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Reflection on day trading on the day the S&P500 closed at a new all-time high
This post is a reflection on a single day of day trading (April 23) and to solicit any input or thoughts from anyone who cares to share. Not sure this is the best subforum for this, but this one has a lot of views and I like it. Plus this post is pretty generalized.
My method is a fade/reversal style, scaling in at the top/bottom and exiting all contracts at once. I use order flow for execution and confirmation, with chart indicators for broad setups. I also depend heavily on supp/res levels, which is another way of saying “price context.” I trade the YM but don’t pay attention to NQ or ES while trading—though, today taught me otherwise. I’m still building my stake for day trading, rather than trading for profit. Since the Dow is up near all time highs, I’ve been kind of killing it (by my standards) by placing sell limits up high and banking on reversals.
On April 23, I start the day by making 53 ticks in the overnight / preopen session. I had set a couple sell limits, the limit orders opened positions overnight, price kept going up but my stops were not triggered, price came back down, and I exited manually during the preopen. This made me about 15% return on my account value…clearly, I’m over leveraged but I rationalize this by arguing that we are near all time highs and there is not a ton of reason (fundamentally) for American equities to go a lot higher. I rely on there being a lot of sellers near the top. Plus, I'm trying to build a stake here. After getting a 15% gain on account value in the overnight/preopen session, I should have been done for the day, right? I don’t know. Should I have been done?
I tell myself I have to lean forward when the opportunities present themselves. So, I continue to day trade during the cash session. At about 10:45 to 11am New York time, I’m seeing a good setup for a short. I’m not paying attention to ES or NQ. I fade into a short, it goes a bit in my favor (I forget how much, a dozen or so ticks), and I’m looking for an exit. Then, buys start coming through. Buys keep coming through. Price heads up. I say to myself, “That crap ain’t right; who are these ppl buying at this level? This is a bull trap; it’ll come back down.” Wrong. Price takes off and I move my stop up two times. I also fade into additional short trades on the way up and effectively double my position size. Finally, my stop is taken out and I’ve lost 50 ticks after position netting, which is a little more than double (in dollar terms) what I made on the prior 53-tick trade. Instead of being up 15% on the day, I am now down 15% on the day (roughly). Btw, the S&P eventually closes the day at new all-time highs.
…now, around 11:30 to noon, that feeling enters my mind. But I had sh-- to do outside of trading and I did not have time to wallow in that feeling. I’m glad I had that thing to do because I’m not sure what would have happened if I had had time to wallow in that feeling. Really, this thing I had to do stopped me from continuing to move up my stop. Lucky.
Finally, I get back to the markets at about 1 to 130pm New York time, on April 23. I see that price continued on its journey upward (thank God I did not continue to move my stop up). Looks like price has now plateaued, at this time point. Indicators show a potential downturn. I check order flow; things are seeming alright for a short. So, I go ahead and fade into a short eventually reaching double my original position size (which was the same position size as the big loss). Wouldn’t you know it, price goes in my favor. I make 27 ticks, which brings me close to break even for the whole day. I also enter one final trade at 4:01pm NY time and exit at 4:03pm for an 8-tick gain at the original position size. My theory for entering this last trade was, this move upward move was all bullcrap and there’s going to be a big selloff post-cash-close. But I got scared (and fatigued) and exited before the 4:15 break. In the end, I’m almost exactly break even. My net loss for the day (including commissions) was slightly less than my total commission costs. “Umm, okay,” I think to myself.
I’m not sure what to say about this but I wanted to reflect on it, here, because I didn’t let my emotions control my behavior, well not to the extent that I have in the past. I left the screens (not because I chose to but because I had to). I also just happened to have a solid gain in the morning, which mitigated negative feelings over the big loss. Even though I had to eat the loss, I could sort of emotionally hold onto the gain from earlier. Plus, I’ve been doing fairly well recently and beginning to get more comfortable; not per se comfortable but more comfortable than in the past. So, it was a fortunate set of circumstances that led to this breakthrough, or what feels like a break through on day trading.
Problems, however, are still numerous. Today was a lucky day, not a good day. It was a very bad day but, perhaps, we learn the most from our worst days?
I traded my PNL even though I specifically tried to ignore PNL. PNL is on my mind because I’m building a day trade stake. It’s hard to ignore PNL when building a stake, but it’s not impossible and I must ignore it while in the moment. Filtering the “good” decision-making stimulae from the “bad” decisions-making stimulae is, umm, pretty important. I think, today, PNL affected my decisions after the big loss. I was particularly trading my PNL with the post-cash-close trade for 8 ticks. I had entered that position thinking I’d keep it open through the 4:15 trading break, but I chickened out and closed it. If I had kept it open, I would have taken some heavy heat after the break ended but could have gained more ticks if I had held through that heat. Clearly, me closing the position before the break WAS the correct decision even though it would have (possibly) resulted in more gain if I had the guts to take the heat post-break. I did not have a hard stop set with how quickly I exited, but if I had left it open then I would have set a hard stop. Its hard to say where I would have put the hard stop in that moment. Usually, I put it outside key supp/res levels but there’s no telling what I would have done in that moment if I had left the position open. Fear and fatigue made me close it.
The biggest problem was holding onto my short bias for too long (no pun). I knew the buying pressure that came into the market “wasn’t right” and I still think it wasn’t, even now. But who cares what I believe, people lifted the offer and I was holding a short position. No bueno. I don’t follow news and had not been paying attention to earning reports. Had I been paying attention to the ES, I would have seen that the ES was getting a head full of steam to run higher right when I thought YM was breaking downward. That should have told me to stay on the sideline or, at least, that I need to ease the short pressure from my mental bias. Apparently, (so the news media tells me), a bunch of S&P stocks beat earnings expectations and people pushed S&P to close to a new all-time high (does ES push the S&P or the S&P push ES?). I don’t think any earnings-beaters were in the Dow, which means that NO the buy up in YM probably shouldn’t have happened. It was likely automated pairs traders (statistical arbitragers) who came in and bought up the YM, pushing price “incorrectly” higher. The S&P cash market stayed pretty flat the next day (April 24), closing slightly lower, just barely below both the new and prior all-time highs. The YM and ES had a sizable selloff post-cash-close on April 24, interestingly.
Nevertheless, we all know that my opinions are meaningless. The only thing that matters is: execution, trade management, and mindset. Onward to the next thousand trades.
I welcome any feedback or thoughts. Thanks for reading this far.
Sounds like we have a similar approach. I also trade YM. Here are my thoughts on your post:
I look for fade trades but in line with the dominant trend. Right now it pays to be a buyer. I also don't understand why equities keep pushing higher but higher they go. Find your minor and major liquidity zones and fade those in line with the trend. Safer.
Ignore the news. Seriously. It is all misinformation. We had this yield curve inversion a few days back which was supposed to spell disaster but guess what...the market pushed higher. It is not about fair value or price discovery anymore. Share buybacks (and who knows what else) have been bidding price up. No matter what.
When you talk about taking heat on a trade, this, unfortunately, is an emotional influence whether you like to admit it or not. If you have planned your trade then it will ALWAYS work out as expected. It doesn't mean you have to like it when your stop gets hit but it was still part of the plan and therefore an expected outcome. The emotional heat you feel is because you're watching every little tick and scratch of the candles. Don't look at the chart. Set an email alert when stop or target is hit and then close the damn platform.
No matter how zen cleansed and detached you think your mental landscape is from the disturbance of a chart, on a most basic level, you can still see if a candle is currently pushing up or down. Your subconscious will have processed that data entry whether you like it or not. The only escape is to remove the influence. Let that shit work itself out while you chant OM into the divine whilst listening to the soft murmuring of Himalayan yaks chewing on mountain grass and the distant sound of Tibetan bells. Or whatever your thing is.
Thank you for your response! I'm going to digest what you've said and reply tomorrow. But yes I agree w everything you've said. It covers a lot. talk again soon, thanks again!
I could care less about the news but Fed Funds reflect a 64% chance of a rate cut this year.
Strange times when we hit an all time high with a better than coin flip chance of a rate cut on the table. Yield curve is just reflecting rate cut expectations and why the 2 and 5 year have a lower yield right now than the 3 month.
We are just so awash in capital it has to flow somewhere.
Most what I read on this board is a successful trade is because of the inner genius of reading order flow. When a trade loses money it is because you didn't control your emotions. It is just so overwhelmingly more likely you are trading a system with no edge(a 50/50 coin flip) and making after the fact rationalizations for the outcome of these coin flips.
Yes, this is your bias; get rid of this. Even if it's a correct bias, fundamental based reasoning has no place in day trading because fundamentals are irrelevant with regards to short term timing.
The only reason I bother with noise-makers like CNBC and other media who try to convince you otherwise is because I want to get a sense of underlying sentiment / mood to either ride or fade... and more to shape tactical approach than to make long/short decisions.
if you had a serious loss I would throw in my 2 cents similar with the quote above except stick 'with trend ' trade only. But since you didn't, just keep on improving of what you are doing.
thank you for saying this, I think I hear what you're saying and I appreciate that.
Having said that, just wanted to jot down some more thoughts. I do not intend this to be a trading journal; more of a broader reflection.
I had my first loss day in over a month, today. I had no loss days during April bc I kept banking on that upside wall; every single trade I made in April was a short trade...every single one. Some lost of course, but no net losing days. Then again, I only average about 10 or so total contracts per day and maybe only 40 per week. Largest position was 9 contracts, which was stupid at the time. So I'm nothing special and I don't mean to pretend that I am.
Today, I had set some buy limits at various levels around and below 26,200 on the YM. Two of the long orders were triggered at 8am (ish) NYT and my MIT orders exited me for a profit. I left the other two limit orders on the book even though I knew I should not have....okay well no I didn't know I should not have. My point is that I was refusing to let go of my bias. I believe that deep down, I knew that any retest of the lower level below 26,200 would mean that we would continue lower (probably bc I internally recognized we had not hit higher highs) and, thus, my longs would hit the stops. And that's exactly what happened. But I did not want to let go of my bias. This failure caused the loss. Perhaps there were other failures that I have not yet recognized, as well.
Then, during the cash session, I could not get into the rhythm of today for some reason. I refused to accept that lower was where we were headed even though I clearly "knew" we were headed lower. I did not make any manual trades during the cash session, today. I just did not feel right. I didn't feel positioned well...literally as to my chair and I guess metaphorically..? Lols I cannot believe I am saying that.
I want to believe (doesn't mean I believe I'm correct) that equities are in a sort of no man's land where everyone is trying to protect what they got and see what happens next. Of course, this is also based on what the news media tells me....which is a clown show.
Was it really Lighthizer's statement that drove equities lower? We kind of plateaued around 26,000 then headed lower. No. Lighthizer was just a rationalization...similar to what @BubbityDog and @centaurer allude to above. However, I do tend to believe the Administration is intentionally engineering, through public statements, equity prices lower (particularly Asian equities) in order to put pressure on the trade talks. I think this includes Powell's statements on transitory inflation, the tariff tweets this weekend, and Lighthizer's statement about tariffs. I also believe the PRC fully recognizes this. I kind of want to just be an observer this week, wait till Monday to put on any positions.
Turning back to trading, I also need to recount some very large problems that I suffered in my no-loss-day month of April. I did some monumentally stupid stuff, but my bias (and banking on reversals downward) ultimately saved my ass. Iow, it's similar stuff to what my first post was about. I keep refusing to let go of my bias, I refuse to want to admit that I am wrong, and I focus on trading my PNL rather than the current position I am in. This is going to murder me one day, and I know it. In April, I was lucky. The situation has now changed. April is over. My luck has run out and I need to atone for my sins, so to speak, lest I recommit them and suffer a worse fate.
The most important task (going forward, for now) is to fade in line with the dominant trend. Today, my cognitive brain wanted to do that but my emotional brain did not. Fortunately, this resulted in no trades rather than bad trades (during the cash session, that is). The better solution is to do the right thing in the first place.
Anyway, I appreciate all the positive comments above and the support and GUIDANCE shown above. Thank you. Discipline is the issue for me (which is a catchall for several things, really). I want to believe the rules don't apply to me and that I am above the nonsense, when in reality I am above nothing...or at the very least I am certainly not above the market. Btw, I am in no way intending to be negative. Quite the contrary. I have noting to gripe about and I am alive in the markets, and my April gains remain intact. In fact, I will continue to drive on and be the best trader I can be. ; )
Oh and sidenote, I'm pretty stoked about the new micro contracts. Haven't seen what others have said yet, but volume looks outstanding to me. My big concern was price differences (gaps) between the micros and minis....but there are none to speak of. Ask prices appear to almost always match and Bids differ usually only when the spread widens by a tick on the micros....generally speaking. Arbitragers be out in force. Maybe that's not perfectly accurate. Nevertheless, I think the micros are good things for all of us. Let's see how they do over the first month and then judge. Then, wait till expiry and rejudge.
Just wanted to note that today I repeatedly changed my bias and it actually felt good to let go of it, it's a very strange feeling but not unlike letting go of prior bad thoughts and feelings about life. Anyway, I was very patient and accepting (at least moreso than in past)....which makes me feel like a total wierdo but a healthy one. Very strange. It's difficult but good, and strange too. Wish I had a better grasp of it to explain it better. Today was a good day.
Vocalizing things here helps me. Seeing the perspective of others gives me a better perspective on myself. Thank you for helping me out around here.
