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Catching Big Waves - a trader's journal of surfing the the markets
I have discovered a few things that are important;
1) When I traded my very best, best performance I have ever had, I was taking antidepressants. Pristiq was the drug name, and I was still on in when this thread started. It did turn off some emotions, and the part I thought of as apathy and lack of spirit, also provided the attitude that I did not care if I lost. I would just see a trade that looked promising, take the trade, and manage the stop. I also did not get excited about a win. I would often allow wins to go from 50 ticks back to 10, and not think a thing about it.
2) When I trade one contract, the longer distance trades are more interesting to me, because the dollar amount is more interesting. As I size up, the smaller trades become more appealing, because they offer the same or greater dollar amount with higher probability of outcome. The odds of me getting 15 ticks are typically greater than the odds of getting 50. However, the odds of great overall performance in terms of profit factor and drawdown percentage come with allowing the winning trades to run and cutting the losing trades off when I realize I am wrong. My normal loss size a year ago was around 18-20 ticks, my typical win target around 40-60 ticks. Today I am running 7-15 tick losses, and 12-30 tick wins. The win/loss ratio of the extremes of both of those is not as good, and inside my head I know that they are not, and so I have less confidence not so much in that trade, but in the overall concept.
3) Using one contract at either of the two variations of average win to average loss stated above, all results were smoothed out because they were all exactly the same position size. A variable position size means I may still achieve the same win percentage, I could still achieve the same trade-by-trade profit factor in pure ticks of the move, but take a 50 tick winner on 2 contracts and a 15 tick loser on 6 contracts, and breakeven on the two trades. My exercise to expand my mind into position sizes is working against me.
4) On real estate deals, I would scan the MLS trying to find something to do, but often spent months looking before I would come across a deal that made sense to me from a risk to reward perspective. When I started my construction & real estate, I just took anything that I was offered, never turned down a job, but as time went on became incredibly selective about the process, and focused on the deal that offered the greatest potential. It was the thought of working smarter, not harder. Towards the end of my run in that career, If I could not see a minimum return potential of $100k, and, a minimum return on cost of 18-20%, and a minumum cash-on-cash return of 50%+, I was not interested. Why go through all that work, tie up my resources, until something that fit my criteria came along? In trading, a year ago I would wait for hours or days for what looked good to me, but as of last week, I look for the "deal of the day". I am working harder, not smarter. In other careers that direction might result in how many hours I work, how much I make per hour, and how much sleep I get. But in trading, where you cannot work your way through something, you have to just allow it to happen, it alters potential, it changes the true value of the trade.
5) Being back in this house is putting subconscious pressure on me. I live in the physical proof of my past potential, and wake up disappointed in myself for my past financial failures, and I see stepping up my trading size as a way to get back to where I was and stop that feeling of disappointment. But when that is the motivation, instead of having the motivation be to just trade well and see what happens, my criteria for being in or out of the market is different, my ability to manage a trade is different, my view of the market is different, and most important, my view of myself is different.
Part of what I am doing wrong lately is I am not holding onto a trade for very long, and/or to longer distances. Some of that comes from my recent reads of traders like Mark Cook and Tom Baldwin. But previously I based my profit target on the tick distance I thought had a high probability of occurence. The swing indicator export allowed me to see that as a bell curve.
The chart at the top of this post is looking at something similar to that bell curve in terms of probability, but by time period rather than swing length. The indicators at the bottom are both ATRs, the green histogram/bar a 1 period, and the yellow line a 72 period. The chart is hourly, so 72 is roughly 3 days (ignoring the session close).
51 ticks per hour is about the speed of the market right now.
The "sweet spot" that I believe in is between 21 ticks and 55 ticks for swing length, and would be adjusted depending on the amount of heat a trade would take (as the move against me was part of that length), and is how I developed the habit of "trading positions", scalping in and out from one to two contracts, and then back to one again. Better position in that swing.
But, I did not desire to be in a trade for longer than the single swing. I wanted to exit near the top, wait for the pullback, that may not come, but odds said that is was a higher probability that it would. That is what has kept me from hitting 100-200 tick trades. But, those are not necessary, depending on the belief and the trade management.
The original goal of learning to trade to make silly amount of money had shifted inside me, and the goal had become just to understand the market, what worked and what didn't why it worked or not. It was just analysis of occurence and probability, and when I treated it as such, it was hard not to win.
Today I think I often feel that "I know how to trade", and maybe I do, but that thought causes me to forget certain aspects of my behavior that contributed to my overall performance in the past. Feeling like I now had that skill set in my back pocket, "I am a trader", I moved on to bigger and better things; like money. And specifically, how much?
I have traded at $10k per month on 1-2 contracts, when I really did not care. I was actually very surprised to see that, I was just messing around trying to understand how crude oil moved.
If I had the balls to trade at 1 contract per $10k, I'll not say it is "probable", but I will say it as "the potential to make" my annual living expenses in a matter of weeks, exists.
"Probable" is too strong a word, but "possible" never is.
With the one agonizing caveat being, IF, money was not the object. The focus would need to be;
Practicing the science of probability and occurence without emotion or attachment to the outcome.
Easy to do when I do not care, maybe impossible to do when I really care.
And while I do not believe in automation, or hard rules, while I do not believe I would stand a chance of a high success rate if I tried to remove the human factor from my trading, what needs to happen is to keep the human factor in terms of reading the market, but remove it in terms of caring about the outcome.
Some times just typing is tiring. No, not the typing, the searching for the answer that is happening as I reach to get the words to the keyboard.
@tigertrader caught my attention on the nexusfi.com (formerly BMT) front page a few weeks back with his "Most Interesting Trader In The World". I love that. But last night I saw a new quote from him and followed it because it summarized a part of my current dillema.
Assuming it will not be offensive, below is the part that hit me like a brick, revived some beliefs that I share with him, but had lost sight of lately as I wrestle with some personal issues;
"Of course, this underscores the shortcomings of treating trades and predictions the same way. On the surface, trading and prediction seem the same, but if your methodology is totally dependent on trying to predict the market, you probably won't survive very long. You have to concentrate on projecting losses, risk management and finding a methodology that works. If you keep this in mind, you can make money, even when the intellectual exercise of prediction is dead wrong. I managed to make money on the rally, because I traded the market's price action and not my prediction, nor my opinion.
Nevertheless, when your prediction is correct, it is important to make the most of it, by levering up a bit and pressing the trade. People take profits, but gamble with their losses. Amateurs go broke by taking large losses, professionals by taking small profits, and not fully taking advantage of an opportunity when it presents itself. When and where you initiate a trade is a lot less important than how large you trade and how you liquidate. If you're wrong the market, you take your small loss, and move on. But it's very difficult to make up for missing a really big trade, or not trading it optimally."
When I go back to where my emotions do not exist, what @tigertrader said is like gospel to me. Amen, brother! You are speaking my language!
The posts I made today reflect a part of my interpretation of that, and reading his post last night has sent me back into the mode of pulling that belief back to the surface, having been submerged by the weight of my emotional baggage lately.
The full credit for that poetic assembly of text goes to him, and the link is below.
I missed that post. My email is hit or miss on notifying me of new posts. Big Mike recommended I change emails, but I don't really mind it most of the time. This was pure luck that I even saw your post this time. I was looking for something else.
But very valid comment, and not something I have considered before. My "want" list has included work for so many years, and I am just recently moving towards other things. The thought that buying a windsurfer might be useful to my trading was in that same groove, or my new desire to take surfing lessons. Anything that becomes Plan B.
One thing I have notice as I am sure you have as well, trading to put the odds in your favor also means taking into account the potential daily range. Looking for 100-200 ticks on a single trade might be unrealistic or improbable depending on the type of day it is.
However, if the likelihood of 21-55 ticks is normally within the bell curve of higher probability, it does seem to me those are the kind of targets one should look at.
I know of a trader that uses 50 ticks in CL as his baseline target knowing full well it can and does run a lot further than that occasionally. Most days he trades with no targets yet has a profit zone in mind. When price gets close, he starts tightening up...the idea is that price will run through the 50 tick zone and turn into a nice long runner. About 70% of the time, he's out with 45-55 ticks and done for the day....around 10% of the time he scratches and the other 20% of the time he gets runners of random lengths.
He's all in all out most of the time and occasionally he scales in with double position if he gets another entry signal while still in the trade and can enter with enough profit on the first position to ensure a break even on the entire thing if it goes bad. In this way he sizes up without risk.
He is using the odds of the swings running a certain number of ticks each day while at the same time giving himself leeway to capture the occasional runner.
Just a thought
Simplicity is the ultimate sophistication, Leonardo da Vinci
Most people chose unhappiness over uncertainty, Tim Ferris
