Journey to develop a system and an edge

T

TraderStavros

Background: Despite my moniker I am not much of a Trader currently. I used to be a trader for a passive investment management company and as such was more of a facilitation gig than applying any of the most important principles to active trading. Prior to this year I did a handful of speculative trades a year and were driven mostly by tertiary fundamental analysis and an extremely light technical view. I began actively trading stocks recently and have had some relatively good successes but much larger lessons. I found that I was most comfortable when I was trading intraday but due to capital restraints quickly discovered the pattern day trader rule. I began to swing trade but used to wide of stops and in this choppy market my winners turned into losers and everything got stopped on my already wide stops. The futures markets have always interested me and I believe it is the best suited for my risk profile and trading goals.

I work full-time in a salaried position which at this time does not require much attention. I have a lot of idle time so being able to trade during market hours will not be an issue.

I have my Bachelors in Finance and an MBA. I would be still working in the Investment Management field if the option to move out of state were on the table but due to family constraints it is not. I chose to switch my focus and moved into the Corporate realm. I am a Strategic Analyst for the President of a regional Energy firm. While I don't believe that education = success I think it's important to point out that I am not a gun-slinging poker player looking for his next fix or an overly-creative engineer looking to create the perfect system to make an ATM. (no offense to either of those who are reading this)

Goals: This year I set a goal to reach a Portfolio balance of $50k by December 2008. This includes my IRAs and does not back out any deposits. It sounds like cheating but I suppose savings is a part of my system. I of course back it out when calculating performance. I am still driving toward that goal despite that this Journal will focus on my taxable account.

I do not have a firm line to draw for a what type of gain I'd like to see but I think a reasonable target is breakeven by Spring and at least a couple points on the ES a month. I like to set my goals low and revise them upward as I get into it.

Strategy: I really embraced the writings of Van Tharp and believe that the most important aspect of any system is the position sizing mechanism and risk control. Being that I am only trading the ES I will use this to determine the number of cars and stops. (which will be some function of ATR) I have attached a spreadsheet which I used to position size my swing trades. I will modify it for this. My technical analysis skills are improving and recently had an 'AH HA" moment while listening to a Podcast from Moneyshow.com. The speaker (cannot remember his name) turned out to be a scheister but something about what he said just clarified how to read to chart and I believe I am ready to move into the next phase of my 'training.'

I will paper trade through TOS until I am comfortable enough to go live. I have a little more than 15k but will likely stick to one car from the outset and ramp up as I gain confidence.

I like many of the ideas that Anekdoten speaks to in his thread (http://www.elitetrader.com/vb/showthread.php?s=&threadid=99283) and will derive much of my initial strategy from this thread. I'll start with 2 minute bars, look for meaningful trends and enter for a retracement. My stop will depend on the ATR but I am not sure if it will exceed 1.5-2 points as that is more than 1% of my equity. This is an area of research for me.

I am going to try and keep it simple. Once I go live I will not be living off of this income and will do trades when I can. If I am successful I will scale up as I move along and see where it goes from there.

Feel free to chime in and discuss along with me but I am not looking for naysayers and hecklers. I have done a significant amount of research and am well aware of the risks, pitfalls and even that there is much I DO NOT KNOW. I am extremely receptive to criticism and input but as long as it's respectful.

This journal will follow the journey to figuring out what works for me and what does not.
 

Attachments

I started trading live today with one contract as I always believe that is the best way to get your lessons in. I found it very difficult to average out just a point. So far I'm down 2 points on 8 trades. I'm watching a 2 minute chart, identifying supports, resistances and trends and looking for the retracement. I either get stopped out to early, have my trailing stop hit and cause a small loss or just make a bad call all together.

Code: 
Cars	Entry	          Exit	        Ticks	Cms.    Gain  Initial Stop
1	 1,499.75 	 1,500.50 	 0.75 	 7.00 	 30.50 	1498.25
-1	 1,502.25 	 1,503.75 	 (1.50)	 7.00 	 (82.00)	1503.75
1	 1,502.00 	 1,503.00 	 1.00 	 7.00 	 43.00 	1500.50
1	 1,503.25 	 1,502.00 	 (1.25)	 7.00 	 (69.50)	1502.00
1	 1,502.25 	 1,503.25 	 1.00 	 7.00 	 43.00 	1500.75
-1	 1,505.00 	 1,506.25 	 (1.25)	 7.00 	 (69.50)	1506.25
-1	 1,506.75 	 1,506.75 	 -   	 7.00 	 (7.00)	1508.25
-1	 1,508.50 	 1,509.25 	 (0.75)	 7.00 	 (44.50)	1510.00
 
Forums were acting strange, didn't see my reply as a reply and didn't get bumped. I don't like to throw my posts to the front every time but figured I should at least update!
 
I'm curious why you started with the ES? You may get more bang for each car on the ER2 as it moves more.

It looks like you're using a stop of 1.5 on the ES, which is 6 tics. On the ER2, you'll get stopped out a lot just based on random noise. ES less so, but maybe sometimes. What's your rationale for the tight stop?

What do you use for entry/exit signals?

Good luck with the year.
 
Quote from bandit77:

I'm curious why you started with the ES? You may get more bang for each car on the ER2 as it moves more.

It looks like you're using a stop of 1.5 on the ES, which is 6 tics. On the ER2, you'll get stopped out a lot just based on random noise. ES less so, but maybe sometimes. What's your rationale for the tight stop?

What do you use for entry/exit signals?

Good luck with the year.
More...

There was not a real specific reason why I chose the ES over anything else but I just checked and it doesn't look like my broker (TOS) has the ER2.

It may be that my stops are too tight. I was using a couple points as 2*ATR(10). Perhaps I should increase that to 3. 3 would be more in line with 1% of my equity anyway.

In regards to entry/exit signals: I am looking for a trend (at least 3 bars) and when it begins to reverse I take the opposite position. It's very simple and I may just be doing it backwards!
 
Here are the trades from yesterday. More trouble but I am starting to get a real feel for how the ES moves. Now I just need to refine my entry/exit points. I would have made me day at the slide around 1:00pm but I was in the bathroom!

Code: 
Cars	Entry	         Exit	         Ticks	 Gain	Initial Stop
1	 1,502.25 	 1,502.25 	 -   	 (7.00)	1500.00
-1	 1,502.25 	 1,502.00 	 0.25 	 5.50 	1504.50
1	 1,500.00 	 1,498.25 	 (1.75)	 (94.50)1498.00
-1	 1,497.25 	 1,495.00 	 2.25 	 105.50 1499.75
-1	 1,492.75 	 1,495.00 	 (2.25)	 (119.50) 1495.00
-1	 1,495.75 	 1,495.00 	 0.75 	 30.50 	1498.00
1	 1,493.25 	 1,491.25 	 (2.00)	 (107.00) 1491.00
-1	 1,492.50 	 1,494.25 	 (1.75)	 (94.50)1494.50
 
Quote from TraderStavros:

Here are the trades from yesterday. More trouble but I am starting to get a real feel for how the ES moves. Now I just need to refine my entry/exit points. I would have made me day at the slide around 1:00pm but I was in the bathroom!

Code: 
Cars	Entry	         Exit	         Ticks	 Gain	Initial Stop
1	 1,502.25 	 1,502.25 	 -   	 (7.00)	1500.00
-1	 1,502.25 	 1,502.00 	 0.25 	 5.50 	1504.50
1	 1,500.00 	 1,498.25 	 (1.75)	 (94.50)1498.00
-1	 1,497.25 	 1,495.00 	 2.25 	 105.50 1499.75
-1	 1,492.75 	 1,495.00 	 (2.25)	 (119.50) 1495.00
-1	 1,495.75 	 1,495.00 	 0.75 	 30.50 	1498.00
1	 1,493.25 	 1,491.25 	 (2.00)	 (107.00) 1491.00
-1	 1,492.50 	 1,494.25 	 (1.75)	 (94.50)1494.50
More...

Hi TraderStavros,

I'm curious why you started trading Emini ES during the holiday price action between XMAS and New Years ???

It's usually a tough trading period for retail traders in comparison to before or after this particular holiday sessions.

Mark
 
Quote from NihabaAshi:

Hi TraderStavros,

I'm curious why you started trading Emini ES during the holiday price action between XMAS and New Years ???

It's usually a tough trading period for retail traders in comparison to before or after this particular holiday sessions.

Mark
More...

Mark, thanks for the reply. (also to bandit)

Frankly I chose it since I took some time off of work and had the opportunity to get comfortable with it. I was thinking last night that the lack of volume could be an issue as well. I am glad you bring that up and was thinking of waiting until next week to place any trades.
 
Quote from TraderStavros:

There was not a real specific reason why I chose the ES over anything else but I just checked and it doesn't look like my broker (TOS) has the ER2.

It may be that my stops are too tight. I was using a couple points as 2*ATR(10). Perhaps I should increase that to 3. 3 would be more in line with 1% of my equity anyway.

In regards to entry/exit signals: I am looking for a trend (at least 3 bars) and when it begins to reverse I take the opposite position. It's very simple and I may just be doing it backwards!
More...

TOS = pricey. is their platform any good? you may get a better platform and lower commissions w/ tradestation. strange they don't have ER2.

your system sounds like it's geared toward range bound days. on strong trend days, such as strong up day, there are a lot of pullbacks followed by another strong move up.
 
Quote from bandit77:

TOS = pricey. is their platform any good? you may get a better platform and lower commissions w/ tradestation. strange they don't have ER2.

your system sounds like it's geared toward range bound days. on strong trend days, such as strong up day, there are a lot of pullbacks followed by another strong move up.
More...

Coming from Schwab I really enjoy their platform. I cannot compare them to other Futures brokers though. It is Java based which you can make of that what you will but that is good because I can use it on my work computer where I likely could not install Tradestation or something else similar. I know you can negotiate a lower commission rate and I am going to attempt to do so this week. I just need to do some research to find out what a fair rate is.

I decided to take the advice and just monitor the markets on Friday as the break may be causing some problems for me. While waiting for some service to be done on my car I was doing some reading in The Master Swing Trader about Bollinger Bands. I have been familiar with them for a long time but for some reason the way he spoke about them really reached out to me and made a lot of sense. On a lark I opened up my laptop and watched the ES with a 5-8-13 with 2stds. It was really interesting to see how the bars really just kept bouncing off of the bands and hovered near the central line. I placed a trade and made 1.75 points in 2 (2min) bars. That felt good and what was I needed to keep going!
 
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