jasont

I am actually disappointed I didn't read about Hlm's intentions of creating a thread on the topic himself prior to posting this thread. I believe Hlm can do a better job than myself in explaining market his application of Market Fractals. In fact the discussion you two had in the thread is probably more along the lines of what I hoped might have developed here. PS. I am more than happy to let this one die if Hlm wants to create another one.

This is a different start to the topic than I imagined. I was actually hoping traders would have spent more time talking about their own concepts of market fractals or multiple time frame trading than get hung up on my concepts. It isn't a black and white area which is why it would be good to see many different points of view. Db, what I am saying in regards to a reversal being a breakout, at any one time a larger time frame appears to show a reversal, there is a range built at the top/bottom in a smaller time frame. This could be on a single tick chart, a 5 second chart, a 15 minute chart if one was trading weekly possibly. It doesn't really matter. I guess we could sit here all day debating what a range is as well as what a breakout is. My definition of a breakout is a move out of a range if the market is ranging, or a move beneath the last swing low if it is down trending and a move above the last swing high if it is up trending. They may not be textbook explanations but to me they are the points that are needed to make the market go beyond sideways. I didn't go into detail on how I trade this exactly as I was hoping it would become a concept thread as the concept is much more important than how I or any other trader trades it exactly.

I wanted to discuss this as it is something I have found to be used by just about every successful trader I have conversed with yet is something not extensively spoken about. At least I haven’t seen a solid thread about it thus far in TL so I thought I would get the ball rolling. Obviously we all don’t trade the same so I welcome all the traders who use different time frames to post here (I know numerous from the forum) and explain their ideas about market fractals. I will start and get the ball rolling but I am actually more interested to see the diverse thoughts and beliefs on the topic. For me trading market fractals is based upon ranges and breakouts. Majority of the time the market rises, forms a range, breaks out of the range and declines. It then forms another range, breaks out of the range and rises again. This is best understood by picturing waves in ones mind. Of course there are times when the market reverses without a range but I don’t trade those so will leave it to someone else to talk about. Why are different timeframes based on ranges and breakouts? This actually took me longer than it probably should have to figure out. At any one time when the market is ranging, it is breaking out of a different timeframe. The same is applied to any one time when the market is breaking out, it is ranging in a different timeframe. I have posted a couple of examples below with annotations that should help understand this concept. The magnitude of importance of this concept managed to elude me for a long time because it wasn’t explained to me in black and white and was something I learnt through extensive screen time. Of course traders always said, “don’t trade with just one timeframe, keep an eye on numerous ones”. Heck if they had of told me that reversals are breakouts it would have made life much easier. So going into further detail… Many successful traders advocate using at least 3 timeframes to trade from. Do I need to be so obvious to state a small, middle and larger timeframe? So why 3 and not 5 or 10? Well psychologically we tend to like things in 3’s but some traders might use more. I personally use 5 timeframes and 2 different volume charts. Made up of 5 second, 1 minute, 5 minute, 15 minute and daily charts as well as 1000 volume and 50,000 volume charts. Are these timeframes better than others, no. They are just ones I like. I use a few more than others, some I just glance at a few times per day. Others I watch constantly. Why is this important? Well at any one time the 15 minute chart could be ranging but the 5 minute chart is rising yet the 1 minute chart is falling. This sounds confusing if you think about them all at once doing this but it is thought of in comparison to their past movement. So the 15 minute chart could be ranging within 15 points but the 5 minute chart is in an uptrend to the high of the 15 minute range. At the same time we are seeing a standard pullback in that 5 minute uptrend which is seen by the 1 minute chart falling. New traders may be reading this scratching their heads just as I did prior to understanding the concept. I do suggest after reading this post and hopefully others in this thread, that you go dwell on this a little and let it sink in. Let’s keep going with the above example. One could be trading all three scenarios at once if they were aware of them all. I don’t advocate doing such a thing but it is possible. One who isn’t aware of these scenarios is pretty much lost. I say this because if one is trading the 1 minute chart decline, if they don’t realise they are in a 5 minute uptrend they may not look to take profits at the first sign of continuation of the 5 minute trend. The trader riding the 5 minute uptrend may not realize there is resistance at the 15 minute range high and not be ready to reverse his position should it be respected. At the same time he may not know to add to his position on a solid break of that range high. Hopefully those new to this market fractals concept has had a light bulb go off in regards to reversals and breakouts. A reversal is in fact a breakout in a smaller time frame. Let’s say the 5 minute market has hit its high and stays there for 3 bars or 15 minutes. On a 1 minute chart the market has likely made a range at the high. A breakout to the downside on the 1 minute chart is not represented as a breakout on the 5 minute chart. In fact the last low could be 6 points away from the top yet the 1 minute range breakout could be 2.5 points from the top. Therefore it doesn’t make sense when traders say you can’t trade breakouts in such and such market. Many traders say trading breakouts in the ES market is not a good strategy, well they probably just don’t realize they are most likely trading breakouts on a smaller time frame but don’t even realize it. I made this post a bit longer than I expected but I do hope some other traders share their expertise in trading different time frames as it is a valuable concept for many to learn and understand.

I was trying to avoid getting involved in this conversation as I could see merit on both parties. I thought I could see some credibility coming in on both sides but after doing some looking over I was skeptical of your credibility 86834. Not because you may be a new or old trader but because you have been talking about things which implied you have worked in a prop firm for an extensive period of time. However, I checked out your very first post on this forum, I consider myself to be good at analysis, because the first post most people make is often a question about something. Yours was "Anyone trade mini gold, if so what session times are you using?" found here :http://www.traderslaboratory.com/forums/f3/anyone-trade-mini-gold-3820.html#post35474 Now I am not trying to make you out as a liar or anything but I am skeptical that someone who has been running their own private prop firm needs to ask about the E-Mini session times on Gold in a forum. Note the date of your post. I am trying to enforce the fact to many new traders that everyone on this forum should be taken with a grain of salt. Unfortunately on a forum like this it is too easy for people to appear to be something and new traders get pulled in by the aura of awesomeness. Unfortunately many of the same people don't take Kung Fu Panda's approach as they charge for awesomeness.

2009... The start of a new year is always a good time to assess past goals and develop new ones for trading as well as other areas of life. It is also a good time to look at the year ahead and prepare oneself for what may lie waiting in 2009. I'm not one for predictions on what we are likely to see, in fact I don't like trading in such a manner as it encourages me to close my mind to possibility. Instead I like to look at what things need to be considered in the future and act accordingly when we meet them. I guess 2009 is going to be a very interesting year right from the beginning. We have a new president hitting the US on January 20 which no doubt is the biggest pre known news for the year. Not necessarily the fact that there is a new president but more so the speculation surrounding the actions the new president will take to deal with the current economic situation. One can't help but wonder if we have seen the worst of the credit problems. Personally I have no idea. There is commentary going around that many loans have not yet matured to their "stupidity" interest rates so there may still be banking institutions producing poor results for quite some time. What I find most interesting about the current situation and the impact it could have in 2009 is the chain reaction effect. In the early 90's with the housing decline, banks found themselves in poor position and for memory were bailed out then just as they are being bailed out now. Funny how the banking industry can take on massive rewards but when the risk hits the fan, the government kisses their ass. It does make you wonder if the theories behind banks holding more control than governments has much more merit than suggested. So banks have contracted and well it is has been in enough headlines to make you bored of it. Interesting part is that the contraction of the banks officially stooges many other industries and causes a chain reaction of poor business conditions. I guess one could picture the current economic structure as a pyramid with banks at the top. If banks topple, everything underneath has no chance of survival. Obviously the governments know this and is why they bail them out so hastily. I know of quite a few people who are being laid of in positions that were directly related to banking. That is understandable that they would be laid off. However then there a few people in the construction industry in Australia that have seen job cuts. Apparently industrial constructions are being put on hold because the bank won't lend them the money they had planned on to build the buildings. Banks have reduced the loans they have been giving out and I even notice myself the reduced number of letters coming from banks wanting me to bank with them. Less people are being accepted for loans so less people are purchasing vehicles. This impacts the dealerships as we have already seen which in turn effects the manufacturers as we have also seen. So we have seen the demise of housing and construction as well as manufacturing and auto dealership. So many jobs have already been lost and that is where I think we are heading into 2009. There is talk going round about the retailers being in trouble now and that is only logical. As there are so many jobs hit thus far and everyone is aware of the current problems they are spending less. To me it will seem to create the same problems as it did in the auto industry. Less items purchased in retail stores is likely to result in less goods being manufactured for those stores. Not to mention now that many retail stores probably have debt built up from the "good ol days" when they looked to expand. "Starbucks" comes to mind. So as a result of the stores contracting in sales and likely contracting the number of employees, we then see even more people unable to spend. Of course there comes a time when we realize we can't contract anymore than we already have as the demand for goods is finally met by the contraction of supply of those goods. In fact I am more inclined to say that demand could eventually surpass the supply as it continues to decline in the face of bad conditions. I guess that is the point at which people begin paying more for goods and the economy can start building again. Will that happen in 2009? It could, and I won't count it out but I am highly skeptical of conditions improving any time soon. Depression? Who knows. There are plenty saying it's not possible, we are smarter than we were in the 30's. The same people said we were too smart to get into recessions in 2007. Where do I see the markets going in 2009? No idea. Longer term charts still suggest we are moving down. Shorter term charts suggest signs of life on the buying side. I guess something I have learnt this year is that markets first turn on their shorter term time frames when looking at them from a fractal point of view. Though whether or not this shorter term buying is nothing more than a pullback in a longer term downtrend still is yet to be seen. Just something to keep an eye on. Where to from here with my own trading? 2008 was an interesting journey where I traded mainly from a price action standpoint. I hit some bumps in the road after we hit August and it was then I realized I wasn't defining everything I did in my plan. I took some time to learn about the most important elements of trading which were risk and money management. I thought I knew all there was to know about these areas but I was surely mistaken. I came back with a method of trading which was based upon momentum. I hit a rough patch in the market which made me realize that although a great method of trading, it didn't suit the conditions. I was then directed towards a method of being able to define price action in a way that suited my previous PA methods of trading. This I believe has been a massive help in my trading and I feel as though things are coming easier to me. This game will never be easy but knowing what I am doing, when and why, I at least can have confidence in my consistency. I owe a massive thank you to a guy who has helped me immensely in the latter part of 2008. Someone who didn't owe me anything and didn't know me from a bar of soap but has been kind enough to give his valuable insights into the markets and trading in general on a regular basis. I'm not sure if he reads this journal but if he does he knows who he is and my hat goes off to him in a huge way. So 2009 marks the "Nike" era. The foundations have been laid and tested. For the year ahead my focus is "Just Do It" which implies following the plan as consistently as a human can. There are going to be rough times and good times. I will do my best to make sure the good times outweigh the bad and that I don't let the rough times get to me. It's all part of the game.

Understood Db. I agree that there were opportunities for trading and that obviously traders were there. I suppose it just comes down to what one looks for in a market and what their requirements are.

Honestly this conversation is about as productive as suggesting one should trade FX because it makes big moves more commonly than Futures. The lure of the ES is that some people, myself being one of them, is that they understand its movement better than other markets. Hence they can pull more money from it than other markets, independent of how much that particular market moves, in a range sense. The market traded really is obsolete if one can pull money from it. All that really matters is that one can consistently pull money and then size positions accordingly. Let's not forget 10 YM points and 2.5 NQ points equal 1 ES point. But really, who cares how much it moves if one can pull consistent funds from it. I placed a couple of simulation trades yesterday to keep my mind sharp over the break. There was points to be made but I am the first to say it was painful waiting for things to set up as it resembled grass growing. 5.25 points movement on the ES in 45 minutes and 7.5 points movement in the NQ is hardly riveting. That being said, there were points to be made. The pits yesterday were less than 30% full, really I don't think anyone could expect anything more until next week at least. In all fairness Db, my opinion is that this week being the end of the quarter is no different to last week. All the big guys have tied up their loose ends prior to last week and are now on holidays. Also, isn't resistance and support made by the players in the game? Therefore if the players who are trading according to that support and resistance aren't there, wouldn't that make it less important to trade?

In my opinion Susana the only thing that will really improve your win% is your money management. If you your plan has you entering at market extremes say, 50% of the time, that will only be half of the equation. Even though you may have got the top or bottom 50% of the time, you could use a smaller target to take profits 75% of the time if you exited at 1 point for instance. I am not suggesting you exit your trades at 1 point gain but more so look into exiting part of your position at a smaller interval as this generally increases win%. So you may look at trading a 3 lot system instead of your two lot system. It could simply be an added lot on top of what you already trade so you're not negatively affecting your current results but taking advantage of a higher win% on a smaller portion to add further consistency. Or you could in fact make the added lot a bigger sized portion of your trading as it provides improved consistency whilst using the last two positions to take advantage of the bigger picture. Just my opinion but is usually something many traders tend to over look when thinking of improving their win% or risk vs reward ratio.

The Doctors Orders... I have been absent from recording my journal publicly over the past few weeks. Reason being that I wanted to get my thoughts down without the filtering which occurs when I know others will be reading. It has been an interesting time but one I believe has begun the process of good growth. I have been trading but not over the holiday period as the lack of regulars makes for a market that I am not familiar with. As an example it is like playing basketball against the same team for 8 months or so and then all of a sudden they team you have become so familiar with playing against is changed for another team. Many traders who have been at this long enough know they are trading the people and not the little candles or bars that are on the screen. Considering in the ES the big guys are the ones moving the market, when the big guys go, it is time to have a break with them. So during my time away from the market I have been playing some poker to keep my mind sharp. I personally find myself to be a better poker player than trader. This intrigued me as I find, as many other traders have also found, that there are numerous similarities to playing poker as there is trading. I'm not going to go into them as anyone who both plays poker and trades know what they are. However what did interest my was my difference in psychology whilst playing poker to what it is whilst trading. Interestingly enough I managed to find the route difference between why I could play poker better than trade. The problem wasn't a matter of analysis as that is my strong suit in both trading and poker. The problem lies with letting winners run and not cutting losses too short. In poker one can choose to play a hand or fold, unless they are playing a blind, they can do so without any cost. A similar position is seen in trading as we wait for trades to present themselves. Staying out of the market costs nothing just as folding poor hands before paying the blind in poker. Now should one be forced to pay the blind or get good a hand they wish to play, the risk is paid up front. This is where things get interesting. So when a player in poker finds a hand worth playing, his fee being the blind or calling to see the flop has been paid. This is gone unless the player wins the hand. There is no point mustering about paying this fee or any reason to hope it back. Any money in is psychologically deemed lost by myself. Now in trading when one enters the market, nothing has been paid beyond brokerage. A stop loss, I would hope most use one, is in place however I don't seem to deem it as gone or lost to the market. This presents an added psychological factor in trading that I don't consider in poker. In poker when I decide to pay the fee to see the flop I am only thinking of winning. There is no reason to think about the money already in the pot as it is gone. The only consideration I have is to either quit where I am or analyze whether or not my cards are good enough to push for the win. In trading, when I decide to enter the market, I have not yet lost my upfront cost. Therefore instead of only thinking about winning, I am also thinking about lowering my risk. I guess this mentality has been encouraged by the many traders that advocate if you are wrong, don't wait for your stop to be hit. Unfortunately I take that to the extreme case and don't wait enough time for my trade to show me gains on many trades. This obviously is the case of concerning myself with the possible loss when I should be focusing on the possible gain. At least when trades are going in my direction. Thus the importance of bringing a stop to break even once the market has proved me correct according to my plan. This doesn't mean I don't enter a trade without thinking of possible loss but more so entering the trade already knowing what I need to see to be proven right. That way I can enter a trade with the mindset that I am likely to be wrong but letting the market show me I am right. This relates to my poker where I pay to see the flop. In trading I am getting in knowing what I need to see to prove me right. Obviously if that doesn't occur I hit the exit quick sticks. I already know exactly what I am putting upfront even though my stop may be further back than where I am looking to exit. Just like in poker when you know your cards are duds and the other guy has a killer hand, you don't hope that it turns around. You fold your cards and move on.

I hope you don't mind me jumping in on the convo Db but from the above are you suggesting Wyckoff and/or yourself would typically stick with the abvove mentioned trade on a breach of the supply line if it didn't breach the lsh? If that is the case, what reasoning would one have had to hold on at the 1200 level where FW highlighted in green? I presume a supply line (had it been drawn according to this 1 minute chart) would have been breached and the lsh was also breached.

When considering PA, in my opinion it is important to make PA in relation to something. By that I mean I have only found price action to be valuable in relation to volume, support and resistance areas, trend lines, moving averages, vwap's, market profile... the list goes on. Price action is like your driving your car and everything else is the street signs. If you use support and resistance areas, you are looking to see how price reacts at those areas and inbetween those areas. They are your reference points and once you have those, price action becomes a little easier. The same can go for Market Profile, I am a relative noob with the MP but from what I understand, one might use the yesterday's value area, should we be trading within it today, for their range based trading. When the market moves out of that Value Area they might utilize their trend based trading. In past experience, looking at price action without looking at it in relation to something else leads to a lot of confusion. I found myself driving around in the car without looking for street signs to tell me where I was and was lost. It has only been since I have looked for directions with the street signs that I have understood price action.

Humbled Yet Again... I honestly can't say I have had more winning days than losing days in my 3 years of trading. In fact I have had so many losing days that losing seems to be the expected outcome. Sort of how we become conditioned to things through constant exposure. Last week I took two losing days that equaled a net loss for the week and that prompted an early stoppage of trading for the week. During my shortened week I have been getting some great advice from a very generous guy who has helped me immensely. He has helped me figure out a way to trade the way I was previously using price action but placing it into rules that can build consistency. So during the past week I was going through different ways of trading price action the way I used to and coming up with different exits etc. It has been a major help and has allowed me to trade a strategy with reduced risk. This doesn't mean I am discarding my previous momentum strategy as it is very effective during the right periods. In the current market it is getting whipsawed out, so I am putting it on the shelf until we see a reduction in volatility to roughly the 20-40 point area on the VIX. Ideally by that time I will be effective enough with the price based method to incorporate both methods. So during this week I have been trading my price based method with nice results. I do find it a bit harder to stick to the rules during quiet periods as I believe my own boredom gets me into trouble. However, Monday and Tuesday saw positive results even with a few dud trades in there against the rules. Had the dud trades not occurred I would have made roughly double the gains. Yesterday on the other hand was a bitch of a day. I followed the rules most of the day and was getting cut up left right and center. Anyone who trades pullbacks rather than reversals will know what I mean about yesterdays market. I did pull some profitable trades too early which has become something to work on for tomorrow however with this method I am looking for the market to prove me right rather than wait for it to prove me wrong. I do numerous rules that guide these exits which is much better than I had previously with my price action based trading. The one trade that irritated me was a long trade towards the end of the day. This method is based around waiting for volatility to contract on a pullback near support or resistance areas prior to entering a position when it confirms the area. Unfortunately the setup occurred however I didn't wait for the confirmation and I got in early. I was whipsawed out of the trade only to see it then confirm the trade and take off for a few points gain. Two lessons I learnt from that particular trade was firstly, wait for the confirmation to occur prior to entering the entry order. That is extremely important and is there to remove the trades that get made during volatile movement back and forth. Wait for the volatility to subside which equates to buyers or sellers meeting more equally momentarily, then look for the break. The second lesson was that if I do get shaken out of a trade but the market doesn't show me it is going the opposite way according to my rules, get the hell back in and try again. I have areas which the market needs to pass before I change my trade bias. Therefore if the market doesn't do those things that change my bias I must be ready to get straight back in. That is just part of the game. One thing I did pick up on yesterday was that the market didn't really trend much in the bigger time frames and I actually have forgotten what the market used to do pre September. Is this what the market used to do back then? We had minor trends seen in smaller time frames which I did trade but for the most part they only moved a couple points. In fact looking at the daily chart we do see an odd congestion of inside days that we haven't seen for quite some time. The only promising thing about the past few days is that this type of congestion often encourages a big move in the near term. I ended the day down in points which was disappointing but those days happen in the market. I just need to stick to my rules that I know work and keep hitting at the plate.

Thanks Jon. I couldn't agree more.

My Plan Knows Best Yesterday saw the return of pre November market volatility for most of the day. It was welcomed with a big smile by me as I had seen enough volatility during November to cover me for a while. Yesterday was by no means low volatility however the back and forth we saw was not as temperamental as it has been recently. I do hope we have seen the end of the November blues but won't presume it gone until I see a few more weeks of trading. Yesterday I followed the plan to the letter. So far so good, 3 days traded and 3 days the plan was followed exactly. The day ended with an average gain but still leaves me at a net loss due to the tough day last week. I need to stick to the plan and if we see the reduction in volatility we have seen things should look good. One thing that did stick in my mind about yesterday was the objection I had to most of my trades. On my two winning trades I actually looked at the market and believed a long trade would have been better than a short trade. If I was still trading with discretion I no doubt would have spent all of yesterday trying to buy the big bottom bounce that never happened. It just showed me that my plan knows better than me in regards to trading. The reason being is that it is based on facts and statistics rather than hunches and opinions. I give myself a pat on the back for trading exactly according to plan even though there was times when I wanted to get out early or not enter at all. It was beneficial to stick to the rules even though it is not exactly human nature to follow the rules. All I can do is stick to the plan as that is what is necessary to make this work.

1st Week Back.... Well the 1st week back was a short week and I made it even shorter to my own dismay. I traded Monday and Tuesday but didn't trade Wednesday due to feeling a bit under the weather. Granted on Tuesday I took my biggest one day loss to date and that includes all of my backtesting testing. My rules state that if I don't feel 100% then I don't trade and on Wednesday I was hitting the early stages of a cold, I am guessing was brought on by the recent change to my sleeping patterns to trade the market. It was a bit of a bummer as Wednesday would have cut my weekly loss in half but in the grand scheme of things, one day doesn't make a massive difference unless your plan tends to have very few winners and lots of losers. So looking at the week that was, I was impressed with my discipline to trade and not trade. Monday and Tuesday I took every signal that produced itself and exited according to my exit rules. I really cannot flaw anything I did on those two days I traded. For that I am extremely happy as that tends to be the hardest part to trading from what I have learnt. Taking every trade whether or not you "think" it will work out. Although it would have been more beneficial for me to trade Wednesday I am happy that I stuck to my trading plan that states I do not trade unless I am feeling 100%. At first I will admit that facing my biggest one day loss yet pissed me off a bit. November was left a losing month according to my backtesting and live trading. Granted my live trading was only two days so that wasn't exactly difficult to achieve. In fact after Tuesdays trading I thought maybe my plan wasn't working anymore so I went through and tested November using different time frame exits and a different EMA. A nice curve fitting experience if I do say so myself. It was when the results came back performing worse than my current ones that I realized what I was doing. Searching for a Holy Grail. Thankfully I realized that before I went off trying to find the next way to trade the market. Instead I went back through my results and studied why the plan worked during most market conditions. After all, the loss during November was 68.3% of the amount of my lowest winning month, and 11.3% of the amount of my biggest winning month. At this stage I have had 5 losing weeks of 26 tested across my testing, 3 of those have been during November. I am going to go as far to say that November was an oddball month according to my statistics. 46% of my losses were maximum losers during November, compare that with 16.2% during high volatility periods and 19% during low volatility periods. Why is this occurring? Well the foundations behind my plan is following momentum. At a base level, an EMA represents the momentum of the market. Due to the fact that moving averages are derived from price action, it is impossible for price to go one way without the EMA following. Combine that with the physics of momentum, once price begins to move in a particular direction it takes less effort to continue than it does to stop. I guess that is why markets rarely have a strong immediate up move after an extended down move. It is more common to see a bottoming process occur for a while and then the rise begins. So with all this, my plan follows the momentum but gives the market enough time to move in my direction whilst allowing a big enough buffer to reduce the amount of times being knocked out before that happens. If the market comes down and hits the EMA, I don't necessarily to expect it to stop right there but I do have a solid stop in place should it continue to take momentum in the opposite direction. Once it does hit the EMA and triggers a trade, I enter with the expectation that the market may go against me initially but if it is following momentum it will end in my favor. Now getting to November we are seeing something I haven't seen in the market on such an exaggerated scale. No doubt this is great trading for many but for me it poses a problem which I believe could be short lived but I need to be prepared for it to be maintained. What we are seeing is the market moving in large moves with speed and little hesitation. How does that affect my plan? Well in the past we have made large moves with speed and little hesitation however they were not the majority of the moves as my results have indicated. The times my maximum loss has been met is my evidence of this. My plan gives the market a reasonable sized buffer to go back and forth before my time exit is reached. Now if we are having fast swings that are large in size, they are knocking out my positions regularly. Combine that with the little hesitation before moves and many times the market is rocketing off prior to providing me with an entry. The above is the reason that my plan has faltered during the November market conditions. We did see a similar occurrence during October however my plan managed to catch the big moves on a regular basis. All of the above is theory based and the only real way to tell is through the results my plan produces. I don't know what the market will throw next. My backtesting suggests that November was an out of the ordinary month yet it could be the new norm. That is part of the uncertainty in trading and what we have to deal with as traders. The opposite could be that the past 6 months have been out of the ordinary months so I just don't know. What I do know is that I need to stick to the plan, trade it win or lose and learn from it. I can't learn from doing things inconsistently as then I have no idea what needs to be changed. At least this way when things aren't working I can figure out if it is me not following the plan or the plan not working in the market conditions.

Thanks for the great help and support Chris. Been a hard slog but hopefully the work pays off when I stick to the plan.

Trade what I see not what I think... I have heard the saying "trade what you see not what you think" numerous times and I never really understood what it meant. I thought I had been following this particular piece of advice the entire time I had been trading but yesterday I realized the truth behind it. Well at least what I believe to be the truth behind it. During my trades yesterday I noted things that might prompt me to exit the trade early. What I found was that most of the things I had said were not how the market played out. My last trade yesterday was running at a nice gain and I pointed out an area that I thought would be a good place to exit. I didn't take the exit though as it wasn't part of the plan and as a result I actually made more of a gain by waiting for my exit. This is where I learnt the truth behind trade what you see, not what you think. I no doubt would have exited in the past according to what I thought which would have left me at a net loss for the day. That would have been an exit based on what I thought about the market. Instead I stuck to what my tried and tested rules stated I should do and ended the day slightly ahead. I will admit there were times that I traded that I really didn't want to be in the market however if I had of refused to enter when my rules said I should or took an early exit prior to my rules stating I should, I would have been trading what I thought rather than what I saw. My rules have been made around positive expectancy and statistics and sticking to them made all the difference in the world. My first trade took a full loss and it wasn't the best start to trading a new strategy but I knuckled down and took every trade and exited every trade the way the plan said. It was tough at times as my own personal opinion often disagreed with some trades however keeping a journal beside me writing about my thoughts really helped keep me on the right path. I often can be my own worst enemy when trading however as long as I maintain the discipline and stick to the law of large numbers by using my stated risk management, I will make money. I can see how traders who don't make their own plans would have an extremely hard time sticking to it. I can find solace in the fact that I know my plan and its historical statistics back to front. When things got tough yesterday I would remind myself that the plan does work and deviating from it would be trading something I haven't tested. I was proud of my performance yesterday and have given myself a pat on the back for following the rules through the good periods and the bad. Sticking to the plan allowed a losing day to become a slightly winning day and that was good to see. I am not expecting great results under the current conditions but will ride out the period to better days.

Thanks for the great compliments and support guys. Good to hear some people can get something out of it.

Thanks Sevensa that makes a lot of sense and it is a major downfall of assessing a particular plan. I will look into the Sortino Ratio to see how it works.

That is a great post Soultrader. I must say that I previously got sucked into the addiction that is searching for certainty in an uncertain arena. I thought the key to the market was finding out why the market moved and then I could reduce the amount of times I lost. Now that I have stepped away from that mold I can see many other traders doing it where previously I was blind to what was going on. It seems that we all must go through a period of wanting to be right in our trading so that we may understand why it is a futile way of trading. I personally confused understanding how markets worked with understanding why the market moved. In a way the period where a trader wants to be right does help them learn about the fundamental reasons behind how markets move. That gives one the basis to find an edge to exploit and then build rules around. Beyond that though, as you say, trading is a game of probabilities. The law of large numbers is one of the best games to play.

I'm not sure how I am going to structure my new journal at this stage. In my previous journal I noted market movements and entries as well as exits. Now that I have a plan which tells me what to do according to the market action in every instance I don't think I'll have much to write about the market. At this stage I am not willing to disclose the exact details of my trading as I have read numerous posts about traders recommending keeping a plan hush hush if it can be automated. I don't think it would become subject to manipulation however I feel it's best I keep the details to myself at this stage. I am in fact ready to get back into my trading as of Monday. I have tested everything I can possibly think of occurring in the market and worked on ways to reduce risk whilst increase size. My plan now encompasses 20 pages of every element of my trading from goals to how I increase size and then reduce size, to adjusting to volatility with size and stops etc. I have backtested as well as simulation traded the plan to make sure there are no grey areas that arise during trading. The only thing left is to take it live. There is a small concern and that is that I am beginning my trading in my worst performing month. November has been my worst performing month which currently is resting at a small loss. The loss is in fact the only losing month I have come up with after testing 512 trades over 5 months during volatility levels beneath 20, between 20 and 40 as well as above 40. These days have seen low volatility trend and sideways days as well as high volatility trend and sideways days. I will admit I am not sure what will happen to my plan during low volatility periods like we saw in 2003-2006 however I will deal with those when we come to them again. In fact my plan performs very well in low volatility periods so I am actually optimistic that it will do ok. So November is my only losing month however I do feel reassured considering the current loss equates to one fifth of the profits of my lowest winning month. That means my lowest winning month is five times greater than my single losing month. It is important that I recognize the strengths and weaknesses of my plan. There are times when I am in a trade where I see a good place to exit however my plan states I wait until my time exit is reached. Therefore to begin with I will be keeping strictly to the time stop. I will however be writing common elements I see in the areas that appear a good place to exit. That way I may be able to formulate a rule to use later on that will produce good results. There currently is a single market type that hates my plan and it is the current one we are in. It is the extremely volatile ranging market. The aim of my plan is to trade in the direction of momentum. Many say follow the trend and I agree that to make good money you need to move with the market. Even those who counter trend trade often are trying to go with the direction of the broader market but just don't want to enter on a breakout. I am not exactly following the trend but rather following the momentum. Going with the momentum and exiting according to a particular time frame seems to be a small niche I have picked up on. Stops are wide enough to avoid most of the back and forth that goes on. A different look at it is like buying somewhere along an easy sloping upward hill. I try to avoid the bumps and grooves in the hill as best I can stating that in a certain amount of time I will have made some progress up the hill. The reason why the current market hurts my plan is that the bumps and grooves can often be rather large and knock out my positions more frequently. However those are the things we must face as traders and that is why risk and money management are so important. I don't know what market type we will get before we begin trading but by limiting the damage during poor performing periods in the market I can retain my capital for the good times. I have learnt some major lessons over the past month or so. I hit a point where I couldn't hide from my own misgivings anymore. It was either sink or swim and I was all too ready to sink. However something kept me afloat and I decided to take on the role of really nutting out this business and getting some help with it. I don't know whether or not I will succeed but I do know that my plan makes money when I apply it consistently. So following my plan during market hours has become my biggest focus as I know that following it to the letter has a high probability of success.

Thanks for the great post Firewalker. If I was still trading with discretion I would no doubt take trades differently according to whether my previous trade was a win or a loss. That particular element troubled me and prompted me to use my creativity to come up with ideas outside market hours. A bit more of an explanation is that when I was trading with discretion I was creative and analytical whilst not in a trade but once a trade was entered my views became distorted. After a trade had been made and either a profit or loss had been locked in, I would continue to trade with a distorted view placing much emphasis on the previous trade result. I have heard so many people say have a plan for every possible outcome and trade element. I didn't have that. Each trade was based upon the same type of setup but when I get in, out, how long I stay in, when I scale out or full exit was all decisions I had to make whilst having a trade on during my distorted views. A nice early financial disaster cocktail waiting to happen. I now focus on using my creativity and analytical strengths outside the market to come up with rules and guides to follow during the trading day. Then during the day I focus on the discipline to follow. The rules state either a trade is there or it isn't. If my trading isn't producing positive results it is either due to my plan not working or me not following it. Things are more simple. Now with the thinking differently on new trades after sitting on a profit or loss, no doubt I will think differently but if my plan says to enter, I will enter. I agree that the market has no knowledge of whether my past trade was a winner or loser however I'm guessing you would agree that the current market has different volatility and trending methods. I am taking that one step further, according to my results and personal observation that when the market begins the week volatile, the volatility usually doesn't subside until the week is out if it doesn't continue into the next week. My theory backed by my results almost suggests that the weekend gives traders a break to sit back and think about their trading. It is almost like a herd where if a few big traders are moving the market more than normal, everyone else trades accordingly and it triggers an effect of follow the leader. I think the weekend break lets us start over again. So for me I found it was more beneficial to trade the entire day out no matter how many wins and losses. In a way my plan limits the amount of losses I can take by its entry methodology anyhow. I in fact took heavier losses when I cut my day short after reaching a certain loss. On the flip side, ending my week after two losing days that had me at a net loss for the week, provided less losses, points and drawdown wise whilst increasing my overall gains. In fact no week where I took two losing days to put me at a loss for the week ever showed later days that had positive enough results to turn my losing week around. At this stage the following week is a winning week every time though that can change at any time. The real test will be making sure I stick to this plan when I run it live, it does have every possible element I face in the trading day covered so the only reason I wouldn't is a lack of discipline, not a lack of knowing what I should be doing.

Cutting Losses Short and Letting Profits Run... Every period I have tested up until November has been profitable thus far. Of course there are losing days and the odd losing week also. However as a whole the winning periods were much greater than the losing periods. Come November and I am faced with a month currently standing at a loss roughly just under half that of my best winning month. In the grand scheme of things it wouldn't be such a problem however the early stages of this plan could see sizable drawdowns should the current market continue. At first I jumped straight into the new strategy camp thinking that my problems would be solved by getting a new plan for this period in the market. That is probably the most obvious approach to take. It took me a while but after some time I stood back and realized that if that was the approach I would take, I would be chasing the almighty holy grail every time the market changed it's tune. I personally believe the market has similar tendencies to repeat over time and my plan which has found an exploitation in that proves to me over time it is so. Therefore a different approach was needed and cutting losses short and letting profits run came to mind. I had tested out the theory of stopping trading during the day should x amount of losses be taken and it provided poorer results for me. I had actually left my testing at that as I thought it best to trade a full day out. However I didn't test out losing days in a week. I personally believe the market tends to change persona from week to week. Sometimes it decides to play quiet trend down for most of the week, other times it plays volatile sideways for the week. I noticed in my own statistics that if I had a few bad days early in the week, the rest of the week was equally as bad. So I did some testing and found that cutting my trading for the week should I encounter two losing days that put me into negative territory for the week improved my results. It lowered my total drawdowns by 2%, increased my highest profit and in fact smooths out some of the volatility in my account. I had previously only applied cutting losses short and letting profits run in my exit strategy yet taking it to the risk management level made a big improvement. It leaves my losses during November at a quarter of what they were and improves results in other months. I could have spent my time going through the vicious cycle of trading a strategy until it hit a losing period and then creating a new strategy to deal with the new market pretty much forever. Chasing that Holy Grail every time the market changes it's tune. I have already created different risk management solutions for different volatility markets that works. Some days, weeks and occasionally months the market just doesn't suit a particular plan. I realized the important part was to cut the losers during this period and let the profits run during the winning periods.

Thanks Frank you have been a big help in explaining the usefulness and applicability of the method.

Thanks for bringing my attention to that Frank. So I take it that the formula is 'Expected Return' (Average Gain Per Trade) X SqRt of the total number of trades. Do you mind me asking what the overall number should tell me exactly? My thoughts is that it is the average gain made over the set period of trades. Should the number be a certain size for any particular reason or is it used as a comparison to other strategies to find which one performs better over time?