How I Trade For a Living

September 15th, 2016, 06:36 PM

My dear friends....

Today was the day.... I have fallen....

I ended the day down a decent amount on the ES....

Here is the day's chart..:

The yellow box contains my entries and the red is my exits.

I tried shorting it, and as you can see, it didn't care

That was my only trade for the day. It was not a fun one

I do want to tell you all about something I have been working on lately. I will in the next post.

As far as this goes, I took a $600 loss. Yup, $600 punch to the face.

It happens, it hurts, but I will be fine. I hope you all did better than me!

September 15th, 2016, 07:27 PM

So, I am considering starting a second journal for this since it is different than what I am doing here.

For a while now I have been trading gold and bonds. (ZB and GC).

I have only been doing it SIM.

My "strategy" is something I call yield arbitrage. Better names out there, but I think this fits.

So, what is every trader in the world doing? They are searching for yield. Correct? They also want it for a "good" price.

So, how does my strategy take advantage of this? This is how:

-I figure out the environment that commodities, bonds, and equities are in. (deflationary vs inflationary/ risk-on vs risk-off)
-I figure out what is moving with what (correlations and inverse correlations)
-Once I do that, I find which is at a discount! (value)

Seems simple? Well, it is! Easy is what it isn't

Now, I have been testing this thought for a while now. Like I said, on SIM.

My main purpose for this is to use the idea of asymmetrical returns to be profitable over time.
The key isn't to pick the right direction, but rather to manage the trades correctly.

I should also mention that I hold these trades for longer and with less size. I never go over 3 contracts, and rarely over 2.

After testing this thought for a while, I decided to take it live today. Going into it, I told myself that I would not lose more than $500 testing this new idea. It is still in its testing phase, so I wasn't going to risk much.

Here are the day's results:

ZB:

I made $250 today on the ZB. This instrument ticks at $31.25. I is also a bit slower moving than most, hence why I like it for this idea. First day live went well here. I wasn't able to hold the trade as long as I wish I could've because of school and the gold trade I had on. I was nervous

GC:

Yellow boxes are entries and red are exits.

Now, I want to say that today went very well on gold, however, I am not trading it live again until I am more comfortable.

I made a very nice $1140 on GC today. Never being in more than 2 lots.

The reason I say I will not do this again live until I am more comfortable is because it moves quickly and erradically at times.

I made $1000 VERY quick. That scares me honestly. Imagine if I lost that $1000 that quick? I would be shaking!

I also think that the risk trading GC this way has is too much for my comfort level. My account can handle it, but my psyche can't

I will keep working on this idea, and maybe do the ZB live some more, but until I get more comfortable with GC, I am only going in SIM.

Thanks for giving this a read. I know it is different than the normal, but I think that I can do it profitably with the correct trade/money management.

September 15th, 2016, 08:03 PM

rocksolid68

Thanks for giving this a read. I know it is different than the normal, but I think that I can do it profitably with the correct trade/money management.

Weird, but good.

Let's have more.

Bob.

September 16th, 2016, 09:08 AM

Morning Analysis:

Daily:

-Volume decreasing each day.
-Range decreasing each day
-I imagine that this will continue all the way to the Fed Minutes release

360 Minute:

-+1SD and -1SD of the M-VWAP are containing price lately.
-I would assume that price will stay within the box I drew, with possible faied breakouts.
-Choppy weather until FOMC

Market Thesis:
-We range

Trade Thesis:
-Search for exhaustion at extremes
-Short AoI= ~40
-Long AoI= ~10-~15

Let's see how this goes!

September 17th, 2016, 10:35 AM

I am out of town for the weekend.

I will not be home until Sunday evening.

That is why I have not posted the recap for Friday.

I do not have the photos but I can just tell you.

LIVE ES: -$50
LIVE ZB: +31.25
SIM GC: +$400

The yield arbitrage idea is working out nicely still. However, still uneasy with trading live with GC. I will keep this update though.

As far as my account goes, I lost a tiny bit yesterday. I was not patient enough with my entries. I was right about the tight range and such, however, analysis needs to meet execution to be profitable

PS: I absolutely love when you make comments here. If you have any questions, concerns, or comments, post here! I would love to get back to anyone on anything!

Thanks for following along,
Alex

September 17th, 2016, 03:30 PM

rocksolid68

Regarding @bobwest's post about why I "fade" certain areas.

So, let's define fading.

When somebody fades a certain area, it means that they are building their positions as price goes "against" them.

Example:

I want to "fade" Y-Close and I am bullish.

Price is 4-points (2014) above Y-Close (2010).

I am willing to build a position of 5 lots max. I will scale these in.

So, when price is at 2014, I buy one contract. When price goes to 2012, I buy 2 more lots. When it goes to 2011, I buy 2 more. When it goes to 2010, I buy my 5th contract.

I now have a 5-contract long position which is what I wanted. I "faded" all the way to Y-Close.
_______________________________________

So, why fade a level?

Going back to the example:

I have my thesis. I think that price will go up to 2025. I am going to keep my bullish bias ALL THE WAY to Y-Close.

Since I will be bullish all the way to 2010 (Y-Close), I want to build a long position the entire time if I am bullish, right?

If I am confident that the market is going to go higher, I want to be in long, right? Right. So why not buy the market at cheaper prices?

rocksolid68,

this is an excellent journal! Thank you very much.
I have some comments and I hope my comments helps to make your journal even more interesting.

The quote above is from post #29.

It is not that important just my math says 1 + 2 + 2 + 1 != 5 or I am missing something?
B1 x 2014 + B2 x 2012 + B2 x 2011 + B1 x 2010

Everyone likes to see when people are making money and usually focus on that which leads me to my favorite quote I like very much and I am trying to burn into my brain. Still work in progress and not sure where is originated from

Quoting

you can control your losses but not your profit

or something like that, that leads me to money/risk management. You did cover the subject in some of your posts however if you don't mind to share your thought process to the subject?

Back to post #29, do you mind to elaborate what was your stop loss level? Can you recall the why you would've been wrong at that level?
I am making some assumptions here, it seems from a later post at that point your stop was probably at ~2009 or so, meaning very tight regards to the last 2010 buy entry. I've based this assumption on a later post #91 and also "incorporating" your daily profit taking so far.

I hope you don't find my comments unreasonable however I think your journal would be more complete with some additional information on how you are managing risk.

Keep it up it is very thoughtful journal!

atata

September 18th, 2016, 02:37 PM

atata

rocksolid68,

this is an excellent journal! Thank you very much.
I have some comments and I hope my comments helps to make your journal even more interesting.

The quote above is from post #29.

It is not that important just my math says 1 + 2 + 2 + 1 != 5 or I am missing something?
B1 x 2014 + B2 x 2012 + B2 x 2011 + B1 x 2010

Everyone likes to see when people are making money and usually focus on that which leads me to my favorite quote I like very much and I am trying to burn into my brain. Still work in progress and not sure where is originated from or something like that, that leads me to money/risk management. You did cover the subject in some of your posts however if you don't mind to share your thought process to the subject?

Back to post #29, do you mind to elaborate what was your stop loss level? Can you recall the why you would've been wrong at that level?
I am making some assumptions here, it seems from a later post at that point your stop was probably at ~2009 or so, meaning very tight regards to the last 2010 buy entry. I've based this assumption on a later post #91 and also "incorporating" your daily profit taking so far.

I hope you don't find my comments unreasonable however I think your journal would be more complete with some additional information on how you are managing risk.

Keep it up it is very thoughtful journal!

atata

Hey @atata, thanks for the post. I'm glad you asked when you had a question! I hope that you get the answer you hoped for!

So, the math that you posted is not accurate. It equals 6, not 5, but I do not think that it is very important to discuss that

So, you want to know why I would be "wrong" at a certain level. I am going to pull away from my specific example and give you another one

Follow along now, this could get wild

A thesis. We know what it is so let's talk about the components of my theses: direction, AoI, stop, and targets.

Let's describe why and how to determine each component:
-Direction: all personal. I can not tell you how to do it, because everyone has a different opinion.
-AoI: Area of interest. This is the area that you are wanting to participate in. It could be a 3-tick area or a 10 point area, doesn't matter.
-Stop loss: a predetermined price point that you believe is where your thesis is proved wrong
-Targets: predetermined levels that you think price can reach.

Now we are going to dive into stop losses and why/where to put them.

So, you have a thesis: "I want to go short at this previous resistance"

The previous resistance area that you want to short (AoI) is 35.00 to 36.25

So price comes into your AoI and you short and make money.. woohoo..

But, before we move on, let's dissect this:

Thesis: I want to go short at this previous resistance
Direction: Bearish (down)
AoI: 35.00 - 36.25
Stop: we will talk about this
Targets: doesn't matter in this example, but let's just say 3 points is target

So, we all agree on this, yes?

Stoploss. Where should it be and why there?

Since you BELIEVE the market will go down after touching your AoI, you need to find what will prove that wrong!

Well, what would prove you wrong? You might say that if price breaks the top of your resistance area (36.25) that you were wrong about that area turning the market lower.

So, where should your stop be if you think that? Well, right above 36.25

A stop loss should be placed at a price that if the market reaches it, it will have proved you wrong on your thesis.

If you think market will always be in buy territory above 2000, you may always buy long until 2000 breaks. If 2000 break, then you are wrong about that. That is where you should put your stop.

So, all in all, put your stop at the price point where the market proved you wrong.

Whatever your reason is for getting in, find what proves it wrong. Then find the price that that occurs at. That is where your stop should be.

I hope this makes sense.

As far as where I add, that is a whole different post. If you want more on that, just ask in another post.

September 18th, 2016, 03:14 PM

rocksolid68

So, I am considering starting a second journal for this since it is different than what I am doing here.

For a while now I have been trading gold and bonds. (ZB and GC).

I have only been doing it SIM.

My "strategy" is something I call yield arbitrage. Better names out there, but I think this fits.

So, what is every trader in the world doing? They are searching for yield. Correct? They also want it for a "good" price.

So, how does my strategy take advantage of this? This is how:

-I figure out the environment that commodities, bonds, and equities are in. (deflationary vs inflationary/ risk-on vs risk-off)
-I figure out what is moving with what (correlations and inverse correlations)
-Once I do that, I find which is at a discount! (value)

Seems simple? Well, it is! Easy is what it isn't

Now, I have been testing this thought for a while now. Like I said, on SIM.

My main purpose for this is to use the idea of asymmetrical returns to be profitable over time.
The key isn't to pick the right direction, but rather to manage the trades correctly.

I should also mention that I hold these trades for longer and with less size. I never go over 3 contracts, and rarely over 2.

After testing this thought for a while, I decided to take it live today. Going into it, I told myself that I would not lose more than $500 testing this new idea. It is still in its testing phase, so I wasn't going to risk much.

Here are the day's results:

ZB:

I made $250 today on the ZB. This instrument ticks at $31.25. I is also a bit slower moving than most, hence why I like it for this idea. First day live went well here. I wasn't able to hold the trade as long as I wish I could've because of school and the gold trade I had on. I was nervous

GC:

Yellow boxes are entries and red are exits.

Now, I want to say that today went very well on gold, however, I am not trading it live again until I am more comfortable.

I made a very nice $1140 on GC today. Never being in more than 2 lots.

The reason I say I will not do this again live until I am more comfortable is because it moves quickly and erradically at times.

I made $1000 VERY quick. That scares me honestly. Imagine if I lost that $1000 that quick? I would be shaking!

I also think that the risk trading GC this way has is too much for my comfort level. My account can handle it, but my psyche can't

I will keep working on this idea, and maybe do the ZB live some more, but until I get more comfortable with GC, I am only going in SIM.

Thanks for giving this a read. I know it is different than the normal, but I think that I can do it profitably with the correct trade/money management.

How do you determine the relative sizing of your positions? Do you base it on the dollar value of the underlying asset, ADR of the respective instruments, or something else?

September 18th, 2016, 03:28 PM

jstnbrg

How do you determine the relative sizing of your positions? Do you base it on the dollar value of the underlying asset, ADR of the respective instruments, or something else?

Trading the ES, I normally trade a positiona anywhere from 1- 6 contracts. Typically 2-5 lots.

As far as GC and ZB go, I chose the lot amount 1-3 for a few reasons.

One being that this way I can scale in and out, which is absolutely essential for profitabality.

Another reason being that I do not want too much risk exposure since I am still working with these two instruments.

Also, I guess the position size doesn't necessarily matter if you do not know how to trade.

You can lose $10,000 with 10 lots or with 1 lot if you can't trade

So my position sizing is due to scalability and risk.

Hope this was what you were looking for!

September 18th, 2016, 05:13 PM

rocksolid68

Trading the ES, I normally trade a positiona anywhere from 1- 6 contracts. Typically 2-5 lots.

I guess the position size doesn't necessarily matter if you do not know how to trade.

You can lose $10,000 with 10 lots or with 1 lot if you can't trade

So my position sizing is due to scalability and risk.

Hope this was what you were looking for!

Not what I was looking for. I traded interest rate futures on the floor of the CBOT for 16 years and for another 4 years on the screen after that, ending in 2006. On the floor I was a scalper, mostly in the 5 Year Note pit. On the screen I traded the FITE (5 yr./10 yr. spread) and the NOB (10/30yr. spread). These are ratioed spreads, where the position sizing of the relative contracts is determined by the dollar value of a basis point change in the underlying cheapest to deliver cash instruments. It takes less of a price move in a longer term instrument to achieve a basis point (1/100 of 1% yield) than it does in a shorter term instrument, so for example, if you're long the NOB you might be long 3 ZN and short 2 ZB (I think now the ratio is more like 2:1, it changes).

Obviously gold doesn't have a yield, so if you're trying to balance gold against ZB you need some other metric. My question was, what is that metric? Are you long $100,000 worth of gold and long $100,000 worth of bonds, assuming they're negatively correlated? Do you say, the average daily range of a gold contract is $2000 and the average daily range of a bond contract is $1000, so I'll trade 2 bonds for every gold contract? (I'm making up the numbers here, I have no idea any more how much either moves in a day).

How I Trade For a Living

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How I Trade For a Living