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Catching Big Waves - a trader's journal of surfing the the markets
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Catching Big Waves - a trader's journal of surfing the the markets

  #2001 (permalink)
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thoughts on position size

Hey Gary, finally took the time to catch up on your journal - I always find it a useful exercise. Your struggles and your self-analysis always seem to be relevant.

Quite some time ago you started to talk about increasing your hold times to increase your average profit per trade - basically that you thought your analysis should allow you to hold for bigger targets but you always seemed to close too early (profitably, but early based on your analysis of a higher timeframe structure or target you'd identified). I don't remember where you actually went with this but (correct me if I'm wrong) you seem to have stuck to your closer targets and given up trying to hold for bigger moves?

The reason I bring it up is that (in my opinion) your trading "edge" (the advantage you have over other traders) is based on your skill and experience at trading (part "gut", part pattern-recognition) and not based on a statistical-mechanical system. As such, your consistency and expectancy are being affected by your level of confidence in your skill/experience/ability. I say this to oppose it to where your consistency/expectancy would come from if you were more statistical-mechanical. If your edge were based on this your consistency/expectancy would come from a mathematical analysis of your system over time and its historical performance.

Two conclusions fall out of this (again, in my opinion). The first is that I think it will be difficult for you to increase your confidence based solely on an analysis of the statistics of your trading. Your level of confidence is going to be based on a subjective feeling of "how good you are". Your level of confidence in "how good you are" is going to have a range between high and low. At the top of the range you will trade better because you will be trading with more conviction and your results will be closer to your potential. At the low end you will be hesitant, less sure, etc and your results will not be up to your potential. I think if you look at it this way you will have more success in both increasing and maintaining your confidence because you will be addressing what is going on directly.

Second, my opinion is that, based on all the above, thinking you can just "think in ticks instead of $" or that moving up in size just requires discipline (while both may be true) is not helpful. If you believe that your edge is based on ability/skill and that trading at your best requires confidence, then it follows that you will need a higher level of confidence to be able to trade with increased size. Your confidence will take time to adjust and so Mike's suggestion of going to USO to be able to increase size more slowly is consistent with this. Another approach would be to trade with larger size 1 or 2 days per week at first and then slowly increase the number of days you spend trading at the larger size. What seems to have happened is that you increased your size all at once, traded at the "low end" of your confidence range, did poorly, and this caused your confidence range to fall such that you are now back to 1-2 contracts.

In summary I think that embracing your trading style (as I think you have) and thinking directly in terms of confidence will help you to move up in size. You know when you are trading confidently (not over-confident, but confident) and I'm sure that at those times increasing size seems easier and more straight-forward than at other times.

Good luck!

Seek freedom and become captive of your desires. Seek discipline and find your liberty. - Frank Herbert
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  #2002 (permalink)
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If ES can just keep it's head above water...short cover possible going into the close. I am long 102.49 with tight stop.

 
  #2003 (permalink)
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  #2004 (permalink)
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I had a thought today, more like a question to ask before I take a trade. How much would I pay for it? What if I had to pay for it 3 times? lol!

 
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2...

 
  #2006 (permalink)
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closed + 25ish. I exitted one at a time

 
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Got taken by the washout move, and then almost knew it was going to run... That is why I hit it a 2nd time. Had volume come in differently I was playing with fire. But it did spook my out of the longer hold because it got too close to 2:30pm. Sometimes it seems it is planned that way.

 
  #2008 (permalink)
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I marked up a 1 minute to show the "washout". Notice that the second entry (3 contract) was at 102.39, AFTER it proved it was pushing out on incredibly high volume.



The larger timeframe structure is actually very bullish in my opinion. Price was in a major support region. Whether it turns up from here over the next few days or not, going into the close, this was not a place to be short.

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EDIT: This is on watch for a local DB at a larger H&S for tomorrow / Friday.


Last edited by GaryD; April 18th, 2012 at 03:57 PM. Reason: future trade
 
  #2009 (permalink)
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The momentum divergence was another confirming factor today. I still have not done anything but set it arbitrarily at 50, but have not found a reason to change it yet either.

 
  #2010 (permalink)
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Surly View Post
Hey Gary, finally took the time to catch up on your journal - I always find it a useful exercise. Your struggles and your self-analysis always seem to be relevant.

Quite some time ago you started to talk about increasing your hold times to increase your average profit per trade - basically that you thought your analysis should allow you to hold for bigger targets but you always seemed to close too early (profitably, but early based on your analysis of a higher timeframe structure or target you'd identified). I don't remember where you actually went with this but (correct me if I'm wrong) you seem to have stuck to your closer targets and given up trying to hold for bigger moves?

The reason I bring it up is that (in my opinion) your trading "edge" (the advantage you have over other traders) is based on your skill and experience at trading (part "gut", part pattern-recognition) and not based on a statistical-mechanical system. As such, your consistency and expectancy are being affected by your level of confidence in your skill/experience/ability. I say this to oppose it to where your consistency/expectancy would come from if you were more statistical-mechanical. If your edge were based on this your consistency/expectancy would come from a mathematical analysis of your system over time and its historical performance.

Two conclusions fall out of this (again, in my opinion). The first is that I think it will be difficult for you to increase your confidence based solely on an analysis of the statistics of your trading. Your level of confidence is going to be based on a subjective feeling of "how good you are". Your level of confidence in "how good you are" is going to have a range between high and low. At the top of the range you will trade better because you will be trading with more conviction and your results will be closer to your potential. At the low end you will be hesitant, less sure, etc and your results will not be up to your potential. I think if you look at it this way you will have more success in both increasing and maintaining your confidence because you will be addressing what is going on directly.

Second, my opinion is that, based on all the above, thinking you can just "think in ticks instead of $" or that moving up in size just requires discipline (while both may be true) is not helpful. If you believe that your edge is based on ability/skill and that trading at your best requires confidence, then it follows that you will need a higher level of confidence to be able to trade with increased size. Your confidence will take time to adjust and so Mike's suggestion of going to USO to be able to increase size more slowly is consistent with this. Another approach would be to trade with larger size 1 or 2 days per week at first and then slowly increase the number of days you spend trading at the larger size. What seems to have happened is that you increased your size all at once, traded at the "low end" of your confidence range, did poorly, and this caused your confidence range to fall such that you are now back to 1-2 contracts.

In summary I think that embracing your trading style (as I think you have) and thinking directly in terms of confidence will help you to move up in size. You know when you are trading confidently (not over-confident, but confident) and I'm sure that at those times increasing size seems easier and more straight-forward than at other times.

Good luck!


Surly, that actually makes quite a bit of sense to me. I know without question that the biggest factor in my trading is my mindset. I know that despite the indicators and chart patterns, I prefer several things to line up, then feel out the trade. I have read that is not the textbook way, but it is what seems to work for me. It seems to feel best to me. No two trades are ever exactly the same, why should my response be?

So position size based on confidence does make sense somewhat, but the problem is, I NEVER really "know" anything. So to keep my wins and losses in ratio with each other I believe I need to trade the same size on all similar trades. Not all trades, just like-for-like trades. If I see a 15-20 tick move that looks appealing, then take a loss of 12, I need to hit the next trade setup with the same size to have a 15-20 win offset a 12 loss. Same with a 45-55 potential. Next to confidence, the biggest factor I know of that keeps me positive is to keep winners larger than losers, so russian-roulette-style contract sizing seems like I am adding another moving target. That factor is also a motivation t go full time; some days are easier than other. How do I know unless I am available?

I have considered having days of the week where I trade larger, or time periods, or specific setups. Today I was 2-3, not 4, and that was not bad. It will effect my add-in, but just playing with it. I had a stop hit today and was somewhat proud of that "accomplishment". Seriously though, my hot potato style does not work well with larger size for me, so being far more selective, letting stops stand un-defended, and missing trades, are all parts of this transition.

I'm holding ground, just not very productive over 1-2 right now. Today was a decent day, but I had the luxury of being at my charts since 6am getting my thoughts together, reading news, shut my ringer off, no visitors today, etc. When I can do that my confidence factor goes up, as I have taken time to play out many options before they occur. That is another reason for the push to full-time, complete focus, then done. No chart analysis late at night after all my other things are done and I am exhausted, no phone calls in the middle of trades, no FedEx deliveries right after I make an entry. Full-time, I set my charts up during normal working hours, shut the phone off, close the door, put in my 8 hours total, and done for the day.

Your comment about discipline is timely. I just said to someone else that discipline is an easy word when it refers to working out, stopping smoking, or dieting. Those tasks are obvious and only require effort. Training my mind to think differently is a slippery subject. I am working on an updated trading plan that addresses everything I am having problems with and I expect it to be the part where discipline comes in. I'm writing rules on things like trader discretion, equity moving averages as position size triggers, health and emotional checklists, all kinds of things to provide a rigid structure behind an otherwise fluid approach.

You can't really talk to a non-trader about trading issues, and to date I know none in my area. On futures.io (formerly BMT) I have come across a few, like yourself, but the distance between one to another can be thousands of miles. Without futures.io (formerly BMT) where would I go? Search out a "Trading Tribe" (could not find one locally)? Move to Chicago? futures.io (formerly BMT) is like my home base.

Thanks for your comments. I come back to these often, and almost always am able to peel another layer off. I'm sure I will re-read yours again tonight. It feels good to have people like you to discuss things with.

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