There's quite a bit to talk about today.
Late last night, after I had a chance to cool down, I was thinking about what happened. I was really mad at myself, because at this point I am too good a trader to voluntarily let that kind of stuff happen. I was thinking about the times that this has happened in the past, and tried to draw some similiarities. I realized that there was a predictable course of events. So predictable in fact that I was able to use my known psychological responses as a technical indicator. I don't want to go into details too much, but I was looking for a psychological inflection point on the chart, one that occurred at the moment I became apathetic; this was 1260. Actually, historically this inflection point has also been the moment of my one last chance to get out; this was 1265. Then I took the moment the whole cycle started; this was 1281. The inflection point is the halfway point of the move against me, so based on this, the market was headed to 1239-1249 before it would touch the inflection point again. I wasn't about to try trading off of this theory though. It was just an experiment.
I was tossing and turning all night. Then I woke up in middle of the night and shut my alarm clock off. I then had the following dream. I was watching myself in the future. I was still trading with IB, but it wasn't called that anymore. There was a really futuristic interface that appeared to be quite complex. It seemed like dynamic colors played an important role, although I'm not sure what that was. There was no longer a distinction between NQ and NDX, they were one and the same. Also, there were several additional components that were trading in correlation to the main contract, but I didn't know what they were or what they did. Anyway, here I was at the start of the trading day. The market was down slightly over 40 points; at its worst I think it was down 47. Anyway, my character sees something he likes, and goes long at 1245.5 (I think it was 1245.5, all I'm certain about is that the last digits were 45.5). The market instantly goes against him 1.5 points to XX44. What was his response? He said, "Oh well, it's still a good trade. I'll just hold until the close." Then he turned the monitor off and walked away. I was like, "What!? That's gambling!" At this point I woke up.
When I turned on my monitor, I saw that the market was at 1240 NDX. The tape was still pointing down, but I could tell that it was exhausted. I should have waited for an entry signal, but with the combination of my psychotech analysis and my dream, I had to go long. I do not consider this gambling, because the tape did signal a reversal was near.
Trade 1 (BOT 1240.5 SLD 1246.5) I wanted 1240, but I got 1240.5. Then the market went against me. I was using 1240 for trade management, and my mental stop point was at 1238. It went to 38X38.5 and just as I was about to bail, I received a buy signal from my system. Therefore, I decided to give it 1 more point of wiggle room. It proceeded to come back up, and I almost bailed at 1243.5, but I thought it would at least make it back to 1245 NDX so I moved my stop point to 1241. When it hit 1245, I realized that if I could get 1246.5 I would have achieved my profit goal for the week. I was very content with this trade, and I then went on with the rest of my day (not trading).
Trade 2 (SLD 1265 BOT 1264) I checked in to see how the market was doing right before I went out to lunch. I was shocked to see that it had come back to my inflection point. There was only one other time that this had happened, August 2002 (I'll talk about that later). More importantly, I wasn't upset at all that I had missed out on an additional 20 points. Step 2 didn't trigger at all! For the first time, I was content with what I had. Anyway, I saw a quick scalping opportunity which I took. I realized that this wasn't the top, so I got out at 1264. It never occurred to me to reverse.
Trade 3 (SLD 1267 BOT 1266.5) Before I entered this trade, I thought I had found the top for the day. Soon after I entered, I realized the market was going even higher. I was dying to get out of this one! I just hit the ask and went to lunch.
Trade 4 (SLD 1275 BOT 1274.5) This was another scalping trade. I was looking for 1273. I was impatient on my entry, but I was afraid I was going to miss the trade. It went to 76.5X77 after entry, and I was prepared to exit at 1277 but thankfully I didn't have to. It came back to 74.5X75, and I was now convinced that this was a good trade. But then it went back to 76X76.5 and I lost my patience. I still knew it was a good trade, but I was going to get out if it went below 1275 and looked like it was going to come up again. It made it to 73.5X74, at which point the market action looked very favorable, and I changed my target to 1272. It went to 74X74.5, and when it looked like it was about to go through 1274.5, I got out. I'm actually not upset with how this trade turned out. Messing up entries makes me very cautious and subsequently impatient.
The observant may notice that today was virtually an exact repeat of yesterday. I found a good setup via tape reading. I got in, and got a nice quick profit. Then the market went at least 20 points further than where I got out. The difference today was that I didn't get mad about it. It didn't bother me that I missed so much more profit. I was just happy with what I had. For the first time, I was content. Not only did I conquer step 8, I also conquered step 2. One thing that helped was I realized that at this point in my trading career, there isn't any obstacle that I can't overcome. The only thing that can stop me from succeeding is myself. It's a good feeling.
The other thing that I realized is that I think that my tape reading skills are now better than my system. I'm not sure what to do about this yet. I think that I will probably continue to use my system with tape reading for confirmation. Then I will start to use tape reading with my system for confirmation until I can gradually move into pure tape reading. Nevertheless, I'm not ready to start this process at the moment. There are too many other issues that have first priority.
I said that I would talk about August 2002. The market action happened almost exactly the same. I held overnight. The next day, it went even further down. At the bottom, I couldn't bear it anymore, so I got out. I didn't just get out, I went short (reversed). Over the course of the rest of the day, the market proceeded to move up to exceed the previous day's high. Before this happened, I did manage to reverse again at the halfway point at about half my original size, but the damage was done. Then over the course of the next few days, the market went on to my original profit target. This was the worst of all the times that it happened. It was also the only time (other than today) that the market came back to the inflection point (let alone the starting point!) of the cycle during the next day. It was also the only time that I've done a capitulation reversal (I learned my lesson on that one).
I know that I said that I wouldn't trade today. I also said that I would postpone increasing my size to 10. But when I woke up this morning, I had faith in myself to overcome obstacles. I'm glad that I did.