Jonbig04's Log

[jonbig04 10]

This week was a good week. 34 points surpasses my goal and that is a good thing, but consistency is what I'm after. That of course, takes time. The best thing about this week wasn't the points, its that I was hitting targets on trades that i would have been stopped out on because my entries, though far from perfect, were more precise than last week. Its nice to focus on one thing and see that area improve.

 

Tuesday was a good day, but It should have been better. I need to execute the next trade completely independently of the last one. After I hit my +54 target on tuesday there was a chance for another long. I hesitated and my discipline broke down for maybe 10 seconds, until I woke up and realized that if there was a signal i had to take it, no matter what. It hard to say if I would have caught that long or not had I not hesitated, but my guess is that I would have. So i missed out on another +36AVG points. I won't make that mistake again.

 

Then there was today, when my exits cost me a little. That wasn't a mistake though. Did it cost me point? Yes, but I followed my rules and THAT is more important. Rules are developed after hours and on the weekend. My job during the day is to simply follow them. Its a problem that will be addressed when the time comes.

 

What to work on now. It's important that I keep working, harder than ever. There is no point in knowing what you need to fix, if you're not actively working to fix it. Entries are getting better, but still need to improve. On weds I entered badly and was stopped out before the move, costing me points. After that trade I entered to late and missed the boat on the trade, costing me points. If I can make my entries even more precise I can have smaller stops. Reducing my stop by 1 point would have had any adverse affects on me this week and would have saved me 7 points. I will backtest and see just how many times my 4 point stop saved me.

 

I'm not going to tackle exits yet. But soon.

 

This weeks stats

 

Accuracy:

 

33%-right where my replay results said it would be

10 trades (2 a day AVG)

+34 net on 3 cars.

[Hlm 10]

Look at it this way, if you can live to fight another day in this market then you are learning some very important skills. The one thing you should be aware of though, and I'm confident you know this already, is that you need to be able to adapt. This volatility won't last forever, and when it dies down those big 9-20 point trades won't exist. Instead, you'll have to settle for 2-4 if you're lucky. But if you stick to your plan, and learn as much as you can, then this is a very good time to be in the market IMO.

Exactly. Reap the benefits that the market brings at this time, but also use this time to make your strategy dynamic when it comes to stops and targets. The patterns have always been the same, and will most likely stay the same for years to come. If your risk/reward is built off of the profile of previous price action then there will be no need to adjust when the volatility diminishes. When you have such a dynamic strategy with a consistent positive expectancy, your earnings are determined by position size. In my opinion this type of mindset/strategy is key to having a long and successful career.

 

When I tell a trader to learn how to trade by reading and understand price action, I am not necessarily telling them to not use indicators. My point is that if you understand what the market is truly trying to tell you, you can trade successfully in almost any market condition and that's the key for being around in the long run. Those who use indicators without first understanding the pure movement of the market are the ones that need to "adapt". Just my two cents of course.

[jonbig04 10]

Indicators are THE DEVIL! haha

[atto 20]

The idea of scaling out has its roots in wagering ideologies such as the Kelly criterion. The idea is simple: Bet more when you have greater odds. How does this relate to trading? Well, let's say that a setup has x% edge over random entry (assume the setup is actually profitable). The highest advantage you'll ever have, using the setup, is right when the setup occurs (which makes sense). Let's say price then moves 18 points in your direction. Are your odds the same?

 

Probably not. This is where scaling out comes into play. You're simply changing your position to reflect a change in your edge. All's good so far. However, what if your edge is the same (or greater!) after 18 points? Well, using a set price target scale-out system, there's no difference. You're either taking a full stop, or the scale out levels. Using your levels, Jon, what if you shorted, and price entered panic mode, dropping 100 NQ? Well, you'd hit your levels, and be out. Likewise, what if the market came within a tick of your 18 NQ level, and reversed? You'd end up with -4. Since the levels are a bit arbitrary anyways, why would a trader want this? Wouldn't the trader prefer to scale out and exit when market conditions change, since that's the whole reason he/she scales out in the first place?

 

Let's consider an alternative trade management ideology (this is by no means the best, or even exactly what I use). This trader would exit only when market conditions change. A great example of this would be a setup in the opposite direction, an influx of supply/demand near support/resistance levels, a climax, a decay of trend, a break of a support/resistance level, etc. The methodology doesn't matter (as long as it "works"), so don't feel my suggestions are the only thing you could look at.

 

What would this trader now have? When price is really moving, he's along for the ride (taking advantage of panic and the trend). When price stalls "early" (compared to the old scale out levels), the trader can salvage profits. When price fails to perform as it should under the setup, the trader can exit early (avoiding the full stop). In fact, the trader's goal is to eliminate risk, so even if price advances and then retraces completely, a break even trade is the worst case scenario. This is somewhat similar to the idea of trailing stops. Ride the ride while it lasts, and the get out. Unfortunately, trailing stops always give back x points profit, regardless of what price is doing. A trader scaling out at a climax could get pretty close to a top/bottom (though it may keep going afterward).

 

Hope you have a good weekend.

[jonbig04 10]

The idea of scaling out has its roots in wagering ideologies such as the Kelly criterion. The idea is simple: Bet more when you have greater odds. How does this relate to trading? Well, let's say that a setup has x% edge over random entry (assume the setup is actually profitable). The highest advantage you'll ever have, using the setup, is right when the setup occurs (which makes sense). Let's say price then moves 18 points in your direction. Are your odds the same?

 

Probably not. This is where scaling out comes into play. You're simply changing your position to reflect a change in your edge. All's good so far. However, what if your edge is the same (or greater!) after 18 points? Well, using a set price target scale-out system, there's no difference. You're either taking a full stop, or the scale out levels. Using your levels, Jon, what if you shorted, and price entered panic mode, dropping 100 NQ? Well, you'd hit your levels, and be out. Likewise, what if the market came within a tick of your 18 NQ level, and reversed? You'd end up with -4. Since the levels are a bit arbitrary anyways, why would a trader want this? Wouldn't the trader prefer to scale out and exit when market conditions change, since that's the whole reason he/she scales out in the first place?

 

Let's consider an alternative trade management ideology (this is by no means the best, or even exactly what I use). This trader would exit only when market conditions change. A great example of this would be a setup in the opposite direction, an influx of supply/demand near support/resistance levels, a climax, a decay of trend, a break of a support/resistance level, etc. The methodology doesn't matter (as long as it "works"), so don't feel my suggestions are the only thing you could look at.

 

What would this trader now have? When price is really moving, he's along for the ride (taking advantage of panic and the trend). When price stalls "early" (compared to the old scale out levels), the trader can salvage profits. When price fails to perform as it should under the setup, the trader can exit early (avoiding the full stop). In fact, the trader's goal is to eliminate risk, so even if price advances and then retraces completely, a break even trade is the worst case scenario. This is somewhat similar to the idea of trailing stops. Ride the ride while it lasts, and the get out. Unfortunately, trailing stops always give back x points profit, regardless of what price is doing. A trader scaling out at a climax could get pretty close to a top/bottom (though it may keep going afterward).

 

Hope you have a good weekend.

 

 

Nice post Atto. I had to read it a couple time. For the most part I agree 100%. Having a set target scale out system is not the most efficient exit strategy. Mine only exists as a multiples of my stop and keeps my R/R favorable. Today I should have exited and shorted at the end of the day. I wanted to, I just don't have a set of rules for it yet. Trust me, my brain is already formulating ideas that will eventually be an exit strategy. For now though I'm simply taking one step at a time. Precise entries are my goal, and when I feel like I am consistently entering precisely, then I will move on. May not be the best way, but I'm an analytical person. 1 step at a time, methodically.

 

I do think, though, that moving your stop to BE can be really hurtful. I know at least in my own trading that I will almost never do that. too many times this week and in my replay/back testing moving my stop to BE would have cost me so much. To me it kind of defeats one of the reasons for having a stop. A stop should be in a strategic place, e.g. if your going long, under where you think support will be. This way not only are you less likely to get stopped out, but if you do there is a good chance that you just learned something about price. If it really is support then (providing your entry was good) you don't have much to worry about. If you get stopped, hopefully its because support is being broken, which tells you something about the price. If you move the stop to BE what have you learned? It's jst my opinion of course, but even today if I had moved my stop to BE it would have cost me, and I bet its true for previous days this week. Just my opinion though.

[atto 20]

I don't have time to form a well thought out reply, but to answer your break even thoughts: it may be a negative expectation decision, but: a) It's not that much if you entry is good, and you're willing to re-enter if the conditions warrant; b) It produces a much "smoother" P/L curve over time, which technically allows you to use more leverage in the future.

[jonbig04 10]

Boring ass day. Didn't take a single trade. Felt like it, got a bit restless, but there was nothing for me. Saw the long at the end of the day, but it didn't conform to my rules. Too bad, would have been a nice trade. Frustrating, but tomorrow is another day.

 

+0

[atto 20]

As promised in chat, here's my thoughts on scale outs and exits: http://www.traderslaboratory.com/forums/f131/exits-and-scale-outs-4805.html

 

Feel free to add your thoughts as well, Jon (and anyone else interested in this). :missy:

[jonbig04 10]

Decent day.

 

Took a short in the morning, great entry, I loved it. I was wrong though I got stopped out. No big deal.

 

1st trade

-3.25, -3.25, 3.25

 

Took a long in the after noon, decent trade.

 

2nd trade

+18, +21.75, +21.75

 

total= +18.75AVG

 

Oh yea, I made my stops a bit smaller.

[jonbig04 10]

No replays tonight, I'm just going to take a break and watch the election stuff. Slacker I know. I will be back in full force. Still working a bit on entries. Exits are the next thing tackle. Im happy with the results so far, but a large part of me just thinks I'm getting lucky and that I will never place another profitable trade. Thats just my head though.

[jonbig04 10]

Didn't do well today.

 

Took a long in the morning. This one hurt as it went +13 before stopping me out. I should have had a smaller stop and smaller target.

 

1st trade -3.25, -3.25, -3.25

 

Then thought I saw support in the PM. I was quickly stopped out and the market didnt see fit to give me a short entry. I have some things to work on, and tomorrow is another day

 

2nd trade

 

-3.25, -3.25, -3.25

 

-6.5AVG for the day.

[jonbig04 10]

Changed some things up. Stops are reduced to 3 points even. I will be trying out the 1 sec chart, instead of the 5. I've tested it and I think I can get better entries with it. I replayed my entries and most of them were improved, so we will see how it goes tomorrow. I want to get to the point where my stops are microscopic. 3 points should still be plenty of breathing room. First target is now 15, second is still 36 and third is still 54.

[jasont 10]

Jon I am actually going to suggest you do some rigorous testing before you decide to lower your stops and targets. Doing so in fact has a much bigger affect on your trading results than where you place your entries.

 

Reducing your stop size will reduce your win ratio. By having less room to move the market is going to hit your stops more often. That is in general but what I have found to be the case in all of my own testing. You reduce your stop and what was previously a 60% win ratio goes down to say 56%.

 

Now if you reduce your win ratio, you now need to increase your risk:reward level from where it was previously just to keep the same results you previously had. Therefore lowering your profit target may in fact possibly give you a lowered risk:reward ratio. I don't know your plan so I can't say what effect lowering your stop and profit target together will have on your results. I will say that you need to know what effect it has by going through your tested results to find out.

 

It is a cause and effect element that not many traders realize. You reduce your stop and you are going to get stopped out on trades that may in fact have been profitable with a larger stop. For example, say you currently have your stop at 4 points but you decide to lower it to 3 points because on the surface it makes sense. However if the market moves against you 3.5 points and then hits your target at 15 points, you could have made a gain.

 

Now this is where many traders don't seem to realize the impact the above has. You have not in fact just missed out on a 15 point gain, you have in fact taken an 18.5 point loss. This is how it works, lets say you are at a net gain of 80 points for the month. You take this 3.5 point loss and it brings your net gain down to 76.5 net points for the month. Had you been trading your 4 point stop you would be sitting on 95 points net gain. The difference there is 18.5 points simply because a stop was too close.

 

If this happens a few times in the month you miss out on a lot of points. This is something I have been vigorously testing recently and come to understand. Before you make the changes I do urge you to go through your previously tested results and see what difference the changes make, you may be surprised at what you find. A lowering of risk up front in many times with my testing has resulted in an increase of longer term risk in the format of larger drawdowns.

[jonbig04 10]

Jon I am actually going to suggest you do some rigorous testing before you decide to lower your stops and targets. Doing so in fact has a much bigger affect on your trading results than where you place your entries.

 

Reducing your stop size will reduce your win ratio. By having less room to move the market is going to hit your stops more often. That is in general but what I have found to be the case in all of my own testing. You reduce your stop and what was previously a 60% win ratio goes down to say 56%.

 

Now if you reduce your win ratio, you now need to increase your risk:reward level from where it was previously just to keep the same results you previously had. Therefore lowering your profit target may in fact possibly give you a lowered risk:reward ratio. I don't know your plan so I can't say what effect lowering your stop and profit target together will have on your results. I will say that you need to know what effect it has by going through your tested results to find out.

 

It is a cause and effect element that not many traders realize. You reduce your stop and you are going to get stopped out on trades that may in fact have been profitable with a larger stop. For example, say you currently have your stop at 4 points but you decide to lower it to 3 points because on the surface it makes sense. However if the market moves against you 3.5 points and then hits your target at 15 points, you could have made a gain.

 

Now this is where many traders don't seem to realize the impact the above has. You have not in fact just missed out on a 15 point gain, you have in fact taken an 18.5 point loss. This is how it works, lets say you are at a net gain of 80 points for the month. You take this 3.5 point loss and it brings your net gain down to 76.5 net points for the month. Had you been trading your 4 point stop you would be sitting on 95 points net gain. The difference there is 18.5 points simply because a stop was too close.

 

If this happens a few times in the month you miss out on a lot of points. This is something I have been vigorously testing recently and come to understand. Before you make the changes I do urge you to go through your previously tested results and see what difference the changes make, you may be surprised at what you find. A lowering of risk up front in many times with my testing has resulted in an increase of longer term risk in the format of larger drawdowns.

 

Thanks for the advice! You are right, lower your targets and shrinking your stops can have a huge impact on your results. I decided to do it because so far my testing shows that reducing my stops actually won't affect my wins. Of my 4 point stop I never once used more than 2.75 points of it in a winning trade since I started this strategy. before even a 4 point stop wasn't big enough, but the fix wasn't in increasing my stop size, it was improving my entries. So basically I have been wasting points with that size of a stop. I hope to eventually have stops measured in ticks, but thats a ways off.

 

Lowering that first target, should give me slightly more points, but really not very much. It actually happens too often that I missed my 18 point target just by a few points and came back to getting stopped out, however it also happens that I hit my first target, but not the last 2. But the former happens more often then the latter. My testing is pretty easy as I only take around 10 trades per week. The math doesn't take very long. I am going to to back and check though just to make sure, because you are 100% right.

[jasont 10]

Thanks for the advice! You are right, lower your targets and shrinking your stops can have a huge impact on your results. I decided to do it because so far my testing shows that reducing my stops actually won't affect my wins. Of my 4 point stop I never once used more than 2.75 points of it in a winning trade since I started this strategy. before even a 4 point stop wasn't big enough, but the fix wasn't in increasing my stop size, it was improving my entries. So basically I have been wasting points with that size of a stop. I hope to eventually have stops measured in ticks, but thats a ways off.

 

On a slightly different approach, have you looked at how much heat you take during the day before your profit target gets hit? I.e you put your trade on at say 10am, you take 6 points heat before your profit target of 15 points is hit at 11:30am. It might help with your review of your trades to go back and see how much heat you end up taking prior to your target being hit if it gets hit at all. That is how I personally find my best working exits according to the volatility in the market.

 

All the best with your testing mate, from your journal I can see you have the dedication and devotion needed to stay the distance. Keep up the great work.

[jonbig04 10]

On a slightly different approach, have you looked at how much heat you take during the day before your profit target gets hit? I.e you put your trade on at say 10am, you take 6 points heat before your profit target of 15 points is hit at 11:30am. It might help with your review of your trades to go back and see how much heat you end up taking prior to your target being hit if it gets hit at all. That is how I personally find my best working exits according to the volatility in the market.

 

All the best with your testing mate, from your journal I can see you have the dedication and devotion needed to stay the distance. Keep up the great work.

 

Right, so far 2.75 is max heat. One thing thats kind of been messing with my head is upon entering do I want to take 0 heat? Or do i want to catch the bottom of the move? It sounds stupid, but you can wait for the bottom to be in and take no heat, but then you're entry isn't as good. Or you can try to pin the bottom and get a better entry, but risk taking the heat. I am trying to do both. I would like to nail the bottom and take 1 tick heat. that's I know haha

 

Thanks for your kind words, I only hope to keep improving.

[jasont 10]

Jon I think you may have misunderstood what I meant by assessing the heat you take. Instead of looking only at the heat on your winning trades which were limited by a 4 point stop, assess the heat on all of your trades. You may find maybe 6 out of 20 took 5 points heat before becoming 18 point winners.

 

Using the above as an example you would have taken 6 losers of 4 points when you could have risked 1 point extra per trade to make 108 points. See what I am saying?

 

In regards to trying to catch the bottom, it is the path to "trying to be right" rather than trying to make money. Would you rather take 0.25 heat per trade to make 20 points a month or would you rather take 5 points heat per trade to make 80 points per month. See where making money is different to being right. I have been there myself wanting to do the same thing, funny part is I realized it was making me less profitable.

[jasont 10]

Jon I think you may have misunderstood what I meant by assessing the heat you take. Instead of looking only at the heat on your winning trades which were limited by a 4 point stop, assess the heat on all of your trades. You may find maybe 6 out of 20 took 5 points heat before becoming 18 point winners.

 

Using the above as an example you would have taken 6 losers of 4 points when you could have risked 1 point extra per trade to make 108 points. See what I am saying?

 

In regards to trying to catch the bottom, it is the path to "trying to be right" rather than trying to make money. Would you rather take 0.25 heat per trade to make 20 points a month or would you rather take 5 points heat per trade to make 80 points per month. See where making money is different to being right. I have been there myself wanting to do the same thing, funny part is I realized it was making me less profitable.

[BlowFish 10]

Incidentally the heat you mention is known as Maximum Adverse Excursion. There is a flip side (but far less used technique called Maximum Favourable Excursion).

 

I only mention this in case you wanted to google for more information. Sounds like you are arriving in an interesting place under your own steam.

[jonbig04 10]

Thanks Jasont. you make a good point. My strategy is one that, well the idea behind is that when I get stopped out, its because I am dead wrong. Ideally I enter at only important areas and if I take a stop its because im just 100% wrong. If that makes sense, of course thats the idea, I'm not saying thats always the case but thats the idea behind my whole strategy. However I will do exactly what you said and assess the heat on all my trades and I will post results. thanks fellas.

[jonbig04 10]

Wild day. I still believe discipline is the number 1 asset of any trader, by FAR. Today I had to take deep breaths and maintain my discipline. I wanted to enter, but I had to tell myself to WAIT. I had not yet seen what i was looking for. 3 times it looked like I had missed the move, but I told myself "If I miss it, I miss it". Discipline.Discipline. Discipline.

 

Took a long this morning. Fumbled the entrance, but was was wrong anyway.

 

1st trade

-3 -3 -3

 

Took a short around 12EST. Price went all the way down filled my first target and went all the way to +24 and THEN came all the way back up to -0.25...it hurt so bad. I wanted to cover. I wanted out. But I stayed the course and because my stop was protected I took 1 tick heat and price came all the way back down and a sold at EOD. Discipline. Discipline.

 

2nd trade

+15. +22.5, +22.5

 

total

+17AVG

[jonbig04 10]

No trades today so far, I'm looking for a long right now but I don't see a clear entry yet so I may miss/not take the trade. We'll see, but I thought I would get a head start on my log. This week I have adopted the attitude of taking only what the markets give me. I used to look for trades and try to outsmart the market. Now I look at it more like I'm simply taking what the market gives me, and only that much. I realize it may not mean much to everybody else, but for me it helps keep things in perspective and maintain discipline. I still would like to say that discipline is number 1. If you think about it, would you say that someone who only averages +2 ES points a week has a very good understanding of the market? Maybe you would, but I think a lot of people would consider that being a piker. The truth is that if you could maintain complete discipline and maintain that 2 point average while trading 50 contracts, who's the piker now? Not that you should AT ALL be lax on your study of PA, but the fact is that all of us want to make a living trading and as far as I'm concerned discipline is number 1 in that pursuit. Anyways +0 for today.

 

Here's some stats for the week:

 

6 trades, 2 wins, 4 losses

 

Accuracy 33% (again haha)

 

total weekly points +29.25 net 3 cars (this week)

 

total so far (2 weeks) +63.25 net 3 cars

 

Avg per week (2 weeks) +31.5 net 3 cars

 

 

I'm pretty stoked about the results so far. Of course, I have to keep it up though which is the tough part. All the advice is appreciated.

[JBWTrader 10]

Hi Jon

Great thread mate. I like the idea you only take what the market gives you.

you are showing great patience , well done.

 

I have personally noticed that when I am pushing or forcing a trade.. mistakes happen....and losses of course occur.

 

Thanks again for sharing

 

All the Best

John

[jonbig04 10]

Thanks JBW.

 

I have been trying to force myself into good disciplinary habits from day 1. I think its more important than anything. If you have a rule set you simply never break your rules. Sure your rules may suck and you may lose points because of them, but who cares? As your rules get better you will get better. But if you don't have that discipline you can't say that. Thats always been my philosophy. In "the disciplined trader" it says that a trader with only modest technical skills can succeed as a trader, but a trader with great technical skill and no discipline will never make it. I know everyone doesnt agree with that, but I think its more and more true every day. My goal isn't to be the best chartist. It isn't even to make the most points. My goal is to make money. A lot of money. As fast as possible. And ironically, to do that I cannot rush. Rushing into cash seems to be our first inclination, but I know that will only slow my progress. So I will do as much as possible to become better at reading PA, and to better my rules and to reinforce my discipline. I may be a 20-30 point per week piker, but if I can keep that up and maintain discipline while trading 1 live contract, 3 live contracts, 10 live contracts well I will be pretty stoked. Thats my take anyways.

[Head2k 10]

I have been trying to force myself into good disciplinary habits from day 1. ... As your rules get better you will get better. But if you don't have that discipline you can't say that. Thats always been my philosophy. In "the disciplined trader" it says that a trader with only modest technical skills can succeed as a trader, but a trader with great technical skill and no discipline will never make it.

Interesting. I found it to be the other way around in my case. I generally do not like rules and only follow them if I find them necessary or if I thoroughly understand the fundamental core of the rule and find it good for me. So I only follow rules which I accept on an inner level. In trading I cannot be disciplined until I see a true necessity of it. To read about it doen't seem to be enough. But recently I started to accept the need for discipline deep inside me. The impulse for this was development of my trading plan. The more I delve into it and the more I can define the edge it gives me (or the edge I want it to give me) the more I want (internally) to trade only when that edge is present.

So I didn't (couldn't) start with discipline and then improve my rules. I needed to improve my rules to see the need for discipline. To internally begin to want to be disciplined.

But I guess your approach makes things much faster