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Trading Journal: Path to Consistent Profitability + Trading Career
Monday - I flipped several times what day type I expected it to be; All of my volatility indicators were suggesting it was quiet and it should be quiet leading up to FOMC. Still, I expected a different day type and flipped several times during the day what type of day it was. Also, still learning the market profile day types which I suppose has added a layer of confusion
Tuesday was pretty quiet ahead of FOMC - no trades
Wednesday - Another frustrating day. I stayed out after the FOMC news announcement but traded before hand. Didn’t do particularly well and found it very hard to make money as volatility got sucked out of the market before the news announcement.
Wednesday revealed to me that I don’t have a consistent strategy. What I’ve been doing in the morning is trying to predict the day type, then creating a trade plan to be executed that day based on the pivot point setups. This hasn’t been working very well as a) I’m still learning the market profile day types and how they play out b) I haven’t had a consistent strategy with how I pick which trades I’ll execute on the day.
An examination of my equity curve since I started trading live this year shows the constant grind down:
I’m pretty good with risk management so I usually don’t suffer huge losses for my account size (discount the big drop around 4/1). The problem has been gaining a consistent edge. And an examination of the ever dropping equity curve shows that I still don’t have an edge.
So Thursday + Friday I switched to demo. In all honesty, I knew this was probably best for me but I met this with a fair amount of depression. And honestly if I lost the remaining money in the account it wouldn’t be life changing for me (aside from psychologically).
I figure that I a) need an edge b) need to be able to execute that edge flawlessly, or at least close to it. And demo is that opportunity.
I’ve figured for a while that if I can’t make money on demo, there’s no way in hell that I’m going to make money live.
In alignment with this, I created a new demo account and started tracking it’s equity every day as if it were a real account; Once I can grow this fake account and executing these sets of strategies becomes second nature, presumably I’ll be able to do the same in the live market.
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Another thing I’m starting to realize is that often my trades will work if I give them time to and don’t move take profits. Using time based stops this week was an opportunity to see this. Sometimes after 20-30 minutes a trade still wouldn’t be working and this would often be a sign that I should get out. But other trades would start to work, but would just take time to finally reach their take profit.
I’ve also started using ToS’s monkey bars as a cheap / easy way to get market profile graphs. The sell off on Friday’s bond market was pretty evident to me as I expected it to be a Neutral Day.
I really like MP concepts but this week I was pretty confused over different descriptions that Dalton and Steidlmayer give over different day types, specifically the “normal” day. Happy to share a little drawing with anyone who might be interested in it.
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Re: taking profits quickly. This works great in range bound markets. In fact, you need to. OTOH, when you are in a trending market, taking profits quickly will lead to your death because you never catch the big move and get stopped out too much. But in a range bound market, you always need to “take what you can get”
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So what’s this strategy that I’ll be executing on demo?
One revelation this week is that the simpler the strategy, the easier it will be to execute. Too complex of a strategy leads to a lot of self-doubt and flipping between different day types.
Also, usually re-entering trades that don’t work a second time often works. Why? Because everyone who had the same idea first gets stopped out (say, the weak longs), then the market rallies after those weak longs are taken out. So second entries are usually the best ones.
Ok - so here’s the simpler strategy that I’d like to execute for a few weeks on demo, and get really good at it:
Use A-up / A-down as a day type indicator. An A-up or A-down shows sufficient volatility in the market. A simple name for this would be a “trend” day. But “trend day” suggests that the market moves in one direction all day. Not necessarily true for an a-up which might later pass the a-down point (note: I’m abusing ACD a bit). So a day that has an A-up or A-down is a “Directional” day - aka, the market has some direction
Use the lack of an A-up / A-down to suggest a non-directional day.
So on A-up/down days (directional/trend), trade pullback and breakout strategies. Only trade in direction of trend. Use next half pivot point as take profit. Only enter at pivots for breakouts (or half pivots for pullbacks).
On non-directional days, trade the range, using pivot points near 70% and taking profits at VPOC (note: volume profile high, not POC).
Re-enter trades even if you get stopped out.
3 negative trades on day done for day.
(I’ve updated my trading plan according to these rules and also have more detail there).
For next week:
* Trade Directional/Non-directional strategies on demo
* Log account values
* Try to be as consistent as possible
Monday - A down. Got short, winning trade, then lull in afternoon with two short trades that got stopped out
Tuesday - A down. What appeared to be a trend day turned into a double distribution trend day. Went short but stopped out several times. Missed most of the move. I now remember why I ditched the overly simple get long on A up, short on A-down strategy
Wednesday - Created a trading checklist. All boxes must be checked to get into a trade. Figured this would keep me objective. Not all boxes checked, so never got into a trade. Spike on china trade news led to a neutral day (balanced action but with longer time frame participants coming in on both sides of the market). Lot of volatility, but very little directional movement made this hard to trade.
Thursday - I totally broke down on this day and took a live trade - exactly when I shouldn’t have. This was the big emotional day. Figured I had missed the move down and tried shorting with my live account. Dumb dumb! This lack of personal discipline really threw me. Some observations about demo follow.
Friday - Decided to not let Thursday’s mistakes hamper Friday and went back to demo. Played the range (appeared to be an inside day) so went short at pivot. Out at +11 ticks on one trade.
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Thursday definitely rocked me. Here’s a little snippet from the daily report card:
“What a shitty day. Woke up to the market having sold off hard; it was way past S3 (my last trading point) - even past S4. Despite it being against my rules, I took a short at S4. Naturally I got stopped out.
I switched to demo/demo (that is, my testing demo), trying to go long, thinking it was the low of the day. Naturally I got stopped out of that so went short again and started seeing a huge profit.
At that point I couldn’t resist and went to my live account (which I shouldn’t have). This was dumb and naturally I lost money. It was impulsive and dumb.
Thinking about it, if I had been trading live all week I probably wouldn’t have taken that trade live. I’m wondering if I should go back to live money or figure out some way to trade even smaller. It’s just not the same with fake money, although I’m going to have to figure a way to make that work.“
^ Maybe all of that is true, but I think I need to learn to walk before I run. I should be able to make money on demo with a strategy before tackling any emotional issues. So for now, at least, I’m going back to demo and will forgive myself for the dumb / impulsive trade I made on Thursday on my live account.
On Thursday, I also went ahead and ordered “the disciplined trader”. Also started eyeing SMB Capital’s course which uses market profile (although I know there is no holy grail). And now starting to read everything I can get my hands on re: market profile.
So - in relation to week, not a lot of forward progress; I’m trying to grind it out on demo and be profitable there, sticking to my strategy as best as I can to see if it has any edge; if it doesn’t, I will modify. But as long as I’m on demo at least I’m not losing any money and gaining executional skills + market feedback.
I guess the most positive data point was actually on Tuesday - when the market moved to an auction at the end of the day and I had no edge at all and was able to recognize that.
What I’m still trying to reconcile is which rules in my system should be fixed + which discretionary. Obviously every day plays out in slightly different ways and if it were all mechanical, why not just write a program? But I’m looking for higher win rates while still trying to maintain some objectivity. Still, I think A-up / A-down is a helpful way of looking at the markets, but not sure how long it will last as a main strategy.
In your very first post you mention trading options diligently with a backtested strategy.
I’m curious if you have backtested any day-trading strategies. If no then why not?
I feel as though backtesting can save you a lot of trial and error time, actually placing enough trades following the rules to generate a statistically significant sample size. If the backtest says no-go then just move on to the next idea instead of trading it for weeks to determine if it has potential.
I too aspire to trade in a flow-state with no ‘strategy’ and no ‘rules’ and be able to make money off of intuition. Unfortunately I think that goal is unrealistic for most.
What I think is very realistic is to develop a mechanical strategy and then utilize discretion in deciding which signals to take, and which ones to pass - when to add to winners and went to cut losses prematurely, etc.
Thanks for bringing this up. I had the same thought a while back and actually backtested a simple pivot strategy by John Carter (talked about in "Mastering the Trade"). It was roughly profitable when I backtested it against the last 3 months (last contract), but then wasn't when I backtested the strategy against the contract before that it wasn't. (I forget exact stats for now but could dig them up and happy to share MT5 code if you are interested).
Previously, I spent roughly 6 months building a whole backtesting framework in Ruby (the language I'm highly proficient in) and backtested some option strategies (this was separate from the simple option strategy I had backtested previously and traded for ~ 1yr). When I look back at this time period, I've realized I learned nothing about the market. Also, I'm basically not a creative person who is able to come up with any sort of unique trading strategy. So this was a huge waste of time.
Overall, I've realized that when I backtest stuff that I usually lose a lot of nuance - and this nuance can be the difference between making a profit and not making a profit. Also, I've realized that I don't have the discipline / patience to go through automated trade results (that is, going trade by trade to understand what worked and what didn't and why).
It sounds rather stupid now that I type it out, but I find it very hard to understand the context of the day and put myself in it as if it is happening "today".
Also, at least for me, it's nearly impossible to understand everything that's going on in the world (on a fundamental basis) when backtesting. I really have zero faith on a short term basis that I'd stay in a trade during, say, a bond auction or some fundamental news announcement which a program wouldn't account for. On a longer time frame these sorts of things are easier to ignore, but on the short term they are very important.
Also, I've realized that usually I'm trading manually between certain hours. There might be certain trades that are very hard for me to take manually that a computer would easily take - and vise versa.
So basically - if the strategy has backtested edge I don't have a lot of faith that it will going forward (I might be missing nuance about why it works, in which situations it works, etc) and if it doesn't - well, maybe it does if I were accounting for fundamental things that I'm not backtesting for, OR, maybe I'd just stay out because it seemed like a "dangerous" / non-opportune (i.e. read intuitive) time not to trade.
Also, even if it did have edge, if it was complicated at all (which I'm sure it would grow to be) I'd probably start questioning / doubting the backtest as soon as it went into drawdown. And that's partially because I'm not a programmer who is great with handling minutia / details (or maybe it's my mild dyslexia? who knows?).
One thing I've come to accept: most automated strategies (excluding HFT/MM strategies) don't have high win rates *because* they don't understand nuance.
Another thing - I've thought about my objectives. What am I trying to get out of trading? And I suppose that's a deep question that I don't fully know the answer to. Obviously we all come to trading for money, but then why not build 100 automated strategies and have them all run without me? Why involve me + my time at all? (I'm a programmer by trade - shouldn't it be easy to just build strategies and not worry about DOMs and market profile and all of this other crap?)
I think on some level: 1) I'm not prepared to do the work to build so many automated strategies 2) I probably have some ego involved aka "I want to feel important" / like I've "accomplished something" 3) I don't understand the market and probably think I need some stare-it-in-the-face experience (vs passive experience through bar data) 4) I think it would be very hard to build an automated trading system that I could trade manually AND would have edge (building a system that trades 100s of times a day would probably be easier than one that only traded 2-6 times per day)
A slightly negative week - Sort of a slow week; Monday was a holiday so had strange action; and Friday (by the time I got in) was already in a range. I thought about trading the range and probably would have done OK (and it seemed to match the context of the day - not a lot of market moving news; also a Friday) but decided not to as it didn’t fit my overall plan.
Figured I’d just organize this by a series of talking points I had after going over my trades (I take screenshots of each of my trades + print out my daily report card and a pivot sheet with pivots, VAH,VAL, etc. etc. plus some fundamental conext, and put it all in a binder to review quickly at the end of the week). This seems to be much more efficient than going over screen recordings (which I also do).
* One thing I started doing was removing my P&L from my DOMs (Thanks for the tip @FuturesTrader71). Yes, I more or less know what it is, but there isn’t this instinctual “oh my gosh I’m losing money” or “oh, I should hold on to this winning trade because $35 isn’t very much”; those sorts of feelings go away once the P&L is hidden. It’s not so much that I don’t know what it isn’t directly “in my face”. (And yes, I’m still on DEMO but treating it as if it’s real).
* I started using a checklist to get into trades. I literally try to check off every box and try to abstain if I don’t meet the criteria. I sometimes forget, though. But overall I think this is helping me to “stick to the plan”
Tuesday was interesting as my trade plan has me entering at pivots and getting out at half pivots, but because of contracting pivot ranges, this didn’t allow me to meet my 2:1 R:R objectives. So no clear sign what I should have been doing. In response to @mtzimmer1, this is exactly the sort of thing I’m talking about. It would be easy enough to write a program to do what I’m doing, but I’d lose all of the nuance so when I’d go live with it, it wouldn’t match what the program was doing.
* Wednesday brought up another problem - my one big winning trade was “out of strategy” - roughly following MP dictates of buying low, selling high in a range. It was pretty clear that it was range bound, but my strategy didn’t indicate anything to do there. So technically I suppose one could call this a trading error. But it reminded me why I had ditched this simple strategy in the first place.
* Friday was super slow so I started looking for other trading opportunities. I watched Radschke’s interview the other day and her 12 oclock SP trade seemed interesting. This, I think would be a great example of something to backtest, look at MAE/MFE to find edge. How long it would last, though, I’m not sure. @mtzimmer1)
* Otherwise, I’m looking at reading everything I can about Market Profile and about various styles of trading.
For Next Week:
Continue existing trading strategy for now
Read MP books
Backtest SP afternoon breakout trade
That makes perfect sense. Have a few trade setups and use discretion in deciding which setup to apply to any particular day. Best of luck to you in further development!
Its impressive how much thought you have put into this, very useful for newbies like me to read and learn.
Also, just my 2c, but sometimes different types of pivots work better for certain scripts. Do check them out and not stick to one type to determine market view.
Do keep up the good work, consistent success can't be too far away from people who work hard like you
Decided to just make some quick notes from this week:
Still demo trading, just with one lot, trying to find edge.
Things are looking OK from the last 4 weeks. This is clearly not exactly where I’d like it to be, but it’s a WIP obviously.
The big development: I decided to ditch the not working A-up / A-down strategy. It’s something I’ve been thinking about for a while but now it makes sense as I’m gaining more knowledge / mastery over the market profile system.
I think one of the biggest wins of the market profile system is not having crazy targets; most of this week was a lesson in patience (as the market was pretty mean reverting / small moves most of the day). I will say I feel like I got lucky several times this week with trump news moving in my favor.
Also, I’ve modified my checklist to fit the market profile strategy; the basic idea is to 1) forecast the day type 2) only use certain setups during the appropriate days. Otherwise, it’s basically the same as before, relaxing the a-up / a-down parameters (although still using those for breakout / pullback trades).
Using a checklist should help to keep me objective.
Otherwise, I also decided to classify all of my trades from the last year based on a “regime” or a meta strategy. This regime is the basic fundamental idea behind my trades. I classify my trades as falling under 6 different strategies (of course, some didn’t fit the overall classification but was during the time of that overall trading period):
All but the final column contain both live + demo values.
Also, in an attempt to really do market profile right, I started using sierra (under demo + with delayed data). For now this is fine but will probably upgrade to a full version soon.
Not fully related:
I read the book “Range” which is all about sampling. This was also recommended by Bella at SMB. The basic idea is that before specializing, one should first try a variety of things to see what best suits them. Only later should the specialization occur.
In an attempt to do some more sampling, I decided to look around and noticed a recommendation for No Nonsense Forex. I’ve been trolling through the videos; I think learning a variety of trading strategies (in a variety of markets) probably can’t hurt, even if I never trade them.
For this week:
It will be shortened week with Thanksgiving so expect it to be light. But main objectives this week:
Keep checklist trading with market profile backdrop
FInish CBOT Market Profile Manual (one part per day)
Go through No Nonsense Forex curriculum
Overall:
I’m feeling very optimistic about trading. I know there will be further ups and downs coming; but I have no doubt that at some point in the future I can make a living doing this. For the first time the market is seeming to “make sense” to me. Yes - I’m not winning every trade, and yes, I’m finding it very hard to squeak out a profit every day - even on demo; but when I lose and win it’s often in a context and in a framework and happens in a predictable way; in a way that I can say, “oh yeah, OK - sure, that makes sense that happened” vs how it used to be with TA, where moves would just “come out of nowhere”.
Now the next challenge will be gaining the experience of seeing these market days play out, getting a consistently good read, and then really creating + knowing when to execute setups around these contexts; then it seems like once I can prove that I can make money consistently, I’ll go live with one lot. Then it will be about scaling up.
For now, I’m using one of the metrics that SMB mentioned in it’s videos: Target of max 5 losing days out 22 market days per month. This means I should be making money roughly 17 / 22 days or ~ 78% of days; So far demo trading I’ve been at roughly 50% (of course with a small sample size + changing strategy).
@LastDino Thanks for the kind words. I'm just as much a newbie as anyone else though.
One thing that I will say, though, is that journaling definitely seems to be working. The weekly journal has been very key for allowing me to reflect on what is and isn't working and make midcourse corrections.
I largely have @DionysusToast (Peter Davis / Jigsaw) to thank for this - especially this slide:
