Following your rules and being patient journal

[brownsfan019]

12/10/06

I had a little revelation this week – when daytrading futures and using a platform that allows you to watch tick by tick and hit the flatten button instantly – this can be more of a distraction than anything else.

My problem arises in that I noticed when I traded stocks/options through a website-based system that I would get my stop, profit target in place, and then be patient. With futures and daytrading them, I find that staring at the DOM's moving tick by tick can do more harm than good. It's way too easy to hit the flatten button and then watch the trade move in your favor. I guess for me, looking back at the last year and then some, this hit me like a ton of bricks this past week.

My current plan is to:

1) Eliminate as many P&L's as possible on my DOM's. I was running an unrealized P&L, current P&L, and P&L of all trades on EACH DOM, plus a main P&L of all trades. These numbers of course changed tick-by-tick on each trade as I stared at them…

2) When in a trade, cover up the one P&L that is running so that I can just focus on the trade itself.

3) Follow my rules and be patient.

Part of the problem going forward is going to be #3. I am way too quick to hit that flatten button. If nothing else, at least I know this. Since I am not a scalper, I can afford to get into the trade, place the stop and profit target(s) and then be patient. As much as we all would love for our profit targets to be hit instantly, it just does not happen in real trading.

The goal of this journal will be simple – to document my progress in this area. This is NOT going to be a signal calling journal or details of trading methodologies. This journal will be more of a psychological trading journal, which I think is one of the most difficult parts of trading – what goes on in your head during a trade. I hope that by documenting this progress I can stick to my ‘simple’ plan of ‘P&L management’.

Here is a little background information on my trading:
• I daytrade futures. I am currently trading the ES, NQ, ER2, QM and EC. Now that TradeStation has DAX and STOXX data, I am just waiting for my broker to have access to these markets as well.

• I trade manually. Call me old fashioned, but I like to manage the trade myself as I do not have 100% confidence in letting a computer program do this for me. I realize that a computer program may eliminate the problem that I am facing, but I want to correct this myself. I do not want to become reliant on a computer program that someone else built for me. The whole reason I got into trading was to be become 100% self-reliant. I am very comfortable knowing that I control the trading and that I run the ‘program’.

• While I am a ‘daytrader’, I am not a scalper. Trades can last for minutes to over an hour. Up to this point, most trades have lasted under 10 minutes. And that is not b/c my profit target was hit. It was b/c I was impatient and would hit the flatten button (and then watch many, many trades hit the initial profit target).

• The reason I need to be patient boils down to keeping my risk-to-reward to my advantage. Before entering a trade, I run my risk-to-reward projections and if it passes, take the trade. Well, that analysis is only so good if you allow the trade the opportunity to hit your profit target. As soon as you alter that, the ratio is useless.

What do you think and any suggestions?

I will do my best to update this journal at the end of days when trading takes place. I do not trade every day, so there could be day(s) without new posts.

 

[Mike805]

How long a have you been day trading futures?

 

[brownsfan019]

Quote from Mike805:

How long a have you been day trading futures?

Mike - I've been trading for about 10 years and of that, approx 3 years have been mainly/only futures.

I'm not sure why, but for whatever reason, last week the light bulb went off. I guess I was looking at a web based system for entering an ETF trade and I thought to myself that while you cannot scalp this way, what a nice way to trade if you need to give your trades time. It's not as easy or convenient to move your stop too quickly or hit the flatten button as it is with daytrading futures.

 

[Bearbelly]

ticks=noise, imo. Watching them will drive you cuckoo.

 

[brownsfan019]

Quote from Bearbelly:

ticks=noise, imo. Watching them will drive you cuckoo.

Yes, bear, that is what I finally figured out... Not sure why it took so long, but it finally hit me.

I guess part of it is that the DOM's are right there and it's so easy to just stare at them. And then in turn, too easy to panic and flatten a position over a small move. In hindsight you sit there later and ask yourself how on earth you flattened the position...

If nothing else, maybe this can help another trader out there that is doing what I was doing - staring down the P&L while in a trade and prematurely getting out of positions... Is there such thing as 'E.D.' for trading? If so, I need some pills...

 

[Bitstream]

have u tried 2days 15min bars/candles instead than 1-5min?

that transition has made my futs trading much more effective: after u get a grip on approx max candle's length u can fade those thick down/up bars cuz they always leave a shadow behind and the next candle will be an up one and often the beginning of a complete reversal. keep 2days charts so u have previous day as a very useful reference since the pattern can be very similar.

 

[brownsfan019]

Quote from Bitstream:

have u tried 2days 15min bars/candles instead than 1-5min?

that transition has made my futs trading much more effective: after u get a grip on approx max candle's lenght u can fade those thick down/up bars cuz they always leave a shadow behind and the next candle will be an up one and often the beginning of a complete reversal. keep 2days charts so u have previous day as a very useful referement since the pattern can be very similar.

Bit - I have looked at short (1 min) to 20 min candles and have found the shorter timeframes work best for me. This keeps my risk/reward strongly in my favor. I found the longer timeframes get me into trades too late and then the risk/reward is not as profitable.

If I can just remain patient, my trading should dramatically increase my profitability.

 

[Bitstream]

Quote from brownsfan019:

Bit - I have looked at short (1 min) to 20 min candles and have found the shorter timeframes work best for me. This keeps my risk/reward strongly in my favor. I found the longer timeframes get me into trades too late and then the risk/reward is not as profitable.

If I can just remain patient, my trading should dramatically increase my profitability.

well, whatever works for u...but with 15min charts if u memorize the max lenght of those thick bars down u may be able to nail the exact lows. if u have shorter time frame too many bars are gonna confuse u and the daily pattern looks awfully different from previous day. i find em useful in this respect tho, if u are not after the lows or the highs 15min may not suit u.

 

[EPrado]

Quote from brownsfan019:

Bit - I have looked at short (1 min) to 20 min candles and have found the shorter timeframes work best for me. This keeps my risk/reward strongly in my favor. I found the longer timeframes get me into trades too late and then the risk/reward is not as profitable.

If I can just remain patient, my trading should dramatically increase my profitability.

Looking at the order book is a bad habit...I used to do it all the time...seeing all the noise can easily "talk" you out of a trade....what I do before the open is put in my bids/offers.....once I get hit on one side I put in the stop...put in the profit goals.....then I close(minimize) the book.....either I am gonna hit the profit goals..or get stopped....anything else in between is noise..the only time I maximize the book back is when my orders ger hit/lifted.....


After minimizing the book I keep an eye on a 15 min and a 60 min chart....much less emotional.....takes some of the "thinking" out of the trade....

 

[brownsfan019]

Bit - I can see what you are saying.

The purpose of this journal is to force myself to get rid of all these P&L's and focus on trading and letting my trading methodology to determine entries and exits. I am very confident in the trading setups that I use, I just have to give it time and room to work.

Example: I could get a setup on the ER2 and let's say my profit target is 2.4 points on this trade. My max loss is .8 pts. After the trade moves 1.2 points in my favor, I may watch the P&L and see around $1000 on this trade. Then, the ER2 comes down a bit and I watch my $1000 gain turn into $200 rather quickly. The immediate reaction I had was to flatten for fear of it going down even further and turning this into a losing trade. Now, what will happen A LOT is that I will flatten, this quick little retracement takes me out, and then continues into the direction of the profit target and hits the profit target. All of a sudden I have turned a profitable 2.4 ER2 trade into plus 2 ticks before commissions. Obviously this is frustrating on so many levels. This was a profitable trade, yet my P&L does not reflect it; which in turn creates frustration and means that if my next trade is a loss, I am negative on the day, yet I should be positive.

A few things I should highlight about my trading:
1) All trades have a max loss threshold that is predetermined based on the market.
2) While the max loss is always in place, the actual stop loss placement is dependent on the trade setup; therefore some trades do not even start at the max loss threshold.
3) My analysis has shown that for every one win, I can absorb 2-3 losses and be near break-even. This assumes that on winning trades, the PO is hit; which means that I have to give it time to work (sometimes over an hour). If I turn the winning trade into plus 2 ticks and my 2 losses are minus 6 ticks... you can see how the end result can vary dramatically.