The Day Trading Experiment

More on the trading survey

2011-04-18T09:20:00.000-07:00

Well... been awhile.

Dissertation is coming along - not as speedy as I would like, but progress is being made. Still shooting for next fall.

In the meantime, I have started a new business venture with a couple of friends. It has been crazy successful thus far - we are in line to hit $160k gross next month (and we started in January).

One of the cool things about the business (it is a basic internet traffic/ad revenue model) is the immediate correlation between spending and income, probably one of the closest analogies to trading that I can think of. After the system has been set up, we spend so much money for so much revenue (buying traffic, providing service, then selling traffic). We can increase or decrease spending immediately with an almost immediate response on the revenue side. Say we spend $1k/day, and assume this translates into $1.5k/day revenue. This took some getting used to (the immediacy of the spend/receive cycle) - but I am thinking this could be very helpful when I eventually return to trading. Spending $1k/day (i.e., losing $1k/day) to generate $1.5k/day ($500 net/day) works in any business model. Adopting this attitude sounds very healthy trading wise.

And along those lines, I thought I would share a little about the survey I posted on my last entry. When it comes down to it, it is nothing new, but it does come from a fresh perspective. I recommend giving it a listen.

Suffice to say that the traders interviewed were like me - in that 90% of them think that trading is a skill that can be learned, and 85% believed that they had what it takes to be profitable.

Surprisingly - length of time spent trading seems to have no bearing on whether or not traders consistently reach targets - the exact opposite of what I have been expecting! Not that time spent trading can have no impact on consistency, but this suggests that consistency is something that can be learned outside of actual time spent trading.

The authors of the survey were able to differentiate 'mistakes' (what the interviewed traders considered to be the cause of their losses) between three categories:

More importantly, they couldn't make the same link between the inverse of the categories to profits... what they did find was a link between stress and trading profits: high stress correlates with large losses, low stress correlates with consistently meeting targets. Leading to the conclusion: 'The harder we try and make money... the more stressed we get... the further we get from the money tree...'

The more important we make the outcome of our trading, the more likely we are to get stressed when trades go against us, and the more likely we are to continue in that vein.

Simply said, that pattern is recognized in me. I am inclined to say that continuing to trade (inside of the vicious stress cycle) was more harmful than beneficial - without breaking out of the high pressure to succeed at trading/high stress cycle, I was on a steep downward spiral. There was/is a lot hinging on my ability succeed at trading - and I am guessing it is that way for a lot of semi-experienced traders.

My first experience with trading would seem to lend proof of this concept: I withdrew $2500 from my savings (an amount I was very comfortable with losing), and decided to play around with it on the stock market. I approached the market with a sense of nonchalance, used a default chart (believe it or not it was a 5-minute candle, I knew next to nothing about indicators or how to read them) and proceeded to triple my stake within 2 weeks - winning and losing some. Then I got serious and decided I could begin to make some money (turn up the stress): by the end of the following week I had lost 1/2 of my earnings.

So what is the solution? I am not really sure; this blog has been more about thinking out loud than providing answers. One thing is clear however; consistent trading requires that trading itself not be stressful, i.e., that my success/failure not be 'too important'. I can only think of a few things that can counter stress in trading, and they are the same things I keep coming back to: either not being financially dependent upon my trading skills; or an over-arching confidence in my trading abilities (i.e., immediate trading performance has no bearing my overall ability to make money). I have little control over the first (my financial situation is what it is and I want to eventually be financially dependent upon trading), so the second is where I need to focus:

A clearly defined edge - and an unwavering belief that I can execute on that edge

The ability to accept immediate losses as the cost of doing business
The ability to accept immediate profits as nothing more than the result of the unwavering execution of my edge

Nothing new. I keep running into the same thing from different approaches. Bound to sink in eventually. Maybe for the first time I am seeing how distinct this learning process is from actual screen time... failing to get all of this in place before spending time in front of a screen seems to contribute to nothing more than feeding the vicious downward stress-filled spiral. (Credit to whom credit is due - this is Scott's mantra.)

Anyhoo - stuff to think about.

Trade well!

Trading Survey

2011-02-06T09:42:00.000-07:00

I ran across a very interesting survey on BMT this morning.

Here is a link to the accompanying slides.

The stats say that length of time spent trading is not related to profit. They also suggest that stress (or lack thereof) is associated with making money or losing it. Great stuff.

Break Time! (and... the continuing saga of mental games...)

2011-01-10T09:43:00.000-07:00

Without regrets, I have decided to take a break from trading. Not sure for how long, but at least several months.

2 reasons:

1) I need to get my dissertation done this year. If all goes well I plan on defending next fall.

2) I need to concentrate on the mental aspects of trading.

I won't bore anyone with the dissertation details. Next year you can read it if you like. =)

I have been reading Mind Gym : An Athlete's Guide to Inner Excellence (some of you may remember Don M.' s plug in December). I haven't had time to finish it yet, but what I have read has helped to reinforce the mental aspects of everything and the importance of a proper mindset for success in all endeavors (assuming some level of player competence).

Last week was a great example of one set of bad habits: I refuse to take the credit for doing well and beat myself up when I don't. After an amazing day on 1-4 I wrote: 'I wish I could that I was in the zone, but the trades felt more like a fluke.' I didn't post several days last week because I had several trades that didn't work out well first thing in the morning and I had this sense of the markets being in control rather than me, so I quit for the day.

There is a mindset that has been lingering for as long as I have been trying to trade. The best way to describe it is that I feel like I am knowingly walking off the edge of a cliff and expecting everything to be all right. It is almost a compulsive reaction or fear of thinking or analyzing too much, accompanied by thoughts of 'Gotta play to win' and 'No one knows what will happen'. Yet in the back of my head there is an over-riding sense of dread and the expectation that the trade will fail.

Heh. That is the mess that is my head. Not a healthy mindset.

Why all this? Again - I am not real sure. But I intend to work thru it and wrestle it to the ground. I am guessing part of the problem is an intense focus on myself rather than on price action. Of course, when I am doing anything well I am fully conscious of myself and how far I am able to push myself, but I am even more aware of and responding to what is going on around me. Take any activity and think about what happens. For example (because skiing is still on the brain) - I consider myself a competent skier. When I am skiing well I am aware of my body - but I am not questioning my body's response or ability to respond. I am not looking for outside confirmation or affirmation of my response. My body senses ice - I don't check the temperature, the position of the sun, or wind direction for confirmation. Nor do I push way beyond what I know I can handle or beat myself when an edge slips out from under me. I trust myself and respond. And have fun.

The analogy isn't perfect, but I think the principals hold.

As I mentioned a few post ago, the last year has also seen some great 'in the zone' moments. Enough so that I these will provide the healthy mental trading backdrop for visualization. The Mind Gym : An Athlete's Guide to Inner Excellence has several exercises and I plan on blogging about these as I work thru them. This will be a 100% effort over the next several months. Making that backdrop real and readily adoptable is the goal.

Trade well.

End of Day Journal (1-5-11)

2011-01-05T22:06:00.001-07:00

Summary:

Paper trading on 100 shares:

Up and down.

I realized today that my approach has been pessimistic (today and yesterday). The thought process is... camouflaged... it goes something like: "Ok - I can do this. Expect to lose a bit - but it's all right I can make it up later. Don't let it faze you."

Then a price moves - and I think - where there is movement there is potential for profit. Hop on. I am not quite sure how to explain this. It is almost as if I leave my sense of focus somewhere and simply try a trade out. Some of this is done in the name of 'probability' - "You never know what will happen, and you can't win if you don't play." At the same time there is an over-riding sense of doom: "Watch, my entry will be at the worst possible time." And immediately comes another thought "I have to be prepared to lose - it is the cost of doing business, so go for it."

My EOD reaction to this thought process is "Just don't be stupid." What makes this extremely hard is that my thought process in the moment justifies my entry with some good solid trading philosophy (probability and cost of doing business). I want/need to believe/acknowledge the good stuff, and I need to do this more and more (because it isn't second nature yet). Part of making the good stuff real means implementing it - so I decide to believe and act on that belief by making the trade (thinking this will reinforce the good stuff). And - I make a bad trade.

Funky.

Anyhoo - I have been reading a sports pyschology book (can't recall the name just yet) and mean to work on the excercises. Part of my problem is focusing on what I don't want to happen - because I don't want it to happen. And sure enough, I make it happen. A good analogy - water on a golf course. Some golfers will take out an old ball as soon as they see water. Guess where the ball goes? I can see more and more that I need to focus on the positive outcome.

I have decided that I will not trade when I feel like I did today and yesterday. Capture that. Remember what it feels like.

Tired and a late post - I generally post with FF and for some reason the population script was not working correctly and I couldn't bring my post up to edit or start a new post. After about 4 hours I tried Chrome.

Trade well.

Details:

Posting 5 minute charts today.

End of Day Journal (1-4-11)

2011-01-04T22:05:00.000-07:00

Summary:

Sim trading on 100 shares:

I only did two trades today and both came out well, so I opted to neglect the usual chart summary.

I wish that I could say that I was in the zone - but the trades felt more like a fluke. Heh.

Trade well.

Details:

CMG

NFLX

Start of a New Year

2011-01-02T22:19:00.003-07:00

December 31st marked the one-year anniversary of this blog.

I thought for sure I would be trading profitably by now. Not to be.

But - I have learned a lot. Last year started with TDA, holy grails, backtesting, and swing trades and some $14k more in assets.

The Christmas break was good. Cold, snowy, skiing, firewood, extended family and good friends... and closed road delays on the way home. A good, clear-the-air break from trading.

But... I didn't manage to stay completely away from trading. I actually spent quite a bit of time thinking about the last year, what I had learned, and how my understanding of trading has changed. I have been exposed to a lot of information, tried plenty of experiments, had some very good trading days and some ridiculously bad trading days (unfortunately more of the latter), and run thru the associated emotional gamuts.

The question of course is, what distinguished the winning days from the losing days last year?

Let's think about this.

To state the obvious, there are only two things that can happen with price: the price can go up or the price can go down.

Ok.

The price goes up. A trade is registered on the exchange. DTN IQ's servers relay the data to my CPU and my CPU sends it to a pretty chart on my screen. The photons pass thru the monitor's glass, race thru the air and into my retina.

That is all that can happen.

Now - I respond... and either my response is meaningless and trading is a right-place-at-the-right-time dumb luck activity - or - simple up and down becomes either ripe or convoluted with meaning and intention: the product of the market's fear and hope... or the catalyst for my own.

I still think the second scenario is the valid one.

We spent some time as a family skiing. It has been two years for me and I spent most of the time with son #3 on the bunny slope teaching/reminding him of the basics (everyone else snowboards). It was a rewarding time. After a bit my wife and I swapped and I got a few good runs in. I stuck to the groomed, and as I tried out my (out of shape) legs, I began to remember how incredible and fun skiing is. The human body is quite amazing. As I am skiing, my body is accepting and responding to an incredible amount of information: varying snow conditions, varying slope, varying physical aptitude; all across a broad spectrum of sensory input: vision, hearing, and touch (within the classic '5'). Say the skiis hit a patch of ice. Somehow this is sensed and my body responds and adjusts. Say packed snow becomes powder, my body senses, responds and adjusts.

(Imagine what it would take to get a computer/robot to respond to a ski slope...)

I think that for trading to be 'good', it should be something like 'skiing'.

Take any type of activity: driving, sports, video games - even relationships. A person's ability to respond to his/her environment - even without being able to quantify exactly what it is that is happening - is amazing.

I think that when I am at my best in trading, I am simply in the moment and responding to what is happening. When I am at my worst, I am thinking too much; trying to be too technical; trying to make something happen. I think that good trading is as organic as feeling the snow thru my skiis, boots, socks, and tired legs; as organic as feeling how a 3 and a half ton Sequoia is responding to snowy, curvy road conditions; as organic as me sensing and knowing what kind of a mood my wife is in. When I try to figure these things out, I focus on the quantifiable, the 'art' - and the beauty and fun - is lost; I also tend to choke.

This is what I want to bring to my trading for the new year. I am going to mentally adopt and practice putting on the focused/fun/feel-y mode of thinking; starting by trying to be in the moment and letting my body/mind respond to what it is sensing. Putting on my 'skis' and letting my body do what it wants to do. What is happening? Am I being reckless? Am I safe? Am I ready?

As I finish this post, I can't help but notice the simplicity inherent in trading and my attempts to control the uncontrollable. I see the need to let the market be what it is and to work on adapting my response to what is. I am not quite sure how to come to grips with all this, but I tend to think the most important aspect of all this is to make my success at trading less important/critical, and giving myself the permission to learn (i.e., make mistakes).

Trade well.

All the best.

End of Day Journal (12-10-10)

2010-12-15T21:27:00.000-07:00

Summary:

Live trading on 100 shares:

Traded the morning session with the same uber entries - and the same EOD results. My trading is riddled with fear. I was long on CMG's $4 (10:00) move, and long on NFLX's LOD for a $5 move (9:45). I got out of both too early.

So - back to the drawing board - no sense in throwing good money away. I think the foray into live trading was good - it served as a reminder/refresher of what I am up against in myself. But for now, back to paper. Actually going to take off for the rest of the holidays - we are heading up to Bonner's Ferry ID for some snow and cold and family. I may do some chart reviews but for the most part I plan on working on the internal struggle and simply taking it easy.

No charts - same old, same old. Great entries, either not holding long enough, or after missing a big move, holding too long for the profit and stop. Mind games. Gonna get thru it.

Happy holidays!

Trade well.

End of Day Journal (12-14-10)

2010-12-14T21:13:00.000-07:00

Summary:

Live trading on 100 shares:

What happened?

Hope happened.

I want to say that 'hope' is what happened Friday when I bumped up shares, Monday after licking my wounds all weekend, and today when I was $20 away from breaking even after being down >$400.

When I am able to focus on and read charts - I trade like a champ. I am more Chuck Norris than Chuck Norris. I am so freakin' pro. That may sound a little over-confident, but really, I am convinced of it. Really. The problem is - I don't know how to keep myself from becoming distracted; from not being distracted by me.

And that is the problem, here is the scenario for the afternoon: The morning started great with 4 profitable trades right at the get go. I lost everything on a slippery stop on CMG and then proceeded to get my rear end kicked by NFLX. I think this was beneficial - because at the end of it I felt like I had 'worked out' the anxieties associated with being so negative. After I realized it wasn't as bad as I had thought, I started trading from a place of focused nonchalance (albeit with a few fear based exits), before I knew it 3:45 came along and I was almost positive for the day. I almost quit due to the late hour, but I recall thinking - it wouldn't be that hard to be positive on the day. Thus I hunted for another setup, all I needed was $0.50. MA looked like it was heading down so I jumped in short. Stop. Looks like it wants to head the other way, no problem. I had to make over $1 now, but no worries, MA was a mover. Long. stop... Short, stop, short... etc., etc.; all at the ends of the candles (see the 20). 10 minutes later I was back down to -$350.

What changed?!?! I think it was a classic case of 'I want to see a potential move'... so I saw it. Granted, MA was falling fast and setting new lows, but it was already some $0.40 off of the prior LOD. In times like this I rationalize getting in with 'You never know what will happen' - that is the language of hope. Sure - the same words can be used while thinking in terms of probabilities, and I use that as a basis to trade, but make no mistake about it. This is not probability, this is me hoping - plain and simple.

I am just not sure what to do about it.

Trading happens fast, often if you stop to think about it, the moment passes and it becomes too late to do what needs to be done. This makes it harder to take a time out - with the MA trades, I 'only' had 15 minutes till market close which added more pre-tense (albeit completely false pretense).

The 'wannabe a hero' scenario was laid, I didn't have 'enough' time, and even more importantly, I didn't have the tools to be fully aware of all this.

Don't get me wrong, to some extent I acknowledged all this was going on - somewhere in the back of my head I told myself this didn't feel right, but I pushed the thought aside in the name of probability and profitability (hero complex) and went for it. Bleh.

More than anything - I need to be aware of and alert for my propensity to do stupid things. My stupid things are brought on by and directly related to my emotional state. This includes the state of hope, patience, and fear. How can I recognize this in myself?

I do best when I am watching a stock and waiting for something to happen - volume stacking up at the top/bottom of a move, a second attempt at S/R, a pause in the price action, etc. By then I have watched the action and identified the players. I have a feel for what is going on and where things want to go. I avoided MA most of the day - all the stocks I had been trading looked dead in the water at 3:45. I checked MA one more time and saw it was hitting new lows and went for it. I can make a rule about 'waiting at least 5 minutes before placing a trade' but I am not sure that that will cut it. The fact that I traded had more to do with how close I was to being profitable and how badly I wanted to end the day on a profit. Deadly combination.

It is kinda crazy - I went thru the opposite side of this during the morning. The PnL was showing heavy losses, but by the time it got to the bottom I had let it all go and didn't care anymore. I remember feeling a distinct difference, in fact, when I got up for some water, I told my wife that I was negative but I felt like I had worked thru 'it' and the rest of the day was going to be different. I am not making this up. Funky or what?

When it comes down to it, this is all about the PnL. If I would of closed out the trade prior to 3:45 (CMG) and been profitable, I would of stopped for the day. What would I of done if I wouldn't of known what the PnL was? I am guessing that I probably would of stopped as well - all the stocks I had been trading had no setups to speak of.

PnL is powerful - that is the supposed end result of all this blood, sweat, and tears: BIG P. I am not sure that not looking at the PnL throughout the day is the healthiest thing to do. I have been thru this once before, made the commitment to give up looking at PnL during the day, and somewhere along the line, assumed that I had outgrown the commitment. But the fact that I would of stopped trading if I would of been profitable at 3:45 serves as a very real example of how this affects my mindset. Ideally, I should be able to look at the PnL and trade regardless of what it was - like with what happened this morning at the low on the curve. But... I am afraid that is not the case. Until it is, I am not sure about what to do except to endeavor to never ever trade with the PnL in mind.

>$4/share is some kind of crazy money to make: and this is what happened when I was able to trade with no heed to the PnL. Not exactly 'Scott-esque', but some kinda crazy.

The day has been too stressful and long to do chart reviews - or to read back over and edit this blog... It is beneficial to do reviews, but it is not the core of my problem. I did get one done on CMG, but the others I am just posting trades.

And on an end note, simply in terms of terminology, I am not sure that 'hope' and 'patience' are the correct terms to use. I think perhaps 'wishing' and 'wishing' are probably better terms. Only because I think that both true hope and true patience are excellent character qualities. What I am experiencing has something to do with a blatant disregard for reality - which neither true hope or true patience have. Just a thought.

All advice, comments and feedback welcome.

Trade well.

Details:

AAPL

CMG

CRM

FFIV

MA 20 range (arrrgh!)

MA 45 range (arrrgh!)

NFLX

OPEN

SODA

YOKU

End of Day Journal (12-13-10)

2010-12-13T22:43:00.000-07:00

Summary:

Live trading on 100 shares:

My trading was wracked by fear today - fear that I wouldn't succeed at this.

Crazy how this works. I think that my emotional state carried over from Friday and a weekend of thinking about it. It wasn't helped by today's schedule either; I had quite a bit on my agenda for the rest of the day, items that needed a lot of prep and I wanted to get done with trading early.

I started the day ok; I think the emotional state of fear came just before hitting the profit HOD. I was actually determined to quit and walked away from the comp to tell my wife that I was done for the day. Then I came back to shut down NT and thought I spotted an opportunity for another quick gain. Pffft.... this rapidly descended into another, and then another trade and before I knew it I was negative. Then the game became very much about fear and breaking even.

I am not sure about what to do with this - some days I am not affected at all - it is more about a state of mind. This fear is usually associated with me wanting to take a quick scalp and I become more concerned about that then I do price action. This can drive me crazy and I am not sure how to diffuse the emotion. Perhaps more work on the visualizations.

Today's agenda sure didn't help. Let's see how I feel tomorrow.

Trade well.

Details:

The same patterns show up again and again.

AAPL

CMG

LULU

NFLX

End of Day Journal (12-10-10)

2010-12-12T22:03:00.000-07:00

Summary:

Live trading on 100 shares:

Pfft.

After a great week - one of the best ever - I finish off with the worst day ever as I doubled up the shares I was trading. A few thoughts - the commission per trade on 50 shares vs. 100 shares is about exactly the same. It is much more expensive to trade 50 shares. But... if I would of stuck with 50 shares for Friday, I would finished the week slightly positive at around +$100. Just to put things in perspective, if I had been trading 1000 shares (as I was when I started last spring) EOD Thursday profit was > +$8000 (and substantially so, due to the commission difference); by EOD Friday the account would of finished at > +$1000. I effectively loss something over $7000 on Friday.

Here are the IB summaries, For the week ending Thursday:

For the week ending Friday:

Well, well. After spending the weekend licking my wounds and thinking about what happened, here I be at the end of it and still not exactly sure what 'it' was. Or what to do about it.

A few things that I do know:

By EOD Thursday I was coming off of one of the best weeks ever. My confidence was at an all time high, I was thinking of myself as a trader and fully convinced that I could do this and make it work.
I bumped up the number of shares I was trading.
I could not short YOKU.
I had some very good entries.
I had some very poor entries.

Those are the facts. That - and price went up, price went down, price went sideways.

I am guessing that being able to short YOKU would of kept me out of a heap of trouble. I tried to short on the 11:00-ish new low and when I couldn't decided to try and time the bottom. The first entry would of been a champ and it is very likely that I would of stopped after that trade.

What about my emotional state? What were some of the thoughts that were running thru my head while I was trading?

This is the question that I have been concentrating on - and I am not really sure what to make of it; or perhaps better said, I am not sure how my mental state affected my trading and how I can recognize it and prevent it from happening in the future. Here are some of the thoughts that I believe might be helpful:

When I made the decision to bump up the size, questions came up - what if I completely blow it after I increase in size? What if I lose everything I made and then some? This is exactly what happened. I didn't for one second entertain these thoughts and pushed them out of my mind as they came in. As the day started, they were no where to be found - but after I hit the -$400 mark they popped up again: 'See? Watch, you are going to lose everything you made and then some.' I pushed them out again, but they rang with sarcasm and a sense of inevitability. I kept trading, knowing (or maybe it was more 'hoping') that a few good trades would take care of everything.
As I mentioned earlier, my first attempt on YOKU was a short on the 11:00 new low. IB didn't have any shares to short, so I said to myself, well - it has to find a bottom. I still stand by the first four entries (though the exits on 2 and 3 should not have gone to the stops). The rest of the entries were all bogus and more an attempt at what I 'wanted' to see, rather than what was actually happening with the price and volume. I think that by then YOKU had gone down so much and I was so 'desperate' for a big move that my perspective was biased and remarkably skewed.
I was up numerous times - too many times to count > +$0.50. I let all of them came back to stops. This is all too typical. Some days I let the stock 'speak' and some days it becomes about me hanging on and hoping. Friday late morning and afternoon were definitely about hoping. I think this problem tends to show up when I am down for the day. I know that one or two great trades will put things positive and I go into each trade thinking this is the one - I just need to be patient. My thinking goes along the lines of 'You never know what will happen... let it come back to the stop or shoot for the moon... just hold on...' That needs to be a heads up: time to take a break, re-asses, and perhaps get out of the trade.
On the opposite side of the reaction, I start chastising myself for not taking the easy profit and start taking money at the first sign of price hesitation, e.g., the HOD shorts on CYH and FSLR. This is just as damaging.
Last but not least: I recall thinking at about the 3 o'clock mark that I will have to make $5/share in order to break even for the day and thinking that there was no where near enough time for this to happen. But - a guy never knows - and under that pretense I traded what I wanted to see happen - YOKU was moving big for the day and it was bound to hit bottom... nad I kept seeing it. FFIV had a nice ATR and was bound to move big on the last hour... and I kept seeing it.

Several of the thoughts I mention are recurring themes of mine, they recall the initial attempts at momo trading. I have come a long ways since then. I think what I am still seeing now is about some of the core of my personality - who I am when not much else is left... I would characterize it as optimistic riskiness. 'You never know, I might get lucky. Just keep trading.'

The thing about this is, I am not entirely sure how to catch myself in these modes. I don't think it is a stretch to say that my chart reading skills are adequate for profit, that is, if I use them. I think there was an unconscious shift in focus that took place on Friday afternoon. I am going to make a bit of an assumption and say that the circumstances that lead to this type of trading are the same: I am negative for the day and I have several relatively small moves that come back to stops. So in an effort to remedy this I am going to mandate a break if I have 3 consecutive stops. Since I think the 'see a profit - come back to a stop' moves are more a signal that I am not reading price action correctly, and potentially more damaging, I am mandating a break if this happens once (>$0.50).

By break I mean getting up, walking away from the computer, and doing something entirely different for at least 10 minutes. And before I come back to trade, spending at least 5 minutes re-focusing on my objectives.

This might sound silly, but I know me - I can make excuses galore if I am not specific.

Another thing that has been troubling me is why I didn't stop trading on both Thursday and Friday morning. I think it has something to do with not being positive - which... when it comes down to it, is neither inherently good or bad. I thought I could get by with setting an arbitrary/intuitive 'time to stop' standard, but I just don't know. For now I will keep it this way.

Feedback, insight and advice all appreciated.

Trade well.

Details:

CMG

CYH

FFIV

FSLR

HBD

NFLX

YOKU (with cut scenes below)

End of Day Journal (12-9-10)

2010-12-09T21:21:00.000-07:00

Summary:

Live trading on 50 share lots today:

!!

I didn't stop today. I am not sure why... Maybe it has to do with an unconscious daily target - or?? I know that the trades did not smack of desperation - I felt in control and aware of what was going on.

Things can happen so fast, up then down. Reviewing today's charts, there was a lot of 'fighting' going on in NFLX. Very very interesting chart, especially around the 66 candle mark. There are very few clear non-overlapping candles with volume coming in on both sides, over and over again. I would enter, be up ~$0.50 and then get stopped. My stops are on the very top/bottom of candles way too often to count. I finally moved my stop quite a bit further than I usually do to see what would happen (candle 153), and sure enough - I get hit and the price turns around. It was right about then that I noticed HDB and started trading it.

Looking back on NFLX, buyers were not 'clearly' in control - but the price moved up after the morning push. I can see that the buy side was consistently coming in higher now, i.e., buy side was defining S/R. Tough crowd. My timing would of had to been impeccable on my entries to stay in. I actually bought very close to the LOD, got stopped out on the bottom of the next candle, went short assuming the break was real, and was stopped out again. Pfft. I think realizing how the setup can change before it is actually set up will be beneficial.

On a side note - some of today is what I was trying to avoid by implementing the MA cross on color rule. Reviewing NFLX, my timing was actually very good a lot of the time, but I hard a difficult time understanding the strong side of the market (buy side for NFLX). It was a good experience - but costly. Watching for candle overlap and for violated highs/lows coming back with volume, and knowing that in those types of conditions I need to watch for several price tests, is key. There was definitely money to be made.

Speaking of which - I grossed >$800 on 50 share trades. Go figure. NT is recording a +$206 day (without commissions) and IB came in at +$122: right around 30% of the day's profits went to commissions. Incredible.

And on a side note - I am starting to be a little concerned that this style of trading will not scale very well, especially on a low volatility stock like CMG. I think I will need to learn to adapt in order to ensure my trades get filled; I will need to ramp up slowly... but I need to ramp up. Thus - I am going to bump up to 100 share lots tomorrow and see how things go. I am pretty sure 100 shares will be easier to fill than 50 shares (I never see my limits show up on bid/ask), but I think 1000 shares will require some adjustments. One day at a time.

I almost stopped trading as the account went positive for the first time. It was still relatively early and I almost folded. But - I thought I saw another good opportunity (the stalled top on NFLX) and decided to try for a scalp. When I got stopped, I thought once more. That kept me in the game and I somehow failed to see the true direction of the the stock. Perhaps one of the better entries was on candle 123 (test of the bottom coming back with high volume), but I covered after a failed high and a touch on the lower low. I will have to say it again - it was a tough crowd.

A first on HDB - the sell power behind that stock was almost palpable. I wish I would find those types of moves everyday. And - my first add since I started trading live again showed up on YOKU.

Trade well.

Details:

CMG

HDB

LULU

NFLX

SINA

YOKU

(Split for easier viewing)

End of Day Journal (12-8-10)

2010-12-08T18:47:00.002-07:00

(EDIT: Broke NFLX into several images)

Summary:

Live trading on 50 share lots:

I started trading much earlier than I usually do.. the setup simply looked too good. The tide turned and I was stopped out rather quickly (NFLX). I entered the other way after volume came in and came away with ~$1.50/share.

It was a strange trade for me. Adrenaline kicked in a big way and my hands started shaking - I don't recall ever being so pumped up lol. I think there were a few things going on - I was 'venturing out' and it was a conscious decision: I was not constrained by the MA's and I was trading a full 20 minutes earlier than I was 'supposed' to. I was trusting my ability to read the situation and acting on it. Heh. It was thrilling.

Now - Ithe question is - was this stupid to do or was it the natural progression? I am going to split the vote: I think the decision to act on what I was seeing was well, good, and the 'next step' in my growth as a trader. But I think adrenaline and trading are a bad combination. I am not entirely sure what to do about it. My response today was about as good as it gets: I stayed focused and closed when I should have. I then walked away from the comp for 10 minutes and played some Angry Birds to distract myself and let the adrenaline work its way out of my system. I suppose the only solution to this is to keep trading as I should and try to maintain awareness.

And this was only on 50 shares... I am going to have to ramp up slowly in order to let myself adjust.

The CMG chart is boring. NFLX is very interesting. Unfortunately I had to re-set the database after my calm down period (ISP disconnected 3 times this morning and NT had problems with the DB) so the first and second trades are stacked on the chart - at the correct price levels, but incorrect times. I noted the entry bar in the annotation.

This annotation exercise is the bomb. It essentially forces me to pay attention to detail and take not of what is happening around interesting price levels. I think this is helping me to get 'back' to where I was when I first ventured into the range charts - but I am taking pains to try and describe what is happening... to look at the context and put to words what it is that is happening. When I trade I find myself automatically doing the same thing - focusing. Waves, bar overlap, big volume, lack of volume, failed attempts to climb/fall... it all comes together.

Anyhoo - this week has been great and an enormous confidence booster. Now if I can keep from being stupid about it...

Trade well.

Details:

CMG

NFLX

End of Day Journal (12-7-10)

2010-12-07T20:14:00.001-07:00

Summary:

Live trading on 50 share lots:

Good day today - always could of been better... I sold as stops were hit on NFLX (learning to recognize what this looks like) and buyers ventured in to stop me out. I re-entered as they gave way. I was looking for the gap to be filled and I was up over $2/share on NFLX... then it began to trickle back up. I sat on it convinced that the selling was not done. It re-traced within $0.10 of the stop (which I had move down to break even) before the selling kicked back in. Heh. I took the +$1.80 then as it stalled a little. Good enough for me.

I don't want to be pre-sumptuous - but volume on the range charts is very telling. Volume spiking or dropping to nothing is very revealing when taken in context - or at least it seems to be. Volume based S/R holds a lot of sway throughout the day. The EOD chart analysis has been very helpful.

As a quick overview - I turn off my trades and spread out the chart so I can see the entire day. I then note the opening, and first show of volume (usually bumping above the volume MA) and what the price context was for the candle on that volume. Then I note any spikes in volume and mark them as future S/R (dotted orange line). I then return to price action and attempt to characterize the high volume price candles and the activity around them and usually draw trend lines. I check every shorter range chart (the 20) for horizontal 'volume stutter' and mark it as either occurring at the bottom or top of the local 20 range move. I do this by placing the red diamond stutter marker either above or below the price. After the review I turn on the trades for the image snapshot. These markers are automatically plotted on the larger range charts. I am sure that I miss a lot, but it is interesting how much shows up when I actually stop to take a look at it.

On a side note - yesterday and today have seen me unconsciously moving away from the 'crossing the MA on color' approach. I am not sure what this means - I have not thought about while I am trading - at all... I am not sure what this means and I am a little reluctant to call it good. I mean - it is the direction that I eventually want to go, but I didn't expect it to happen unconsciously or this quickly. At the same time - I don't want to fight it, or curb the naturalness of it. Stay tuned.

I did the review on the top three ATR's on the MA: NFLX, CMG, AAPL. These three show up a lot. In an attempt to broaden my perspective/price action basis, I then picked the top symbol on the new highs (sorted by count) list which happened to be CML. Given the shorter ATR on CML, I am posting both the 45 and 20.

Trade well.

Details:

AAPL

CMG

CML

NFLX

Chart Review (NFLX) (12-7-2010)

2010-12-07T07:07:00.001-07:00

Spent some time this morning going over NFLX from yesterday. The current plan kept me out of a trade on the top but it was easy to see as it unfolded live. Amazing how the volume spikes set up S/R for the day.

Al Brooks mentions Paul Rotter in one of his webinars - amazingly, he has brought in some $60 million a year by scalping. If you are interested trading-naked.com has links here and here.

Trade well.

End of Day Journal (12-6-2010)

2010-12-06T21:07:00.000-07:00

Summary:

Live trading on 50 shares:

Been a long and productive day. Traded till shortly after 11 ET and called it a day as it felt like things were slowing down.

As usual, some money left on the table and 1 poor entry (or a bad stop).

I am too tired to analyze the charts, so I will pass for tonight. It has been a long, typical, and very rewarding Monday. I will try to make up the analysis tomorrow, but I have quite a few things on the agenda so we will see. I am meeting with my committee chair to discuss my lack of a future in the engineering profession and my potential as a professional trader.

Ha! Wouldn't that be something - heh. Unfortunately, it is the somewhat more boring (not really boring - let's call it 'less potential income') topic of my dissertation and what he thinks about my progress before he spends all of Christmas break out of state and unreachable on the CO ski slopes (it is hard to believe at this point that I have to pay a crazy amount of tuition for the' privilege' of researching my rear end off... even after the proposal is approved I have to pay for an additional 12 hours to round the material off... ridiculous...). But hey - by this time next year --> PhD... and maybe pro-trader...

And a big huge shout out to Fozz! For making the schedule change recommendation! It was a reminder of what it is that I really want to do and where I want to end up in this business: pro-'trade-the-morning-take-a-nap-in-the-afternoon'-trader.

Trade well.

Details:

CELG

CMG

NFLX

End of Day Journal (12-3-2010)

2010-12-03T20:47:00.002-07:00

Summary:

Live trading on 50 shares today:

Traded until lunch-ish and took off the rest of the day to pursue my studies. It felt incredibly good to keep this schedule.

That is, until I started reading Scott's blog entires... Ha! He captured some incredible moves today. Makes my little $1.80-ish look rather pathetic. I had to remind myself that he is a master and I am still the padawan - give me 10 years and I will be so pro... Until then I have to do the best I can.

Interesting day... I experienced some 'new' thoughts/experiences today. For one, I had some great entries on CMG - but they were all long. Heh. The first entry climbed +$1.50/share and I kept sitting on it. As it stalled, I started thinking - where are the buyers? But I decided to show some patience. I ended up closing at ~ +$0.50/share. The second entry climbed to +$0.40 before stalling, and again, I thought where are the buyers? I got stopped out. The third entry - long again, climbed to +$0.80 and fizzled. Once again, I thought, where are the buyers? This time however, I acted on the thought immediately and closed on limit for about +$0.30. The price went straight down from there. After that exit I looked at the chart and thought - CMG has been racing down all morning - why am I playing the long? I went short on the next opportunity and closed for ~+$1.80 on nearly a perfect exit. As it turns out, I was reading the price action incredibly well. I finally trusted that 'sense' (or what I was seeing) and caught some action. Trusting my reaction earlier on the exit side would of proven very profitable.

What is happening is always right there in front of me; I don't think it is too quick to say that my chart analysis has already proven beneficial - in some ways, I think it is getting me back to what I 'saw' (without description) on some of my crazy good days sim trading on range charts. I think the missed $4 NFLX move this week really clouded my judgment. After I missed it, I convinced myself that I needed to have 'patience' and let the trend go. Patience is bad. Perhaps I should qualify that - patience is bad when it becomes the priority over price action. When I make the goal patience, I start to ignore what I see all in the good name of having patience. This week would of been so much more profitable if I would of made price action the priority rather than some 'virtuous' character quality. Patience is bad, very bad.

There. All I my defects in character are now justified - I want to be a good trader... Ha!

The Cf trade was a fiasco of sorts. I was watching the ~10:35 entry but passed on it. It proceeded to climb ~$1.50 from my potential entry. When it signaled again I entered and saw $0.40; but this was just before I had reached the 'Maybe I should trust myself' status and let it come back to the stop. Anyhoo - I always get a little bit of direction; I need to pay attention to when it simply stops moving and bail with no regrets.

FIRST POSITIVE WEEK! Since who knows when! All ~$40 of it! LOL! (Commissions are way out of proportion to profits with such a low lot size - typical commissions are $0.90 on 50 shares; I have had commisisons as low as $1 on 1000 shares.) But what a confidence boost. Trading live has proven a little more difficult than I anticipated - but wow - I am in a much better place than prior forays. Coming up on the 1st year anniversary. Will be interesting to see how this month plays out.

And on an end note, I noticed while doing the EOD analysis that I had a tendency to brush stuff aside and quickly see what I was expecting to see... rather than approaching the charts with an unbiased and critical eye. Towards the end of the analysis I attempted to be vigilant and remedy this, but perhaps with mixed results. I will try to make it a point to approach each chart totally open to what is happening rather than what I 'want' to see happen; e.g., patterns I have seen over the last two days 'showing up' again - I found myself perhaps a little too ready to see them - that is a trap.

Trust myself. Keep analyzing charts. Trust myself. And don't mistake 'character attributes' for some mis-cast virtuosity... that is just my co-dependency coming out ^^.

TRADE WELL.

And have a great weekend. Charts... here I come.

Details:

NFLX and SWM were not traded, but were big movers. So I took a gander.

CF

CMG

Readable sectionals on CMG.

NFLX (not traded)

SWM (not traded)

End of Day Journal (12-2-2010)

2010-12-02T21:41:00.001-07:00

Summary:

Live trading on 50 shares:

Pfft... Sat thru a lot of money today...

Incredible huh? Something happens in my brain, 'hope' (perhaps better called greed) enters the framework and I stop 'seeing'. Nearly every exit was signaled. Sometimes it happens extremely fast and I miss it. Other times I was too busy trying to draw trend lines or justifying an even bigger move. Yikes.

Quite remarkable to see what the charts are saying when a guy takes time to try and read. EOD review once again reveals (for the most part) significant volumes at the beginning (break thru S/R) of a move or at the end of the move. Key is what has happened just prior (lower/higher h/l), or what happens just after (second successful h/l). I also noticed that most 'outside' (setting the day's bounds) have 3 legs while most inside moves have 2 legs. I should also note that most S/R is setup simply on volume spikes. But occasionally S/R comes thru as a price level without significant volumes (the price level is 'clean' and no mistaking it); often volume will pick up at the price level S/R later in the day. Funky...

I tried to use some of what I had noticed yesterday in my trading today. But I made several mistakes today, primarily centered around simply not paying attention. I came in on CMG on what I took to be exhaustive volume, but it was volume coming in on a successful low and thru S/R. I tried twice. The second mistake was holding thru substantial profits on CMG, AAPL, and UPRO, with CMG and AAPL signaling clear exits.

Yes - I was frustrated, fearful, and pissed off. Classic. Expectation schmexpectation. The missed run on NFLX yesterday set me up for 'optimism' today. I really need to be aware of this and make a conscious effort to work thru those kinds of decisions as I prep for the next day.

And another change - I am going to switch up my trading schedule and only trade the morning session. Not because I necessarily think that I do better in the mornings, but because I have a lot of things that have been put off as I concentrate on this (namely my dissertation). Also - I would like to eventually adopt that type of trading schedule - make money in the morning and taking off the rest of the day, so this will be my focus. I will spend afternoons studying/annotating charts, working, studying/annotating charts, or my dissertation... or studying/annotating charts.

This exercise - even though it has only been two days - is proving to be quite remarkable. The goal is to have my senses so keenly attuned and familiar with what to look for, that it becomes a sixth sense. It is kind of crazy really, at first study yesterday I didn't spot a thing, and then I noticed that price was moving and volume was changing. Heh. That is all that can possibly happen.

Trade well.

Details:

If you are interested, CMG and NFLX are quite remarkable. It is almost ridiculous to see how often things repeat themselves. Perhaps I am simply seeing things... Feel free to leave some feedback.

AAPL

CMG

NFLX

UPRO

Chart Review (NFLX) (12-1-2010)

2010-12-01T22:29:00.004-07:00

I spent some time trying to find something on today's NFLX chart. After I really started looking at it, there was more to see than I had at first realized. Bars can overlap to varying degrees, and though not as significant as one would find on a time based candle, wicks can test new price areas. Both of these combined can be a measure of hesitancy or reluctance to drive price. Overlap will change the degree of trend slope and wick shows retreat (same principals apply to time based candles). Then there is always the lower/higher highs/lows and counting the number of times a stock moves/retraces.

And I found more patterns in the volume than I was at first aware of. It always seems to be relative, but tops/bottoms of trends were marked by spikes in volume; I am assuming this is the last rush to get in.

Of course I might be making all of this up - e.g., seeing patterns where there are none, but I am willing to give it some more time to see what happens. Again - per Brooks - the trades are in the details.

I drew S/R on significant spikes in volume (ones that caught my visual attention after a casual glance) and tops/bottoms of moves. I made every attempt to draw trendlines from the start of the trend to first retrace (in a downtrend, this would be down, up, then down, with the trend touching the end of the up).

Primarily for my own exercise, but if you need something to fall asleep by:

(EDIT: Seems Blogger reduces the image size - I couldn't read anything on the image that was uploaded. So i tried splitting it into three different images)

End of Day Journal (12-1-2010)

2010-12-01T17:47:00.001-07:00

Summary:

Live trading on 50 shares today:

I was at the screens all day, but didn't spot any opportunities till rather late in the day. Perhaps I am maturing as a trader...

There were opportunities this morning, just none that I spotted. NFLX signaled short at 10:25, but the spread was so crazy and the action so quick I decided to stay out. FFIV came up on the 12:30 but as sporadic as my success has been with that stock I opted to stay out.

Anyhoo - the trade on NFLX stopped out immediately, FFIV sputtered around until it came up with some direction, and AAPL had some honest $0.50 on it, but I opted to stay in and got stopped.

I delayed the blog entry today because I am puzzling over what to make of the range charts. I cannot for the life of me read anything out of them today. When it comes down to it, the information presented in a single bar is very limited, again, because the bars are lacking the time element. There are not very many different shapes the bars can take. The body always has to be on one end of the bar or the other. From what I gathered from Brooks, he started his journey by coming up with a profit target, and then examining price action just prior to any move large enough to hit his target. The problem with doing this on range bars is that the patterns are very limited.

I am posting the charts with what I have for now, but likely will continue to wrestle with them for a bit tonight. If I come up with anything I will post.

Trade well.

Details:

AAPL

FFIV

NFLX

End of Day Journal (11-30-2010)

2010-11-30T22:54:00.002-07:00

Summary:

Live trading on 50 shares:

Today was wracked by some frustration; set off mostly by the fact that I was at the bottom of the $4 craziness on NFLX and I bailed early. Why did I bail? Because I had been reading up on Al Brooks all morning and kept glancing at the 5 minute chart... pfft.

I have decided that I simply cannot do that any more. Mr. Brooks has a lot of good info and I will keep reading it, but I am going to stick to trying to apply the general concepts to range charts for now. This is working and I need to stick with it.

On that note - I decided to look at the end of day range charts from the 'perfect trade' perspective: I am going to review and analyze the charts to look for clues as to successful and failed entries.

Brooks mentions something along the lines of 'focusing on the details because it is often the smallest details that lead to the best trades'- and he is detailed. Incredibly so. This has inspired me to prod and poke the range charts for whatever they can afford to yield. Reading over his information has highlighted the differences between 5 minute candles and range bars. Time adds an entirely different dimension (pfft...).

When I started reviewing today's range charts, I realized that all I have to look at are price and volume - LOL! My first thought was that there was no way that I could get the information from range bars that Brooks reads from 5 minute candles. But then I realized that he had to start somewhere as well; at one time he may have thought it impossible to find what he needed in 5 minute candles. This might be a stretch - but if I wanted to keep things as simple as possible - time may be an unnecessary complication. But... heh, what do I know? I am willing to give it a go for a couple of weeks to see what I can find.

In fact, I did find several things to help with tomorrow's entries: not trading against the prior 45 bar; avoiding non-trending stocks (realizing that I will likely not get start of trend entries often), and a re-enforcement of the 'stutter volume' on big momo moves. Feel free to call out anything you might notice as well.

Too tired to review/edit this post, so please forgive the grammatical/spelling errors. Will try to get around to it tomorrow.

Trade well.

Details:

NFLX:

Check out the volume on the HOD and the subsequent swing low (below).This happens over and over again on the momo moves. I didn't trade the top or the bottom because it was out of plan - and right now I am all about staying in plan. But it sure was tempting...

CMG

Here is the swing on CMG; not as clean on the top and the bottom was indistinguishable.

FSLR

AMZN

TNA

I mentioned on this chart that I thought a lower range would produce the volume stutter on the highs, but I checked it down to a range 10 and it did not.

End of Day Journal (11-29-2010)

2010-11-29T22:15:00.000-07:00

Summary:

Live trading on 50 shares:

Rather disappointing day, first day live again, and after a great week of paper trades last week, not much happened today. I only had 6 entries, with 4 of those initiated before the lunch hour. All of them showed profit before getting stopped except for AMZN. I wanted to call today some pretty funky price action, but every day is funky.

Last trade on NFLX saw > +$1.30, but I had some internet connectivity issues and NT got gummed up on the reconnection so I missed the HOD. Hard telling if I would of exited, but I didn't have the opportunity.

I added a new section - I would like to start reviewing price action on the 5 minute candles. This first attempt is very noobish, but taking a stab at it. Crazy Monday schedule kept me busy all afternoon and I am too tired to look at all three charts tonight.

Trade well

Details:

AAPL

AMZN

NFLX

5-Minute Review

I am going to try and start analyzing price action on the 5 minute candles (ala Brooks). Again, going to continue to trade on the outlined approach, but the more I read about Brooks the mroe I am convinced that that is the trading/analytical style I want to develop. Typical Monday schedule so I didn't get very far on this. And it is completely noobie, I don't have the book yet and am just using what I have gleaned thus far. The hope is to eventually make it my own.

AAPL

AMZN

NFLX

End of Day Journal (11-24-2010)

2010-11-24T14:26:00.000-07:00

Summary:

Paper trading on 50 share lots:

One out of plan trade - first long on NFLX. Again - a 'blind' heeding the 'indicator' (both MA's were blue and price crossing shorter) so I went long assuming the corrective wave would be the start of a new trend and save the day. Heh.

This is what I was afraid of - a silly reliance on a trade signal without taking the entire picture into account. Anyone could of looked at the chart and seen NFLX was headed down for the day. The fact that I realized this though later in the day was enlightening and a step forward.

Morning had all the action and I managed to sit on my hands for most of the rest of the day. I missed two entries on AAPL, the first at 10:00 due to some technical glitches. I was out early on CREE's big move, but within plan so no worries.

With respect to allowing myself to continue to grow my expertise in trading concepts (price and wave action for now) and yet refrain from bouncing from new trading plan to new trading plan, I have realized that this plan will allow me to bring new ideas into the entry/exit decision making process - I can trade within the MA context but bring and allow new ideas/expertise to be a factor as well; in fact, perhaps an even more important factor than the 'indicator'. The long on NFLX is a great example.

Truth be told - whenever I pull up a 5-minute chart, my first reaction is almost always 'Wow, this is beautiful. And simple.' Do I miss them? Funky.

Happy turkey day!

Trade well.

Details:

Nearly all the wave action was drawn live today. Yellow is dominant trend (with blue-ish being wave 1) and the red-ish lines are the corrective patterns.

AAPL

Late EOD action. Should of known everyone would leave early for the holiday.

AMZN

CREE

Early exit, but in plan.

NFLX

OPEN

I didn't trade OPEN, I could of had the continuation but I don't think I was paying much attention at the time. Pretty wave action.

End of Day Journal (11-23-2010)

2010-11-23T17:43:00.001-07:00

Summary:

Paper trading on 50 share lots today:

A great morning and a losing afternoon...

And I was relatively surprised to find out at EOD review that I was trading out of plan this afternoon. I traded several corrective waves expecting in the primary trend direction (expecting continuation)... For some reason I completely forgot to draw waves during the afternoon session. The lines would of kept me out of a lot of stops.

Thinking back over the day I want to attribute the afternoon trading to a couple of things. First - I saw plenty of long opportunities and my approach was not allowing me to go long. Rather than carefully considering what was happening I jumped in on which ever stock was allowing me trade - by only looking at the indicator (price crossing the short MA with color). This cost me 1/3 of the day's profits.

Anyhoo - I had 3 stocks with $2/share gains at one point today. It began to get very difficult when they started coming back. I managed to get decent exits on them, but the emotions were just under the surface. Funky.

I am reading and finding out a lot about price action (via Al Brooks) and wave patterns. I am sorely tempted to switch up my system again.... The bane and downfall of new traders - an inability to stick with a decent and workable plan?

The thing is - today I missed several opportunities, and I hated it (the short opportunity on both NFLX's and CRM's crazy morning runs and long opportunities on them and both and CMG). I had to sit on my hands. In some ways I think this is actually good for me, i.e., forcing me to be disciplined and patient. But at the same time I seem to be biding my time and trading 'any' opportunity that my 'indicator' (price over the MA) says I am allowed to; kind of like a blind reliance on the system rather than on myself.

Input sought, welcome, and appreciated.

Anyhoo - I think for now I will stick with the plan (and try to trade in the plan). I think it has the potential to be very profitable. But I plan to keep studying price action (Al Brooks does a great job and should have a new edition of his book coming out (thanks to Fozz for that link)) and wave patterns.

Price action is fascinating. Honestly, my approach to the charts has been mostly about taking/making a guess - and calling it intuitive, I have had a very hard time describing where/when/who/what. I would see people write about 'early shorts are setting stops here' and wonder what in the world they were talking about. I would try to puzzle it out but did nothing other than confuse myself. Is this what I would do? How do I know someone else is doing this? Why are there early longs/shorts if they know they are early? How do I know that they are early and right rather than early and wrong? Etc., etc. From the little that I have read, Al manages to do a great job of describing the story behind the price. The reviews that I have read would suggest that the book is not very well written - and he himself readily admits as much. I am looking forward to the second edition.

Trade well!

Details:

I siwtched up the way that I draw the waves and am now placing the lines right on the respective highs and lows. Again, I drew sets on the morning's entries, but somehow forgot to on the afternoons. When the pattern failed to materialize (usually the 5th wave) I assumed something other than trend was going on and waited for the next breakout for the first leg. Amazing how this works out.

AAPL

AMZN

CMG

FFIV

NFLX

UPRO

End of Day Journal (11-22-2010)

2010-11-22T22:15:00.000-07:00

Summary:

Paper trading on 50 share lots today:

I decided to paper trade today rather than go live. I think I will tomorrow as well. Maybe finish out the short holiday week.

I did an excellent job of staying in plan, but I was out on two trades: POT and AMZN. POT was pretty low on the ATR range (and the first entry was a mis-type) and AMZN happened to have just finished up a nice 5 wave pattern which I didn't notice until I had entered. I exited both trades immediately after I realized what I had done and both for small gains.

Unfortunately I missed big $3 entries CMG, CRM, and AMZN, a $4 move on FFIV and a $5 move on AAPL; all on the 1:15-ish spot... I happened to be out strolling and enjoying the AZ winter sunshine at the time. Would of been an incredible day.

I am allowed to keep saying that until I actually have to trade the moves... =)

I spent some of the day messing around with the setup - I know - crazy right? I hated missing out and was trying to find some way to get in on the afternoon uptick. I need to avoid that syndrome like the plague.

Trade well.

Details:

Only posting the 45's - it has been a typical Monday schedule - and I am very tired.

AMZN

CMG

CRM

FFIV

NFLX

POT

Weekend Edition (11-20-2010)

2010-11-21T18:31:00.005-07:00

I have noticed that I have at least two bad entry habits that consistently eat into the daily profits:

Entering on a non-moving stock
Exiting early on a big trend and trying to reverse

I decided to spend part of the weekend trying to come up with an approach that would reduce my tendency to trade those types of price environments. While realizing the problem over the last week or so, and trying to figure out a solution, it became painfully obvious that my current simple/naive approach to establishing entries/exits doesn't offer much in the way of discretionary tools.

I thought about it. And thought about it some more. And then I decided that I really needed to come up with an objective and quantifiable 'something or other' as an indicator of the current price environment. Something to give me the 'green light' to look for an entry.

So I came up with two ideas - one addressing my psychological framework, and one addressing my technical framework.

As to the psychological framework

This is the most important thought of the weekend.

I feel that I need to be ready to admit that I cannot trade like Scott; as much as I would like to be able to, and hopefully eventually will be able to, it is way beyond my current skill level. Scott has an amazing sense for the trade, honed by years of experience and an ability to focus. Sometimes I do very well reading momo, but there are enough times (as evidenced over the last few weeks of live trading) where I fall pretty flat and rapidly cut into my profits

After I stopped to think about some of this, I was surprised at how often 'pretending to be as good as Scott' gives me permission to make some entries. What I mean to say is he is able to time exits and reversals so un-canningly perfect at times that I think I should be able to as well: 'This looks right, I am just going to go for it and see what happens.' In a way, admitting this is about giving myself permission to slow down, lowering some immediate expectations, and taking more time and thought to analyze/observe price environments.

As to the technical framework

I wanted to keep this as simple and naive as possible. In a nutshell - I decided to go with the trend and the big movers. I am going to limit trades to big movers and use the color of the MA's on both the short and longer ranges as the quantifiable measure of the trend.

Entries

Do not trade prior to 10:00 a.m. ET.
Limit trades to the 5 stocks with the highest ATR values.
Only trade in the color direction of both the short and long range charts (blue is long, red is short)

Enter when the price crosses the short range MA, with the color of the short range MA matching the long range MA
Watch for end of trend signals:

Extremely high/low volumes, wave count (5/3 wave)

Place stops on the closest prior S/R

Exits

Draw lines from the start of the move to the top/bottom of the first correction for exits

Draw a new line if the slope of the trend changes
Exit when a bar on the dominating chart closes below the line

Watch for end of trend signals:

Extremely high/low volumes, wave count (5/3 wave)

Here is an example of a legitimate trade on AAPL:

Yellow lines are the wave count, red lines are exit lines, red diamond is entry, red dot is exit. Here is the setup on the 20 range (which, in my current setup is the shorter of the two range bars):

Entry:

Exit:

For a quick comparison - here are my trades on the 45 for the same day:

The same initial entry, but only one rather than 6 - only 3 of which did not get stopped out.

Reversals (i.e., trading against color on the larger range)

Only trade against color on the larger range when there is extreme high/low volume changes on the shorter range, and after the shorter range crosses the MA.

Here is a legitimate reversal on AAPL (11-16-2010)

Entry (note extreme volume at LOD):

Exit:

How This Compares

I picked two days worth of trades over that last couple of weeks: 11-10-2010 (i.e., the biggest losing day) and 11-16-2010 9the biggest winning day). I assumed that I would of been watching the same stocks and entered accordingly.

11/10/2010

There were no trades on TNA, RIMM, BIDU, SOHU, PEGA, or GS using the probability criteria.

AAPL:

This was probably the most problematic of the bunch - especially with respect tot he 5/3 wave configuration. I kept the basic rules - and decided that the start of the new wave had to have at least 2 candles closing below the low of the peaking candle (of course it would be the opposite in a down trend).

The entry is at the start of wave 4 on the 45.

AIZ

CMG

FFIV

NFLX

Two trades on NFLX.

Trade 1:

Trade 2 entry:

Trade 2 exit:

PCP

2 stops on 8 trades, 6 trades were very profitable; compared to what NT calls 53 entries and exits.Of course this is no guarantee of what I would of actually done, but it is about as close as I can get.

11/16/2010

AAPL

Two trades on AAPL.

Again the 5/3 wave definition was a little problematic - but the fuscia line holds as wave 3 cannot be the shortest. Two of the corrective waves are on the verge of not being corrective at all, so it could of gone either way.

Trade 1:

Trade 2:

BIDU

CMG

Two trades on CMG.

Trade 1:

Trade 2 - stopped:

FCX

6 trades with 3 stops - but well over double the actual profit.

Final Thoughts

So far so good.

The bad thing? Well, perhaps not bad, but it was a little frustrating to realize that this is going to keep me out of some relatively big moves. For sure I have to be ok with this - I am coming to realize that missing big moves is likely and is not the end of the world. For now I have decided to accept that those moves and potential entry points are less probable.

Another question that comes to mind - what does this mean for my future as a trader? Am I limiting myself? Am I relying too much on indicators? Will this keep me from nurturing and relying upon my instinct?

I am not really sure. My hope is that this approach will make it 'safe enough' to continue to observe and learn. For the most part, the ability to grow my intuitive skills will have more to do with my attitude and how I see the 'technical framework': is this about safety and defining probabilities or is this about a rigid and conclusive methodology?

I have decided to 'test' this approach by trading live. As is evident from the two day review and the sometimes identical entries, this framework is a 'narrowing' of my current approach rather than a completely new ball of wax. The 'test' will mostly be about me and my ability to implement the trades with some degree of efficiency; i.e., trading the plan without exception. This will be the hardest part - and why I needed to address the psychological framework as well. Though it might sound a little silly, giving myself permission to be safe, lower my current expectations, and to continue to grow and learn, is a big step in the right direction.

Feedback appreciated.

Trade well.