tampa's "short skirt" trades...

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tampa

Have you ever encountered a method of trading that works – really works – but have been unable to make it work for you? That seems to be my life’s story. I have been at this game for a long time, and I am pretty good at it, if I must say so myself. I only have a few things to overcome. Second-guessing myself, and self-distrusting blowouts.

Aside from those two minor problems, I am near perfect!

I know what works – at least for me: Common sense trend following. But I am inpatient, I need to know quickly if I am going to ring the cash register, or take a hit. So that means that short-term trading is my only hope. Scalping e-minis for a half to three-quarters usually puts profits in my pocket, but... I’d like more.

Have you ever heard of Linda Raschke, and her “short skirt” trades? There’s really nothing new or special about the method. Buying/selling bull/bear flags in established trends on a one-minute chart using a three point target, and a three point stop. There ain’t much to it. It’s simple, easy to see, and it works better than 65% of the time.

( For more info: http://www.lbrcapital.com/members_tradesetuplibrary.asp )
So how come I am not rich? Because I can’t follow the rules. I cut my profits short, and take losses before I should. Thereby defeating the purpose and genius of the method. Day after day, hour after hour I sit at my computer looking at these trades do what they are supposed to do – i.e. make money. But I always manage to either not take them in real time, or to take them but not properly play them.
Well enough is enough! I have tried everything I could think of to force myself to do what I have to do – but for one thing: Public humiliation. So for the foreseeable future I will post a “journal” of my attempt to trade a method I know works. I will only take the so-called “short skirt” trades (or at least they are the only ones I will tell you about), and will do my best to trade them as they should be traded. At day’s end I will fess up as to my success or failure. Feel free to comment, ridicule, or stand in awe.

I am not doing this for you. I am doing it for my own benefit – I don’t know what else to do to force the needed discipline on myself. So your input, while welcome, is not really necessary. The mere knowledge that someone will see what I did, or didn’t do that day may just be the kick in the pants that I need.

I’ll start on Monday. Tuesday may be a short day as I have a medical appointment, but as a rule I trade most every day.
I will provide information about my equipment, software, etc in a subsequent post.
Wish me well – PLEASE!
 
Equipment: Dual Processor Pentium III 512 meg Memory Four 17” Monitors

Software: TradeProspector RealTime for charts. Q-Charts for data. IB’s TWS order entry platform. BracketTrader of automated order entry.

SETUP: One, five and fifteen-minute charts of the S&P e-mini. All with a 20 period EMA. No other indicators. One minute NYSE Tick chart.

Strategy: Buying/selling bull/bear flags on the one-minute chart in an established trend. Profit objective = 3 points. Stop-loss = 3 points. (The method is basically one published by Linda Raschke, known as a “short skirt” trade.)

I am not a proponent of computer back testing, but from countless observations the method should have a 60% to 90% success rate if traded properly – i.e. trading only established trends, and not trading in overbought/oversold conditions. Aside from the flag chart setups, much of the method depends on discretion.

(GULP) Here goes...

(may God have mercy on my soul – or at least my P&L)
 
Tampa,

It might be beneficial for you to define exactly what an established trend is before you enter a short skirt setup.

Draxon
 
A trend is nothing more than a series (two or more) of higher highs, and higher lows - for an uptrend, the reverse for a down trend.

Much of this is subjective. You must have a feeling for the market - you are looking at the slope or angle as measured by the 20 EMA to determine trend strength. You should be able to get two or three additional impulse moves in an "established" trend.
 
I was in Lindas room for awhile and true short skirts didnt come up very often. Theyre not as easy as they look. Good luck tho. I will follow your journal with interest.
 
Well, I guess that's what this so called journal will attempt to find out.

The following is a more complete explanation as found in the FAQ section of Linda's web site:
What is the Short Skirt Trade?

A SHORT SKIRT is a quick scalp trade made in the direction of the short-term trend.
The setup occurs after the S&P has made a sharp "impulse" move. The pattern tends to look like a continuation flag on a 1-minute chart. We call it a "Short Skirt" because the trade usually lasts between 3 - 10 minutes. The concept is - "quick in and quick out without getting caught."

We try to look for Short Skirt setups that have the potential for a minimum of three points in the trade. This is to allow for a minimum of ½ point slippage in and ½ point slippage out. A 3-point STOP is placed from the trade entry price. The objective for the trade is a retest of the previous wing high or low, even though the market often makes a new leg up or down.

Our mechanical system that we run on Trade Station has a win/loss ratio of 66%. However, through proprietary volatility filters and some basic pattern recognition, our real time track record for the past three years in our online trading room, as documented by the room members, has been 90%.

How do you enter Short Skirt Trades?

We watch for a price retracement of 1.5 to 3 points from the most recently formed swing high or low. For an untrained eye, it may be useful to watch the 20-period exponential moving average on a 1-minute chart, though the price does not always retrace that far. Sometimes the reactions that go sideways instead of back to the EMA can be the best trades. The initial price retracement lasts about 5 minutes. When the reaction back starts to stall, we usually enter a market order. It is ideal to enter the trade BEFORE the price starts moving back in the direction of the original trend. It is also most efficient to work a bid or offer as the price is correcting back down, but sometimes the type of order used is a matter of personal style. Since the price has already corrected back 2-3 points when a trade is entered, it is rare that the initial 3-point stop is hit. We tighten the stop up after the trade moves off in our favor.
 
Its true her hit rate is phenomenal but its because of 20 years experience. She is watching everything. The average trader using a 3 pt. stop and 3 pt goal is going to get killed.
 
I have a lot of experience as well :>)

I sit here and see these things set up several times, most days. But have failed to act on most of them, or take them, but don't follow all the way through.

And that is the point of the "journal" - to force me to trade as I should, or make a fool of myself in the process.

I have not been in the lbr chatroom, but it is my understanding that she only puts out the cream of the crop - understandably. But on most days there are at least 5, and sometimes as many as 10 potential setups. Time will tell if I am able to spot the good ones, and avoid the questionable ones.

I am not setting myself up as a "Master Trader" - I am just a shmoe trying to keep my head above water, who is tired of playing for a half point 15-20+ times a day. Obviously I think that I can pull it off - time will tell, and you'll be the judge.
 
Upon reading the misleading thread title and not being well versed in trade setup nomenclature, I had expectations of a trading journal finally catering to the crossdressers amongst us. So it was no surprise that I kicked off my stilettos in anger when the true nature of a "short skirt" trade was revealed in the 3rd paragraph of the very first post. False advertising notwithstanding, I shall still follow this thread with great interest and wish you the best of luck.
 
One additional point: I currently trade theses setups now, and with close to a 75% success rate. The problem is that I rarely follow all the way through - bailing out with a point or so profit, and not giving the trade enough "wiggle" room. I want (need) to play them as they should be played - that's the bottom line.
 
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