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COMMON SENSE


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COMMON SENSE

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  #221 (permalink)
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Some traders could not find some of the set ups in CL from my previous journal. Makes sense becuase it's a massive undertaking to go through it. Going through last 2 months of posts before i closed the journal should cover everything.

There are too many set ups to go over them all over again in this journal. I will share my favourite trading day to trade CL. Wednesday is my favourite day for couple of reasons.

1) High and low formed on those days are important for that day and rest of trading days till next wednesday.

2) Logic is simple. If after DOE report CL could only go as far it goes on that day- then that area is resistance for me and vice versa.

3) Do not get stuck on ticks. What i mean that if high on Wednesday is 98.20, do not get worried if CL goes to 98.40 on some macro news. In the bigger scheme of things , there is no difference between 98.20 or 98.40. ONLY EXCEPTION is if fresh new buying with FORCE shows up around Wednesday high and price runs up another 100 ticks etc. In that case 98 area becomes support. We are all familair with prior resistance becoming support. I need REAL evidence. Price going above some area by 20 ticks, 40 ticks etc with NO FORCE, NO FOLLOW THROUGH etc has no meaning.

attached charts are from 08-06-2014 (Wednesday) and then follow up from 08-07 and 08-08.


CORRECTION: First chart should read " Lets see how one could have traded 08-07 and 08-08 based of 08-06 high and low".

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  #222 (permalink)
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08-13-2014 Wednesday.

No indicator. Just context and hold.

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  #223 (permalink)
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08-14-2014 Thursday should complete the picture. I have listened to 100's of webinars and never ever got one set up to trade in terms of execution. I did however got lot of other stuff form these webinars which were of no value at the time i got them.

One can make a living trading CL just based of Wednesday refrence points and being patient and getting rid off all the JINGLE BELLS we all have. Everyone likes to talk about being price action trader and KISS approach to trading but when it comes for action KISS turns into something else.

NOTE: Traders who like to make forecats about where CL will be on this day and that day can SIMPLY dazzle everyone by their crystal ball prowess by running some backtests on wednesdays high and low , put a multiple for expansion beyond these levels and come out looking like what ever thet want to look like. Just make sure not to make forecast when macro events like gulf war etc. are on hand.

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  #224 (permalink)
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Q) What's the most important question i ask every day after 45 minutes OR for CL is formed?


A) Why OR got formed where it got formed? and where it is in relation to last Wednesday ORH and ORL. With answer to these 2 questions RULES for video game get set and game starts to lure traders in. Without luring traders in there is no way for them to make money.

By luring i mean giving false sense of strength , weakness etc.


NOTE; These set ups are specific to CL. I am relatively new to trading TF, ZS, HG, GC etc. and in the process of finding their own specific SONG and DANCE which get played every day beyond normal SONG and DANCE which is consistent across all trading instruements.

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  #225 (permalink)
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Q) Someone asked me about title of my journal " Common Sense".

A) One may take meaning of "Common Sense" journal whatever they want. I have many reasons of my own.
I like following defination of common sense. Journal is not just about trading.


"Common sense is nothing more than a deposit of prejudices laid down in the mind before you reach eighteen."

["The Universe and Dr. Einstein"]

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  #226 (permalink)
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Even though Mark Douglas entire presentation of more than an hour is availabe, i like to watch these in 9 minutes segments. Have watched them many times and will continue to watch whenever the inner voice says it's time to watch again.


In this segment besides many things Mark describes paper trading as being very important for many reasons including

" Paper trading is a graphic representation of mental skills you do not have".

He talks about it around 7.40 minutes into this 9 minutes video.



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  #227 (permalink)
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DISCLAIMER: This is in no shape or form intended for other traders to use as a risk management advice/strategy.

There maybe traders who have turned a $10K trading account into millions or whatever. I personally do not know anyone or neither have found anyone ( not that i went looking for them). I have interacted with many, many traders who seem to have everything but execution/confidence etc.

One of the reasons i have found is not having sufficient trading capital and trying to do miracles on a shoe string. Hi, Larry Williams turned 10K into some serious dough, why not me? I do not know why not me? After doining everything imaginable trick under the sun i happen to settle into following risk and trading style and i am not changing it.

This post will be heartbreaking/discouraging to majority of the traders. It's not my intention. If you are trading full time and happy with whatever account size you have and making a living- this post should actually make you more proud of yourself and your trading career. Otheriwse get REAL.

It's immaterial whether trading capital used in my business model reflects my actual account size. ONLY thing it shows as to how i look at leverage, risk, return, position size, scaling in and out etc How i put it together to get an edge. My edge is not shorting failed A ups and going longs on failed A downs. It's just one major component.

I am also not implying that day trading is for millionaires. Having millions will not make one successful in trading. It just makes it easier to deal with random nature of intraday moves when a trader has DRY POWDER on hand availabe all the time. I do not buy into this notion that wherever i buy, i happen to be right everytime and rest of the world comes rushing in bidding price up and making my trade a successful one. I believe that i tend to be right in general area to initiate a trade but notion of buying CL at 97 with a 15 ticks stop loss with a target of 98.40 is no longer appealing to me.

This is just one trader perspective. A trader who has done more than 20,000 trades ( SIM and LIVE) and it suits him. What if someone does not have $1 million to trade? My recommendation will be to use this example to size your trades per your account size, understand leverage, randomness of market etc

I see traders failing TST dozen of times and then passing with results like # of contracts traded for the day= 30
Gains for the day= $400 etc. They have no chance since they do not understand basics of risk, leverage etc.Trading 15 cars per position with 150K etc account is not for most traders. I have traded 50 cars per position, 100 cars per position and everything in between. Following is just my personal way of getting an edge.


I will continue in the next post.

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  #228 (permalink)
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NOTE: Read Disclaimer first from previous post.

Trading Capital= $1,000,000
Intraday leverage provided by brokerage firm based of account equity= Not interested.
Contracts per position= 4 cars
Stop loss= 150 ticks per car. $1500 per car. $6000 on 4 cars. 0.6% of trading capital
Daily target = 60 ticks on full 4 cars. $600 per car or $2400 on 4 cars for CL as an example. 0.24% for the day on trading capital.
Stop trading daily Limit= $20,000. 2% of trading capital.


Weekly Target= 3 successful trading days out of 5 trading days= $2400x3= $7200. 0.72 of trading capital on weekly basis. 2 trading days out of 5 will be scratches. Trading way under capacity in terms of contracts a trader can trade is the KEY to this and many other performnace metrics.

Monthly Target= $7200x4= $28,800. 2.88% return on capital

Yearly Target= 11 months out of 12 months in a year. One month for vacation, holidays= $28,800 x11= $316,800. 31.68% return on capital


# of successful trading days in a month= 12 days.
# of scratches trading days in a month= 8 days.
# of successful trading days in a year ( 11 months)= 12x11= 132 days.
# of scratches trading days in a year ( 11 months)= 8x11= 88 days.

NOTES: 1) Number of trades in a day= 8.
Each trade represents a decision- buy or sell. Thus i try not to make more than 8 decisions a day. This does not include scaling in/out etc.

2) 20% of 132 successful trading days ( about 27 trading days) provide opporyunity to trade with size. If i miss those days, i am happy with 4 cars per position. Using size is highly discretionary. It can be 20 cars, 100 cars etc. However, with that kind of size i am not holding position the way i hold a 4 lot position for 40 minutes etc. I want to be out in 10-15 minutes or at least take majority of it off.

3) I get asked a lot about logic of risking $6k to make $2400? Short answer is it's a disaster stop loss and if situation calls for i am not hesistant to get out of position way before stop loss and switch from being long to short and vice versa. I feel more comfortable giving trades space and time , so that i can observe objectively vs worrying about stop loss. Also, i am trading multiple instruements. In that situation, i do no want to sit around blinking my eyes as to when my stop loss is getting hit. I want to focus on the next instruement and set up.

4) Most of the trading is done by 11 am eastern time. Depending upon how day went by 11 am, i decide on position size for rest of the day or decide if i want to trade at all.


Well, here you have it. This may not help my friends who i have talked over last 6 months about set ups etc who are still struggling with execution/confidence issues. I can see they being disappointed that i waited so long to show them what i consider to be an edge on top of ACD etc. and it's not what they expected. Where they will get $1million to trade etc?

As i said in tthe disclaimer, having a $1 million is not the point. Having expectations based off your account size and being realistic is the goal of this post. Just as having a $1million trading account is an extreme for majority of traders, trying to live off $50K trading account with 70% win ratio, tracking MFE etc. all day maybe another extreme for most of the traders. I do not even want to imagine what rate of return one may need on 50K account to earn enough to earn a living. There are always EXCEPTIONS but they do not need mine or anybody else help.


I also have talked with a couple of traders who just laughed off at my risk, leverage etc and said that a trader who knows what he is doing can do it with 10k etc. Maybe or maybe not. I do not live in fantasy land , i know my trading style, i know my limitations and this suits me. I have tried to get 50% ,70%etc. annual returns , it will work for a month, maybe for 4 months and then back to zero.
Should i go by my personal record of 20,000 trades or go by what Larry Willims did many years ago? I will make a trade based off my own records not what Larry Williams did , can do or is doing.

Now if i ever start a prop firm you can use this post as capital you need to trade at my firm.

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  #229 (permalink)
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I can see CACFUTURE laughing at working 11 months out of 12 months in a year. My understanding is French likes to take 3-4 months out of a year for vacation.

You can adjust 11 months accordingly

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  #230 (permalink)
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DISCLAIMER: I am neither endorsing or making fun of following video/trader. I am always looking into as what other traders are doing. Trading universe is bigger than ACD. One has to constantly learn, evolve and grow. The outfit is professional and very transparent in their trades. I have to give them props. Sang Lucci produces some of the most fun and raw trading videos around. Full of education. But do not get fooled. You can watch these for years and will not be even close to trading weekly options. There is a whole lot of stuff which goes on in weekly options.

In the spirit of learning, i recently took their options trading course. At minmium, course taught me to stay away from day trading weekly options at all cost. I am not wired to trade weekly options. These guys are high risk/high reward type of traders. Making 70K, loosing 100k and so on.

His claim to fame is $600,000 winning trade many years ago. He apparently started with something like 10 K. Even i could not help and control my curiosity and watch their trades from time to time. I can feel it, sense it, that i will be careful for many, many months, study, prepare for this new beast and venture into day trading weekly options and have my ass kicked. It's OK as long as a trader knows before hand what's going to happen to him when he ventures into new territory outside his area of expertise.


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