Time Compression Trading (10-31-2010)

As Jankovsky would himself say - Time Compression Trading: Exploiting Multiple Time Frames in Zero Sum Markets (Wiley Trading)  contains nothing new with respect to to trading - everything that can be said has been said; and has been said over and over again.

I think he tries a little too hard at times, but Jankovsky's method of delivery struck a chord with me.

'Time compression' is Jankovsky's term for what takes place before markets move. I would describe it as the convergence of personal opinion across multiple time frames (I don't recall a systematic definition of the term). The more opinions involved, the greater the compression and the greater the resulting spike/drop in price will be.  And that is the gist of his message: the market is not prices, the market is the process by which people come together in price. People, people, people. For the 'market' to exist, there has to be at least two people on each side of the trade. People will only enter or exit the market because they believe that it is in their best interest to do so, and to do so right now.This means that every trade, EVERY trade, is two opposing perspectives of what is happening or predictions on what will happen, coming together and acting on that perspective. We are all looking at the same information.

And 80% to 90% of us are losing.

Jankovsky suggests that:

'In all these cases, it is not the market that is preventing the traders from prospering but how they choose to participate. ... Until traders choose to look at things in a different manner and choose to participate better, they have only a small chance of ever gaining wealth.'

That is the emphasis throughout the book: winning traders are willing participants in the market - they choose how they will participate, and they choose to participate based on their observation of the market. By watching how the market behaves and understanding and realizing that it is the decisions people are making that is driving price behavior, they choose to participate with what is happening. They choose to participate in  high probability scenarios (there are enough of us losers to make the probabilities rather high). Winning traders maintain a sense of probabilities rather than certainties.

On the other hand, losing traders approach the market looking for certainty. They look at prices and try to evaluate what is happening and how they can profit. Their evaluation is based on price and is concerned with price (rather than understanding the underlying people dynamic). They wait for confirmation of a move. 'They lose perspective because they trust something other than themselves to find the trades for them.' After they are in the trade they constantly review every price change attempting to predict how far the price will go. They are focused on results rather than the choices they make to participate.

Jankosky continually stresses the fact that wins and losses come from a personal perspective - 'the way you choose to see things is how your urge to action is stimulated.' Understanding the true nature of the market frees me to participate - it enables me to observe the choices people are making and act accordingly. It is a shift away from price prediction to predicting the likelihood of people doing things. It is a focus away from 'What does this mean?' to 'What is happening?'

As I mentioned earlier, I don't agree with everything in the book (perhaps why Jankovsky is a successful trader and why I am still on the negative side), but Jankovsky managed to sever my personal stubborn insistence on somehow using price to predict price. He helped me to understand that nothing can predict price and that successful traders don't try to predict price, every moment in the market is unique, every trade in the market is a battle in two equally strong perspectives; he helped me to understand order flow: 'Understanding how the order flow develops and when it is ready to change is a different process from predicting prices. It involves an understanding of what motivates people to do certain things, how they behave when under perceived threat, what they value when placing themselves at risk, and what will change their minds and force them to liquidate.'

Scott shows me it can be done. Douglas lays out the game plan. Jankovsky pushes me over the edge.

Foolish optimism or a rock solid paradigm shift? Time will tell.

Trade well.

End of Day Journal (10-5-10)

Summary:

Paper traded 200 share lots:

Not a complete picture - lost power for the last 30 mins of the day and several positions rode to the EOD. Hard telling what would of happened but anyhoo. I need to make sure that I have this type of problem addressed before starting to trade live again.

The power outage invalidates the largest stop list, but posting it anyways:

XD wins at $0.75/share (power outage), but MCP is valid at $0.57/share (flash momo).

Largest wins:

Whoot! BG at $1.89/share (flash crash). I picked off a $1.50/share on the long side as well. FLR came in at $0.67/share on a slow and steady climb (which happened to be on a reversed failed short).

The last two days have been... different. I have been content to enter a position and let the stock do its thing more as an effort to try and learn something from it rather than consumed with whether or not I get a profitable trade. For example, on NFLX today, I sat thru two +$0.70 waves just paying attention to what was happening and trying to get a feel for what a change in the trend 'feels' like. I know... it sounds crazy. But it has been very, very cool. A guy could do this without a position, but I think that putting a position on is an investment in the outcome for me, so I pay closer attention. I feel like a sponge. Another example is MCP, I completely failed on both entries, but choosing to invest in the outcome had me paying attention, and now I have one more memory of what flash momo looks and feels like.

I like this.

I was chatting with Fozz at EOD today about some of what is going on. I started paper trading mid-June (as best as I can determine): that gives me something like 90 days of paper trading (minus weekends and vacation in C.R.). NT lists about 150 trades a day, meaning something like 100 actual trades. This puts me in the neighborhood of 900 sim trades. Maybe it takes this many trades to come to terms with some of this stuff.

I stumbled across Trading in the Zone on 8-17-2010, which, if I use that as the starting point puts me at about 380 sim trades. If I start counting from the time I decided to get serious about Douglas and the meditation/visualization routine (9-18-2010), I only have about 2 weeks worth of trades. I am sure all the experience counts, but I would put more weight on the last few weeks.

And heh... it might all blow over tomorrow after I get stopped 100 times in a row...

But it feels different, it feels the most like learning yet. I am guessing (believing, desperately hoping...) profitability will come.

Feedback welcome and much appreciated.

Trade well.

Details:

AXP

I am going to call this a so-so entry. Looking at the big picture, long from the 10:35 wick would of been a good call, but this was not a momo setup, I am going to say that there wasn't enough consolidation. I called it right both ways, and actually made money on the long, and the stop would of never been hit. I need to try and avoid these types of setups.

CHRW

15 minute called the top,  I don't recall looking at it at all. The 1:10 marks a double top with a new high being formed on bigger volume. This would of caught me out if I had been watching. I am thinking that the way to play this one was to go with the outbreak, and then reverse on the 15 minute hammer.

GYMB

The lack of volume should of been a clue to get out ASAP. I was in early on the candle.

TNA

 Entered on what looked to be a weak market. When it didn't go as expected I exited for a small profit. I should of continued to watch for the breakout.

BG

I wasn't watching BG at all until it hit the new low, about as good an entry on the initial short as it was possible for me to get. The 11:25 marks the initial short exit, an attempt at a long, stopped, short, stopped, then long just above the $55.00 mark. I held this until the 11:40. After that I just did what I thought was the right thing to do, which didn't turn out that well. Watching this unfold was a great exercise in becoming familiar with how much the candles can move yet still yield to a trend. When the sellers were done, they were done. These types of trades are incredibly fun. 

CMG

Not the best spread on this, but again I was willing to carry the position simply to try and understand the price action. The long entry was based on what I thought was a prior S/R level, but EOD review says it wasn't close enough. $178.00 was the magic number.

HOG

UA

I caught this one early - on the 1:35 candle move, but I decided to watch it. I then tried to time the reverse. As it approached the day's open it looked like it was ready to keep going so I went with trend. Exited on the even dollar.

VECO

I am going to say that there was not enough consolidation for the breakout. It closed right at the prior high - maybe that should of been a clue? Not sure.

BLK

Crazy spread. Crazy moves. So hard to get out on these, best by far to avoid.

EQIX

My Achilles heel - classic example: entering positions at exactly the wrong time in a channel bound sequence, getting stopped at exactly the wrong time and reversing. The last try was something I never do, which was to add on a negative position, at the bottom of the channel. Heh. Still got stopped.

I am not sure how to get out of this type of trade cycle. On one hand, this shows that I am picking reasonable stops - right at S/R.

LPS

Another great exercise. Learning what momo looks like when it starts, when it ends.

NFLX

I have to say the same about this one - a good exercise. Each entry had direction, but I sat on it sometimes just to see what would happen. The 12:00 long was on thru three waves - something like $0.70 for the first two, then lower high followed by the collapse and stop. The objective today was not profit so much as how the price action behaves when the tide is turning.

AGU

Not sure how to call this. Probabilities? Lack of market support?

BUCY

Not a good entry, too far from consolidation and momo is spent. I should of waited for the pull back.

FCX

Entry is ok, just no market to support the breakout. Exit is due to the power outage and missing stop.

MCP

Flash. called it exactly wrong, but another one under my belt.

RGC

ALXN

CCSC

Crazy spread. I moved the stop down at 1:15 with the lack of movement. The long entry was a mistake, it marks where I had set the profit target (due to the crazy spread) and was filled right after the stop. I need to make sure I make those orders OCO. Best not to trade these period (+-$0.30 spreads...).

FLR

The first reverse was perfect.

MTB

Flash - and yes, caught the short before it went all the way down. I had ample time to trade, but I thought it might go further. Another opportunity to become familiar with these types of trades. The exit was due to the power outage.

SIAL

The State of Flow

(EDIT: This journal is primarily for my own benefit: where I find myself and what I think I need to do. But - yikes! I had to clean this post up. I need to read these things before I hit the publish button.)

Friday was a mixed day, I had a decent morning again, went negative over lunch and then started messing around with TI and sitting on current positions and any new ones just to see what would happen. SPY had a narrowing channel until about 2:30 - I don't think it can get much harder to trade than that.

Someone recently lent me a book to read entitled Delivering Happiness: A Path to Profits, Passion, and Purpose. It was written by the CEO of Zappos Tony Hsieh. Tony is the primary character in the book, but the story is about Zappos and how it came to be the company that it is. Great read.

Interestingly enough, I came across some trading tidbits (maybe I have trading too much on the brain). Tony mentions a 'state of flow' and talks about a book he read describing the phenomenon (page 205). I have been meaning to check it out, and took the afternoon following up.

The author Mr. Hsieh mentions is  Mihaly Csikszentmihalyi. I found this on another site referencing how Mr. Csikszentmihalyi describes the 'state of flow':

"IMAGINE THAT YOU ARE SKIING DOWN A SLOPE and your full attention is focused on the movements of your body, the position of the skis, the air whistling past your face, and the snow-shrouded trees running by. There is no room in your awareness for conflicts or contradictions; you know that a distracting thought or emotion might get you buried face down in the snow. The run is so perfect that you want it to last forever."


This is what I want the trading experience to be - for two reasons: 1) this type of experience is the best way to spend any activity, and 2) I believe that 'state of flow' trading is the most consistently profitable form of trading.

I wouldn't hesitate to say that there have been times that I have been in the zone while trading, (primarily marked by times of great focus, the fast passage of time - oh yeah - and profits ^^), but I can't seem to keep this up consistently, or when I want to, it just seems to happen at times. Personally, I am never sure if it is the market environment or something about me that makes the experience possible.

So I decided to do some snooping around.

I checked out Mr. C on Google and came across this video and several books on Amazon. Looking over the book reviews, it sounds like the books had more info than I need - all I want to know is whether or not it is possible to be consistent and if so, how to go about it. Evidently it is possible and there is quite a bit of information on the topic available for free. I came across a site listing the criteria and characteristics Mr. C has determined need to be present for 'flow':

"Over and over again, as people describe how it feels when they thoroughly enjoy themselves, they mention eight distinct dimensions of experience. These same aspects are reported by Hindu yogis and Japanese teenagers who race motorcycles, by American surgeons and basketball players, by Australian sailors and Navajo shepherds, by champion figure skaters and by chess masters. These are the characteristic dimensions of the flow experience:

1. Clear goals: an objective is distinctly defined; immediate feedback: one knows instantly how well one is doing.

2. The opportunities for acting decisively are relatively high, and they are matched by one's perceived ability to act. In other words, personal skills are well suited to given challenges.

3. Action and awareness merge; one-pointedness of mind.

4. Concentration on the task at hand; irrelevant stimuli disappear from consciousness, worries and concerns are temporarily suspended.

5. A sense of potential control.

6. Loss of self-consciousness, transcendence of ego boundaries, a sense of growth and of being part of some greater entity.

7. Altered sense of time, which usually seems to pass faster.

8. Experience becomes autotelic: If several of the previous conditions are present, what one does becomes autotelic, or worth doing for its own sake.

The Evolving Self - Mihaly Csikszentmihalyi, 178-179 "

All the items describe flow, but I think I can make a distinction between items that depend upon me and items that are inherent in the 'state of flow'.  According to Mr. C, I can facilitate a state of flow in trading by setting goals, working on my skill level, and concentration (items 1, 2, and 4).

Let's get started.

Goals

This seems like a given - PROFIT! But no, Mr. Douglas has shown a better path - CONSISTENCY!

My goal in trading is to be a consistent trader: planning the trade and trading the plan.

Skillz

It seems to me that there are two distinct skill sets to consider. One involving the technical side of trading and the other involving what Douglas refers to as the trader's mindset.

The first includes familiarity with the trading platform, rules of the market, and chart reading; collectively, all of this forms the basis for an edge. Given the nature of the markets, one's edge has to constantly be refined, but after the initial hurdle, I think it is safe to say that this skill set takes a back seat. (In terms of effort expended - for all of us convinced that we are smarter than everyone else who has ever tried this, the initial hurdle includes wasted time on indicators, the search for the Holy Grail, and giving up on indicators.)

Douglas elaborates on the second skill-set with '...adjusting your attitudes and beliefs about trading in such a way that you can trade without the slightest bit of fear, but at the same time keep a framework in place that does not allow you to become reckless' (page 15) and ' ...control(-ling) our perception and interpretation of market information, as well as our own behavior.' (page 32).

I have room for growth in both of these areas. (In fact, in the video I listed above, Mr. C suggests that most activities require 10 years worth of a skill-set in order to reach the degree of competency required for experiencing a state of flow. I am hoping this is not the case for trading, but it does bring the 'experience required' aspect back into perspective.)

Wikipedia sums up Mr. C.'s advice on achieving the 'flow state' with:

"To achieve a flow state, a balance must be struck between the challenge of the task and the skill of the performer. If the task is too easy or too difficult, flow cannot occur. Both skill level and challenge level must be matched and high; if skill and challenge are low and matched, then apathy results."

Wikipedia also presents a clever visual:

If the skill level required and the challenge are both low, we tend to feel apathy. Flow happens when both skill level and challenge level are high.

So where does this put trading? What are the challenges and how do the skill-sets match up? Where am I on this visual?

The technical challenges are readily identified: trading platform and chart reading. Competency regarding the trading platform could be measured in terms of how many mistakes I make in order execution, how quickly I can find information, how quickly I can place orders, etc.

What about chart reading competency? If I can tell whether or not a price is going up or down I am competent.

(Tangent: 

As I began to write this, I became aware of how much of a struggle answering this question (chart reading competency) still is for me. The hypothesis: reading charts is relatively simple. Price going up, price coming down. The rebuttal: chart reading is not simple; some people (e.g., Scott) can look at a chart and see something that no one else sees. Something between the lines that takes years to develop and nurture.


Mr. Douglas and Scott himself insist the hypothesis is valid. Where does my rebuttal come from?

Well - after some internal processing, I believe it is because that in every other circumstance that comes to mind, I am used to having some control over the outcome. If things are not going the way that I expect: I can persuade, I can work better and harder, I can think faster, I can train more - and the situation will turn and go as I expect. The premise is that I can do something to change the outcome. Think about it for a bit - the idea that we control our own destinies is a central tenet of western culture. When things aren't going our way we buckle down and get busy. 

Fix or learn more about the environment - the default approach to all my other problems. (The more I think about it, the more I seem to recall Douglas saying something about this in his book.)

End tangent.)


Chart reading is simple.

I am doing ok on both fronts here, maybe not quite 'zone-esque' yet, but well on the way.

What about competency in adopting a trading mindset? This is measured in terms of how much emotional stress accompanies my trading. This comes and goes, there are moments when I have no stress, and then there are... well, those moments.

According to Mr. C.'s visual, I am probably in the 'Anxiety/Worry' category, the challenge is way beyond my skill level. Mr. C. suggests one of two things to facilitate flow: decrease the difficulty of the challenge, or improve one's skill-set. Let's looks at both of these.

What is the challenge? I believe it is important to state - with all the conviction and emphasis I can muster (to convince myself more than anything), that the challenge IS NOT THE MARKET. It is me, and I think it is two fold: overcoming my need to have control in trading and overcoming  my belief that I have some control in trading.

Pfft...

No way to decrease the challenge. It is what it is. I am what I am.

This leaves improving the skill-set. How? What can I bring to the table on each and every trade that will help to overcome my need to have control and my belief that I have some control?

Essentially, what I need to do is to supplant one set of ideas, namely that I need to have control over the market in order to make money and that I need more technical skill to make money, with another set of ideas: the market moves with or without me and I have enough technical skill to make money.

I can think of only two resources that have served to change my mind about something in the past: education and experience. When it comes to education and these two control ideas, I think I am about resourced out; I am aware of the false premise and the truth with respect to both. That leaves experience, which - believe it or not, is finally making its way thru my thick skull: sometimes I find myself slack-jawed in the middle of a trade, realizing that truly, anything can happen in the market (freakin' ninja/creeper candles). But experience faces a major time constraint - there are only so many hours of every week that the market is open. There is not much I can do except to commit to being present and participating in the market whenever it is open.

Douglas outlines an exercise - but basically it entails experience - and I think I have safely passed the 20 entry criteria - well, perhaps not in terms of fearless entries, but entering regardless of whether or not I felt fear/anxiety.

To be honest with myself, there is one portion of Douglas' exercise that I have found myself falling short on, and that is the portion that he labels 'self-discipline': '...a mental technique to redirect (as best we can) our focus of attention to the object of our goal or desire, when that goal or desire conflicts with some other component (belief) of our mental environment' (page 179). Basically - focusing, and re-focusing, and focusing again on the five fundamental truths and seven principals of consistency. I have practiced this in spurts and haven't been very consistent over the last week or two (relying more on convincing myself that I am just having fun - really, fun is what the 'state of flow' is all about). I think the problem starts when I don't give a concentrated effort to the focus, but assume a token effort will suffice 'because I just read them 5 minutes ago and pfft... I already know it all.' That is a mistake.

From here on out that is going to be what I work on the most  - concentrated efforts to focus my attention on those truths and principals. Practically this means monitoring for contradictory thoughts and stopping what I am doing until I believe them with some sense of conviction. Nothing new here - Douglas outlines the same plan on page 200. Heh.

I can think of one additional thing that may help, and that is the idea of visualization. I ran across some information regarding a Soviet era Olympic study that compared the performance of athletes maintaining a physical training regime and those that pursued a physical training regime and practiced visualization. The ones that practiced visualization out performed the others by a remarkable degree (and top performing athletes have been using it ever since).  I plan on being more conscientious about the positive affirmations and  learning some mental/physical relaxation techniques. On a side note, Mr. C. mentioned that people that practice meditation tend to experience a state of flow more often then people that don't.

Concentration

From what I have gathered, most of the problems with concentration have to do with one's environment. The trade practicing environment has to be free from distractions and potential distractions. A portion of this relies upon one's skills as well - well developed skill-sets allow for less effort expended on the technical aspects of the task and more effort channeled into the activity; but that was covered in the 'Skillz' section.

So - one distraction free environment coming right up.

In the past I have struggled with this when trading gets tough - I don't want to stop trading, but I don't want to think about how emotionally wrapped up I am either, so I find something to distract while continuing to trade: chatting, reading, surfing, other work. No more. From now on, if I find myself wanting to be distracted I will stop trading, be distracted, and only start trading again when I am ready to not be distracted again.

This turned out to be a lot longer than anything I had planned. Nothing new, but I think it was a healthy exercise.

Pro trading... here I come!

Trade well.

End of Day Journal (9-16-10)

Summary:

Every single trade I make is more practice - every trade I put on gives me the opportunity to learn something about myself and the market.

Today was a mixed bag. traded the morning like a champ (as bouncy as it was). Then promptly fell apart over the early afternoon:

You can see I had a whole slew of losses over the afternoon - several consecutive. Three culprits: CF, AAPL and TNA. I went straight from the HOD cumulative profit for the day to the LOD. Looking back over the trade sequences, after the profit HOD, I traded ESI long for a stop, then PRGO short then long for two stops, and then CF, where I went long on the 1:55 breakout, stopped, short, stopped, long, stopped. The candle is a duzzy. After the last stop I felt tired, irritated and disconnected and should of stopped trading for a bit. But I didn't. I did ok until I read short on the 2:20 Q's (prior support) and jumped into TNA and everything went downhill for the next 20-30 minutes. I couldn't seem to find direction on either TNA or AAPL and all the day's hard work went 'poof' - gone in about an hour, most of it the last quarter of the hour. TNA and AAPL both look like my old busy charts.

Interestingly enough, I caught myself thinking I am tired and irritated - right after the last stop in CF (3 in one candle). That should of been the signal to re-focus.

I managed to get back into 'fun' zone after a breather and finished off the afternoon on an upbeat.

Here are the day's largest losses:

Looks like RDWR had a $0.40 per share - again, as yesterday, the spread was too wide. Some of these stocks change their spreads very quickly. When I entered RDWR had a spread of less than $0.05. I am starting to be able to tell by looking at the charts - big gaps between candle ends is not a 'healthy' sign. These types of stocks are not worth the trouble.

Here are the largest winners:

Looks like I had a $0.62 in RIG and a $0.65 move in ESI.

I watched the opening salvo much closer today, but still missed a few setups. APOL and XEC to name two.

Today was exhausting. I felt like I had to work my tail off this morning to keep things profitable, a lot of concentration and a lot of scrolling thru my list. It was fun - but I think the effort of it all was wearing on me, and by the time CF rolled around I was not ready.

The thing about keeping this fun - it has to do with expectations - 'Let me just try this and see what happens'. If the trade has direction, then I do the best I can to get out. For some reason this approach is more powerful than Douglas' mantra. When I make trading a game, it seems to keep me open to possibilities and tuned to what is happening and I feel like I am learning by leaps and bounds. This morning I was much more selective than I was yesterday - turning some morning breakouts down because they didn't look right. Of course, this all went kablooey after CF, but I managed to put on my game face for the last 45 minutes.

Again, every trade is more practice. Every position I establish is more time in the trenches. The hope is that with enough time and practice, all of this will eventually translate well to live trading. The powerful feelings I experience have more to do with thinking of myself as 'being wrong' (over and over again) rather than losing money. This keeps me optimistic.

Trade well. 

Details:

AAPL; pfft... that 2:40 to 3:00 stretch is a nightmare:

APOL; I had been watching ESI do it's thing and wondered why APOL was just spending the morning flat.... then all a sudden it wasn't. Got stopped on the first entry but managed to re-coup and then some:

BIDU; going to start passing on these long wick breakouts:

CF: the breakout looked good, but it didn't happen - so I reversed... which didn't happen either. So I reversed again... and pfft. The stops getting further and further out as the wicks got longer:

EOG; missed the 11:25:

ESI; I didn't trust the first setup:

JKS; again - the importance of timing - I came in on one of the largest greens of the day and big volume - I hesitated on the entry. By the time I was in I was thinking in terms of up from my entry, and didn't think about the size of my entry candle. I should have been looking for the exit. Not a very nice trading stock either, jumpy action:

MOS; scalped the first breakout (barely),  then tried to play the failed triangle:

POT; another argument for timing:

PRGO:

PSA; timing - late entry kept the stop closer, otherwise I would of had it on top of the prior high:

RHT; could of been played better:

RIG; looks ugly, but I managed to re-coup and then some by EOD:

SLG; out on the retrace, which looked like the thing to do until 5 minutes later. Try to cover on strength:

SPG; not to be:

TNA; don't ask...

VNO:

XEC; I was too busy losing money on everything else to notice the great late afternoon setup: