12/9 - The gap odds were good, but the gap was <= 1pt so I wasn't sure if it was worth going for the extended target (2.3 pts past fill) or not. During my time of indecision the market went up (against gap fill) and I got scared and stayed out. Unfortunately, it did fill the gap and hit the extended target (which was around the weekly low) just before it turned around.
I later caught a pullback trade in the early down move. I felt like trading some more so on the reversal I bought a pullback after a large move. It hit my target, which moved my SL to B/E, then stopped me out for a break-even trade. Decided to not push my luck anymore and not take anymore pullback trades.
The $TICK didn't hit any extremes until later in the morning but I was already out of the saddle. Good thing as the 1st extreme would have stopped me out, the 2nd and 3rd might have worked out but I'm not going to wait around to find out.
12/10 - No gap trade, probabilities were really low.
Broke my rules and went for a potential range breakout which turned around and stopped me out for a loser. Then got a break-even trade which moved my stop up too early (my bad, didn't adjust my ATM strategy) then got a winning pullback trade. Wanted to take the next one but there was too much commotion around with the kids having not finished their homework last night and they needed my help. I need to treat this as a business and get them away during my trading time, but it's also the time they get ready in the morning and I sometimes don't see them at night if I have to work late at my regular job. I don't want to overburden my wife as she is in her business's busy season right now and putting in a lot of late nights trying to get everybody's Christmas orders out.
I didn't get any $TICK signals. Since a lot of people are switching to the March contract today the volume is split amongst the 2 contracts so that could explain the moderate readings.
6E had a nice BV2 reversal signal but it was in the pre-market. These tend to work best when it's reversing from a move outside of the Bollinger bands and it hasn't yet crossed back over the midline EMA yet, like the one I saw this morning.
So I ended break-even on the day (tick-wise) I still had to pay 3 trades of commission. Somewhat of a moral victory. I guess it could have been worse.
12/11 - Caught the flu yesterday, so I wasn't feeling too great, but luckily we had some Tamiflu around back when we stocked up during the Avian flu scare, so it makes having the flu more tolerable.
Moved to the March 2010 contacts.
There was no clear, good gap trade so I avoided it.
Took the first pullback. I was filled on a very extreme burst to my entry, which was concerning. Then I remembered that we had consumer sentiment news coming out at 6:55 which was probably the reason for the burst, so I quickly closed it out at -2 ticks. A few seconds later it shot up through my original stop loss.
There was more news at 7:00am so I avoided the next pullback signal. After that I decided not to trade anymore as the market seemed really noisy.
ES: 1 loser: -2 ticks
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12/11 (continued) - Being home with the flu let me catch up on some trading ideas and education. I watched the Brooks video. Picked up some interesting ideas that I'll talk about later WRT the gap in relation to previous day's highs and lows.
Worked on an engulfing reversal strategy. See the initial results so far in the screen shot. A couple of the rules are
1) Never trade during the first hour, too wild. Plus, I have other trade methodologies (which are all over my journal) for the 1st hour that I use.
2) The high or low we are engulfing must be the highest high or lowest low of the lookback period.
3) The close of the engulfing bar must engulf the High of the bar (for a LONG) or the Low of that bar (for a SHORT), +1 tick. The +1 tick rule reduces the number of trades almost in half, but almost doubles the profit factor.
4) ATR(5) must be high enough, if not then the market is too quiet.
5) The reversal must point in the direction of the EMA. In other words, if price is above the EMA then we only take short signals.
One problem is that in 3 months it only took 18 trades, so that's not a very large sample size (just over 1 trade a week) but sometimes the best trades are the ones you find after you avoid a lot of the others. Plus I have some gaps in my historical data so I'll have to fix that and do more testing.
Last edited by shodson; December 13th, 2009 at 02:00 PM.
Reason: More comments on charts
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12/15 - Something I ate yesterday didn't sit well with me last night and I was up and down all night...well, all you need to know is that I slept through the open. Good thing too as there wasn't much of a gap to trade and so I didn't miss a good gap fill oppty. I didn't even bother firing up NT so I don't know what else I missed. The good news is I didn't lose any money.
12/16 - No gap play. FOMC day, 16th of the month, and weak probabilities.
Took a pullback, got a quick winner. Instead of being "one and done" I wanted to keep trading. And therein lied the problem. Took another pullback, loser. Took a new entry type that I was experimenting with but not at a reduced size like I should have, got a -10 tick loser (ouch) with a full-sized position. Wanted to end the day on a high note so took another pullback trade for a...you guessed it...another loser. Threw in the towel as I hit my daily loss limit.
Gotta run, will add more analysis and what I can learn from this later. Thank to BigMike for setting up the ES Skype room for us all.
12/17 - No gap trade, < 50% probabilities, stayed away.
After yesterday's slaughter I was wondering if I should even trade today. So I just did, not wanting to let myself get defeated. I considered trading at a reduced position size, but I figured that'd be giving in and it would take me longer to recover from my losses. Why go for small winners only to give it all back when your position size is larger? I've been doing well, until yesterday, so the odds of success are on my side, right?
Well, I had another bad day, almost as bad as yesterday. Took a pullback for a loser (it happens). Then I took a long entry too late after an extreme $TICK reading due to fear of missing anymore of the run-up and hope that I wasn't too late, but I was, at least until it stopped me out because the market did go higher from there later.
Once I realized I was not confident in taking my signals I concluded that I should not be trading, so I threw in the towel again and ended the trading day.
So I'm going to take Friday off and will regroup over the weekend.
So I'm realizing I'm in a draw down period. All traders and systems have this. So I'm very cognizant to how I am going to respond is very important. Throw everything out with the bathwater and start over? Are my entries and systems sound? Is it just bad luck I had 2 consecutive, fairly large down days in a row?
Granted, some of the losing trades were my fault (emotional reactions or poor execution) and bad luck (2 ticks of slippage on a limit order, huh?) while others failed because not all trades are going to be winners, it comes with the territory.
What I'm getting so far at least is that the idea of "one and done", meaning, once I get one winning trade I end the day, is hard to be successful with because you have to keep trading to turn it around. And you can dig your hole pretty deep eventually. And since I have a daily stop loss limit, I may never recover on some days. The "one and done" is essentially a daily profit target. And since my loss limit is 3 times larger than my daily target, that means, unless I'm willing to remove my daily loss limit and trade all day until I come out 1 trade's worth ahead (including commissions on all of the previous trades) my loss tolerance is larger than my profit expectancy by a factor of 3-to-1 (I try to make 4-5 ticks a day, after about 15 ticks down on the day I stop trading). This is not acceptable going forward.
Since I am not a full-time trader, I try to take advantage of my West Coast time zone by making a quick winner in the first hour and walking off to work with cash in my pocket. This works great when it works, and I've done it many times, but fails miserably if I'm not willing to spend the whole day recovering. Often, I am able to work at home and can keep a corner of my eye looking at the market while working, but lately I've been spending time at my client's offices and I don't think they'd appreciate me doing that while on their premises, even though I'm not billing them for my trading time.
So the first thing I need to revise in my trading plan is to re-think my daily limits and my trading time frames. Perhaps I should go for 2 winners and bail on 2 losers, something closer to 1-to-1 risk/reward ratio. Also, maybe it's not feasible to just trade the 6:30am hour. In the past I've had some success trading the 6E on the European open (about 11pm here), maybe I should revisit that.
Then there's my bots. These can trade anytime, day or night for me. I've been meaning to get them going again, but in November I decided to do more discretionary trading as the experience would help me make better-performing automated strategies and I think that has been the case. Some of the new strat work I've done are producing promising results more to my liking because of better MM and trading during the right time frames. But I have not yet unleashed these onto the live markets yet.
My favorite "system" that I do trade is following the gap trade picks from MasterTheGap. Scott Andrews over there does a really good job. Their data and probabilities are sound. They are very picky, sometimes to a fault (I've taken gap fills they've passed on and usually made money, Scott keeps telling me I "don't have to kiss all of the pretty girls") but they really work hard at taking high probability setups with high profit factors, avoiding confluence and seasonality risks. I can't remember the last time they tried to fade the gap and it was a losing trade, but they're the first to admit they do have losing trades. The "problem" is they may only take about 4-5 trades a month and this month they haven't taken a single trade because of so many unfilled gaps, lots of dojis, and divergent behavior between the different indices. This is a problem because I hate waking up early to trade the gap only to find out there's no opportune trade to be had, so I try my other entries but I'm not as confident in those.
More to chew on over the next couple of days...
Last edited by shodson; December 17th, 2009 at 04:25 PM.
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Perhaps you could look at a different instrument...6E generally has good movement between 9am-10am EST. Your techniques seem sound; maybe practice them on 6E instead of ES. I certainly have struggled with the same things you are going through. I not only suggest taking this Friday off, but consider not trading live again until January. Next week will see volume drop off, especially after Monday, and the following week will also have reduced volume. Movement will be different; besides, it is a good time to clear the head.