal Improvement Plan (PIP). The PIP has a heartfelt statement at the beginning that says that the company wants to retain you in their service, and what a nice person you are, and how much they have invested in you….blah blah blah… BUT there are some work habits, actions, whatever that needs to be improved. Then there is a list of the items. In addition, there is an acknowledgement of some of the wonderful accomplishments the manager has achieved and that the company wants to continue on this path of good results, BUT if you don’t get your act together immediately, you will be TERMINATED!

I remember when I read that letter. I was shocked…stunned…speechless…numb. I didn’t quite know what to do. Action! That’s what I needed…action! My efforts were fruitless though, because this was just a ruse. They didn’t like me, the merger put me on the wrong side of the fence and I was history. Plain and simple. I could have discovered, designed, built and proved out a cold fusion plant for the company and it would not have made a bit of difference. I was toast. Two months later…unemployed!

I have to remember, this company uses PIP’s as a precursor for high paid executives to prevent them from suing the company. They have no intention of keeping you employed. But not all companies are like that. I have a very dear friend (actually my best friend) that is an executive at another large company. They really do mean what they say in a PIP and have steered many a floundering manager onto the right path.

What does this have to do with trading? Well how about a story? Some fiction, some facts, some dates, names, amounts changed to protect the innocent. Just a little story… Or is it????

Let’s say you have some money. Oh for the sake of discussion, let’s say it’s $30,000. That’s not a lot of money, but it is a pretty good chunk of change. You want to make some money in the financial markets, so you look to hire someone to do the day-to-day trading stuff. After all, that’s what big companies do. They hire grunts to do the easy work. So you decide to hire your brother, let’s call him Steve. Steve is a bright lad, very successful in all of the careers he has had over the years and wants to work for you. He doesn’t know much about trading, but he is really enthusiastic and promises to work very hard and make you both very successful. He’s family after all so you hire Steve. You promise to cut him in on a percentage of the take. When he first starts, he is doing a bang up job. He is working long hours, he takes classes, he does home studying, he shows you some great charts he has and has some great plans for all of the money the two of you are going to make. This is really exciting. The good life is just around the corner. This guy starts out great! He practices for a little while and then suggests to you that he invest some of the money and see how the trades go. The two of you agree on a rough strategy to follow and you agree to let Steve go live.

The first day is very exciting and Steve has a great day. He get’s his ‘one and done’ and the two of you take the rest of the day off. This is cool! Five minutes of work and the rest of the day doing whatever you want. The rest of the week is just as good. Steve is really putting out the bucks. Excellent choice hiring this guy! The second week is pretty good, but there are some bumps and one of the days he loses three days of the previous day’s income. That’s okay, we’re still up overall. You tell all of your friends how smart you are for hiring Steve. Easy street is just around the corner. What could possibly go wrong. After all, Steve has found this great trading plan that is working great. At the family get togethers, the two of you are bragging at how successful you are and all of the money you have made and what you plan to do with the millions that are on their way.

As the weeks roll by, Steve is up and down a lot, but mostly down. Within three months of starting his live trading, Steve has lost $10,000. Not good, but you like him and he talks a good talk. After all, he IS trying very hard. Steve keeps trading and tries a whole bunch of new stuff and starts to make a comeback. Then he loses another $7,000 in a rash of “bad weeks”. You become very angry and have some heart-to-heart talks with him. There is a lot of yelling, but in the end you two work it out and Steve promises to “do better”. You meet with Steve and lay down some ground rules, but they are still kind of lacking. You notice Steve is not writing in his journal any longer, so you suggest he gets back to the basics.

Some more time goes by and Steve gets into a really bad trade. He is so concerned about the money he has lost up to this point, he moves his stop. He doesn’t want to disappoint you, or get fired and he is confident the market will swing back around. Then he moves the stop again, and again, and again. Pretty soon Steve is in a lot of trouble. You get a call from your broker. You have a margin call. Now you are both in a panic. What was he thinking? Doesn’t he know how much money this is? When the dust finally settles, Steve has lost another $10,000. You immediately withdraw Steve’s access to the live account, but the damage is done.

Now what? Fire Steve? Let him continue? Let him practice on sim until he gets better. He’s family. You only have the $3,000 left to work with. What are you going to do? You are getting emails from your friends asking you what you are going to do with guy. You come up with some stories to tell your friends, but you just don’t know.

Steve changes a lot of his habits. He is journaling better, and he is keeping the records that you asked him to keep. He tracks his errors now, but every day he continues to make the same errors over and over again. He promises things will be better if you let him go live. He is pressuring you to go live because he needs the money.

Then you get a couple of calls from friends from your past that just got fired. So you think…what happened to these guys might be what needs to happen to Steve. So you need to give Steve a PIP. If he doesn’t turn this around, you will be out of money and Steve will be out of a job anyway. This way, you have a good reason to tell your family why things went the way they did, Steve will know exactly what is expected of him and hopefully, he will get serious.

Time to write Steve’s PIP. He knows it is coming. So how did he do today? Great! BUT…can he sustain this? He had no errors. He made two trades, both successful. The charts, journal and spreadsheet all look good.

Now it is time to write Steve’s PIP. After you give Steve the PIP, he will need to formulate his action plan. This could be a great start to a rewarding career for both of you.

8/26/2010
This was a rough day financially. I have anguished over making this post. I (Steve) lost money. But we traded pretty good. There were two omissions in protocol. Both are what might be considered ‘iffy’ calls. The first was a clear indication to go long on the 1-minute, but a clear indication to go short on the Renko. This is not in the trading plan, but would suggest a lack of market awareness and blindly following indicators. The second was chasing the market. There was a fast move up. We got in on the second bar when the indicators showed direction and got caught on the pullback. Seems that the CL tends to recover after it makes a HUGE move and go back to where it was before and continues. This seems to be the personality of the market we are trading.

I don’t feel overly excited about the day, but there were thirteen trades with only two errors (which were not blatant disregard to the rules). I think the feeling that I should be profitable every day is the issue. I know I cannot expect to make money every day. There will be draw downs. The elephant in the room that needs to be dealt with is the errors.
G

Sorry you lost money.

• Work on errors
• If scenario exists not covered in trading plan = no trade, then research it later and add to plan if you want after you have a clear conclusion from the research
• Compare your trades, and the day, to historical results with your method, are they in-line?

The last one goes towards what you said about not expecting to make money every day. This is why spreadsheets are important. Look to measure things like maximum number of losses in a row, maximum drawdown, average length of time in a trade (I measure total, winners and losers), etc etc. Whatever metrics you feel necessary so that you can look back and take todays trades and compare them to the past, to answer the question "is this normal and to be expected? ok then. if it isn't normal, and was unexpected, then why did my results produce abnormal results?"

If you are experiencing days or weeks of abnormal results it could simply be your edge/method is no longer working. It is important to identify such things quickly, because during the week or more it takes you to determine the edge has stopped working, you could give back a significant amount of profits.

I think, for this very reason, it is also important to use position sizing and correlate it to your recent net results. When trading well, net profit is positive, you can increase your position sizing (ideally not exceeding 1% risk per trade). When trading poorly, net profit negative, start decreasing your position sizing.

Mike

8/27/10

A true learning day for me. A true learning day indeed!! I wanted to complete my trading, but I needed to do some personal things. I find that if I am in a time crunch, I push trades. I entered several trades today and immediately canceled them because I knew they were not my trades. This is not just for fun and profit. This is my livelihood. If I had a regular go to the office job, I would have to devote my time, energy and resources to that job. When I am at work, I am at work. Yes, it is nice to be able to stay at home and do things, break the monotony, and enjoy the dream, but it is also WORK. That is not meant in a bad way, but in a REAL way. I have to come to work and work smart. If I have double booked the time, then I need to walk away from trading. I have to also realize, that I can only trade when the market is open. So if I have something else to do on a particular day, then I lose that day of income. I can’t have it both ways. The pipe dreams on the commercials of how easy it is to trade and how little time it takes are just that…pipe dreams. They don’t exist in reality. This is hard work and takes time, focus and dedication. Otherwise I need to get my McDonalds application dusted off.

That being said, I completed the day positive. It is not the amount of money I wanted to put in the win column, but I traded pretty good. There were two errors today. The first was not trading my plan. We have had this discussion before. I was trying to make something happen. It was not my trade, I realized what I had done and immediately canceled the trade. In days gone by, I would have stuck it out and sometime won and sometimes lost. Mostly lost. This was a bad decision followed by a great decision which then makes it just a momentary lapse. This is a long stride for me. Now I need to improve that effort so that I don’t get into these types of trades in the first place. This is going to be a huge reduction in my errors.

The second error was huge. I put a big pink border around it. That is what we used to do when I was an instructor pilot. If you flunked (pinked) the ride, we would outline the border of the page with a pink magic marker. It was a significant statement towards one’s self-esteem. Very effective. My error, ‘Gut trade’. It just looked good. After all, everyone was doing it and the market was really moving and I just wanted some of that money. Bad idea. That was an immediate loser. Too bad.
I have put my numbers for the day at the bottom. There were no particular trades that stood out for the day so I do not have a screen shot.

Now in reviewing the week, it was an up and down week. I made some serious errors, but I also made some fundamental discoveries. My charts show improvement. In particular, I am pleased with the improved performance in my following strategy rate. There is GREAT. I want that to improve to 100%. I am changing the title to just Success Rate. That is positive as opposed to error rate, which is negative…a little bit of mind game theory.

Here is an interesting observation. Look at the last image I added. When I follow my stategy, I win. When I don't I lose. Bottom line. Follow your strategy, success will follow. Don't follow your strategy, give your money away. Of course, everyone on futures.io (formerly BMT) already knows this!

I am looking forward to next week. I had hoped to start trading live, but I think that is fool hardy. I have been moderately successful, but a week with no errors would make me confident. I have been profitable for four out of the last six weeks, but another week is not going to hurt me. I need to be better at my game. I know what it feels like to lose money because I traded poorly, now I need to know what it feels like to win money because I traded well.

G

aztrader9 

And this is why I trade.....I just started laughing when I read this....it so applies to me as well.....I didn't have 450 employees, only 20 but it felt like 200.....constant drama.....am I glad thats over!

... I love to trade .. still trying to get to positive cash flow on it .. and I am reminded about working 24/7 on the farm when you talk about employees .. at least yours talked !!! LOL I never learned to talk chickese or coowww even after decades of trying .. but the gut has to be tuned to get the signals right & that is what worked then & will again on trading

Thanks to all for comments and insights! Inspiration is appreciated megafold

Jon

Dear Journal

As a day trader, I suck! Today I lost $1,875.90 worth of pride. I am not sure if that is enough! I sure hope so.

Gordon

P.S. Thanks for the thoughts guys, but just let this day die. There will be plenty of days to comment on in the future...I hope.

Today started out like yesterday…a trading day from hell. I was back to old habits.

[And no it doesn’t feel good to repeat the same errors time and time again. It is embarrassing to me to write these things down in a public forum. I feel like a grade a FOOL! I know this is for my own good, but I don’t like it. Maybe enough public humiliation will get me to quit being so stupid.]

Time to regroup. I am looking at my indicators and decided to change the order they appear on my page (and thus the order of importance). Same indicators, same numbers, very different results. I have attached a Median Renko chart showing a great trade. It’s strange that I can have the exact same indicators, look at them and see the charts completely different. This was a welcomed sight after yesterday’s debacle. Looks like I have a lot of ground to recover to make up for my horrendous losses. If I can stop making these errors, I just know…

…sigh...

G

P.S. Made a couple of cakes this weekend.

P.P.S I have a couple of indicators I use that are not ready for the download section. I have included them here. The Heiken-Ashi has a logic error on the colors of the dots. I only use the background flooding, so that is what it is. I will get this figured out one of these days. The other one (AaAdxVma) is Big Mike's work, I just added the background flooding. I like to reduce screen clutter. To accomplish that, I use flooding. I still can [and do] look at the actual indicator, but flooding helps me see the big picture in a quick glance. It's an old fighter pilot trick...keep your HUD clean so you can see the bad guys.