A longer-than-usual summation of recent thoughts ahead.
I am aware that my blog is becoming more of a diary than an educational tool at the moment, but I have been theorizing a lot more than usual at the moment while trading the futures markets aggressively and frequently. I have had some great trades over the past few sessions (including a 1 TF contract, 15 minute trade which returned over 10 points) which have made me think about trading in a relatively new context.
In the last post I wrote that my only goal in intra-day futures trading is to extract the absolute maximum profit possible within each single session. While this remains true, I have been mulling over how that statement relates to a few other things.
First off, while reading Back Swan by Taleb the other day, he mentioned that he had once received some career advice while at Wharton Business School where he was told to get into something scalable. That is, a career in which you can increase the amount of money you earn without increasing the amount of work you do. Relating that to trading; the same amount of work, research and effort goes in to entering a trade with 1 contract as it does for 2, 10 or 100.
That means that essentially you can increase you pay check by 100 times for the same effort (plus the reverse of course). The same goes for artists who record a song once and sell a million copies or a writer who writes a book once and sells a million copies.
When you think about trading like that, it makes you think about just how much you could make from the markets. While available capital and contract ownership are the two physical boundaries stopping you from making $x, I am beginning to feel like there is no ceiling to how much money a person can extract from trading.
Perhaps this feeling is just me being corrupted by my recent trading results (which also include “perfect” fills), but you have to ask yourself firstly why aren’t more people interested in trading but also ask yourself “Why am I not a millionaire?”.
The corruption isn’t just coming from the net p&l, but literally every trade I took yesterday either stopped out for a tiny loss or just worked perfectly right from entry. It was almost like I couldn’t do anything wrong. All I was doing was trading the setups and the sentiment, throttling the trades that weren’t working out and managing the positions calmly. I even took two trades in copper (which I have never traded before) and they were instantly profitable.
I wasn’t using traditional indicators or any kind of system. I was applying what I have learned over the past 4 years in to practice and just using the market as an ATM. Perhaps my recent obsession with trading has spilled over to the rest of my brain because I know from the trades I put on and other stats that I was trading significantly better than chance.
This brings me back to another thought. I had recently sat down and thought about how much I would like to earn from trading, and I figured that to average $175 a day would be enough to sustain my current lifestyle. The question now is, if you hit 350 in a single session (double it to offset losers), do you stop? What if you hit it ten minutes into the day? The answer I give myself to this question is;
Let’s combine this with another concept I’ve been toying with lately. In swing trading, I would call it drawdown but somehow I am treating it more like absorption. If I was OK with $200 in a session and then I found myself with $600 net half-way through – is it logical to risk that $400 excess in order to hit an undefined profit objective? The risk averse drawdown avoiding swing trader in me says no way but the short term trader says yes.
I tested this on Tuesday where I found myself sitting at $800. I took some drawdowns through larger size and wider risk placement (in 6E) to the level where if I closed out, I would have finished the day up $300 (greater than stated objective). I identified an opportunity to add to the position as well as new trades in CL and TF. As the market gathered momentum, I scaled in another and then a third TF and ended up the session nearly $2000.
If I had closed at the first hit of $200 (before I got to 800) then I would have sacrificed $1800. I believe that’s called opportunity cost. Had I closed at 800, that’s 1200 against a 500 drawdown. I know this is a polar sentiment to how I normally manage risk, but as I keep saying, you cannot use the same mentally to trade intra-day and swing.
My results lately imply an average winner of 270 and average loser of 85 with a 43% win rate. Although I would prefer a higher win rate, at the I’m ok with it because of the balance.
When I get back from footy tonight I will try to post a bunch of charts showing some trades I’ve made lately with brief notes on why. I haven’t really made many horror shows the past few sessions and I always find it easier to learn from mistakes than to learn from what you do well, so hopefully the content will still be useful.
