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After almost a year-in-the-making; my trading plan has been revised for what I hope is the final time.
Now do not go on thinking that my plan revisions were done to change my trading style; it was the risk management that I struggled with.
It has taken me some time to become "at peace" with using a particular stop (21 ticks in CL); and it was an even tougher road for me to NOT take contracts off early when in the trade.
I know my early trading suffered because my "beliefs" were not translated into my plan. By beliefs, I am speaking of my mathematical nature and the fact that my trading "plan" early on was not jiving with what I was comfortable with internally regarding math and my knowledge of risk management.
We all risk "x" amount but we do not know when to take the contracts off; and when we elect to take them off will DIRECTLY influence our psychological and financial sense. For me....I have come to a zone where I am okay with the risk and with the reward. I do not focus on the reward aspect only to say, I have my targets set that a full win will cover two full losses. It is rare for me to suffer a full stop; if anything it will become a break even trade.
I do not want to be pulling the trigger for 22 trades a day; I have no desire to make my broker rich. I will also not get the run in price I need 22 times a day to justify that many trades.
Ideally, I would be making four to six trades a trading session. So I did move to a higher range bar to filter out some more of the noise, and decrease the production of trades.
I did not get to live trade today....worked the full-time gig (RN). Charts for tomorrows trading will be present.
So today was a fun day in CL. My brother wants to learn trading so today was day one for him. I let him SIM trade in CL from 7am to noon.....he bought when he "thought" the market was going up and opp. for sells.
Well that had him in the hole 3k by noon...thank god for SIM.
So why was this the best day .... I normally do not trade past 11am. I find that supply demand relationships are gone at that time and I lose my statistical edge. But too show my brother the way I trade I continued with the account until 4pm.
Ended the day up 33 ticks in CL. This was after taking over an account down 300 ticks. So yes I am proud of myself. I would never have such a loss in one day, it is beyond my risk management.
It was an awesome exercise to see my ability to get myself out of a hole, in a controlled systematical way that did not violate my rules.
No trading tomorrow....will be at my hobby (full-time gig) hate calling it a job since trading is to become my job.
PICS 1 & 2 are my brother trading.
PIC 3 my recovery
PIC 4 overall for the day
So today was a hobby day (work) and I was able to review market activity when I got home.
But throughout the day my trading assignment was to read "Trading with Confluence" by Michael Toma.
My overall impression is for a newbie or someone trying to find their way...this is an excellent start.
He is a certified risk manager/analyst and became a trader later in life. That is why I bought the book; wanted the viewpoint of someone who was involved in minimizing risk BEFORE they became a trader.
I was able to grab some snip-its of good exercises that I will enjoy.
Hope everyone had a great day; now its off to do some mental imagery. I like to visualize market activity playing out in my mind and seeing what is great setup and what do the failed setups look like too.
I began reading Steidlmayer on Markets and came across a quote...
Market understanding X YOU = Results, and it was those four words and a math operation that has put my trading on pause.
Even though I have been consistently descent on SIM I was never confident in my trading style.
I began to questions what my market understanding was, and I could not even bullshit an answer to myself. Nothing that was real.
I opened my trading platform and stared at the price bars, and started a conversation...
Why would I have bought here? Because this indicator was "about" to turn up?
Because its a blue candle?
Because on the tape I saw big buyers come in?
Because it tested a recent low and bounced up?
How am I validating this setup?
Is the market telling me that this setup is doomed to fail?
I was actually writing these answers out and when I looked back at them, I had a reality check...I was going to lose all my capitol because I did not have a clue about PRICE, the market and market generated information. What the hell was I doing trusting my capitol to some mathematical parameter that can change any second and tells me NOTHING about market sediment, the real players, order flow etc.
So I begin to do some searches online and in futures.io (formerly BMT) regarding order flow and auction theory. I come across cisco futures and see that they practice what I am trying to learn. I then go onto their "short course" for new traders....and see that its structured for eight months! Within one second, I felt..hell no I should be making 10,000 a week in 8 months, and in the same second, and that is why I am where I am now.
This was a long second.....I began to think about college. Four wasteful years spent in a room studying nonsense....so the decision was made....
I will now be "investing" the next four years in a fruitful education on market profile, volume ladders and auction market theory. With my passion and dedication I doubt it will take that long but I am game.
I am happy to continue to blog about my education and how I am applying it to markets.
We all know the importance of journaling our thought process and trades.
But what about PREMARKET analysis? Is that not AS important as post journaling? I feel its a resounding YES!
In my premarket analysis I will be finding levels of support/resistance.
What is my plan when price comes to these levels?
Well one would need a bias as to if one feels this level will hold or not; thus you will be looking to be long or short at only THESE specific levels. If you basis is to be long at a return to a previous support point then what are you looking for to NEGATE your position taking?
We all see people using market internals and indicators to TELL them when to be long or short. And since most people suck at this business lets take the opposite mind set with internals and indicators....
If your bias is to be long at a predetermined price level, then when price comes to this zone on is looking to go long. One should trade it long UNLESS internals/indicators tell us something different. As in a "change" in the market.
Everyone should try this exercise.
Premarket analysis:
1. What price levels am I watching tomorrow?
2. Do I feel that those levels will hold or be rejected? Based on this one has their bias.
Now when tomorrow comes, do not trade off indicators. Do not be inpatient, rather WAIT for price to come to these predetermined levels.
When price does come to your level, then take the trade...unless the internals/indicators are telling you a market "change" may have been taking place.
If you do not know how to determine the "change" then one does not know how to hear what market is telling you.
Work in anticipation NOT PREDICTION!
I will be creating a format for my premarket analysis this week, so be on the lookout.
Some math to bring the point home on engineering your reward to risk. Applied to ES market.
Assume 4 trades per day, for one week = 20 trades.
Risk 8 ticks Target 16 ticks. No management of position. Either target or stop hit.
Assume...see attached pic.
So on 7 wins for the week and 13 losses; one first sees the light of day with 8 ticks.
At a 10 win and 10 loss for the week; one is 80 ticks in the money.
At the inverse of first position 13 wins and 7 losses (win rate of 65%); one is 152 ticks in the money for the week.
Assuming the 10:10 situation, with 80 ticks in the money, one is seeing 1000/week with one contract.
Full week of losses (4 losses every day) is a loss of 160 ticks; 2000/week for one contract.
Full week of winners (4 wins every day) is a win of 320 ticks; 4000/week for one contract.
And considering one might stop trading for the day if two of the trades are back to back losses.
That alone would cut down a full loss week to 1000/week for one contract. Which can be recovered with a 10:10 week.
What is my position size? The answer lies in the risk profile.
Setting ones limit to number of trades permitted in a giving trading day is paramount to abusing probability mathematics for ones’ advantage.
FACTS:
50,000 back roll
12.50 tick value
2% daily risk – permitted four trades = 0.005% risk per trade.
50,000 x 0.02=1000/4 trades per day=250risk per trade.
8 tick stop.
250/12.50=20 tick risk allowed/8 ticks=2.5 contracts or 2.
So RISKING 2%daily, knowing only four trades are permitted (so RISKING 0.005% per trade) with an 8 tick stop, one can only trade 2 contracts for a 50,000 bankroll.
I was trading 2 contracts at a 5000 bank roll at one point.
So to evaluate my risk profile with this mentality would mean…
5000 bank roll
12.50 tick value
2% daily risk – permitted four trades -=0.005% risk per trade.
5000x0.02=100/4 trades per day=25 risk per trade.
8 tick stop.
25/12.50=2 tick risk allowed/8ticks=0.25 of ONE CONTRACT.
So with a 5000 account I should have never been trading two contracts if I am to apply risk management correctly.
One could either trade a tighter stop but keep 2:1 reward risk profile, fix trade amount from 4 to 2 or 1, or practice while they build bank roll.
If only permitting one trade per day then with a small account it becomes…
5000
12.50
2%=100/1=100 risk per trade.
8 tick stop
100/12.50=8 tick risk allowed/8 ticks=1 contract allowed.
I remember watching the PBS documentary that profiled Paul Tudor Jones and he commented that if people in the business would spend their time on how much risk they have on at any particular time instead of pie in the sky ideas about how much they would make they would become wildly successful.
Point to take home…ya aint gonna get rich starting with 5 grand, but you can become CONSISTENT and that’s what matters!
Today was day one of live trading and trading a new system. A system not based on indicators or technical setups but one of statistical probabilities.
My goal is not to make millions or thousands, but rather CONSISTENCY. My goal is to create 0.2-0.5% a week.
My trades are based on market generated data. I am a fade trader, it fits my personality and thus I am more comfortable trading it.
I am looking for low volume nodes (market profile), and then watching for price and volume imbalance.
My trading is highly discretionary and thus not easy to communicate.
I can only control money management, risk management and bet size. So that will be my focus. I am trying out my own experiment like the one poker expert Chris Ferguson did years ago. To turn nothing into something.
I will only do this with patience, proper money and risk management and properly adjusting bet size.
Biggest rule of mine that most people would not be able to follow.....
ONLY ONE TRADE PER DAY, WIN OR LOSE.
Market will tell me where stop needs to be (when I would be wrong in my bet) and the reward needs room to be able to be two times the risk.
Thats it.
Shot of NT execution panel to show its real for all the nah sayers.
