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The October journal contest has given me the kick in the pants I needed to get my trade journal up and running again. Thank you Big Mike for putting this contest together!
A quick bit of background: I have been trading as a hobby for several years now and have experimented with various instruments and methods. About two years ago I passes the TST combine but then quickly failed the live trader prep session, so never earned a funded account. That was discouraging to me and caused me to take a break from trading for a while.
Last year I left my private law practice for a job in the public sector, which came with a hefty pay cut. This move helped me get more serious and methodical about my trading since I now have a real need for some supplemental trading income.
The major flaws in my trading that I have identified in the past have been:
1. Overtrading. I need to fight the urge to always be in the market.
2. Revenge trading. After a series of losses, I have hurt myself several times by increasing trade size in an effort to win the losses back. This is the worst flaw a trader can have, and I am aware that I can't expect to succeed if I can't get this under control.
3. Identifying targets. I am confident with my entries and stops but have always had a hard time identifying good spots to take profits.
Through the course of this journal, I hope to work on all three of these shortcomings. I hope I can provide something of value to readers in the meantime.
A bit about my method: This is a very simple method without many frills. I am trying to capitalize on gold's tendency to make sudden moves in the direction of an established or establishing trend. Stops are kept tight so the size of the average losing trade is substantially smaller than the size of the average winning trade.
Instrument: Gold futures (/GC). Gold is my preferred instrument because it is "trendy" and is prone to sudden outsized moves.
Entry Trigger for Longs: Price trading above VWAP, with no evidence of a confirmed downtrend; enter on break of high of preceding 5-minute bar.
Entry Trigger for Shorts: Price trading below VWAP, with no evidence of a confirmed uptrend; enter on break of low of preceding 5-minute bar.
Stop Placement: Initial stop is placed just beyond the low/high of the trigger bar (the bar preceding entry); stop is then trailed to follow areas of support/resistance as the trade develops.
Profit Taking: Most exits occur through stops; trades may be exited early upon significant move in direction of trade corresponding with surge in volume.
Adding to Trades: May add to winning trades; may not add to losing trades.
Chop: Stop trading if price has passed through VWAP several times without establishing clear direction; resume trading only after trend has established and then pulled back to create a new entry signal.
Those are the basic parameters; I'm sure I am forgetting something but will supplement as necessary.
I want to let you and all your readers know that in October nexusfi.com (formerly BMT) has a Trading Journal contest w/prizes. The contest runs October 1 to October 31, and the three best journals (as decided by nexusfi.com (formerly BMT) members) will receive a 150K combine from TopstepTrader.
Continuing in the tradition of encouraging journals on futures.io (formerly BMT), I am announcing a new Journal contest for October 2014.
The rules are extremely simple:
a) The contest begins October 1 and ends October 31. All decisions made …
That thread will be open for posting starting Wednesday, October 1. As the author of your journal, you need to make a post in that thread linking to your journal, and then ask users to press the "Thanks" button on that post if they want to vote for your journal to win the contest.
Members can vote for as many different journals as they want. Votes are cast in the Contest thread only, and only on the first post made by the author of the journal that contains a link to their journal. This is done so I can easily count the "Thanks Received" by author/journal, and award the three prizes.
I always keep the "big picture" in mind when trading an asset like gold. While I do not trade directly from a longer-term chart, I like to know where larger areas of support and resistance may be and I also like to know if a clear longer-term directional trend is in play.
Here is a daily chart showing the past several years in gold. The all-time high of 1923.7 occured in 2010 (this is about when my father sold most of his stock investments and put his money in gold coins; good contrarian indicator!). Gold made a few attempts to bounce back and retest the high over the next year or two but got rejected at the 1800 level, and then collapsed to a multi-year low around the 1200 level in the summer of 2012.
In early 2014, after a retest of that low, it looked like price might be headed up again. But that rally failed around the 1400 level, and has managed only a lower high since then. Currently we are again trading near the multi-year lows.
Lessons I draw from this chart:
1. Price is currently near a clear support level. A bounce from these levels seems to be the likeliest scenario.
2. However, if price were to fall below the 1200 level on strong volume, longer-term stops will be triggered and that could precipitate a violent move lower.
3. This is a key time for gold, and I think other traders are aware of this as well. Does support hold or does it fail? We can probably expect a lot of churn and back-and-forth in coming days before the answer becomes clear, then a larger move upward (if support holds) or downward (if support fails).
In terms of my day-trading strategy, I am not entering the day with any directional bias. This is a battleground area and longer term direction will not be determinable until we see whether support holds.
To grade my performance at the end of the day, I like to look at the price action of the day as a whole and determine how a system like the one I'm trading theoretically should have performed under those conditions. Then I compare this with my actual trading results and try to determine the reasons for any underperformance.
The method I am trading is a continuation method rather than a range-trading or reversion to the mean method. This means that I am looking for price to continue to move in one direction rather than betting on a reversal. My system works best on days when there are large moves in the same direction through the day, and works worst when price is rangebound.
Today's action, in retrospect, was rangebound. There were three places where my system generated entry signals, marked in gray rectangles in the chart above. In only one of these (number 3) did price make a substantial move in the direction of the signal before reversing. On a day like this, I would expect to come out slightly ahead, assuming that I took small losses in places where the signals quickly reversed and managed to catch the one decent move of the day for a profit.
My actual result for the day was a net loss of 3 ticks. On the positive side, I did catch the decent move of the day and added to it on the way up before taking profits as price approached the previous high of the day. On the negative side, I feel that I overtraded the other entry signals, keeping stops too tight and taking a couple of unnecessary stops before the moves had played themselves out.
Overall my performance was not terrible for a day like this; I am pleased that I offset the losing trades with a profitable trade on double size. I am also pleased that I followed my entry system well. Major lesson of the day is to keep stops a bit looser to avoid unnecessary stop-and-reenter situations during a move that is still developing.
Today saw a signficant move in the price of gold right after the open, triggered by the non-farm payroll release.
Today was a good downward trending day with several opportunities to catch decent sized moves. There were also a few "false starts," that is, places where price briefly dipped below of the preceding bar as if the downtrend were resuming but then bounced back up again. Those places would produce some stops, but the size of the available gains should make this kind of day solidly profitable.
My actual result on the day was a net gain of 46 ticks. I traded well for the most part. I was able to catch most of the initial drop by putting in a stop below the low of the second bar. I took profits at a pretty good place, but then gave some back by trying to reenter too soon. That was my major mistake of the day: looking to jump in too soon after a big move had already happened.
Anyway, won't beat myself up about it. I traded what the market gave me, stayed on the right side of the trend, and came away with a decent profit.
