My Trading Blog

I think I’ve lost a lot of money playing bald marubozu.  That’s because I am always imagining the three black crows pattern will develop.  I just read now that the crows pattern is rare.  I see now why most of the public loses their money doing what I am attempting.

Here’s an example of my poor timing.  I was looking at a higher timeframe.  Intracandle once the upper wick was formed and resistance of SMA(50) held I would have not hesitated going short.  After I entered with bad timing price went my way for a few pennies then reversed against me.   This is what they mean by the phrase “unsafe to enter”.  With a better entry I would have withstood the small move against me.  Thirty-five minutes later I could have cashed in.  I was pretty sure it was a ‘trend day’ and would have ridden the trend.  Exit condition was actually the formation of a bearish doji at about 10:15.  Before that point, there was an engulfing bullish pattern and then an even better engulfing bearish pattern.  The doji pattern, however, marked the low of the day at 10:16 (Transocean Ltd symbol RIG).  Taking the MACD crossing on its own would have thrown away 1/2 point.  The conclusion to all this is that when all is said and done the 1-minute chart seems to be best when you are trying to make profits within a few minutes.

I am now making observations that bald candlestick often marks the end of a swing.

Read some Larry Williams last night.  He has lots of strategies.  What has helped me, of course, has to do with what my expectations are.

I realized over the weekend that at my level I shouldn’t be using margin.  So I set some expectations based on my account size.  Last night I realized that I had been ‘forcing’ my trading so I did some hard thinking.

I imagined a really experienced trader and what I came up with is that he/she has lots of strategies in his arsenal.

I only have one at the moment and I want to get really good at that one and do 200 simulations and know what my expectancy is.

Eventually I will have several tested strategies but for now I should settle for small gains not because I’m new to the game but because of several factors:  1) small account size 2) only have one strategy to trade and 3) the opportunities may not be there.

I did learn one important thing as it relates to my current strategy.  In practicing the fade, I need to only take choice setups.  I need to be more specific about what these setups are.  My reading last night helped me to realize I do best in fading only violent moves.  I always new that the opportunity should just ‘jump out at me’.  That should filter out bunny slope moves as well as small moves.

I need to perfect my candle reading abilities, esp. those of reversal patterns.  There are many subtleties.  I don’t think you can learn candlesticks from just reading a book.  It takes dedication.  I am focusing on bearish harami, tweezer, dark cloud cover, piercing line, etc.  I was just now reading more about bearish harami and I see there are a few variations related to the colors of the candles within the pattern.

I just spotted a white/white bearish harami on daily chart of ConocoPhillips (COP).  Hadn’t really thought about that before.  I thought white/black combination was more bearish.

Either I have the knowledge or I don’t.  I can’t expect to win on Wall Street until I get it.

I made a good trade on Wynn Resorts, Limited (WYNN) yesterday.

As I review it, there was actually a shooting star there on the chart followed by a bearish engulfing.  This pattern occurred in the context of a violent move.  I wish I only had taken that setup.

I also learned shooting star has a few variations.  I also learned that I have to take the value of the Major Indices into consideration, not just whether market is going from a range to a trend.

Where the market is must provide some bias for entry.  For example, if INDU is resting at minus 100, I should have some bearish bias and be careful taking longs.  If INDU is at +100, I should have some bullish bias and be careful taking shorts.  I used to do that, but then I started focusing on trending versus ranging personalities.

So there are just a lot of inputs to consider.

The main lesson I must learn is that as a beginner with one strategy under test I shouldn’t expect returns over 100%, even 75% is awesome.  I have to keep in mind that if I am to get to the next strategy I can’t start getting panicky at lack of opportunities.

If they are not there they are not there.  DO NOT be the fish when they dangle bait at the public.  Wait for only the best setups.

If you click on the chart you’ll see what I’m in to.

I’m reading so many blogs and horror stories about trading and how long it takes to become consistently profitable that I don’t know who to believe.

What speaks to me this morning is this:  1) if you have been papertrading your system for weeks and have a positive expectancy then there’s really no reason you shouldn’t become successful when you go to real money and 2) treat trading like a business.

Now regarding treating trading like a business.  I have searched my soul and in that I have owned a few businesses I think I am starting to understand what this means.

I know that in running a business I am very happy to make a sale!  I also know that new customers can be hard to find and some days I may only make a few dollars.  (Let me try to go on with this–)

I know that I do not like incurring business expenses.  When the expenses are due to my own ineptitude I do everything in my power not to make the same mistake again.  I also know I have regular monthly expenses.

Here’s what I don’t do in my business.  I don’t expect a new customer every day.  I don’t expect an existing frugal customer to leave me in their will or give me 10x the work today than I got yesterday from them.

Sometimes there are no customers for four days in a row.  Then there may be a ‘flurry’ of work.

I cannot imagine ‘giving up’ on my business because I had a ‘disappointment’.  This is because I have commitment.

I cannot imagine losing money for a long duration either.  That would actually be insane.  Let me extrapolate.  This would be like giving a 100.00 bill to a customer for the privilege of working for them!  Why would I do that?? That is crazy!

That is the OPPOSITE of what a business is trying to do!

Can I make the connection to trading?? Let me try.  Gee my business is content right now with ’small amounts’ of money on a daily basis.  I have always given a priority to getting repeat business and referrals so I never ‘gouge’ customers with high fees (that would be like wrong position sizing!).  Gee, don’t I want ‘repeat business’ from my stocks?  If I am ‘greedy’ and charge my customers too much, they may 1) refuse to pay, 2) give me bad referrals and 3) never call again.  I am not greedy with my customers.

I think I’ve hit it:  I am not greedy with my customers -> I will treat my stocks like my customers.  I only want them to pay a little at a time.  Then I take that money and put it in the bank.  Do I knock on their door once I leave — don’t think so.  I do not nag them and usually do not call them.  I simply wait for the next call.

This is beginning to get good!

This is a jump for me ->  now I see the three most important aspects of trading:

1)  Maintain positive expectancy once achieved

2) Find plenty of opportunities

3) Treat trading as a business.

It’s easy enough to say “treat trading as a business”.   I am seeing yet another relationship now:

trading <-> psychology <-> perception of how one runs a business

trading <-> psychology <-> discipline

It’s easy to say trading requires discipline.  But trader will need psychological tools to accomplish this.  What I hope will work for me is having military-themed photographs around my trading desk.  I need to visualize somebody is there to serve as risk manager and what better imagery than the picture of a platoon leader yelling at me!

I believe being ‘mindful’ that trading is a business will reduce feelings of greed.  Compare and contrast emotions of your ‘other’ businesses with your ‘trading’ business.  Can you imagine getting so bent out of shape while working?  Think how silly that would be!

Then there is another relationship.   Confidence Level<->Trade Size.

If you are not confident trade small.

Another thought:   Capital Level<->Trade Size

Position sizing algorithm.  CapLev, ConfLev are inputs.  Trade Size is the output.

Confidence Level is an input to how big you can trade.

Proof that you do position sizing ‘by the book’ and your sizing is still wrong.

How about this.  Have no confidence?  Why use real money?

Last week I finally started using basic expectancy formula.  I found that at the end of each session my system had a positive expectancy.

During one session I experienced nine (9) consecutive drawdowns and still made money with the next three trades.

Each day during the week I watched the Major Averages harder.

I learned that the reason I had my nine (9) consecutive drawdowns was that I was going contra on a trend day.

At least now I know what a trend day looks like!  It is not rocket science.

So I have learned the very important lesson of context.  I believe on one of the CBOT tutorials they said you shouldn’t take contra strategies when the market is trending.

Sounds simple, so why did it take me so long?

Because there’s so much information out there and I don’t have a mentor and I don’t trust anyone pitching seminars or trader ‘education’.

Anyway, I have a setup and I am now starting to learn how to wait for it.  To come to this simple point also took me two (2) years!

I have been reviewing trading sites and a lot about stops.  The sin of moving a stop to allow the stock ‘more room to breathe’.

Last time I had a big trading loss it was because I kept moving my stop, just ‘hoping’ the trade would go my way.  Classic mistake.

After that, I decided to go on the simulator and finally record my expectancy.  Smartest thing I ever did in my trading career.

It all ties together.  Because I know my expectancy is positive, I know I don’t have to ‘adjust my stops’ to make money for the day’s work.  I know that since I am now profitable, my stops are okay for now.  Let the trade go against me and take out the stop.  Who cares.  After all, I have seen days of nine (9) losses in a row and know that if I take the stops I can still post a profit at the end of the day (given there are enough opportunities).

Gee that’s very interesting.  I was just looking at a website where they are hiring traders.  They actually have it specified what the max position size is for traders at every level from “associate” to “elite”.  The first level you are limited to 500 share lots and the second level you are limited to 700 share lots.

I am trading between 500 and 1000 share lots which puts me in the first half of their traders.  I try to take a position size so I don’t have to use margin.

Anyway, I think my most important thought is this:  it is easy to say “stick to your stops”.  Sticking to your stops, I believe, goes hand in hand with confidence level.  If you have no confidence you fear that you will lose another trade and will be a failure.  If you have confidence, you know that probability favors you will meet your expectancy number.  You know that you are a profitable trader.  You know that you can take nine (9) drawdowns in a row.

You have to trade day in and day out, even if only on a simulator.  Someone told me recently:  “A simulator — you can learn to fly a 747 on one”.  There doesn’t seem to be enough on the web about trading in simulation to develop a system.  There’s so much more on ‘backtesting’.  Even the ad on tv says “backtest, backtest, backets’.  I think it’s another lie.

I finally read tonight:  intraday traders rely more on patterns than they do on indicators.  Aha!  i JUST knew it!

So confidence is one article and keeping your stops are another article.  Now look at the correlation of confidence to one’s ability to keep stops.

The vix is one article and wait for the best setup is another article.  Now combine the two — make the vix part of your setup.

You better use more than one timeframe is one article and just how to do that is another and don’t mix your timeframes is another one.  Now realize there are players in each timeframe.  Realize prices on one timeframe can ’swell up’ and affect a shorter timeframe.

Tell me about confluence, sure, but why not tell me “confluence of indicators, of Eastern and Western analysis methods, works because you are riding with ‘multiple herds’.  There’s a ‘herd’ in each timeframe.  I bet there’s a five-minute candle herd, a daily candle herd, and a 15-minute herd.  When you leverage multiple timeframe analysis, what you are doing is becoming a member of each ‘herd’.  Why not tell me that?

I’m re-reading my trading books, and starting with a Velez and Capra classic.  There’s a lot of good stuff in the beginning chapters that I missed on the first read.

I hate it that they say 95% of traders fail.  I believe the main reason is that novices can’t stand losing a trade.  They don’t minimize their losses.  But the books need to write more about why.  It is because they don’t have a winning system yet — therefore they don’t have confidence.  Therefore they don’t have confidence that the next trade could easily make up for many losses.  The beginning books don’t emphasize enough the need to wait for setups.  The beginning books don’t emphasize enough how to find a setup.

It’s all intertwined. If you don’t wait for a setup, you may try to scalp for a few pennies.  If you are doing that, I truly believe you are competing with black-box trading and you will not win.

The beginning books should teach you how to find good setups.  I knew a lot about technical analysis but could never find a textbook setup.

This is gathered from all the scraps of paper around the office.

“Multiple TF correlation, correlate with INDU/SPX for timed entries, use S/R for signals to go contra”

“Scale In”

“Practice timing entries — over and over”

“Use contra trend strategy only”

“Only take the best setups — ignore the rest”