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Trading Background:
I've been trading for 6 months and have had ups and downs, false dawns and pure mirage moments. I think that now I am getting the hang of it. I've put in about 1000 screen hours in that time and am still very keen.
Not everyone sees the irony in the title and not everyone understands the books but they are worth a read. Anyway - this trading journey that I am on follows a narrow road. The destination is clear and its certainly worth going there but it's hard to stay on the road.
Charts and Setup:
I have put my charts and setup in the summary - I'll keep it up to date there.
Objectives:
I have two objectives for this thread.
a. to improve my eye so that I can just be more consistent in reading price action
My Issues #1: Trends
Without going too deep into the past I started trading using a MACD / Elder Impulse system. Now, wheras all of the ideas in that system make sense to me I didn't cop it. Using the MACD oscillator and focusing on the impulse system and keeping my eye on 3 timeframes had two effects for me
a. I didn't learn to read price action as I was too busy looking at other stuff
b. The oscillator turned me into a reversal trader. I was always looking for the bottom and the top, trying to go long at the bottom and short at the top. I was trading CL so as you can imagine I didn't really have to worry about my exits. CL rammed into my stops within seconds. Sometimes less.
After a lot of head scratching I finally got it with the @perryg method. At least I saw the folly of what I had been doing and started to trade with the trend.
The anaSupertrendU11 is a good tool for pointing this out.
I don't need any assistance at the moment with the general direction of the trend. Reversals .. now .. that's a whole other kettle of fish.
My Issues #2: FOMO FOMO - fear of missing out. I want to earn money here and not just trade. This is not entertainment for me and I need to earn a living. If you don't trade you can't make money.
The result of this for me is that I get in just a little too early or take trades that are higher risk than I should.
You can help here. When I post my charts if you are a price action trader you can help me by pointing out the warning signs that I didn't see or the true signals that I should have.
If you are a good money manager you can help me by pointing out that the trade was fine and that I just got stopped out because my stop is too tight and I need to loosen it up for this type of trade.
Both of these things will help me build more confidence in what I am doing.
If you are a strategy guru - you can help me immensely by helping me with my strategy formulation and testing. Al Brooks can talk a lot. My eyes bleed when I read those new books and I think that I tore a ligament in my back carrying them around ... but they are brilliant. It is hard to pick out the wisdom in his stream of consciousness but for now I need to do one thing. I need to focus on the very best trades.
If I can be convinced that my strategy of taking those best trades is good enough - I will leave the others alone. Its about confidence in my back and forward testing methods.
My Issues #3: Swing vs Scalp
Sometimes I try to swing for bigger profits when I should be taking profits and scalping.
I see 8 or 10 ticks profit turning into a full stop or an ABE (Auto Break even) very often. 3 or 4 of those 8 tick profits alone will help me hit my daily target.
I think that you strategy guru's can help me here.
Ladies and Gentlemen - I look forward to hearing from you.
Desktop:
I use an iMAC with two 27 inch screens. I've got 16GB of RAM. I run Ninjatrader in Parallels with Windows 7. My virtual machine dedicates 4GB to Windows.
The system runs well, is fast enough and apart from the occasional memory leak when I loose a connection and need to reboot the virtual machine (one a month) I don't have stability issues.
Laptop:
I recently bought a laptop. Intel i5/4GB RAM and ..... Windows 8. The idea is that this is the backup system and also will allow me to trade from the beach (yeah ..right). The logic behind getting this and not a MacBook Pro was that it should be slim, tight and simple. I don't need the Mac experience for trading and when I am mobile.
Oh my goodness. What a lemon. It is slower than a slow thing and there is soooooo much rubbish going in with anti-virus vendors and intel memory managers and reminders and monitors that it is running MUCH slower than my iMAC.
I will add some memory to it (voiding my warranty no doubt) and try to slim down the flabware that is holding it back. I'll keep you posted. I don't want to revert to Windows 7 (yet) ... but ....
Internet Connectivity:
Cable for the desktop and wireless for the laptop from a separate provider. Its not as expensive as one messed up trade.
Broker:
IB. No issues with them at all. If anyone has a really solid file so that I can setup an IB commission profile in my Ninjatrader - I would love it and post it here.
Instruments:
I live in Europe and although I would like to trade CL - the hours are too long for me. I spend a solid 10 hours at the desk every day and can't extend that until 20:30 every evening.
For this reason I trade the FDAX. FDAX trades on EUREX and is active from 08:00 in the morning CET to 17:30 CET or a little thereafter. The FDAX moves anything from 80 to 200 ticks a day (or more) and although it can be choppy there are some nice trends and whole trending days.
I know that @PandaWarrior and @VinceVirgil just do it ... and I know that Big Mike says stay away from it until you are a grown up - but CL is attractive because of the volatility. Whether that volatility is real gold or fools gold is up to us. The FDAX has a lot of the characteristics of CL both in terms of its volatility profile and commission structure and the market hours are sane for me. So .. that's it.
I only look at one market. In the future when I am able to trade the FDAX blindly I will look at others but for now I need to get to know this market well.
FDAX Key outline numbers:
FDAX: 2 ticks to a point. I will keep to ticks as much as possible.
Average range of a 15 minute bar is about 30 ticks but properly trending pushes are regularly 50 to 60 ticks.
Lots of intraday ranges - usually 30 to 40 ticks wide.
You can add value by:
Replying with any FDAX specific numbers
Looking together at how the FDAX moves with measured moves
Any analysis or ideas about how the FDAX moves at any particular time of day
Before I get started on the journal proper I want to take the opportunity to use all of the resources available on nexusfi.com (formerly BMT) that I have come across.
I have been putting some of them on the long finger - but now is a great time.
I've worked out a trading style ( you will be the judge of that I hear you say) and the most unreliable piece of that is me.
They say that the key to this is confidence and I have learned the hard way that this is true.
Right now I am going to address a key issue: I am going to make sure that I don't go bankrupt.
My conclusion from the discussion and the webinar is that we are on the right track. The important thing for me is to have some sort of assurance that I am not about to walk off the edge of a flat earth. That I am not about to fly the plane into the mountain that I cannot see.
The mathematical and techncial discussion is interesting but not really very relevant for most of us at the moment.
Ernest Chan says (I paraphrase): "It doesn't really matter what sort of distribution you assume for your market and system - the simple calculations yield more or less the same result. If you use the Kelly methods and then use the CPPI technique you will not go bust."
The key assumption in using any of these methods is that you have a rock solid, positive expectancy from your system. I am developing a system ... so ... rock and solid are not adjectives that I want to bandy about.
The nexusfi.com (formerly BMT) Thread - comes to the same conclusion but is a little more sensitive to the fact that ... maybe .. you don't have 3 years of backtested data for your system. Maybe you are developing your system and the key number that you can really rely on is your Win/Loss ratio. In my case I can get this from Ninjatrader every day. At nexusfi.com (formerly BMT) there is a spreadsheet that will allow you to calculate your Optimal F number and then to risk down. Brilliant.
I attach a screenshot my Risk Adjusted Optimal F spreadsheet. It says that I can trade 5 contracts. Hmmm ... that is a lot. You know what ... I am going to get going on 2 contracts. I choose to ignore the Optimal F, I choose to use the risk adjusted feedback but then cut that down again.
The more confident I get and importantly ... the better my win/loss ratio gets - the more I will ratchet this baby up.
Well, for a guy on the first day of his journal it is a little silly of me to turn up late !
Let me start with some excuses.
Last night I watched the Ernest Chan Webinar and had a really good hard look at my own journal and base calculations. They were OK but not really that good.
I looked thru' my To Do list and saw that I had some spreadsheet updates to do. They kept me busy in my head when I should have been sleeping and this morning before I could hit the BUY or SELL button.
1. I calculated my "Optimal F" (its 5 FDAX contracts on a 100K account with my current estimates) I will start with 2 or in exceptionally confident moments 4 contracts.
a. When you open this on a MAC - it explodes in your face
b. I bought a new version of Excel for my laptop - and will use that
3. Even though maybe nobody is looking - I feel the gaze of the nexusfi.com (formerly BMT) community. Call me a fool but I know that this is the point. I know that the reason I am doing this is so that I can't pull the wool over my own eyes and that I work well enough to get things ready for "publication" quality.
4. The market was very choppy this morning and I avoided trading it as I was not fully concentrated on it, messing around installing software and trading is not good.
5. The FDAX Open is interesting. I would love it if I could get some input from @vvhg @max-td could demystify this. I note
a. at the end of the day it the opening bars often just look like any normal trading bars
i. there is often a gap up or down
ii. a retracement that looks oversold and over bought
iii. this morning it looked like an overbought retracement and then sold off nicely
b. However ... with such a large ramp up in volume - the FDAX open often has a huge range of movement before it settles down.
I tend to just watch it ... hoping that inspiration will come some day and (relatively) secure in the knowledge that there will be other trading bars later in the day!
6. T1: FDAX falling steadily all morning. It often takes steps down and then trades in a range.
11:25 am. Missed trade (not at the trading desk)
11:45 am. Missed trade (not at the trading desk)
13:30 pm. I watched this trade - hesitated but I saw it happening
14:05 pm. Breakout of the mini range (like all morning). Confident. 4 contracts
using my FDAXL-Long strategy. Target Filled.
Note: Target 1 moved to bottom of current range (Al Brooks says take half off)
Auto Break Even kicks in after 8 ticks
Target 1 hit
Auto Break Even Hit
This is a "typical" issue.
Once I get a little into profit I don't want to let the trade be a loser, just in case I have read the price action wrong.
I this case, the FDAX bounced off my Auto Break Even and then continued lower. Grrrr ...
===> I should note in my Journal that my ABE was a bit of a hindrance not a help and count the number of times that this happens. I will investigate how best to do this in the journal.
I don't know how to get back in to the trade without chasing the trade.
8. 15:55 - The pullback came - but it looks like the end of the bear trend. Maybe. I guess this will morph into either a range for the rest of the day or a reversal. More of a range is what I'm thinking.
9. You know what - it is 16:00 pm. I am €1700 Euro up. I think that I will call it a day. I've been working hard all night in my head and in fact hard all day. I'm going to update the new spreadsheet journal and not get involved in scrapping it out at the close.
10. Final notes. The market moved down more than 140 points today and I got 20 of them. On days like this I think we need to be killing the market. Can do better.
FDAX often has significant gaps. And on many days you get a wiggle at around the open, I normally tend to wait a few bars to see where we might be heading. For me levels work quite well when paired up with price action...that said, it still is a vicious beast with a severe multiple personality disorder! Breakouts often are pretty explosive, also applies to failed ones, they can take out your stop in a blink...
Lets start at the end. It was a range bound day. Take a look at the end of day chart. Lots of barbed wire and well delineated ranges.
I don't have the skill yet to really trade those ranges so I am trying my best to step aside and wait for range trading to begin. Its important for me to not trade unless I am sure and conquer my FOMO (fear of missing out). I did that today to a large extent.
The questions for me today are then twofold.
1. How do I know that it is range trading ?
2. What is my plan to learn to better trade the range - esp to avoid trend trading the range
How do I know it is range trading?
I'll start out here by telling you what I don't do. I don't retro fit a chart with and ADX and as soon as the ADX fires then start trading in the hope that it is a trend trade. No sir. That is the surefire way for me to give back all the money that I made yesterday and maybe a lot more.
I was at the desk from the open until 17:15 - so I watched every tick.
The first few bars of the day look innocent enough but they were very high churn. Prominent tails on some bars and a lot of reversal indications. The whole thing felt rushed and panicky and even though the overall trend was up a lot of the traffic was in the middle of each bar and the extremes of each bar (high or low) tended to be very churny. My anaBettervolume was mooing like a cow a lot.
The short story is - I watched the screen - it looked jumpy, it felt jumpy, it whiplashed back and forth and the reversals came at the tops and bottoms of the ranges. So that is how I knew it was going to be a range day.
I know I have the skills to earn money only when it is really trending - I know I have to avoid the choppy water - so I stayed aside for most of the day.
2. What is my plan to learn to better trade the range
I have a plan with two parts.
a. I am going to note all the days that were rangey like today and work through them on replay. I know they are range days so I am going to expect turnarounds and see how I can best recognise them. Maybe throwing up a MACD will help, maybe making my existing fsZerolagOscillator will help. However - this is curve fitting and I feel that it is just going to be best to learn where the price action is going in those ranges and practice with some stop orders.
b. I will start another SIM account for those days. A range SIM. I think its important not just to look at it but to try to trade it to get the feel. When I go live again - on range days I will either not trade or just trade an "I don't care" amount - as Al Brooks would say.
Trades of the Day
I did two small trades today. Both with the intention that the trend would take off. Of course they were both entered at the very top and very bottom of a range move. Duh!
Not to many complaints about my Auto Break Even today !!
Did I miss trades?
Yes. I did. there were clear trending moves in the day but the whole tenor of the market was too jagged for me. Maybe I'll get better at that. However I don't think that the best trades of the day were trend trades - so its not an objective to pick them out.
But look at this .. the real end of the day
Now - here is a funny thing - I think I've seen it before. The whole day, including the close was furiously range bound. At least by my measure it was range bound - if I had a better feeling for it it could have been wonderful. In any case look what happened at the real end of the day. By this I mean long after all of the European Time Zone traders had gone home and were at the pub. Look at 18:30 CET onwards. What looks like a lovely little gentle ride up in a trend that had a 20 point sweet spot. Hmmm ... if only I had more hours in the day and more patience.
How you can help
I'm reading (again) the Al Brooks Trading Price Action - Ranges book. I need to go thru it a few times before I can begin to formulate a strategy. However my thoughts so far are the following:
a. Range trading should have shorter stops than trend trading - to some extent it is a counter trend move and you should get out soon if you are wrong
b. I would like my approach to have a directional element to it. This means I don't want to buy at the bottom - I would like to buy on a mini trend move up. What sort of order types should I use and how far below the congestion zone or above the congestion zone are my key areas to look at?
c. I trade a 5 min FDAX chart - for ranges should I drop down or move up (??) a timeframe - or should I just get more comfortable with the 5 min and trade it using other metrics
d. Are there any good articles out there on range trading that I might not have found in my google searches
e. does anyone have any sort of automated strategies that they would like to publish to the group - or work with me on together so that we can develop it ?
Don't be a stranger if you have any thoughts on this !!
