Dunning Kruger Journal

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Sold SI(1000) at $14.30 on underperformance versus other precious metals. Other precious metal are at intraday resistance as well. Will look to get long at lower levels and favorable momentum later today or in overnight session if other conditions such as strong equity prices and strong credit markets remain.

Still have my eye on wheat from the long side, especially if US and China start thawing on trade.

Bought 100 VXX at $26.61. Stop is 26.54 or so. Target TBD.

Just got a fill on a forgotten TSLA bear spread. Bought 1 TSLA 9-28-18 295 put / sold 1 TSLA 9-28-18 290 put at a debit of $1.90. No stop to be set until next week. I feel TSLA's stock performance will be polarized next week. Either up significantly on heavy short covering or down on a market correction or investor worries about competition, legal action, trade, or finances. With this in mind, I could have structured this trade much different to take better advantage of this outlook such as buying an out of the money put. I decided to be conservative because theta decay on TSLA options is nasty and I want to keep my investment small.

Stopped out of VXX at $26.54.

Looks like TSLA has reversed to the upside. May have to use money management on this today.

 

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Out of TSLA Bear spread at $1.90. There seemed to be stubborn support at $195.50. Had a YM short for a gain of two ticks late in Asian session. Wish I held on to that short into the US session. Now flat and will take rest of day off. Will work on tweaking my trading plan this weekend. Will update changes and post screenshot of account performance.

 

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Attached below is my trading performance since inception, broken down monthly. By the way, in my previous post, TSLA’s apparent support was at $295.50, not $195.50. An omen?

Although the dollar amounts of profits and overall account returns are not impressive, the return versus risk seems ok given my trading frequency is low and my position sizing has been very small until recently.

Note: These results do not include Friday, where I had a very small net profit.

I need to make several refinements in my trading plan to address several performance issues that include poor discipline such as chasing, lack of preparation such as placing trades without properly considering basic aspects, instrument selection where my trading choice was not optiminal given the perceived trading environment, and poor position sizing leading to low account utilization.

Chasing trades - The 4 times I’ve chased over the past 3 months has resulted in a loss each time. I must remember to either enter well by considering reward to risk as measured by entry:stop versus entry:exit before taking on the trade. My exit is usually a support or resistance area on day trades. Bottom line: Focus on trading when the probabilities seem to be in my favor.

Lack of preparation - There are a lot of non-trading demands on my time. If I am too busy at my job, I must stop trying to multitask by simply not attempting to trade during those times. A common theme to my various trading issues involves lack of preparation.

Trading instrument selection - I need to spend more time in visualizing the potential returns and risks of various investment choices for better trading performance. I need to consistently incorporate expected volatility, profit probability, timing, and event risk into my trade selection decisions.

Poor position sizing - This is easy to correct by using the formula of: Position size = risk allowance / Stop amount in points. My risk allowance can be adjusted by my perceived trade profitability and other factors that are specified before taking on trade.

The overnight risk management benefits of certain option strategies are compelling. In addition, certain option strategies offer additional money making opportunities. Therefore, I will be focusing on placing more of these trades in upcoming sessions.

My trading will emphasize semi automated day trading as well as intraweekly swing trades involving options.

 

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Natural gas does not seem like it is going to correct. We will probably get another big up day this week if inventories show another drawdown during a time of year when inventories should be building. I'm looking to put on a vertical bull spread in calls.

I have my eye on TSLA as a short candidate. Unfortunately, so do many other people. It seems to me the time to go short is after a fierce short covering rally. I will be patient, like a sniper, and wait for this to happen.

Looks like it is going to be a mixed bag for US equities in the early going. Probably no day trade, if any, today until 10:30 or so.

If we get significant movement in equities today, I may put on a option spread that expires this week near the close today.

 

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I am surprised that volatility has continued to trend down. Are there not enough potential events that could affect investor willingness to take on risk?

Presumably we will hit new all time highs on US equities indexes soon, perhaps this week. I noticed the Nikkei has been strong recently and has made a higher weekly high. However, I am not willing to pay the markup of ES and other correlated assets during the European session on the open of US regular trading hours. I will wait for "safer" long entries depending on early morning action.

The energy markets are seeing good volatility and strong trends. Will also be looking for long entries in crude, natural gas, and other energy correlated instruments.

NVDA has gapped up and I believe there may be a bullish multi day run ahead. Will likely enter on A option spread that expires this week, depending on how the RTH open goes today. NVDA is $268.70 now and this week's price target is $280 to $290.

 

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Bought 1 YM (Mini, 1000 bu wheat) December contract at $5.24 1/4. This is a relative strength versus news play. China and the US are acting like they are far apart on agreeing to a trade treaty. I would have expected the grains as well as other asset classes for that matter, to have reacted more negatively. I will be running a tightish stop near yesterday's lows. Even if stopped out, I will be responsive to positive price action in wheat for potential long trades. Also, FXI (China ETF) is up premarket.

Edit: After looking at NVDA options pricing, I will likely simply buy a call that expires this week on buy signals.

 

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Out of YW at 5.22 3/4 on disappointing price action. Note: I used wrong symbol for mini wheat in previous post.

Still looking for long entry in NVDA call options.

Index futures are starting off slower than expected. May change my original long bias to short for a day trade. Will await further developments.

Bought YW at $5.25 1/2. Stop is at $5.22 1/2. Target is open on this potentially multi day position. Volume has picked up and price is going where I expected now. Too bad I was shaken out earlier near the low. Other grain markets are strong .

Damn, should have been in beans or corn.

 

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Bough 1 NVDA Sept 28 Call at $2.51. Stop is $1.25. Target is open for now. Out at $1.87 on surprise reversal on volume increase.

Raising stop on wheat to $5.23 1/2 on inability to rise above open and my need to go to work. Out at $5.23 1/2. That's 0 for 3. Three consecutive losses shuts me down for rest of day. Will do a post Mortem on my trading tonight.

 

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Long day at work. Tomorrow is FOMC day. I probably will not trade index futures or its derivatives tomorrow.

My reasoning on the wheat trade was suspect. "Relative strength versus news play". Ridiculous. The worsening trade relations between China and the US had not been fully discounted in the wheat market. Basically because of my long wheat bias, I was looking for an excuse to buy rather than observing and considering what is actually happening. In addition, I entered my first wheat long near the close of the session prior to the US session, thereby exposing myself to intersession price risk. Traders in the new session can and do look at information differently than traders from a prior trading session. This is one reason why I tend to place a lot of weight on where the current price is relative to the session open. For example, if the current price is above the session open, I usually, but not always, will be looking for long positions.

Basically I am trying to use use the tight money management of a intraday trader with the profit objectives of a swing trader. It's great when it works, but it does tend to result in additional losses instead of profits had my initial stop loss allow more price variance as appropriate to a longer time frame. Then again, the is no law against reentering a position after getting stopped out after a new trading signal is received.

I exited NVDA and one of my wheat positions before my initial stop was hit. This is not unusual for me. My stops are set as I enter the trade. As the trade develops and I am watching my position closely, if I see an unexpected and unfavorable development, I try to exit immediately rather wait to be stopped out. Occasionally this has caused me to take an unnessary loss, but at least it is small and I can reenter the trade when I feel more confident on the direction. As it turned out, both the NVDA and one of the wheat trades would have hit my initial stop, thus I saved money with my early exits.

In the current low volatility environment in equities, it seems appropriate to increase time frame and place greater emphasis on fundamentals. In a higher volatility environment there is greater urgency for me enter a trade, especially early in the session, because price can move quickly away from what would allow comfortable reward to risk ratios. Sentiment / technical indicators seem particularly important in high volatility markets. My urgency to enter cost me in NVDA earlier today. A low delta option spread would have allowed me to either wait for "confirmation" of price move as might be shown near end of day for a swing trade idea or I could have simply accepted the risks associated with early entry but have the potential drawdown muted by the lower delta of the option spread postion.

I believe AMD may also outperform the general equities markets on favorable products fundamentals. Interestingly, AMD started out stronger than NVDA but NVDA ended up overtaking AMD performance wise by end of day. Intel was very weak today probably as the result of trader perceptions that Intel is becoming weaker competitively.

Still waiting or hoping for TSLA to have a major short covering rally before shorting myself. TSLA seems to be getting support from strong energy markets and ideas that Tesla batteries will be increasingly used in alternative energy systems. It is my belief that alternative energy technology in solar cells, windmills, or fully electric vehicles are still not cost effective versus traditional energy sources except in remote locations or very specialized applications. Maybe if crude reaches near the all time high of $140 per barrel will alternative energy be competative with fossil fuels. However, if alternative energy does become cost effective against traditional energy sources, it's adoption should become widespread and TSLA would be well positioned.

Still very bullish on natural gas and I should simply start building a significant position using option spreads starting, say, next US RTH session. Definately in "buy the correction" mode

 

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Ended up firing off a few trades earlier this morning. Did not post them because I was mostly driving and in a hurry.

Bought 100 VXX @ $26.48 at 09:57:17 and 100 VXX @ $26.46 at 09:51:48. My idea was that volatility would see a increase during FOMC day. My plan was to sell before the actual announcement.

Sold 100 VXX @ $26.55 at 10:41:00. I decided to lighten up my position because ES was making new highs and VXX was backing off of resistance. Still wanted to keep some VXX because the basis of my idea still seemed valid.

Sold 100 VXX @ $26.6316 at 12:45:52. Although there was still more than an hour to go before the FOMC announcement, this trade was not performing as well as expected and thought there would be little movement in the next hour.

Bought 1/2/1 TSLA Oct 05 300/285/270 put butterfly spread @ $2.00 at 12:30:31. It's good news that TSLA has received more funding for 3 months, but the fact they are continuing to bleed money at a high rate and are facing a shareholder class action suit makes me think this rally will be short lived. I'm sure some of TSLA's move upward is short covering in advance of FMOC.

Bought 1/1 NVDA Oct 05 $270/$275 call bull spread @ $1.67 at 12:35:29. I am bullish on NVDA but went out an extra week for lower gamma since NVDA is down today. My stop will be around recent daily lows. I believe some of NVDA selling today may have been related to position lightening ahead of FMOC announcement.

I see NG has sold off hard. A correction, finally. May enter a butterfly spread late Thursday and or Friday. Even if we get a few weeks of inventory build, it is not unusual for this time of year. One potential concern is the front months are down much more than the back months.