CL 300 tick

AlthoughI have highlighted what I consider the best trades, I have only traded the ones with a green underline – including a currently open position short 2 which is in the red at the moment.  The setup is bearish continuation (bear flag channel, double top) following a head and shoulders reversal (see 15m, 30m timeframes).

I took the symetrical triangle breakdown yesterday and exited a little early because I had a report to write.  I missed a hum dinger as I ate dinner tonight, as highlighted by the gray rectangle.

This was a brief pause in price below the head and shoulders neckline.  These are diamond setups because they have such low risk and offer a lot of point potential.  The trade I have open now is in a similar price range; I wonder if I would have held this bounce if short at the original setup?

I’m still relatively new to the industry, with just four years experience in trading; but during this time I have gained a good knowledge-base and skill set that puts me light years ahead of the curve when compared to the uninformed or unsophisticated investor.  AKA the general public.

As time goes on, I am becoming increasing frustrated with other people’s’ attitude towards trading and investing.  I think as traders we have all met people who think it’s the same as playing poker or betting on horses, who think buying to hold is a consistently profitable strategy, who think that a stock is good value if it’s 5 cents to those who are so sure that they hold 90% losses or even worse buy more down there.

Trading ain’t easy

My biggest and most major grievance though is people who think it’s easy.  Share trading is one of the hardest ways to legally make money I can think of.  Anyone who thinks otherwise is kidding themselves and I consider it a slap in the face when people say this around me.  I’ve busted my balls for four years to get these skills.  I can’t begin to count the number of things I have given up in my personal life to get the screen time to increase my understanding of how the markets work.

The people who think it’s easy (And I only have personal experience of UK citizens whose mindset is a lot different from Americans) are the people who “invest” for “however long” it takes.  They listen to people who have no idea what they’re talking about and just buy x amount, hoping to make thousands if not millions.

From the outside looking in

It’s delusional and crazy and that frustrates me.  But worse, I used to be one of them!  You may think I would be upset, but no, I am delighted.  I know what I was.  I know where I’ve been and I know where I am now and that’s a big deal for any trader who wants to make it.

I don’t feel I was as bad, but I can recall in my early days being lured in by annual reports, tips and hints and holding 50% losers.  You name it, I’ve done most!  But that’s the learning curve I suppose.  The only thing I wish I had back then was somebody just like me now saying “Listen Steve, scrap that UK investment crap, here’s what you need to do to really make a go of this”.

The best decision I made however was to start this blog.  When I look back at some of the stuff I came out with in its first three months I never fail to get a laugh.  To be able to see my continued development has been an invaluable tool and I strongly recommend any new traders to start a blog.  Paper-based journals are too easily discarded and don’t chronicle things that well.

Picture this

OK so imagine you have been trading for four years and you see this status update from a friend;

Jeezo

Before I mention anything else I just want to say that I am pleased that this person is thinking about making money and I commend them for using a public forum to gather information or advice.  A lot of people are satisfied to just work 9-5 in a crap job for 40 years so for this person to consider improving their circumstance is worth points.

I will work top-down with my grievances here.

• Grammar aside, they ask if they have shares in any random oil company.  No reference to the oil price or if anyone works in the industry.  Although they are tied, there are drillers, service companies, refiners and more that make up the sector and these can vary significantly in quality.

• The question is directed to the public, not to a financial adviser.

• The first respondent is doing “alright” from trading.  He does not make the investment decision and it is part of his pay packet so is unlikely first to know much about the trading process and secondly is not really in a good position to offer advice.  Also, the Aker share price has dropped over 50% in the past 7 months.  It’s more likely that he has “options to buy” rather than outright ownership.  Aker won’t literally sell themselves short as a contractual perk for this guy.

• We all hear stories about how people have made crazy money.  For all we know he might have had 5 million pounds worth of stock which isn’t that great a return.  Also years – the price can just as easily go sideways and down for x years so this isn’t a good method of capital allocation for someone who wants to learn how to trade and invest.

• They state that they don’t know anything about it, which is fair enough.  But the next line is the worst I’ve ever heard.  You don’t really need to know much.  Crazy, absolutely crazy.  This post would be a novel if I were to sit down and dissect every thought I had about this statement so I’ll leave it up to your fine self to think about that little chestnut.

• The green circled response is my favourite.  This person actually works in the industry and has a very sarcastic sense of humour like myself.  I feel that he was thinking similar thoughts to mine and his trolling has flown right over the head of everyone else who has commented here (there are another 3 or 4 responses after this pic).  Quality satire.

• Another humdinger.  I don’t THINK I can go wrong.  No research, no trading plan and no knowledge.  That is a lethal trifecta in the hands of the inexperienced investor.

If after this you’re up for a laugh, here are two things you can do;

1. Think back to the kinds of mistakes you made when you were new to trading
2. Try to put yourself back into that mindset.  It’s impossible, right?

I continue to maintain my view that TF CL and 6E are the best contracts for trading right now.

TF trades, intra-day, tick chart (300)

I took some great trades here.  By the time I started trading on Tuesday, the markets had sold hard and were bouncing on decreasing volume.  This formation is bearish continuation and as this short term trend lost momentum and broke (1), price formed a bearish reversal formation (2) before confirming by breaking the neckline.

It was here I logged in, and a few minutes later, a pennant continuation formation formed.  This provided a high probability trade which I took short with 2 contracts.  I covered one at 713 and held the second through the first bounce, covering at the ST double bottom at 712.50 again.

I shorted a little after point 4 again, also with 2 contracts.  I held one down for +3 at 712.50 again.  When it breached, I added another and held 2 for a drawdown on the bounce, covering for -2.50 and +2.

I took 3 pts on 2 contracts at point 5.  Trade 6 offered a simple R retest, while 7 was a great chance to accumulate for 1.50 points of risk as the price bounced off a triple bottom.

Euro trades, intra-day, tick chart (300)

Went long 6E on the inverse head and shoulders reversal and subsequent neckline retest.  Long 2 on first retest, closing one at short term resistance before adding a second on the second retest.  Didn’t extract as much value as I could have here, closing early at 1.3700 & 1.3704.

Russell daily, neckline retest

Traded the continuation of this trade on an intra-day basis.  This is a perfect swing setup and one which I used to trade all the time when using the dailies.  This double topped last week on an intra-day basis which added to the probability here.  There was almost no risk in this trade ($150 per contract) compared with potentially 140 points to the downside ($14,000 per contract).

Trading the first time retest of such a clear-cut support or resistance area offers high probability of rejection, low risk and the opportunity to reduce risk immediately as it moves away from this level.

RIG swing trade, established range, daily.

Another I didn’t take, but a stock which I watch quite closely.  Lots of nice levels on this chart, and it’s these kinds of charts that you should look to trade.  Established lateral levels give you a chance to mitigate risk as well as plan realistic exit strategies.

RIG rejected 60 again this week and now lies in a short term trading range of 55 and 60.  A breach/break of these levels will again offer another trade.

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.

There are quite a few things I want to mention in this post, as I don’t really have time to write individual posts at the moment.

First off, a look at my stats for so far from this month.

October, not slippage inclusive

Towards the end of last week, I started to notice a pattern emerging in my trading; I was grinding out solid sessions without feeling like I was trading well.  It is a good skill to be fully aware that you are not trading well but still making profits rather than being under the illusion that your skills are infallable.

The stats were mainly comprised of scalp trades in YM and NQ which had decent win rates and a positive expectancy.  These were mixed in with a good win rate on TF and a few ES outliers which bolstered my bottom line.

As the month has progressed however, my win rates on the main indexes (ES NQ YM) have decayed and as have their expectancies.  I began to phase in Crude and Euro trading and focused more on TF (because of it’s win rate) which has begun to reap rewards.

I seem to have a better “feel” for these contracts, but I think the key reasons I like these are because;

1. Their intra-day volatility is greater
2. Their volatility, ranges and tick amounts open the door to faster profits (or losses)
3. When the trade goes right (or wrong) it tends to do so immediately, meaning I can focus on the trade more easily
4. I am extremely quick to reduce or eliminate risk in these contracts because of their volatility.  This means that I tend to have a higher win rate, reduced drawdown and a greater distribution of higher than average profits.
5. I could spend an hour waiting for a 2pt ES move to make $100 per contract but the same profit levels can happen within a minute on these contracts
6. I am better at understanding the order flows of these.
7. I trade them more aggressively

The past few sessions I have traded CL 6E and TF exclusively and the difference in my win rate, expectancy and gross has shown straight away.  These past few days I have also began to increase size to 2 contracts to see how I can mitigate risk or control the trade a little better (which I planned last week) and that too seems to be working.

There is a stark contrast in my intra-day futures and swing stock techniques and the gulf in styles grows by the day.  I am very aggressive when it comes to the futures markets and I’m much quicker to take profits, move stops and downsize risk.  I focus only on a small  number of contracts and have a limited supply of data which I use to make decisions.  My primary goals is to extract as much money as possible within each session.  I trade a lot, about 40 fills a session.

I focus more on my trading statistics in swing trading, in particular how I pick, trade and manage particular setups.  I am more considerate of exposure and much more methodical in my selection.  I don’t chase profits aggressively and I’m much more passive when it comes to trade management because of the timeframe I trade.

Due to these factors, tracking your futures performance and your stock performance are two separate things.

Firstly, when you trade intra-day, you make a snapshot decision in an instant to enter the trade having weighed things up very quickly.  Your risk and objectives are short term levels you see mentally and therefore generally don’t record stop or target orders in the spreadsheet.  All I care about is the contract and gross profit.  From those I work out the little stats about.

Glimpse at futures journal

I focus more on R in a swing journal, record specific entry criteria as well as initial stops, targets and observations about other things.  I check the journal monthly to find interesting stats which can help me out in the future.

Although the futures method seems a bit quick and dirty, it can provide you with just as much actionable information as the swing journal.  For example, my decision to ditch ES YM and NQ was a direct consequence of my statistical performance and it has worked for now.  When you see a 1 tick expectancy on your most traded instrument (NQ, it accounted for 40% of my trades at one point) you know you have to change tact.

It also suggested (via slim win/loss ratios and expectancy) that I should take 2 contracts and manage them so that I can have greater flexibility on my exits.

I have some other thoughts this week about trading.  Firstly although my maths class at uni is extraordinarily difficult, I still have an easy project management module.  Last week the lecturer put up a slide of the pm life-cycle and it immediately related it to trading and specifically trading plans.

It was something like define, design, test, implement, control, analyse – evaluate.  I’ll scan it up here later.  Needless to say the rest of the lecture was spent thinking about trading rather than critical path analysis.  I have also found myself inundated with acronyms lately, almost all of which are actual stock tickers so it is quite easy for me to remember them.

Lastly, my bro showed me this vid last week which has apparently been receiving a lot of hate.  All of what this guy says is so true it’s not even funny.  Massive market crash = money-making opportunities.  If your job is to make money then of course you’re going to dream of these crashes because I know I do.

My final thought: Trade tracking spreadsheets are an essential tool

I finished Outliers by Malcolm Gladwell the other night.  It was an interesting read but not necessarily something directly applicable to trading.  I see it recommended on a lot of trading sites as essential reading – but let me save you the bother of reading it with a bullet point of what the book teaches you (specific to trading)

• It takes about 10,000 hours to be good at it.

There are other concepts (ie cultural/chance/situational circumstances) which relate to other fields.  But if you have some money and the desire to learn how to make money from the markets, I don’t feel that those apply here.

I have started reading Black Swan by Taleb and will post some info on that shortly.  I have also ordered Daltons’ Mind Over Markets which I am looking forward to getting in about.

Elsewhere with regards to trading, I continue to be amazed at the amount of money you can realistically draw from the futures markets.  My technical skills these days are at a point where I can eyeball a chart and make a decision within a few seconds.  All that remains is to simply put the trade on and manage it.

The past six sessions in particular have provided an abundance of low risk technical setups and superb (wide-ranging but predictable) intra-day volatility.  The combination of these factors when combined with a good head for risk management is a cash machine.

I traded sim 1-2 contract lots this week with one single deviation from my rules and made some decent gains after costs.  The deviation was to accidentally enter on 3 YM contracts before deciding to see what happens when I began to trade large size.  The result was a scalp trade which took out a few points but in a non-sim situation I would have closed the mistake and not moved to trade 15 lots as an offset.

I haven’t necessarily learned anything new this week, but I have made the following observations about my trading

1. I favour the YM and NQ contracts, ES only accounted for 19.53% of my trading last week
2. Trading one contract per side means that there is a lot of profit left on the table in the better trades.  This is a payoff against reduced risk.
3. I would benefit greatly from adding to positions on continuation.
4. Market entry, limit exit is my preferred order strategy

With that in mind, if the trade is on and the risk metrics make sense, I will begin to open with 2 contracts this next week and manage each ticket as a slightly separate trade.

My profit ratio was 1.98 on a 53% win rate last week however there was an 18.25 ES point outlier on Wednesday which skews the data a little.  This was a trade taken pre-market which I allowed to run the whole session without moving my initial 1.50 point stop.  These trades are very rare.

Here are my trades for the week

I have also started reworking my trading plan this week and will post it in its entirety when it’s finished.

On a bullish note, today has confirmed yesterdays morning star formation on the ES daily which points northwards.  However, I feel the main market currents are to the downside, and would be looking to scale short into stocks when the ES is in the 1215 range.  Swing for the singles until a breakout occurs, this market could rip or dip at any moment on economic news/resolution.

The AA trade is my hands-down favourite.  Both on a short/medium term setup and as a long-term investment holding.

Although the ES rocketed nearly 20 points off the open, the best trade of the day was taken after lunch after the contract has consolidated within a 5 point range for a few hours.  Firstly, the highs of the consolidation range were testing resistance for a third time on the short timeframe, and 1215 was an area I was looking to short (I’m trading SIM at the moment).

Pre-trade resistance 1215

While this phase formed, the advance decline line and ratio, along with the breadth ratio began to decrease.  Usually after such strong bullish moves, you expect the ratios and lines here to weaken slightly but hold a certain range.  Not only were these values grinding down, the TICK was looking bearish besides a few spikes – and each test of resistance gave a lower TICK high which indicated that the participation wasn’t really evident to take the price higher.

Setup; follow-through

Once the post lunch volume kicked in, the range was broken on increased volume and the support level breached.  The next 3 bars formed classic continuation to the downside with a nice little bear flag.  Although there were wicks at the start (supportive) and wicks at the end (rejective), given the state of the internals and the volume ratio (participation in drop versus that seen in consolidation) the likelihood here was to the downside.

Weakening internals suggested downside

A second entry point was signaled as the price breached the flag range and headed lower.  Although this dropped over 10 points to next lateral support, the price target on a measured move was struck 1202.

I traded this one on live SIM and it was the only trade I took for the session (watched for 3 hours).  I am SIM’ing based on 1 contracts risk, so given that my planned risk exposure is 2 points and this setups stop was 1,  I entered one contract at market (1207.50) and one on limit (1208) before scaling out one at 1206 and trailing a stop on the remainder until the target was hit.  I reduced the risk on these trades almost immediately after entry as the trade ticked twice in my favor.

It is said in trading that it is great to master one specific setup, and I certainly have an affinity and good eye for bull/bear flags/pennants.  An extra edge was provided by the price action (drop support, hold consolidation below after topping pattern) and the negative divergence within the market internals.

If you can first find a technical setup (volume inclusive) with secondary confirmation (internals, market profile) then placing the trade should be a simple process so long as you have a clear line in the sand in terms of risk.

This is because I’ve been (trying to) program my automated strategy before I leave tos, while also starting to familiarise myself with C/++/#.  The raft of data analysis that goes with building an ATS is sizeable.

Coding a Human Element

Initially, I was encouraged with my progress in tos, but the more I backtested or referenced other charts in market replay, the more I began to notice that incorporating human instinct and trade management ideas is almost impossible when dealing with algorithms.

A lot of the time I have a good gut shot for reversals and continuation, usually based on market internals or technical levels (non lagging signals).  This means that from a discretionary perspective, a lot of the time I would not want to be involved in the trades the system is taking.  I particularly dislike giving back over 3 points of a drawdown if the trade is half a tick of my target having already moved 6+ in my favour.

Secondly, building in trailing strategies is proving very difficult – particularly when you are working with a one-contract entry.  Tos can’t reference the trade it’s in and there are no bracket order functions.  Trade management is the second most important aspect of trading after risk management and if I can’t build in some kind of flexible control measure then there’s no reason to be fully automated for me.

I have begun to think that instead of having a fully automated strategy, it would be best to have the code for entry signals and then manage the risk myself.  Part of my thought process here can be attributed firstly to electroniclocal (auto entry, managed trade) but also to an array of quotes, info or videos I’ve seen over the past few days.

The more I study algorithmic coding, the more I notice that the markets move at random.  I mean at random when I reference the price action itself (bars).  While I still have a good feel for internals in intra-day trading, I’m beginning to tire of my fully automated ideas.

A Shift Towards Market Profile

I’ve read a lot again this weekend about Market Profile, and I do feel that MP is the direction I’m heading towards.  I am very good at the technicals and risk management aspects of trading, but having never worked on a trading floor I feel that my understanding of how the order flow works is quite limited.  I would like to know how the auction process works so I can begin to build a more definitive and long-term goal orientated trading plan.

It wasn’t until last night, when I was reading back some past articles of mine that I began to notice how my trading timeline has progressed.  Even two years ago I was still using ‘indicators’ on my charts.  Looking back always provides me with huge insight, and it’s great to have a point of reference to gauge my progression.

Identity Crisis?

This is where another thought crept into my head last night.  This blog will be 4 years old in a few months time and I recently began to mess around with the theme again.  Whenever I think about changing the theme it usually means that my subconscious is telling me that my attitude or outlook on how/what I trade or want to trade is changing.

Lately I’ve felt like the studentloanranger moniker might be reaching an expiry date as I plan to move into futures trading.

However, Next week I start back at Uni to finish a degree in Engineering (evening classes).

Firstly this means that my time to devote to trading and research will be limited – particularly when it comes to intra-day analysis.  Secondly it does mean that I will actually be a student (loanranger) again.

On another thought, having day traded and then moved on to the programming route, I am acutely aware that my real ‘specialist’ skill is still in technical analysis of daily charts to provide swing trades.  So maybe I just need to roll back the months and get back into my daily analysis type posts.

At the Cross Roads

So basically I have a few questions to ask myself about trading.  Do I want to swing trade stocks or day trade futures?  Could I do both?  Would I be able to differentiate my thought process for each style when trading the other?  What do I enjoy?

As a tie-in to these questions, I kind of feel like the educational value of my journal and blog has tailed off in the past few months while I’ve been working on automated strategies.  Since I finished my work on flag algos and scanning through tos, I’ve only really found it enjoyable or worthwhile to post updates about the technical state of the market.

I want this blog to provide value both to myself and for other traders and I’m not convinced that the programming element does so – especially when it’s just a chart or a set of results.

What I would prefer is to provide (and chronicle for myself) information on technical analysis, risk management, intra-day internals and futures trading.  I think I’d like to eliminate anything to do with ATS strategies and results because I’m not really learning a great deal about actual trading, despite becoming quite adept at software engineering.  I am a trader not a programmer.

I think this blog will firstly begin to revert to the classic post style of swing trade setups and risk management ideas while also beginning to chronicle my development as a futures trader – much as it did when I first started trading stocks.  Hopefully this combination will be educational, useful and entertaining.