End of day journal (8-30-2010) (Trading in the Zone Part 5)

I didn't much accomplished strategy wise this weekend. It felt overwhelming - I was tired and every time I sat down to try and figure something out, nothing seemed to click. It is easy for me to venture down the slippery slope of trying to make my edge/system 'full proof', finagling the details and rules in an attempt to catch everything. Exhausting.

That is the engineer in me coming out. And that is me denying the true nature of the market.

Fozzking posted a good read over on his blog that helped to point me in the right direction this morning. An interesting quote:

"...everyone I have spoken to that has read ‘Trading in the Zone’ raves about it. Yet, I only know of one person, in the many hundreds that I have spoken to, that has actually completed the Trading Exercise on pages 189-201 in the book."

Yipper. That is me. I made an effort last week, but I think I lost sight of the true nature and goals of the exercise. Fozz pointed out:

"This excercise is not about system development and it is not a test of your analytical abilities."

And in the next paragraph:


"In fact, the variables you choose can even be considered mediocre by most traders' standards, because what you are going to learn from doing this excercise is not dependent upon whether you actually make money. If you consider this exercise an educational expense, it will cut down on the amount of time and effort you might otherwise expend trying to find the most profitable edges." (Page 190, emphasis added.)

I think my 'edge' was simply too complicated (probably because I tried to make it fit every situation - as fozz also pointed out today - 'We just need to be comfortable with the fact that we are going to miss some big moves.') This had me focusing on profit rather than the goal of the exercise - which is "...to convince myself that trading is just a simple game of probabilities..." (pg. 189).

So - newly re-vamped and more trend friendly:

 My edge:

• Only trade in the direction of the 15 minute trend (higher highs, higher lows = uptrend; lower highs, lower lows = downtrend)
• Enter a trade when there is a retracement to prior S/R on the 5 minute candle chart. The 5 minute candle should show indecision (long wicks) and close on the direction side.
• Stops are placed $0.03 off of the prior S/R, prior H/L or $0.11 from entry, whichever is greater.
• If a trailing stop is triggered (15 min candles), reverse position.
• Move the stop in step with the just completed 15 minute candle H/L.
• Exit on the largest 15 minute candle of the day and declining volume on the 5 minute candle or when stopped.

I did a few candle by candle runs this afternoon - scroll to a random day, scroll the chart candle by candle until the 15 minute trend is identifiable, then watch and wait for the retrace and pause around prior S/R. Then move the stop down as 15 minute candles are completed. Exit when stopped or the exit criteria is met.

For the purpose of the exercise, I decided not to indicate a maximum stop or how to add.

Here is how the days came out:

Much fewer trades and not a lot of room for discretion. Good enough for me.

Trade well.