Daybreak Trading

[swansjr 10]

I've been rather poor at keeping a trading journal in the recent past. So I've decided to start a journal here. I hope by posting daily updates (or nearly daily updates since I most likely won't post if I don't trade) I will feel more compelled to trade well. Hell, everyone can see my trades (the good, the bad and the ugly), right? So I better do this well.So, my hope is with this new accountability of showing my trades to fellow traders on this site, I may become more strict when executing trades against my trading plan. I've been also toying with the idea of recording my trades with a video screen capture program and a microphone. But that's another story.

 

I'm trading the EC market on a simulated account with TradeStation. I follow a variation of the Watts scalping method. Below are a few of my key management rules which will most likely evolve over time.

 

Trading Times: 5:00am - 830am central.

 

Screens: 2225t long-term trend screen. 445t intermediate-trend screen and a 89t chart to pin-point entry and exit.

 

Position Size: I follow a repeating sequence: First trade of the day is done with one contract. If it's a winner I trade 2 contracts on the next trade. If this two lot position is a winner I go back to 1 contract and start the sequence all over again. All losing trades revert to 1 contract on the next trade.

 

Target 1: First target is 6 ticks from entry.

Target 2: Either 6 ticks from entry or runner. This is another discretionary area. If I perceive the market as "choppy" I will simply exit at 6 ticks. If I perceive the market as "trending" I will allow this second contract to trail. I use an opposite Keltner channel to exit.

 

Risk Per Trade: The maximum to risk is 20 ticks (20ticks * $12.50 per tick = $250). Many of the setups will risk far less per trade.

 

When to Stop Trading:

 

After two consecutive losing trades, stop trading for the day.

After two consecutive winning trades, stop trading for the day.

Maximum Day Loss: $300.

 

 

Again, my goal is to trade well - not to make money. Yep, that's right! I need to execute my plan as described and not get emotional and enter trades that I should not take. This has been a major problem.

 

 

So, here I go.

Edited May 29, 2009 by Soultrader

[BlowFish 10]

Good Luck!

..............

[bathrobe 10]

Best of luck to you.

[brownsfan019 17]

SJ - I think we are friendly enough here that I can provide my recos/concerns regarding your plan. Bear in mind it's my opinion and I'm just trying to help (don't want anyone to misconstrue the intent).

 

RISK/REWARD IS A BIG CONCERN

Some would tell you that risk/reward is everything, but it's not; however it is important to monitor. Since your r/r is going to be low (risking 20 ticks = $250 / to make 6 ticks = $75) your winning % will need to be high.

 

WINNING PERCENTAGE

Since r/r is low, you must monitor your winning % and find where you will be to see whether or not this system will work.

 

MAX DAILY LOSS

You say it's $300, but if you lose 1 time you will be at -$250. Are you planning to stop or keep trading b/c a 2nd stop will equal -$500? The way I see it, you'll need to revise that to say stop after 1 loss or 2 losses back-to-back.

LOSSES

The other consideration will be the average size of your loss. Your max is 20 ticks, but you say they can run smaller. While it's nice to plan for smaller losses, my comments make the assumption that a 20 tick stop can and will be in force. If you find the size of the stops to be much smaller, then the numbers obviously change. If you find your stops to be closer to 10 for example, the r/r is decent then and your max loss can take a few hits before being triggered.

 

POSITION SIZING

I'll be interested to see how your position sizing plan works. For documentation purposes, you might also want to track just trading a fixed 1 or 2 contracts to compare the end results. My concern on the position sizing you are going to implement is if trade #1 is a winner and trade #2 is a loser, your loss will be doubled, while your winner is only a single contract. So the key here will be the methodology showing you that more often than not, the 2nd trade will be a winner, so doubling up makes sense. This is why I would track just trading a fixed amount to compare b/c your numbers could look like this:

1 fixed: +6, -10 = -4

Pyramiding: +6, -10(x2) = -14

And potentially this series could repeat an entire morning...

So the EXACT same trade there could cost an additional 10 ticks in loss that would not be there if trading a fixed 1 contract. Yes, I am assuming that 2nd trade is a loss to illustrate the worst case scenario b/c IMO you need to be aware of what can happen on the downside. The upside is easy, it's the downside management that can make or break a person.

 

My concern is that you could have a small loss/break-even type day if trading a fixed amount, but a pyramiding style could magnify those losses and create a much larger loss on the day than necessary. Again, I am just thinking about the downside here. If the system constantly cranks out that 2nd trade as a winner, then the pyramiding would make sense.

 

FINAL SUGGESTION

Make sure you have a nice Excel sheet or something to track all the possible ways this system could be traded so you can see what the options are. What I mean is, track on the Excel trading a fixed 1-2 vs. pyramiding, track the win % overall AND of each type of trade (for example, is that 2nd trade where you pyramid doing extremely well or poor? If well, you might want to load up more there.) Classify your trades as a Trade 1/A/etc vs. a Trade 2/B/etc and track those closely. I have no idea how the Watts system trades, but if you have reversals and trend trades, track those as well.

 

While you are seeing how this exact system works, don't waste your time - see how other variants of it also work. You might just find that certain setups (ex - trend following Trade B pyramid is your prime setup) are more reliable than others.

 

Good luck!

 

[Head2k 10]

Position Size: I follow a repeating sequence: First trade of the day is done with one contract. If it's a winner I trade 2 contracts on the next trade. If this two lot position is a winner I go back to 1 contract and start the sequence all over again. All losing trades revert to 1 contract on the next trade.

 

...

 

After two consecutive winning trades, stop trading for the day.

I don't get this. So after a winner you double up. And if it's another winner you revert back to 1 contract or stop trading?

 

And good luck.

[swansjr 10]

SJ - I think we are friendly enough here that I can provide my recos/concerns regarding your plan. Bear in mind it's my opinion and I'm just trying to help (don't want anyone to misconstrue the intent).

...snip...

 

Thanks much for the input. I certainly don't mind it and indeed, welcome it. It looks like you have many good suggestions.

 

 

The Risk/Reward is largely an unknown at this time. My maximum risk is 20 ticks but I know many (maybe most) of my trades will have a much tighter risk. This is due to the entry point and its relative position to moving averages and Keltner bands. Some trades may risk 8 pts. Others may be 10 pts. If the trade requires to too much risk - I skip it.

 

Furthermore, this is a mental test in following my trading plan. Even if I lose my virtual shirt in this I must pass my test. That is, did I get emotional and break my rules? Can I walk away from a losing day knowing that my rules demand walking away so I can trade another day? Or, will I start making emotional decisions?

 

This is also an information gathering exercise to see how this method functions (and more importantly how I function) in a simulated environment. You provide some excellent ideas such as tracking slight variations in the system. I already planned on documented my trades within a spreadsheet but I will also track slight variations in the system, as you suggested.

 

Again thanks for the input!

[swansjr 10]

I don't get this. So after a winner you double up. And if it's another winner you revert back to 1 contract or stop trading?

 

And good luck.

 

That's right Head2k. My system is largely a trend following method and my first position of the day is testing the waters with one contract. If it works out I consider the trend intact and working in my favor. I then look for a second entry with two contracts for the sole reason of initiating a runner. This runner may get taken out very early or may run for a while. Either way, I consider the trend suspect and revert back to one contract. I then test again for the next leg of the move or a reversal.

 

This scheme may all prove to be rubbish. For example, already after weeks of historical and live practice, at times I see what appears to be a new trend forming. It is at this time maybe I should be initiating a two contract trade. Makes sense, right? This may prove to be a variation I should track within my spreadsheets.

 

Thanks.

[Head2k 10]

That's right Head2k. My system is largely a trend following method and my first position of the day is testing the waters with one contract. If it works out I consider the trend intact and working in my favor. I then look for a second entry with two contracts for the sole reason of initiating a runner. This runner may get taken out very early or may run for a while. Either way, I consider the trend suspect and revert back to one contract. I then test again for the next leg of the move or a reversal.

 

This scheme may all prove to be rubbish. For example, already after weeks of historical and live practice, at times I see what appears to be a new trend forming. It is at this time maybe I should be initiating a two contract trade. Makes sense, right? This may prove to be a variation I should track within my spreadsheets.

 

Thanks.

Thanks for explanation. But I wanted to point out a discrepancy in your rules. In one rule you say that after two consecutive winners you reduce your position size and in another rule you say that after two consecutive winners you stop trading for the day. Or do I get it wrong?

[swansjr 10]

Thanks for explanation. But I wanted to point out a discrepancy in your rules. In one rule you say that after two consecutive winners you reduce your position size and in another rule you say that after two consecutive winners you stop trading for the day. Or do I get it wrong?

 

Ah, good. The position sizing rule is simply a numeric sequence that repeats forever. My money management rules (as they stand now) simply have me halt trading after two wins and it is these rules that I follow in regards to halting trading for the day.

 

But this brings up another point that I often find confusing. When to stop trading? When I'm losing I walk way from the table after hitting my day loss - this makes sense. But, what do people do if they are doing well? For example, there have been times when I'm in sync with the market and trades execute flawlessly. I often hit my goal within 10 or 15 minutes of trading. I'm tempted to continue to trade but often simply stop. I would imagine that knowing when to press on when things are going smooth is a discretionary decision that good traders do.

 

Any thoughts?

[swansjr 10]

Day 1

 

Trading this morning was not too bad. I played by the rules and made a little money. I’m feeling good about starting this thread and l’m looking forward to improving my trading.

 

Trade #1 My first trade was entered too early in retrospect. I got stopped out as the pullback went deeper than I thought.

 

Trade #2 Right after my first loss I immedenly shorted again and hit my profit target1.

 

Trade #3 The next setup I risked two contracts as it appeard the a short term bottom was in and bulls were becoming more aggressive. The first target was hit and the runner was taken out on a trailing stop.

 

P&L: $102

 

[brownsfan019 17]

Ah, good. The position sizing rule is simply a numeric sequence that repeats forever. My money management rules (as they stand now) simply have me halt trading after two wins and it is these rules that I follow in regards to halting trading for the day.

 

But this brings up another point that I often find confusing. When to stop trading? When I'm losing I walk way from the table after hitting my day loss - this makes sense. But, what do people do if they are doing well? For example, there have been times when I'm in sync with the market and trades execute flawlessly. I often hit my goal within 10 or 15 minutes of trading. I'm tempted to continue to trade but often simply stop. I would imagine that knowing when to press on when things are going smooth is a discretionary decision that good traders do.

 

Any thoughts?

 

There's a few good threads floating around here somewhere discussing the merits of setting a daily stop - gain or loss - vs. continuing to trade.

 

As you said, there's days where you will be in sync perfectly and should not stop. Other days if you continue, you'll give it all back. In the end, there is no right answer b/c it depends on you and your system.

 

For example, there was a time where I traded all day, every day. And I thought that was the way to go until I saw too many days where the lunch/afternoon session could easily eat away all my gains and then some. So for me, stopping by 12pm EST was the way to go. That may or may not make sense for your system.

 

My only suggestion is that if you are trading a trend system, you probably need to make a good amount of $$$ on trend days. The only way to be in trades on those days is if you continue to trade.

 

If you keep your profit target at +6 on the EC, my guess would be more often than not, it will be hit. If you make that assumption, it would be easy to argue to keep trading all day... the answer to that question is really a simple analysis of win %. Add that to the tracking list - track how trades do the entire day vs. the chunks you are thinking about here. If your win % is high enough, then going for your 6 ticks may be something to do the entire day.

[swansjr 10]

Day 2

 

This morning right off the bat I traded like a fool. My initial entry was stopped out. OK, this should be a signal to me that my assumptions are wrong and I should reexamine my higher timeframes and/or sit on the sidelines and allow the market to give me more information. Well, I immediately entered again because I was sure of my analysis. Dumb! And I got whacked with two stops right in a row. Done for the day. The urge is strong to continue trading until I get a winner. But reluctantly I stop.

 

In retrospect, the higher timeframes were giving plenty of warning that I would be better waiting for things to develop more. For example on my highest timeframe, it appears price was moving down to test the midline on my Keltner Bands – which of course it did. Doing nothing would have been better. As I write this price is bouncing strong of the midline and now would have been the time to go long. :doh:

 

At times I’m too cautious while other times I’m too aggressive. Reading the market and making the proper judgment with a clear head is what would have helped me here. I know what to look for, but being objective 100% all of the time is difficult.

 

Two long trades with single contracts. Both stopped out.

 

P&L: (229.80)

 

[swansjr 10]

There's a few good threads floating around here somewhere discussing the merits of setting a daily stop - gain or loss - vs. continuing to trade.

 

As you said, there's days where you will be in sync perfectly and should not stop. Other days if you continue, you'll give it all back. In the end, there is no right answer b/c it depends on you and your system.

 

For example, there was a time where I traded all day, every day. And I thought that was the way to go until I saw too many days where the lunch/afternoon session could easily eat away all my gains and then some. So for me, stopping by 12pm EST was the way to go. That may or may not make sense for your system.

 

My only suggestion is that if you are trading a trend system, you probably need to make a good amount of $$$ on trend days. The only way to be in trades on those days is if you continue to trade.

 

If you keep your profit target at +6 on the EC, my guess would be more often than not, it will be hit. If you make that assumption, it would be easy to argue to keep trading all day... the answer to that question is really a simple analysis of win %. Add that to the tracking list - track how trades do the entire day vs. the chunks you are thinking about here. If your win % is high enough, then going for your 6 ticks may be something to do the entire day.

 

Since I have some time this morning due to my abysmal performance this morning I will look into those threads. I had a feeling that if the money is coming easy I should simply continue trading. It is those types of days that make-up for crappy trading days like today. Oh, I will be watching my %win ratio.

 

Thanks again for the information.

[Eiger 10]

Day 2

 

This morning right off the bat I traded like a fool. My initial entry was stopped out. OK, this should be a signal to me that my assumptions are wrong and I should reexamine my higher timeframes and/or sit on the sidelines and allow the market to give me more information. Well, I immediately entered again because I was sure of my analysis. Dumb! ...

 

A few thoughts, FWIW:

 

First, (and maybe most importantly) don't be so hard on yourself. We all seem to have a natural tendency to condemn ourselves when things don't go to our liking. But, I have yet to see where this has truely been helpful for anyone over the long haul. Drop the labels of "fool, dumb," and "abysmal." They just aren't helpful, no matter how frustrated you may feel. Think of it this way: You would never talk to a friend in this manner. Wouldn't you be much more kind and more supportive to your friend in a similar situation? You can do the same when talking to yourself.

 

Trading is a very difficult business that takes time to learn and longer to master. Since you are in a learning mode with simulation, adopt the attitude of learning. If you don't learn from mistakes how will you ever get good at this? You'll just keep repeating the same things over and over. So, it's helpful to be curious about what "goes wrong" so you can learn (again, self flagulation doesn't help in this important regard). Also, be curious when things "go right." Understanding why the trade works well is just as important as understanding why it doesn't.

 

Indicators like Keltner Channels can be very useful, but you will also be well-served in your use of indicators if you understand a bit about market action. In your chart, price had fallen through support and made a lower low -- this is the first indication of a potential downtrend. It then put in a lower high (another strong indication of lower prices) and was unable to show much of a rally before falling lower. Your short-term moving average was also rolling over. All of these things indicated lower prices. They were all there on the chart at the time (see attached chart), but you haven't yet trained yourself to see these things.

 

Being "sure" of your analysis is one thing, but we can never be sure of what the market will do next. The market is constantly changing. Analysis is rather static. It is a very big help to be able to read the market in-flight. It requires a willingness to change our analysis as the market changes. This willingness, of course, brings us back, full circle, to our attitude, which starts with how we treat ourselves. It is all very related.

 

Hope this is helpful,

 

Eiger

[swansjr 10]

A few thoughts, FWIW:

 

First, (and maybe most importantly) don't be so hard on yourself. We all seem to have a natural tendency to condemn ourselves when things don't go to our liking. But, I have yet to see where this has truely been helpful for anyone over the long haul. Drop the labels of "fool, dumb," and "abysmal." They just aren't helpful, no matter how frustrated you may feel. Think of it this way: You would never talk to a friend in this manner. Wouldn't you be much more kind and more supportive to your friend in a similar situation? You can do the same when talking to yourself.

 

Trading is a very difficult business that takes time to learn and longer to master. Since you are in a learning mode with simulation, adopt the attitude of learning. If you don't learn from mistakes how will you ever get good at this? You'll just keep repeating the same things over and over. So, it's helpful to be curious about what "goes wrong" so you can learn (again, self flagulation doesn't help in this important regard). Also, be curious when things "go right." Understanding why the trade works well is just as important as understanding why it doesn't.

 

Indicators like Keltner Channels can be very useful, but you will also be well-served in your use of indicators if you understand a bit about market action. In your chart, price had fallen through support and made a lower low -- this is the first indication of a potential downtrend. It then put in a lower high (another strong indication of lower prices) and was unable to show much of a rally before falling lower. Your short-term moving average was also rolling over. All of these things indicated lower prices. They were all there on the chart at the time (see attached chart), but you haven't yet trained yourself to see these things.

 

Being "sure" of your analysis is one thing, but we can never be sure of what the market will do next. The market is constantly changing. Analysis is rather static. It is a very big help to be able to read the market in-flight. It requires a willingness to change our analysis as the market changes. This willingness, of course, brings us back, full circle, to our attitude, which starts with how we treat ourselves. It is all very related.

 

Hope this is helpful,

 

Eiger

 

Thanks for the input. I understand that name-calling can be destructive. I think I take losses fairly well, particular once I’m “beyond” the event. During the heat of the moment I’ll act emotionally about my loss. But now I’ve accepted the loss and I’m not dwelling on it at all. Months ago a poor trade would linger with me all day. I know I’ve gotten better about that.

 

I appreciate the concept that this should be treated as a learning experience. I agree and I hope I’m taking advantage of that.

 

You’re right about the lower highs and lower lows being made. My 89 sma was rolling over too. I know better than to enter when I see this.

 

Below is an explanation of why I was going long. I was looking at my highest timeframe and you can see price was in a clear up-trend and coming down to test the midline. The price action did bounce off the midline, as it often does during a strong push up like this. I was just too early. I should have waited from my usual confirmation on my shorter timeframe, which would have been to wait for price to climb back to my 89sma.

 

I know better. I was “sure” but the market was telling me – not yet! I was too eager and should have waited a bit. As you see the EC did rally and I missed out. But so be it. There is always tomorrow. Again this goes back to my

 

Thanks again for taking the time to write.

 

[swansjr 10]

Day 3

 

Three trades today. Two winners and one loser.

 

My first trade was taken right away when I turned on my monitor. Price was in a clear downtrend on my large timeframe and I thought the money would be easy today! However, once again I entered a trade when the price action on my small timeframe was not in an ideal location. The result: Stopped out! It seems the last few days my first trade of the day is always on the wrong side.

 

I took a deep breath and reviewed my setups. I also thought about my poor performance yesterday. This mental exercise then resulted in me becoming gun-shy as I watched several opportunities appear before my eyes, yet I did not take them. "Oh there is a setup but it looks like price may reverse against my primary trend. I better stay out." Those types of words filled my head and I sat on my hands. Down the market went.

 

After two hours of this it dawned on me I was gun-shy and the trend was still intact. Yes, it only took me two hours to notice this. I then said to myself, I don't know when the trend will end and I must take the next opportunity. So I did just that and my two consecutive winners then followed.

 

Today was a day of breaking free from paralysis caused by over analysis! In retrospect this was one of those mornings where the primary trend persisted for hours. My setups, if I took them, would have allowed me to bank some decent coin today. But due to fear of not wanting to continue my string of loses from yesterday (also know as the fear of not wanting to be wrong) I became incapable of action for a good amount of time. On the positive side I did recognize the mental cage I had locked myself into. More importantly, I then realized I had the key to my escape within back pocket all along.

 

P&L: $188

[swansjr 10]

During my previous post for Day 3 I talked about how I was unable to pull the trigger on a trending day. Attached is an image of my entry signals. I entered three of them. There were about 10 signals. Most would have hit profit targets. Some had decent runs.

 

Lesson: Take all of your entry signals.

 

[swansjr 10]

Day 4

 

Two trades. Two winners.

 

Today I awoke to a market in a slight downtrend but containing a lot of chop. So I stayed in scalp mode fearing a runner would hit a brick wall. I was right.

 

My position-sizing scheme alternates between 1 and 2 contracts per trade as long as the previous trade was a winner. During times I put on two contracts I scalp the first target and let the final contract run exiting when it hits the opposite keltner channel. However, at my discretion if the market is not in a clear trend I will simply scalp both contracts.

 

Today supported my idea that I should use discretion when determining to initiate a runner. It’s obvious the market is different every day and some days your system will benefit from letting a runner do its thing. But other days, like today, remaining in scalp mode will be beneficial. If during my second trade I allowed my second contract to run, it would have been stopped out for a small loss. In fact, looking at most of the entry signals for today the vast majority were not favorable to allowing a running to…err…well, run. Thus, the importance of adopting a different exit strategy based on the market behavior.

 

P&L: $231

[swansjr 10]

Day 5

 

Two trades. One loser and one winner.

 

Today was a choppy day. More so than yesterday. Options expiration may have something to do with it, I don't know. My first trade was executed well but was stopped out. I kept my cool and took the next setup which worked out. Again, I had no hope for a runner so I was mentally prepared to scalp all morning. But today ended with only these two trades. Technically I should have taken another trade - I'm supposed to stop trading after two consecutive winners or two consecutive losers. However, opportunity was slim as I was getting conflicting signals on my multiple timeframes. Best to step aside and call it a day. Knowing when not to trade is just as important as knowing when to trade - perhaps more so.

 

P&L: ($15)

[swansjr 10]

So the first week is complete. Actually, I've been simulation trading off and on for the past month or so. But my book keeping has been somewhere between horrible and nonexistent. Although I do believe I was in the black, lets just call this the first week. Below is the weekly summary.

 

 

Overall I rate my performance a C. I screwed up a couple of times where I violated my entry rules and there was that day where I froze and could not pull the trigger. These are all classic amateurish behaviors that will need to be addressed. At least I'm recognizing them and at times over coming them.

 

I also have been keeping several spreadsheets which represent slight variations on my trading methodology. All have the same entry but vary on the exits. It's too early to draw any conclusions but so far my current method is a nice hybrid of various exits which I adapt based upon the current market conditions. Namely, the use of a runner or simply scalping fixed targets. Each method performs better than the other depending upon the market. Anyway, I'll continue to track my various exit methods and report anything significant.

[brownsfan019 17]

Excellent work! Keep it up!!!

[swansjr 10]

Day 6

 

Today's market action was smother than the last few days. The first trade of the day resulted in me going long with two contracts. Oops! That setting on my order window should have been one contract. My first target was hit and I exited both contracts.

 

I decided my next trade would be two contracts again. Why? I have no idea other than my first target was hit and I should have been trading one contract so why not make this one two contracts? Yes, that's early morning logic. This trade was promptly stopped out. Ok, no big deal. The stop was tight on that one.

 

I then further deviated from my plan when I once again entered with two contracts. Yeah, go figure?! :crap: The setup was looking sweet and hopes of a runner banking coin filled my mind. Target 1 hit. Runner stopped out for small loss. Damn! I was also get sloppy with following my trading plan. Time to stop for today before I really hurt myself.

 

Watch those setting on your trading platform. Check'em before committing money. It seems traders who are often better than average make fewer mistakes. Oh, and follow your plan!

 

P&L: $24

[swansjr 10]

Day 7

 

There was no trading yesterday (Tuesday) due to conflicting signals on my multichart setup and I had non trading obligations that were taking me away from my screen.

 

This morning my charts were looking very promising for a runner as the EC was pushing higher and higher. But it never panned out. I opened three positions for 2 winners and 1 loss. My only runner never got much traction and was taken out with a minor profit of $45. My loss was on the first trade of the day (that sounds familiar). It seems on these losses I'm often too early to the party. Pullbacks seem deeper than there were several months back and I get stopped out often just before the move takes off. Indeed, even today I took some heat on my winning trades. I think one winner came within 1 tick of being stopped out. I still get a little worked up when that happens but I don't think it bothers me like it did months ago. Anyway, being a little more patient may help me. Why press the buy key too soon? It's an old friend. The fear of missing a move.

 

So much to work on.

 

P&L: $127

[swansjr 10]

Due to other obligations I was hardly able to trade this week. Looks like I got one day in! I was really hoping to get more data point for my spreadsheet but that's life in the big city. I'll post a performance update this weekend.

[swansjr 10]

Week 2 Summary

 

Lets rate this one another C performance. I was unable to trade much this week and I know I missed opportunities because I was not focused. I'm happy I did not hurt my account but I could have done better. Over the weekend I hope to do some historical testing for practice. Next week is another shortened week, but I should have more screen time.

 

 

P&L: $465