Wednesday 11/26/2008 - Trades

I was off from work today, and was planning on taking the day off from trading as well and just make up on some lost sleep, which I did. I didn't trade the morning but watched the snail paced market action around 11 AM (chicago/central time). My sister dropped my 2-yr old nephew off at the house and I stepped away to go play with him. He usually likes to watch figher jet videos on YouTube but today he had to make do with watching the colorful charts jumping around. I brought him to the office and gave him a trading 101 lesson. The trades for today were taken during that time, with my nephew sitting on my lap monitoring the trades :D Not very serious trading but did keep it realistic with small size. Closed out the day with a net gain of $346.

Performance Summary/Stats


Trades Plotted on 1-Min Chart


Market Structure Chart (5-min)

Tuesday 11/25/2008 Trades

I didn't have time to trade on the train this morning, but with this being a short week, and several people out on vacation, it was pretty quiet at the office. Spent most of the morning just watching and learning, and didn't put on that many trades and kept size limited to 1-2 contracts. Also used tighter stops, mostly 6-8 ticks with quickly moving it to break-even once the trade went 4-6 ticks in my favor. This kept me out of trouble on some trades, but also wiggled me out of a couple of good ones. I need to improve my execution/entry so a tighter stop can work out. Ended the day positive with a net gain of $286.

Performance Summary/Stats


Trades Plotted on 3-Min Chart


Market Structure Chart (5-min)

Monday 11/24/2008 - Platform Setup

I'm not posting any trades from today since most of the day was spent/wasted messing around with getting Ninja Trader properly setup. Ran into some issues where NT couldn't keep up with the orders, and the size on the auto-stop/targets wasn't updating to reflect the position size as I would scale in/out. Due to that issue, NT would've actually reversed my position if the auto stop or target order was hit. I've emailed the support staff at Ninja Trader and they recommend I run TWS Build 887. I'm currently running the latest release; Build 889 and the oldest build offered on IB's website is Build 888. I don't think the probems I'm experiencing have anything to do with the TWS build, but it makes it easy for NT to shift the blame. That's enough ranting about tech issues.

I had a very good discussion with Ziad over the weekend, which made me more conscious about risk/reward and stops. Going forward, I'll be risking 1% on each trade. Size will be calculated based on the dollar amount being risked, so setups with wider stops will have lower size, and tighter stops will have larger size. Size will be adjusted as the account grows/shrinks.

Regarding today's market action, I'm still surprised that ES broke 860; unbelievable! I mean, is it really good news that Citi needs to be bailed out by the Govt, and Govt is obliging to their request in order to "save the system"? Doesn't this just further show how much of a mess we're really in? 869 was previous week's high, so I was shorting low-mid 860s which turned out pretty good. On the negative side, I definitely let my bias get in the way and could not get myself to go long at any point during the day. I need to be able to put my bias aside and trade in the now.

Market Structure Chart (5-min)

Friday 11/21/2008 - Reset

Yesterday was the day from hell!
Yesterday I put 2 trades on in the real $ account. I bought 1 ES @ 762 with a 10-pt stop (trying to catch a falling knife), and I got stopped out with a $500 loss. I went long again with 1 contract @ 752 with a stop at 742 (again, trying to catch a falling knife). I was expecting a small short-covering rally. Unfortunately, I accidentally exited out of my 752 long position after-hours due to an order entry mistake using IB's Trader Workstation platform, which is probably one of the worst trading platforms out there. It was pretty frustrating seeing ES trading at 780+ over night. To remedy that, I ordered Ninja Trader. Aside from the trading hickups, it was just a bad day over all. I even missed my stop on the train ride back home so got off and had to catch another train going the other way to get back to my stop which ended up costing me an extra 40 minutes. There were other issues too, but no need to go into detail. It was just a really bad day.

Changes going forward
I'll be using Ninja Trader in Live Trading mode connected to IB's TWS on my Sim account with IB. At some point, I plan on switching that to my real $ IB account but don't have a set time-frame on when that will happen. Could be a week or a month, I really don't know.
I will be cutting size to 1-3 contracts. Yesterday's $700 loss made me realize I'm not ready to trade anything over 3 contracts. Most of my trades will be 1-2 contracts.

Goal for next week
The goal for next week is to play around with different stop-loss levels and finalize a tighter stop. In the past, I've been using a 5-point stop but that's probably a bit too wide. I need to find the sweet spot where the stop-loss provides damage control for the trades where I'm just dead wrong, but at the same time, doesn't wiggle me out of the winners. From similar analysis in the past, I think that's around 3 pts but next week's focus will solely be on stops and the goal is to hae a conclusion by the end of the week. Trading is all about continuosly adapting to market conditions so nothing is set in stone, but I would like to tighten up the stops a bit. Yesterday's 10-point stop didn't really provide the damage control I'm looking for. Imagine if that was on bigger size!

Setting up for failure?
Given my current situation, I wonder if I'm setting myself up for failure. The S&P is a brutal market dominated by professional traders. I'm trading against professional traders with a lot exeperience, big accounts, multiple screens, cheaper commissions and full-time focus/dedication to trading. Meanwhile, my current situation is trading part-time off a single laptop connected via a broadband card from a train with less than 25 minutes to make any trades! Sounds like I'm bringing a knife to a gun fight! I'll continue trading on the sim for a while because it provides exposure to patterns and keeps me involved in the market so if/when I go full-time, I'll have a head start but I don't know if live trading (profitably) in my current situation is realistic. Post a comment if you have any thoughts on this topic.

Thursday 11/20/2008

This morning started off with a $3K loss, which I was able to turn around to a $700 gain by around 1 PM. The day was downhill from there though due to technical issues. Tradestation's trade server was having some issues and would not let me cancel a few Buy orders I had placed at key S/R areas. So it didn't fill the orders, but at the same time, it wouldn't let me cancel the orders either. Turns out, somehow TS filled the orders 40 minutes AFTER I had canceled them and I found myself in a Long position with 20 contracts! Meanwhile, during this 40-minute window, price on the ES had moved 20 pts away from my entry and I was looking at a big $10-15K loss. This totally screws up my stats in Tradestation, and I don't know if I should just reset the Sim account at this point, or just eat the loss and try to work my way out of it. Either way, it's very frustrating.

I'm also still struggling with the ideal stop-loss.

Lessons for the day:
NEVER try to catch a falling knife!
ALWAYS have a backup broker in case something like this happens in your real $ live account.

Equity Curve for the Day


Market Structure Chart (5-min)


This market structure / balance chart continues to put price action in perspective, while highlighting some key S/R areas. You can see how price tested the first-hour high a couple of times, and couldn't push through it, which gave way to some heavy selling. First stop on the way down was the Globex Low around the 792 area; price bounced off that area a few times. When price blows past a support area, prior support becomes resistance and that's apparent on this chart as price then bumped up against the 793 area a few times before heading down to the first hour low. Beautifully done!

Wednesday 11/19/2008 Trades

Was busy this morning talking to a friend from overseas who I haven't heard from in a while, so wasn't able to focus or watch the market open. When I did get to my charts, it looked like a short was setting up, but I completely messed up my timing. Usually, I watch for setups on the 5-min chart, and use the 1-min as my execution chart to fine-tune the entry so I don't have to take a lot of heat on the trade. That wasn't the case this morning. It looked like a good short setup on the 5-min, and the 1-min was bullish but I still entered short. Not sure why I rushed into it; maybe because I didn't have much time left for trading or maybe I didn't want to miss the move. Regardless, I started shorting the small morning run-up around 855 and kept adding upto 863. My stop was at 868. I was still in my trade when I got to the downtown Chicago station, but the setup was valid so I put in OCO orders to exit half at 857 and the other half at 855 with a stop at 868. By the time I got to the office, both trades had hit the profit targets and I was out. I think I would've left a couple of contracts short at those levels if I was trading full-time, but since I can't manage the trade, this was the best I could do. Afterwards, I was busy most of the day but took some counter-trend scalps; some worked, some didn't. Should've just stayed out of the market all together during the day since I don't have time to manage the trades but took a few "gambles" since I was up $1400 or so and felt comfortable risking $2-300 of "the market's money". Need to eliminate that thought. Once a P&L is booked, it's not the market's money and I shouldn't be taking trades which are equivalent to gambling.

End result was +$1,254 for the day.

TradeStation Performance Summary


Equity Curve for the Day


Trades Plotted on 3-Min Chart


Current FIB Levels (Daily chart)


Market Structure Chart (5-min)

Stops and Risk

Stops and Risk seem to go hand in hand, but I feel stops (especially tight stops) give one a false sense of security and an inaccurate assessment of risk. I set stops/targets in conjunction with the probability of the stop/target actually getting hit. The average daily range in the ES over the last two weeks is around 50 points! The ATR on a 15-min time-frame is around 7 points. In a volatile market like the one we're in these days, the probability of a 1-2 point stop getting hit is extremely high. By the same token, the probability of a 2 point profit target getting hit is also high. On most of my setups, I'm using 5-7 point stops with 2-5 point profit targets. When I enter a trade, I judge the probability of the stop/target getting hit. If the probability of the 3-5 point profit target getting hit is higher than the 7 point stop-loss getting hit, I take the trade. I never enter the market with full size. Instead, I add to the position, even if it goes against me as long as the setup is still valid. But I only add to the trade uptil my stop-loss level at which point I accept the max loss on the trade. This requires a high hit-rate since one losing trade could wipe out 2-3 winning trades, and I'm sure people who strictly follow a risk/reward rule (1:2, 1:3 etc) will disagree with this methodology.

I'd love to get some feedback on this.

Tuesday 11/18/2008 Trades

Made some really bad trades in the morning and spent rest of the day digging myself out of a -$2,400 hole. I got into a losing short position that I shouldn't have gotten into in the first place (system did not signal a short), but instead of getting out and going flat, I tried to fight the loss off with size by adding to the losing position. Now I add/remove contracts from my trades all the time, and that's my style of trading, but that's when I'm working a core position and the trade is according to my system/method and in direction of the trend. That wasn't the case this morning, and I took a big loss early on. The initial loss also hurt my executions for the remainder of the day, and I was very hesitant getting into a position and left a lot of money on the table. Surprisingly, I managed to end the day with a tiny gain, but that really is a surprise for me considering how bad I messed up today. Lesson for the day: When in doubt, get out!

TradeStation Performance Summary


Equity Curve for the Day


Trades Plotted on 3-Min Chart


Current FIB Levels (240 min chart)


Market Structure Chart (5-min)

Monday 11/17/2008 Trades

Barely got 5 hours of sleep so was really out of it this morning; falling asleep on the train. I knew I wasn't going to perform well in my drowsy state, so kept size small (1-contract) and only took 1 trade for +2 ES points in the morning. Monday's are very busy at the office so didn't really get a chance to analyze the charts during the day. I took a quick glance, and wanted to short the afternoon highs, which in hindsight, would've turned out pretty good but I'm keeping this as realistic as possible and I know I would not have put on a real $ trade while I was so busy at work. Anyway, I'm slowly making progress and plan on going live on real $ very soon.

TradeStation Performance Summary


Trades Plotted on 1-Min Chart


FIB Levels haven't changed so not posting the usual FIB Level chart.

Market Structure Chart (5-min)

Summary for Week of 11/10/2008

Wanted to make a quick post documenting the aggregate weekly performance for the week starting Monday 11/10/2008 and ending Friday 11/17/2008. Might add more comments to this later.

Performance Summary for the week


Trade Analysis for the Week


Equity Curve for the week

Friday 11/14/2008 Trades

Finally, some progress! Stayed out of the market till past 9 AM central due to consumer sentiment report coming out at that time. Took a couple of small trades afterwards, but exited too soon (this is becoming a repeating theme). Entries were solid, and shorted close to high of the morning, then took a quick counter-trend scalp. Was busy with a lot of work/meetings for most of the day. Finally got around to checking the ES chart around 2 PM central, and ES was trading around 910. It went down to the low 900s; I waited for a snap-back to get short and scaled into a 8 contract position. Target at the time was in the mid 890's, but ES really took a dive, and I exited the entire position in the low 890s. For the first time, I actually held on to the position with some patience and was rewarded accordingly. As I type this, ES is trading at 863, so I guess I still exited early, but I'm satisfied with the performance given the fact that I had to get to another meeting and didn't want to leave an open position.

This is a record profit day for me (+$6,756). Although I'm fairly excited about today's performance; come Monday, I have to forget today ever happened and start from zero.

By the way, just want to clarify that all charts posted here are on Central (Chicago) Time zone.

TradeStation Performance Summary


Trades Plotted on 3-Min Chart


Current FIB Levels (240 min chart)


Market Structure Chart (5-min)

Thursday 11/13/2008 Trades

What a day! I was expecting a "bounce" off 825, but this turned out to be a full blown rally fueled by all the short-covering in that area. I wish I was trading full-time on days like today :-/

As far as my own trades go, not so impressive. Yesterday, I said I need to work on being patient when entering the market, and that's exactly what I did this morning. I was patient with my entries, and am actually pretty satisfied with the entries. I blew it on the exits though. Now I need to work on being patient on the exits as well. I was also hesitant on entering the market (only 2 trades on the train ride, and both on small size). Ended the train ride up $182.

TradeStation Performance Summary


Trades Plotted on 1-Min Chart


Current FIB Levels (240 min chart)


Market Structure Chart (5-min)


Market Structure Commentary
I love this market structure chart because it puts market action in perspective. So what did the ES do today? ES started off weak and then tested the mid-point, blew threw it and tested the 1st hour high, went back down to the mid-point for a re-test, blew through it and went lower to re-test 1st hour low. From there, we got a bounce back up to the mid-point, but there wasn't enough strength to blow through that, so down it went to the 1st hour low again, except this time it broke through the 1st hour low and tested the overnight Globex lows. It was game over once it broke the Globex low, and next stop was 817.25. I was expecting a bounce in the 825 area, but trading is an art and a science, and you have to be flexible with some of these levels. We got a monster short squeeze from the 817.25 level, and off it went. But even in that crazy up-move, you can see how the Globex low and the 1st hour low was tested, and how price came down when it hit those levels. Same is true of the first hour high. Price went through it, but then came back down to test the 1st hour high area, and then off it went. At this point, I would expect resistance at 916-920.

Please use the comments to let me know if there's anything specific you'd like me to add to the blog.

Wednesday 11/12/2008 Trades

Lack of patience was the killer this morning. Was watching the 873 and 868 area (FIB levels) to act as short-term support, but instead of waiting for price to get there, I took an early Long position in the high 870s. Should have waited for better prices. But I have to say, the setup was on a 5-min chart, so at least I didn't make the mistake of exclusively (over) trading the 1-min chart like yesterday. Ended the day positive with +$627 but not satisfied with today's trading.

TradeStation Performance Summary:



Trades Plotted on 1-Min Chart:



Current FIB Levels (240 min chart)



Market Structure Chart (5-min)

Tuesday 11/11/2008 Trades

Fought the (down) trend again this morning. ES was trading in the high 920s last night. Was expecting an up-move driven by short-covering (short squeeze). 895 was also a Fib level I was looking at for support, so tried going long in that area. 5-min chart was screaming SELL all morning, but I ignored it and traded solely off the 1-min chart and paid the price. Ended the morning train ride +$90 or so, but recovered from a -$800 loss. Will be paying more attention to the 5-min chart. Saw a buying opportunity in the mid 880s later in the morning, but was busy in meetings so didn't put on any trades (keeping this as realistic as possible).

TradeStation Performance Summary:



Trades Plotted on 1-Min Chart:



Current FIB Levels (240 min chart)



Market Structure Chart (5-min)

Monday 11/10/2008 Trades

I was expecting some profit taking and a gap fill, but definitely didn't anticipate this much selling today. I let my bias get in the way, and only took Long counter-trend trades. I'm not happy at all with my trades today, even though the P&L shows $600+ in profits.


TradeStation Performance Summary:



Trades Plotted on 3-Min Chart:



Current FIB Levels

Introduction

Background

My professional background is in the Information Technology industry. I've been working as a software developer for the past 10 years, and still work full-time in the tech industry. I first got involved with trading back in 2003 when a friend introduced me to day trading stocks. I was intrigued by the concept of no over-night risk, and the fast moving markets. I started with stocks and options and after a few months switched to trading index futures. In the beginning, I tried them all. I traded the ES (S&P500), NQ (Nasdaq-100), YM (Mini-Dow), ESTX50 (DJ Eurostoxx 50), and even the monster DAX contract. It was a great learning experience but success eluded me (and still does, although I feel I'm making progress). After a few more months of index futures craziness, I decided I should just focus on the S&P500 index since it provided the most liquidity. At the time, I wasn't disciplined enough to even stick to that decision, and I continued putting on trades in the ES, NQ and YM which resulted in mixed performance. This continued through spring of 2004 at which point, I was simply too frustraded to trade and felt I needed a break from the markets so I closed my trading account. For the next 4 years, I didn't follow the markets at all.

Four years later...

In summer of 2008, I finally got around to rolling over my 401k to Interactive Brokers. This small 401K had been sitting in money market funds for the past 4 years, so I missed the entire move up (and down). I've switched two companies since then, and had actually forgotten about the 401k. But now, just having a trading account available sparked my interest in the markets again and I started following the market on a daily basis. Soon afterwards, I ordered TradeStation for charting and started putting on trades in the S&P futures (yes, you can trade futures in IRA accounts). I had up days and down days, but trading with real$ was expensive tuition. I played with the SIM trading feature in TradeStation and figured, why put real money on the line during my learning phase if I could get similar pattern recognition experience on the Sim.

So in the beginning, I will be placing trades on the TradeStation simulator. I understand that this may not help develop the psychological framework needed for trading since it's not real money on the line, but I do try my best to think of it as real money, and don't put on insane size or stupid trades that I normally would not consider. I trade 1-10 contracts and treat the sim account as if it were real.

Current situation...

I work full-time as a Data Architect in the banking industry. I'm also finishing up my undergrad in Computer Information Systems at DePaul University and am currently enrolled in five classes (I graduate in March, 2010). Time is the biggest challenge for me since I don't have dedicated time to trade. When I get time during the day, I check out the ES chart and put on a trade if one presents itself. This is a tough way to trade, but some education/market-exposure is better than none. I'm very passionate about trading and this will do for now. I'll be joining a prop firm and going full-time into trading towards the end of March.

This blog...

This blog is my trading diary. I will document my trading performance here on a daily basis, and appreciate any feedback I may get. I don't know if anyone will even read this blog, but the primary purpose is to document the trades and maintain an online journal/diary for myself. Although I would like other traders to read the posts, and provide comments and feedback, that's not the primary goal but is definitely an added bonus. I will also post links to other posts and web pages I find interesting, and perhaps a book review here or there. I'm not really into writing, so will end this post here. Over the last year, thanks to the Blog, I've actually come to like writing about the markets.