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Patience Is the Key

Because today happens to end the trading week and month, I am going to summarize my performance for the day, week and month.

Starting with today:

I still struggled with my fear for loss and I finally got really irritated with myself.  On one hand I have to be cautious, especially with some nice gains locked in for the week but on the other, I can't trade like a wuss. To the latter point, I felt like my extreme caution was actually causing my performance to atrophy a bit and that doesn't make any sense if I can help it, which I can.  This said, I nearly closed out the day with just six ticks locked up in profits after one trade.  My plan was to get back on the simulator and practice some more to see if I could further prove to myself that if I just follow my plan, everything will work out.  Instead, I finally decided to just nut up and trade and simply accept the outcome - win or lose.

I end the day after having placed four trades for 3.9 points in profit. My last sequence about caused a heart-attack but it was good for me because I accomplished my intention: to re-learn that I can trust my strategy if I execute it properly.

This is what my sequence and chart for the day looked like:

1. $60
2. $70
3. $100
4. $160

I am very happy to end the week on a high note, although I know I can do much better if I can get back to following my plan without so much fear.  I don't want to push it too hard but I still feel like I can take some more risk and still be fine.  As always, we'll see what "tomorrow" brings.

As for this week...

I was able to finish with a new equity high and finally recover last week's losses from those six god-awful, back-to-back trades. Here are the stats:

• Total net profit: $1,885
• Gross profit: $2,012
• Gross loss: $127
• Trades: 23
• Percent profitable: 86.96%
• Average winner: $100.60
• Average loser: $42.40
• Largest winner: $217.60
• Largest loser: $72.40
• Max. consecutive winners: 15
• Max. consecutive loser: 1

Results for the month:

• Total net profit: $1,868
• Gross profit: $4,569
• Gross loss: $2,702
• Trades: 51
• Percent profitable: 82.35%
• Average winner: $109
• Average loser: $300
• Largest winner: $258
• Largest loser: $522
• Max. consecutive winners: 15
• Max. consecutive loser: 6

 

A few other things to consider about this month:

1. I didn't start trading live again until the second week of February. Before that time I was trading on my simulator in an attempt to work through some issues and get better.  I also had my appendix out.
2. My goal at the beginning of the month was to get my simulator account balance back to break-even, which is $100K.  I started the month just over $94K and I ended at $102K trading my same strategy and only controlling one contract at a time.
3. I think the big draw-down I caused is actually turning out to be one of the better things that has happened to me. As long as I don't let the fear it caused stifle my progress, I think I will look back some day and point to that day as a huge step forward for me.  Not to get ahead of myself or anything...
4. Another lesson that I am really starting to learn is to trust my plan and simply execute it.  I don't need to worry about losing so much. Shit will happen and when it does I just need to deal with it sans the panic! 

I am anxious heading into March because I have high expectations for myself.  However, I will continue (as always I hope) to trade with caution and focus on taking small steps rather than giant leaps. Patience is the key.

Out.

Thursday's Trade - Too Much Caution?

The market traded in positive territory for a while this morning but on very little, if any good news. In fact, most of the news was actually negative so I didn't trust the tapes and as the result stayed in cash while I waited for the bears to regain control, as I expected would happen...

The longer term charts (daily, 60 & 30 min) were all suggesting lower price action and the short-term charts (15, 5, 3) were mixed but pointing lower. Additionally, price on most of the charts was still well below the 200 period moving average so again, I decided not to place any long trades in the morning session.

To be perfectly honest though, I didn't really trust the bearish action either so my indecision basically stifled me today. Having said all of this, I did see several set-ups that I would have taken if I wasn't so indecisive and cautious. And all but one of the set-ups ended up being profitable.

My account is underfunded so my margin for error is very small. I could add some capital to provide myself with more room for mistakes but I am too competitive and stubborn.  I recognize this could cause more bad than good but I believe I can make it work so I am not going to give in and add capital to my account at this point.  So in the meantime, with "too much caution" is how I have to trade.

Perhaps however my caution will cost me cash in the short-term but hopefully it will increase my odds at making it in this business for the long haul. I just need to continue to get comfortable with the idea that I am going to miss some great trades in the near-term but if that keeps me out of some disasters (like yesterday) then it is totally worth it.  Okay, I feel better now.

As for today, I placed four trades and booked 3.4 points on the mini Russell (TF) using single lots. All of my trades were profitable and this is what my sequence and chart looked like:

1. $60
2. $190
3. $50
4. $40 

One more trading day left in the week and month - I plan to do everything I can to end on a positive note!

Out.

Book Review: Short Term Trading Strategies That Work

Short Term Trading Strategies That Work by Larry Connors

I give this book a generous two out of five stars due to a lack of detail.

I decided to purchase this book after having read a great article that was co-authored by Larry Connors in the February 2008 issue of Technical Analysis of Stocks & Commodities that I thought was well done. When Connors’ book finally arrived my first impression was disappointing.  The book is about as thick as a magazine and it is written on 8x11 sheets of paper with 12-point font and generous spacing.  After having just spent $50, the 125-page book seemed somewhat of a letdown. As I flipped through it I noticed that on several pages there were only three paragraphs of writing and sometimes a page with only a giant chart on it.  It actually reminded me of a high school term paper that stretched one page of information into three just to make it look big.

But I know not to judge a book by its cover or how many words fill a given page so I sat down and gave it a read. It only took me an hour or two to finish and when I put the book down I felt that I had learned a few interesting ideas worth further testing but overall, I also felt that there were a lot of holes in the content.  Again, I was disappointed.

Chapters two and three, which together only comprise seven pages basically say the same thing: buy pullbacks. This definitely is not a new secret so I was baffled as to why it took two chapters to make this point.

Chapter four also points out what I found to be rather obvious: buy stocks that are trading above the 200-day moving average.  From a statistical standpoint, prices are more likely to continue rising if they are above its 200-day moving average. Of the seven pages in this chapter, five of them show one huge chart that further demonstrates the point.

Chapter five is two pages and it talks about using the VIX with a simple moving average to help time entries and exits.  Connors shares an interesting, yet simple strategy and closes the chapter.

Chapter six suggests that the use of stops actually hurts trading performance.  I happen to agree with this to a point. Unfortunately, Connors does not provide any alternative suggestions or strategies so his observation isn’t all that helpful.

Chapter seven points out some statistical evidence that supports the idea it is actually better to hold positions overnight than simply buy on the open and sell on the close. That’s it.

Chapter eight essentially rehashes the concepts already pointed out in chapters two and three: buy the dips in an uptrend; sell the peaks in a downtrend. Connors provides some back-testing results to further validate this strategy, which was interesting but again, not earth shattering by any means.

Finally, in chapter nine, Connors talks about a few interesting strategies using the RSI indicator.  I also use the RSI and it is one of my favorite indicators and has helped me make money in the markets without question. I found this chapter helpful but still lacking in detail.

Chapter ten talks about a “Doubles” strategy that capitalizes on the idea of buying low and selling high in the direction of the underlying trend.  This is the strategy that Connors wrote about in the February issue of Technical Analysis of Stocks and Commodities as applied to ETF trading.  Ironically, his magazine article was much more thorough and interesting than the chapter he dedicated to it in his book.

Chapter eleven suggests that it is better to buy stocks toward the end of the month. He posts a few charts to illustrate the point but it is as simple as that.

Chapters twelve and thirteen talk about ideas to help time entries and exits.  The reader has to wait until chapter thirteen before getting any alternative ideas on trading without having to use stops, which should have been included back in chapter six.  I actually found both of these chapters of interest but once again, helpful details were lacking.

Chapter fourteen talks about the psychology of trading via an interview Connors conducted with a friend of his who is a retired Navy SEAL. It was interesting to read but did not provide any eye-opening thoughts and ideas.

Chapter fifteen sums up the entire book in three pages using sixteen bullet-points.  This chapter IS essentially the book.  If you read this chapter and nothing else, you would walk away with as much information as the person who took the time to read a handful of paragraphs and look at some aggressively sized charts.

In summary, I would recommend this book for anyone just starting in the trading business and/or the trader who can’t seem to trade profitably with any sort of an edge.  The book will serve as a starting point and nothing more. An experienced, profitable trader should pass on this book, as you are sure to be disappointed.

Profitable In An Irrational Market

Good Lord! What is it about the market right now that is just stupid? One minute it is trading into new lows and the next minute it is about to trade into the day's high.  For the love of turbans and taxis, I can't seem to figure it out! But that's what I love about it: one minute I'm about to blow my account and the next I'm starting to plan a early retirement. You can't beat that!

I suppose the lesson is this: you can never be too sure because the market is irrational, especially in the short-term.  I mean seriously, Obama can smile and the market will shoot up 2% but when we find out he was simply trying to pass an arduous fart, it will drop precipitously and without warning. 

Fortunately for me, I decided to switch over to my simulator just as news came out stating the big banks can have access to more of us commoner's cash. And so the market rallies on the news just before it falls back to where it began. Totally rational.

As for me and my trading, I had been watching for short entries all day on the mini Russell (TF). I found eight that I liked but I only took five.  All eight were profitable, including the five I took.  That kind of pissed me off a little because the same thing happened to me yesterday but I figure my caution finally paid me back and then some by urging me to close down and practice some more on the simulator before what would have been a disaster.

I finished the day up 8.1 points, trading single lots.  Lovely. This is what my sequence looked like:

1. $190
2. $220
3. $40
4. $160
5. $200

This brings my account back over break-even and this time, I am hoping to keep it there.  But, as today goes to show, the market is always willing to take your cash back even faster than it gave it to you. It's all about money management so I plan to continue with my conservative ways and hopefully that will be enough to keep me in the game a while longer.

Here are my trades. Enjoy!

Five Signs You're About To Lose Money

1 - The louder you scream at your monitor, the further price moves against you.

2- That damn stop loss keeps getting in the way.

3- You can't seem to stop uttering, "What the f#^ck am I doing?!"

4- You catch yourself praying to God even though you're an atheist.

5- Just as you place your order, Jim Cramer comes on CNBC and makes the very same buy recommendation!

...I just got out of one of those trades!

I Hate Today!

Screw this nonsense! Just before 1:00 my time (it's always my time) I passed on two trades because I didn't trust the market even though my indicators were screaming at me to enter.  It's this damn fear of trading I tell you! Ever since Thursday when I ended up getting caught in a squeeze, I have been paranoid as hell and it is driving me nuts! Those six effin' trades really screwed with my psychology and I can't seem to shake it; it's like a bad girlfriend who just won't get the hell away!

And I almost got caught in another squeeze today...actually I did get caught in a squeeze but I fortunately got out just before price took off again. That was a really frustrating sequence of trades and I was relieved to get out of it.  I nearly exited twice due to my lack of patience and fear for loss but somehow I got control of the demons and held on without breaking any rules.

That said, I placed three trades today and two were winners.  Total gain on the day is $50. That is definitely much better than a loss but it still stings because I know I left some cash on the table as I tried to trade cautiously. But I still I hate today for being so frustrating. Price crossed the 200 period moving average (on the 3 min. chart) 13 times.  13 times! It was nearly impossible to get a comfortable read on the direction, at least in my opinion. And based on how the markets have been trading lately, it is always prone to just fall off a cliff at a moments notice and I'm just not in the mood to have a seat on that ride.

And then we have Bernanke telling Congress that the recession may end this year.  Really? Anything could potentially happen this year.  But in this case, all we need is for the "credit and financial markes to operate normally". No shit.

We were due for a short-term correction so here it is. I could see another couple of days of progress but I remain bearish on the overall economy and I will not be surprised if we continue to trade into fresh lows in the coming weeks and months. Hopefully by then the credit and financial markets will almost be ready to operate normally.

Anyway, here is my chart for the day - all three trades of it!

Out!

mini Russell (TF) Daily Ref. Sheet - Feb. 24

Overnight High: 403.20
Overnight Low: 397.80
Yesterday's Close: 398.20
Today's Open: 398.40

Daily Pivot Points:
R2 - 427.67
R1 - 412.93
Pivot - 403.47
S1 - 388.73
S2 - 397.27
S3 - 355.07

Economic Calendar:
Home Price Index - worse than expected
Consumer Confidence - worse than expected
Bernanke's report - mixed
More earnings are out today.

Key Support:
Yesterday's Low - 394.00
7 day Low - 394.00
30 Day Low - 394.00

Key Resistance:
Yesterday's High - 418.20
Weekly High - 456.20
30 Day High - 474.20

Morning Trends:All morning trends (daily, 60, 30 15, 3) are mixed but with an upside bias.

Check List:

• Review yesterday's trades
• Set daily goals/objectives
• Make sure the DOM is ready to go (brackets, trailing stops, contracts, etc.)

Today's E-mini Trading Performance

Well, today was not my best day ever but I did manage to turn a profit. I had a hard time not trading with fear due to last week's collapse.  I tried to overcome it and just stick to plan but I have to admit, I was nervous today and it was irritating.

I placed seven trades during the session and five were profitable.  The total gain on the day was 3.5 points - net $333.20 after commissions.

My account balance continues to move in the right direction so perhaps I will be able to recover last week's loss sometime in the next couple of days.  This said, I am trying to trade conservatively and without being overly concerned about how long it takes me to recover my losses. At this point, my biggest focus has to be on protecting the capital I currently have and the rest will take care of itself.

The day started a little rough because I couldn't seem to get a fill on a few of my entries. I didn't want to chase prices so I decided to cancel a few orders when it was clear my fill price was not going to get hit, which I think is the right thing to do. However, in every circumstance, price went on to take out what would have been my profit target so my patience cost me some cash today.  Sometimes patience works for or against you but again, I think trading with patience is always the right decision considering that it is impossible to know for certain what the tape is going to do in the future.

A few stats on the day:

• 71.43% profitable
• Max. consecutive winning trades = 4
• Largest winning trade = $137.60
• Biggest losing trade = $27.40
• My profit factor = 7.08

Here is my 3 min. chart with all of my trades:

In terms of market direction, after today's trade, it looks like we are in for some more price drops before we see any short-term correction. There are some significant reports coming out tomorrow - the Home Price Index, Consumer Confidence, Bernanke's Policy Report, not to mention a slew of earnings announcements. I am expecting to continue trading with a short bias as prices will likely continue to drop tomorrow.  

Soldier On!

mini Russell (TF) Daily Ref. Sheet - Feb. 23

Overnight High: 418.20
Overnight Low: 407.20
Yesterday's Close: 409.20
Today's Open: 407.30

Daily Pivot Points:
R2 - 424.13
R1 - 416.67
Pivot - 408.83
S1 - 401.37
S2 - 393.53
S3 - 378.23

Economic Calendar:
Several earnings are out today.

Key Support:
Yesterday's Low - 401.00
7 day Low - 401.00
30 Day Low - 401.00

Key Resistance:
Yesterday's High - 416.30
Weekly High - 456.20
30 Day High - 474.20

Morning Trends:
All morning trends (daily, 60, 30 15, 3) are pointing lower and with momentum.

Check List:

• Review yesterday's trades
• Set daily goals/objectives
• Make sure the DOM is ready to go (brackets, trailing stops, contracts, etc.)

Market Analysis - Bears On Parade

Based on the following charts, my opinion on this upcoming week is bearish although a short-term correction to the upside is probable so I will stay alert to avoid any short-squeezes.

There are several earnings announcements and a few key economic readings due out this week. I suspect the outlook will remain bleak but the markets are showing some oversold readings, so any good news or even bad news that isn't that bad could direct some short-term consolidation before the next push down. Tuesday, Thursday and Friday look to be more meaningful days in terms of potential market moving news.

I trade the mini Russell futures contracts (TF) so it obviously makes sense to watch what the underlying index is doing. During the last four months a significant triangle pattern formed, which was touched six times before price finally broke out.  Similar patterns also formed on the other primary indexes, making this pattern even more substantial in terms of downside potential. Prices on the $RUT are trading below the 200 and 50 day simple moving averages, which further increase the probabilities for more price drops. However, in the near-term, there is potential for a short bounce before the market heads lower, assuming it will. Friday's trade formed a hammer pattern (it is weak in my opinion but the lower shadow is twice the size of the body so it qualifies as a hammer) and RSI is currently showing an oversold reading. RSI is currently reading at a key support area that has been touched several times before short-term rebounds. I'll be watching both the hammer and the RSI on Monday.  A close under the hammer's lower shadow negates the hammer pattern and will suggest more price drops in the near-term.

The $VIX is also showing an oversold reading.  There is clearly a lot of fear in the market but perhaps too much in the near-term, which is another potential convergence of signals to suggest a short-term correction is near.

The $SPX and $COMPQ also show similar bearish patterns, which confirm the overall market direction for the next few weeks if not months.  Unfortunately, if the breakouts from the triangle patterns are valid and the measurement is legit, the market is poised to hit historic lows. This said, the $COMPQ still has two unfilled gaps suggesting again that perhaps a short-term correction is near but then price is likely to fall thereafter.

Takeaways:

1. Price is trading below the 200 and 50 day SMAs, therefore, bears are currently in control.
2. I am planning to enter the week with a short bias but of course the daily trend could reverse in the short-term but even if it does, I will enter long positions with much caution.
3. A short-term correction during the next week or so is likely based on current technical readings.
4. Do not be surprised if the markets continue to dip to and then beyond historic lows but hopefully a bottom will be found sooner than later.

Good luck!