Chessmans Journal

C

chessman

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The lizard ... just hangs around on the rock ... and waits and waits and waits ... for his pattern to show up ... and when a bug comes along, he makes his move, right from the gut, without thinking about it.

Moral: When trader becomes that automatic, then he, too,
can hang around on a rock and catch a lot of bugs. -- Ed Seykota


Background: As you can tell from my other useless threads I am a systematic swing trader. I primarily trade futures, crude oil, t-notes, gold etc. Unfortunately I have never been able to make any good money trading the stock indices until I came across the Russell 2000 index.

I find the Russell very smooth and ideal for swing trading.

Trading methodology: Channel breakouts, 15 min chart, 19 period channel. The key to my strategy with Russell is that I base my analysis off the cash index $IUX. Then I apply the signals
in my case to the Russell emini future, one could also use IWM (tracking stock).

Trading vehicle: Russell 2000 index --> emini futures ER2 or IWM

Reason for the Journal:

1) Work on my psychology, trying to combine intuition with a mechanical trading system. Please see my thread 'How does George Soros Know what he knows'. The above system is marginally successfully, I think the key is to use intuition to scale out of positions. However as you will see in the ensuing weeks, I seem to get possed by some demon and don't always do things
in my best interest or stick to my system.

2) There are many gifted traders here on ET. Hoping they will shed some light on my style, money management, psychology etc.

3) I have a few friends who are also ET members, its a good way to share my Russell trading with them.

I look forward to your constructive comments !
 
System long from yesterday, bought at the highest tick of the day 458.80. (ER2U03)

Stop 456.40 ($IUX)

I will update this Journal once a day, usually after the mkt close.
 
Reversed a long position from yesterday.

B 458.80 (ER2U03)
S 455.80
----------
- 3.0 loss

SS 455.80 - open position.

Breakeven stop 455.80


Notes to Self:

1) Tried to place limit order to close out long at 456.10, then 456.00. Got distracted by the Fedex guy, by the time returned to my desk price at 455.90. Used mkt order to reverse, filled at 455.80.

Should have used mkt orders in the first place.

2) Really wanted to close out 1/2 short position at 450.50. Interesting no desire to close out earlier in the day during the 453 congestion area.
 
Closed out 1/2 the short position here at 450.30 ( ER2U03)



Notes to Self:

1) Used mkt order to exit (B) when price was at 450.50, filled at 450.30

2) The decision to exit was made quickly, 3-5 seconds elapsed between when I thought about it, to hitting the mouse.

3) Feeling of queasiness one inch below navel. Dryness in the mouth. A chalk like taste. No color. Cardboard like texture.
Normal temperature.

4) Its interesting how the subconscious mind watches all, it probably took note of the 450.50 number I mentioned yesterday. It probably took note of my emotions when I woke up this morning at 7AM to see dow futures spiking up in the morning on CNBC. It probably took note of the low $IUX made yesterday, and how mkt was coming down to retest it. However none of this was apparent when I pulled the trigger this morning. It was trading from the gut not from logical thinking.

5) In the past I would call this impulsive trading. It doesn't matter how this trade turns out, but very important to keep track of the inner landscape.
 
Holding 1/2 short position going into Monday.

Stop 451.00 ($IUX)


Previous trade

SS 455.80
B 450.30
-------------
+ 5.50


Notes to Self:

1) This above trade, the covering of 1/2 the short position, I believe has all the earmarks of the limbic system fully engaged. The futures & cash price data was fed to the hind brain, after a split second analysis, I was filled with feelings, within 3-5 seconds that action was triggered. The cortical part of the brain never got a chance to evaluate the trade.

2) This is that mechanism used by what Ed Seykota calls 'Freds playground'. The cortical (logical) part of the brain is short circuted and a trade is triggered.

3) This trade could be called an 'Impulsive trade'. I don't know if this is what Ed meant when he used the Lizard analogy of an automatic trader, trading from the gut. The Lizard I believe waits for the right pattern.

4) Not sure if 'reliable hunches' a la Flavia's work, can be cultivated in short term trading. I believe she has a fixed method to feel out what feels right, not this automatic trigger. Intiuation or 'reliable hunches' perhaps is used for longer term trading, Soros style of trading. Holding a position for many months and see it develop.

5) Another thing I noticed, I probably spend 50% of the time looking at the P/l and 50% looking at the chart. Very hard to do but may want to tape over the p/l. "Don't be attached to the fruits of your labor" -- Ram Dass
 
Closing out rest of the position here at 443.70

SS 455.80
B 443.70
-------------
+ 12.10


Notes to Self:

1) Same feeling one inch below navel

2) Think mkt is over extended

3) worried about Fed. ( not sure what fed has to do with a mechanical system, but still worried)

4) other than the feeling, no evidence in the chart that the mkt is turning around, or bottoming out...
 
Flat going into Tuesday.

Buy Stop at 442 ( $IUX)

Notes to Self:

1) Must wait for empirical chart evidence before exit. This feeling thing has been pretty bogus so far !
 
Went long at 441.10, dumped the entire position at 442.

May look for a place to re-enter.

Need to focus on my massive long T-Note position.


Notes to Self:

This haphazard trading will get you in trouble.

tnote position size is out of line. Shouldn't effect other segments.
 
Made a second Russell trade SS 437.40, B 436.40

Flat going into Wednesday.

Buy stop 442.40 ($IUX)


Notes to Self:

1) Made two non-system trades today, got rewarded for both. Thats why this game is so difficult, negative reinforcement, at times we get rewarded for doing the wrong things.

2) One thing is very apparent is the mechanism used by the subconscious mind to trigger impulsive trading. The limbic system turns on the classic 'fight or flight' response, I get flooded by chemicals/hormones, there is a great sense of 'urgency', before I realize what is going on the trade is made. Its errie how the cortical (logical) part of the brain never even gets a chance to 'evaluate' the trade. This is what goes on, when traders say, I don't know what possed me to trade this way, I know my system, but I just couldn't follow it. This is what my friend at the Kansas City board of trade years ago, used to call little green men talking in his ear.

3) This is turning into a Journal of how to self distruct a good trading system...trying so hard to out guess it rather than follow it.
 
Went long 441.70 when the mkt broke the channel this morning.

Got stopped out at 442.00 shortly after the fed action.

Now short going into Thursday. Stop at 446.40 ($IUX)


Notes to self:

Today was the classic bell shaped killer day. Exit very inefficient at 18%.
 
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