End of Day Journal (10-26-2010)

Summary:

Paper traded 200 share lots today:

Been an extremely long day and very tired at the end of it.

I was up all night reading a new book: Time Compression Trading: Exploiting Multiple Time Frames in Zero Sum Markets (Wiley Trading) (recommended by Tarigal). Get it. Read it. Now. Hands down the best book I have read with respect to trading. I could not put it down. I would almost go so far as to say that it is better than Douglas. I don't agree with everything he writes (as if what I agree with matters at all to someone interested in learning how to trade), but he is able to express and bring home some incredible ideas.

In a nutshell:

1. Every single trade that takes place is because a minimum of two people feel like it is the right time to do something. One person is thinking short or time to exit a long, another person is thinking long or time to exit a short. Often times the people involved feel as if they have no choice but to act. And they are looking at the exact same information.
2. There are only two possibilities after the trade happens: one person will be a winner the other a loser. Figure out which is which.
3. A market can only be in one of two states: balanced or unbalanced. The market is in a constant cycle of states.
4. TA is a complete myth. It is the most popular form of 'trying to reduce risk by figuring out what is going to happen' in today's market. Everyone is looking at the exact same TA and coming to exact opposite  conclusions. They have to in order for a trade to take place. TA can only be right ~50% of the time; no matter how hard you try. TA is using price to predict price. Hogwash.
5. There are only two variables that matter: Time: given enough time someone will change their mind about what is happening in the market and shift the market's current state. Price: everyone has a price that they 'have to' exit or enter on. (I think Jankovsky makes it a little more complicated than this, but this is what I got out his book.)
6. The end result of these two variables is more trading activity (e.g.,  more volume). When enough time has passed or a price reaches a certain level more people jump in/out. Always. 

I could go on and on. I may do a review after I read it again.

I caught myself this weekend 'tweaking' my charts - trying to find just the right setup. How many times have I done this? But this time I was able to recognize it very early in the process. The book brought me completely out of my stupor. I ended up using the principals cited to trade today - still not 100% sure how to implement them all, but I started noticing things right away. Kankovsky did such a great job expressing his ideas and I don't believe there is any way that I could ever make the TA mistake again. I know what to look for now.

I wrote in my blog last week about 'believing'  - about believing in the trend, believing in the momo. I thought that was the right thing to do. But it is utter nonsense. If I am focused on 'believing' I am focused on confirmation and persuading myself; and more importantly, I am NOT focused on what is happening in the market. There is no reason to try and convince myself of anything. Why should I ever try that again? That whole escapade is about 'trying to reduce risk', 'trying to bring more certainty' to the trade, 'confirming the direction' before entering. Somewhere between 80% and 90% of traders lose; somewhere between 80% and 90% of traders try to reduce risk and convince themselves that they are doing the right thing by using TA. Time and price are all that matter; and time is in the equation only in terms of how it relates to price. Personally - I believe a guy can simplify by eliminating time from consideration: why should it matter to me (a winning trader) how long it takes a price to rise or fall?

Heh. How is that for a little tirade? Seriously - using this approach leaves absolutely no room for fear, hope, and/or greed.  They had no factor in my trading today. The only factor that decided my trading was my ability to read and interpret what other people were thinking. - or as it were, my inability; the signs were there I just didn't read them correctly, and I missed exits. 

Maybe this book was the little boost I needed to get me over the edge? Time will tell.

I traded on the 15 and 30 range charts today.

 Trade well.

Details:

You will notice some changes on the charts. I removed the faster period MA's and the Donchian channel, and added volume.  I am only trading in trend - though I almost reversed on SOHU. I did not read the exits on NFLX and CGM correctly - but I will eventually.

CGM

CRM

NFLX

PEGA

SOHU (30 range)

SOHU (15 range)