End of Day Journal (11-4-2010)

Today ended up being pretty much a washout (paper trading 200 shares). I had an excellent morning, catching NFLX twice on the downside and AAPL on the upside, and FSLR on the first swing up and then short as it dropped again. I was stopped out once on NFLX. I was up about $400.

Then NT's customer support called about a bug I reported (live PnL calculations of on the 64-bit version of chart trader) and he took over my computer and did several arbitrary round trips to try and pin the problem down. I re-set the sim account after we were done (with about 30 minutes till lunch) and racked up another $100 on NFLX as it came off the bottom (one stop and one profit).

I was feeling like I could take money at will from the market by the time I was ready for a break.

I then proceeded to get tossed around for the afternoon session. I decided to only post my losing trades to take a closer look at things.

I want to say something here. I am becoming more and more convinced of it's importance. This analysis is not about the charts, price action, or even about what was happening to me in the market. It is about what had just happened and was happening in the market. I got taken for a ride on some range bound bottoms because I ignored some clear signals. And maybe I was feeling a little cocky...

But - would anyone care to distinguish between healthy confidence and 'pride goes before a fall' cockiness? I think healthy confidence stems from a realistic evaluation of one's own skill - and that is what I was doing - taking money from anyone that was willing to offer it (well... on paper at least). There is not a shred of doubt in my mind that I can do exactly what I did yesterday and this morning every day. That is, if I focus and pay attention to what is happening.

And I think that is key - this new chart setup was so different that it forced me to change my perspective. I spent the first few days trying to tweak the TA (and some part of me thought that it was fun) but I recognized what I was doing and realized (thanks to all the good stuff I have been reading on blogs and books) that it was a fruitless exercise. I had no 'patterns' to go by on these charts but I believed in the principal behind them (price only), so I stopped messing with the TA and whatever, and began to look at the charts for exactly what they where - people's reactions to whatever it is that they are believing. The charts go from fear of losing, to running out of fear (i.e., people that fear), to fear of losing out. Dynamic. Completely unpredictable and moment by moment. No chart pattern in the world can tell me how far a stock will run. I need to get in touch with and understand what is driving that run.

Anyhoo - after the analysis it is evident that I did the same thing every time on these entries. I will strive harder to pay better attention.

For what it's worth, I ran across an interesting thought on Douglas' video the other day - the idea that 'accepting the risk' is more than consciously accepting the potential monetary loss, 'accepting the risk' is about finding good reasons not to make an entry. I think I forgot some of this this afternoon.  

Tomorrow is dissertation day, so no trading.

I am going live next week. I will be cutting down to 100 shares for awhile to condition myself. I am trying to recall why I was - and what it felt like - trading 1000 shares when I started this latest endeavor. It completely boggles my mind. Heh. I will try to update all the relevant pages this weekend... but it looks to be busy, so no promises.

I am sure I am in for a lot of surprises yet.

Trade well.


AMZN

I shorted on the 'new' low and let the stop run wild to see what would happen. Looking at it now, the 45, and the 15 for that matter, was showing some definite exhaustion.

BIDU

Assuming the same principal - nothing showed exhaustion to the topside on BIDU - I should not have been shorting. The 15 signalled exhaustion on the bottom side and I reversed properly.

CRM

I got hit several times on CRM. It had been trading lower all day and my first entry was on a new low. It continued more or less range bound - and again, turned right on my stops. I am still not sure how to avoid this. There was an exhaustion bar on the 45 just prior to my first entry which could of been a clue.

FFIV


Again... exhaustion showing up on the 45 on the new low.

FSLR

I had the right idea on FSLR - but early. Then I tried to short - frustration? Looks like it.

End of Day Journal (11-3-2010)

Summary:

Paper traded 200 share lots today:

I started the day very much aware of my fear, and finished the day pretty much on the same level. I think this is telling in several of my exits. More than anything else today, I tried to stay in touch with how I was feeling and how it was impacting my perspective. Then I just traded as it looked like a move was running out of participants. I also focused on fewer stocks, per yesterday's thoughts.

I traded on the 15 & 45 range, but am using the 5 minutes to chart because of the crazy action around the announcement.

Trade well.   =)

Details:

AMZN

FFIV

FSLR

 NFLX

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 (10-28-2010)

Summary:

Paper traded 200 share lots today:

I think I needed a day like today as a reality check. I made two mistakes today. The first was paying a modicum of attention to the EMA's on my POT trade. They were showing red and I bailed on the long position after some decent profit. I didn't 'feel' the exit and there was a $1.25 left on the run. I turned the EMA's off for the afternoon session, and am going to leave them off from now on - I didn't even notice they were gone. The second mistake was a silly mis-key and a POT long at about 12:30 that I didn't get out of right away; again the 'let's see what happens' syndrome.

I was early on the MCP, CMG, and SOHU and got stopped on all of them. Ironically, it was the MCP trade that had one of the largest stops of the day. The majority of my entries are simply spot on - these three would of been the biggest winners of the day - but it becomes a game of trying to keep stops small yet affording enough room for the stock to do what it needs to do. The biggest stops were on the NFLX trades and both of them didn't work out. Most of my exits are pretty good as well, though I should of kept watching V.

Overall I am flat out impressed with how my trading has changed over the last couple of weeks. I think several things came together - I have been consistently practicing visualization, I worked out the 'Sell when a stock runs out of buyers, buy when a stock runs out of sellers' question on a personal level, I was introduced to range bars, and I spent most of last week tweaking a new setup and realized that I was falling into old habits again (i.e. being stupid). All of these set the stage for Time Compression Trading: Exploiting Multiple Time Frames in Zero Sum Markets (Wiley Trading) and the author's ideas were driven home and permanently set. Not that author's ideas are new - Scott has said the same over and over again on his blog. I was able to see myself. The time was just right.

The emotional aspects of my trading have abated tremendously. I am guessing this is because I understand that every moment in the market is completely and utterly unique. Even at today's low point on the profit curve, I did not doubt that as long as I kept doing what I do everything would work out fine; it didn't cross my mind to second guess. Why? Because I know what is going on. I just have to get better at interpreting; I feel like a sponge just soaking it in - and acting on it.

Is this cool or what?

As it turns out, I was still negative at EOD, but no worries; it will come.

Tomorrow is dissertation day. I won't be trading on Friday's until I finish this up.

I am seriously considering going live next week, but after being negative today, I will talk it over some more with my wife before making the plunge. No hurry.

Whoot!!

Trade well.

Details:

AMZN

 BG

CMG (15 and 45)

LVS

MCP (15 and 45; the 15 doesn't include the first trade)

MMM

NFLX

POT (15's morning and afternoon sessions)

RVBD

SOHU

V 

The Awakening (edited on 10-28-2010)

(Note: I keep editing this because I keep reading it. I didn't do such a great job the first time. Still not sure that I am able to express how my thinking has changed. Work in progress...)

Say you were given the choice between trading systems. One system has a success rate of 55%. The other has a success rate of 35%. Which would you choose?

Did you make a decision? Easy right?

Did you choose the 55% system? Why not choose the 35% rate system and do the exact opposite?

This is the deal: somewhere between 80% to 90% of traders are failing or on the way to failing at this game. If you want to win you need to do something different.

And this is the difference: nothing matters.

That is to say, nothing I used to think mattered, ever really mattered. Not TA, not moving averages, not patterns, not charts, not colors - not price. The only thing that matters is what everyone else thinks matters. That is it.

And - I have no idea what that collective 'it' is, no one can know what everyone else is thinking.

But - I can guarantee that some things matter to 80% to 90% of traders, e.g., the ones that are failing. That is a lot of people - and they are all doing the exact opposite of what they should be doing. Enough of them do whatever they do for the same reasons and at the same time. I still don't know what the reason is, but as long as they have their reasons and act on them, I don't have to know.

Here is the other deal: how many people want to buy/sell a stock? This doesn't matter either. Only one person will always buy at the very highest price, and one person will always sell at the very lowest price. The 'a lot of people' eventually becomes one person. It has to. There is not an endless supply of people on either side of the trade. Pick your time frame (or in my case, range) and wait till the tide is ready to turn. It doesn't matter how long it takes, it doesn't matter what the TA says, it doesn't even matter what the price is. To 80% to 90% of the crowd something matters a lot, and it matters enough for them to act on it. Use that and capitalize.

Jankovsky (btw - the question at the top of this entry comes from his book) sets it up like this: every trade is a conflict in perspectives. In order for any trade to take place, there has to be two people with opposing view points - someone looking at the same information that you are and thinking the exact opposite. Who is right?

Who knows? No one knows.

The conflict will eventually be resolved, it has to be, and it will only be resolved when one of the parties capitulates.

What does capitulation look like? Why does one side give in to the other side? I have no idea. But one side will always give in - at some point they have to. The side with the most opinions always wins, and the losers will have to give in When does this happen? I don't know. I would be willing to bet that the vast majority of traders don't expect to change their minds, they entered the trade thinking they were right. They themselves probably don't really know when they will change their minds. But they will; each side of the trade will run out of opinions and people willing to act. They will come into the market and they will go out of the market. They have to.

All I have to do is wait.

There is the very real chance that I will completely fail at my trading tomorrow. I still have some skills to develop, and it might take awhile. But I see what is happening now. I may have some emotions crop up and make some mistakes, but I can't ever stop knowing the true nature of the market. I am a believer.

Here is how it works out on the charts I am using: I am using the fancy MA's as a general indicator of what is happening. If the MA's agree then the probability is high that the price will continue in that direction. (Personally I think that having the range/price based MA is more reflective of the trend - the price is moving, it doesn't matter how long it takes to get to where it is going.) Both of the MA's are color coded for a fast simple read. It doesn't matter where they are in relation to price, or if one is over the other, or anything. They are relatively long periods and are meant to show what the price is doing, especially as the range bars don't always allow a lot of information on screen (dependent on how much the stock has moved during the day). I have the charts set up for 24/7 time frames to keep the MA's smooth. The straight lines are all price based S/R; the shaded band is the fastest, the teal line is next fastest, and the red and green are longer term. This saves me the trouble of drawing lines on the chart - again because there is not a lot of info on the screen and these are fairly reliable. I primarily use these for stops. I also have the volume bars and an MA based on the volume:

So what I am looking for is volume changes, this tells me buyers/sellers are coming in and one side is running out of an opinion. The great thing about range bars is that the volume bars are also based on the range bars, so I can see at exactly what price volume is coming in. Volume is neutral. But if volume is coming in and the price isn't moving, then tides are turning.

Check out yesterday's CRM trade:

Notice the exceptionally high volume on the exit candle. The bar is only $0.15 long and look how much volume came into that price level without it budging. Probability says we have to run out of buyers. And it looks like we did.

On a time based chart this is harder to see - at least for me. That high volume bar lasted 8 minutes, covering 2 5 minute bars. Here is what it looked like:

  I can't see this as well; even though it is prettier.

The charts are no good if you don't know what is happening underneath it all.

Trade well.

End of Day Journal (10-15-2010)

Summary:

Paper traded 200 share lots today:

I had several errands this morning so I was unable to trade until the lunch session.

As I prepped for the day I was concerned about my state of my mind and whether or not I could tap into the perspective that I had yesterday.

Concentrating is difficult. I should say concentrating on what I want to concentrate on is difficult. I can think about one thing without a problem, but the thing that I am thinking about is usually whatever is the most pressing/urgent. In other words, what I am thinking about has nothing to do with what I want to think about and everything about my current environment/situation.

I try to get a morning run or walk in before trading. I usually spend the time trying to think about trading: visualization, mantras, etc. I don't keep track of my thoughts or how much of the time is actually spent thinking about trading. Today I tried a slightly different exercise. I tried to focus on how I was moving, specifically how my feet were moving, and what I was sensing: hearing and feeling.

Simply said, the experience is amazing. It is almost like coming alive. How is that for abstract mumbo-jumbo? But it is a completely different experience. Probably just due to the fact that I am using all my mental capacity to sense and be aware.

But it is also incredibly difficult for me to maintain for any length of time - I think I can hold a single thought for a max of about 5 seconds. I usually become aware of how good/different it feels and start thinking about that rather than what I was trying to concentrate on.

The reason I bring all this up is that I am starting to believe that concentration is central to this momo trading gig.  I know - I have read what Scott has written about it numerous times. Why now?

How can I explain this? Yesterday's perspective was new for me - I am struggling to explain the distinction. Prior to yesterday I saw patterns and traded them, but in a sense, I believed that everyone else already knew what was going to happen - like whatever happened next was already a foregone conclusion and I was the only one out of the know. It followed from this mindset that the only thing preventing me from making a consistent profit was my inability to read/interpret the price action correctly - I was missing something. Yesterday the price action became alive and dynamic - I was aware that no one knew what was going to happen and everyone was waiting for the price action to unfold - because everyone wanted to make money, so everyone was waiting to see what would happen, so they could get in, because they wanted to make money...

Pfft. I really suck at trying to explain this.

Whatever else it was, it was such a cool experience that I decided I am not going to trade unless I have managed to adopt that perspective. Right now that is measured by how well I am concentrating on answering the question of whether a stock has run out of buyers or sellers. My objective now is not to be profitable, or even consistent, it is to be comfortable with that new perspective. Right now it seems fragile, like a little seed tentatively reaching out new roots, and I want to foster/nurture it until it comes automatically whenever I sit down to trade.

Full of descriptive language today - well, descriptive for an engineer. Heh.

So - that was the goal today. And I think I did pretty well. Even though I didn't get every trade right, I was open to learning. And I had these really weird... err... 'feelings'. On the NFLX, CSC, JPM and Q downturns, I couldn't shake the feeling that there were more buyers waiting. I thought to myself - should I exit? I had lost most of the profit and I think that I normally would of cut the losses and kept what I could. But I couldn't rid myself of the sense that buyers were waiting on the general market and these stocks. So I bought more CSC and JPM. I wasn't brave enough to buy more NFLX.

Don't get me wrong, I made plenty of mistakes today - I wasn't tuned into everything. I was completely wrong on JPM. On ACL I did a definite no-no, I averaged my entry price on the wrong side (I did have this weird feeling that there were more sellers waiting). I missed prime exits on SLAB, TSL, and KDN, and read the wrong momo on JPM and the reversal a few too many times on SLAB. But I wasn't emotionally bent out of shape over the losses - I was able to keep the mojo.

Who am I trying to convince - myself or my audience? Pfft.

It just is what it is. I think it is important to document the things that are important to me, when I find them important.

Time will tell. At least I know what trading should feel like - and I know what I am shooting for.

Trade well.

Details:

ACL

CSC

JPM

KDN

MON

NFLX

SLAB

TSL