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The Rule of 70


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The Rule of 70

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  #41 (permalink)
 aquarian1 
Point Roberts, WA, USA
 
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Hi World,

Nice clean journal. I like the format with the - "what I did right and wrong."

regrading your post about all in and all out...
In a free video I sometimes watch, he always has T1, T2, and T3 (which can be a runner)
So if he has 4 contracts he might do 2, 1, 1, i.e. 50% 25% and the last 25%.
Just an idea to throw in the mixer!

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  #42 (permalink)
 worldwary 
Williamsburg, VA
 
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aquarian1 View Post
regrading your post about all in and all out...
In a free video I sometimes watch, he always has T1, T2, and T3 (which can be a runner)
So if he has 4 contracts he might do 2, 1, 1, i.e. 50% 25% and the last 25%.
Just an idea to throw in the mixer!

Good idea. I'm leaning in that general direction and will probably adopt something like that going forward.

For purposes of this journal I'm trading a very small account that can't handle multiple contracts. That makes things difficult; every trade has to be precise on both entry and exit. I've found it much easier to trade my regular account where I can scale in and out more freely.

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  #43 (permalink)
 worldwary 
Williamsburg, VA
 
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Good day of trading. Hit my profit target in two trades and done for the day.

I traded CL exclusively today as I couldn't get in synch with YM. CL gave one of my favorite setups this afternoon: the first pullback after a "surge" of fast trading after breaking through a previous S/R level. There's usually a good chance that the swing high will be retested in those conditions and this one worked out quite nicely. I took profits too soon though and could have had at least 10 more ticks if I'd kept my default target in place.

What I Did Right:

1. Took a couple of good CL setups and left enough room on the stops to allow the trades to develop.

2. Didn't force any trades.

What I Did Wrong:

1. Took profits too early on the afternoon trade. I use a 30 tick default target but moved it down about 10 ticks to correspond with the swing high that had recently been made at 101.43. Would have had my full target if I'd had the patience to wait just another bar or two.


Daily Total: +35 ticks
Monthly Total: +171 ticks

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  #44 (permalink)
 aquarian1 
Point Roberts, WA, USA
 
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worldwary View Post
... That makes things difficult; every trade has to be precise on both entry and exit. ..

Very true.

of interest?
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  #45 (permalink)
 worldwary 
Williamsburg, VA
 
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Just had a nice long journal post that I managed to delete before hitting the submit button. Here's the abbreviated version:

Trading was difficult today as the "all in all out" method wasn't working well. I've been generally trading single lots, which makes it difficult to fine tune the entries. I find myself taking a lot of trades that are "right-ish" in that I enter near what turns out to be an ideal entry point, but still far enough away that my stop gets hit before the trade turns in my favor.

Some of this might be a function of keeping my stops too tight (although these tight stops also work in my favor on the "dead loser" entries), but I think more of it is the inflexibility that comes with trading a single lot and thus having to nail both the entry and the exit on the first try.

What I Did Right:

1. Took some good entries.

2. Took a solid late afternoon trade (not shown on the attached) that put me back in the black for the day.

What I Did Wrong:

1. Made one crucial error, which was to tighten the stop on one trade after it went in my favor, for no reason other than a "feeling" that price was going to roll over. It did -- just far enough to take out my tightened stop. Would have hit my full profit target of course.

2. Took profits too early on a number of trades. With conditions as volatile as they are now, I can expect trades to run a bit further in my favor than usual before reversing. Again, single-lot trades make it difficult to nail the exit.

A solid week overall however, so I feel good heading into the weekend.

Daily Total: +9 ticks
Monthly Total: +180 ticks

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  #46 (permalink)
 worldwary 
Williamsburg, VA
 
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I only took a couple of trades today but felt pretty good about how I traded. It was a low volatility day with a clear upside bias, so I decided to avoid shorts and wait for a good long setup, then exercise patience and let the trade play out. Didn't see a good opportunity until near the close and was able to catch a decent move there under the theory that the markets tend to rally into the close on "trend up" days like today.

What I Did Right:

1. Refrained from trading until the character of the day was clear.

2. Exercised patience and avoided unpromising setups.

3. Held out for a larger profit target than usual.

What I Did Wrong:

1. Failed to scale into the entry on the last trade, which kept me from being able to manage the exit as well as I would have liked.

I'm a bit wary of the rally at this point but will trade what I see. Market psychology still strikes me as fragile so we may be susceptible to a big selloff if a negative headline comes out in the next few days.

Daily Total: +9 ticks
Monthly Total: +189 ticks

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  #47 (permalink)
 worldwary 
Williamsburg, VA
 
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Basically a breakeven day that started beautifully but was ruined by one bad trade.

I tried something a bit new today. When price entered a zone of interest, I watched time & sales data for clues about what the big players were doing. I know that some traders follow T&S religiously but this is a skill I've never developed. I took a few successful trades using this technique and was up close to my profit target for the day.

Then I made the mistake, which was to assume that I could read more into the T&S data than I really could. On the basis of what I thought I was seeing, I took an entry that did not line up with my usual parameters. It shouldn't be a surprise that this trade led to a full stopout. Took a few more small scratch trades and ended the day down 2 ticks.

Bad mistake but fortunately the damage was limited. No more trying to "read the tea leaves," especially using a technique that's new to me.

What I Did Right:

1. Started the day well, taking only trades that lined up with my parameters.

2. My exits were pretty good today.

What I Did Wrong:

1. Got overconfident and relied too heavily on a new technique. Need to make sure that I stick to my ordinary trade parameters and only use this kind of thing as further confirmation, not as an individual basis for a trade.

Daily Total: -2 ticks
Monthly Total: +187 ticks

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  #48 (permalink)
 worldwary 
Williamsburg, VA
 
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I traded pretty well today but again have very little to show for it. I've basically been treading water the last several days.

Today started out with a nice short and maybe I should have just quit while I was ahead. Couldn't get in a groove the rest of the day and seemed to bleed a few ticks on each trade. The uptrend caught me off guard and I found myself fighting it several times.

What I Did Right:

1. All entries fit within my rules.

2. Did a good job of scaling in and out of several trades.

What I Did Wrong:

1. Overtraded. Kept wanting to take one more trade so I could finish the day with a nice gain.

2. Didn't notice the strength of the uptrend until too late, and kept taking countertrend trades that I was lucky to get out of without too much damage.

On days like this when I make a few good trades but still end up spinning my wheels, I start to feel really frustrated and have to fight a desire to force trades. I do feel good about the fact that I've kept losses manageable.

Daily Total: +6 ticks
Monthly Total: +193 ticks

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  #49 (permalink)
 worldwary 
Williamsburg, VA
 
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It was a bad day of trading, my worst yet. I think the main issue was that I got started very late, about an hour before the close, and wanted to get some trades in. Didn't wait for my usual setups, tried to read the tea leaves, and paid the price. Loss of 24 ticks on the day.

A few observations:

1. Volatility has really come down hard the past few days. This has significant implications for my trading style and I'm not sure yet what to do about it. Will try to develop a plan of action over the weekend.

2. Looking back over my charts from earlier in the month, I've noticed a pretty consistent phenomenon that has tripped me up. There will be a surge to an overbought level, which I will short. Then the trade will go in my favor for a few ticks and then reverse and thrust back up to or just beyond the original swing high. That second thrust usually turns out to be the better entry. I have a tendency to get stopped out for BE or a small loss because I'm entering early and getting tripped up by the second thrust. Need to study this further to make sure I'm interpreting this correctly but if so the lesson is that I might be better off exercising additional patience before most of my entries.

What I Did Right:

1. Took one good entry that satisfied all my rules and actually could have been a profitable trade.

What I Did Wrong:

1. Took two entries that did not satisfy my rules and took a full stopout on both of them.

2. Mismanaged the exit on the one good trade, resulting in a senseless breakeven stop.

One more day to finish out the week, then only a few trading days left in the month. Hard to believe how quickly the month went by.

Daily Total: -24 ticks
Monthly Total: +169 ticks

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  #50 (permalink)
 worldwary 
Williamsburg, VA
 
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R.I.P. strategy.

Today may mark the unofficial death of the strategy I've been using to trade YM. Volatility has declined sharply, and as a consequence the behavior of the instrument has shifted.

Starting next week (assuming we don't gap down and resume the correction phase on Monday), I will need to have a different strategy in place. I've been fighting the current market for the last several days and I've been through this kind of thing enough times to recognize the signs of a shifting landscape. So my homework for the weekend is to develop a gameplan in case low levels of volatility are here to stay. Some general observations:

High Volatility (VIX 20+):

1. Faster trade; more ticks/bars per minute.

2. Large number of intraday reversals; that is, places where price had been traveling in one direction for a good distance (say at least 30 YM ticks), and then reverses to travel a good distance in the opposite direction.

3. Tendency for false breakouts; that is, places where price appears to break out of a trading range, then reverses sharply to take out all the stops of traders trying to ride the breakout. (Those false breakouts are the bread and butter of the strategy I've been trading.)

4. Larger range, both in terms of total daily range as well as in terms of the size of the typical "leg" of an intraday trend.

5. During a trend, a tendency to produce deep retracements that look a lot like reversals of the trend, but are really just pullbacks or pauses before a resumption of the trend.

Low Volatility (VIX 18 or lower):

1. Slower trade.

2. Small number of intraday reversals, maybe 2-3 in a typical day as opposed to 20+ on a typical high volatility day.

3. Tendency for price to keep moving in the direction of a breakout.

4. Tighter range.

5. During a trend, a tendency to keep moving in the direction of the trend with only shallow pullbacks. A deeper pullback is more likely to constitute a reversal of the trend rather than a pullback within the trend.

Putting this all together, the proper strategy for trading a low volatility market is in many ways the direct opposite of how you'd want to trade a high volatility market. The strategy I've been trading, which was designed for a high volatility market, is basically a "fade the breakout" strategy. Look for places where price pushes too far in one direction or the other, then fade the move. You'll get burned once in a while when the breakout is the start of a sustained trend, but there are enough reversals in the typical day that you can expect to come out ahead if you keep trading as if a reversal is imminent. The market gives you multiple chances to redeem yourself.

This strategy is about 180 degrees from the way I'd want to position myself in a low volatility market. The proper strategy should be to trade in the direction of a breakout, and once a trend establishes itself, don't expect to have a pullback handed to you on a silver platter to allow you to get in at a more favorable price. Entries need to be earlier and less "ideal," targets and stops can be kept tighter due to the constricted range, etc.

Anyway, that's the rough set of blueprints I'll be working from. Still have a ways to go to hammer this into shape.

In the next post I'll add some charts showing some of the differences I've noticed between low volatility and high volatility intraday price action. I'd be very interested to hear how other traders adjust their tactics in light of changes in the VIX or other similar measures of volatility.

Daily Total: -26 ticks
Monthly Total: +143 ticks

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