Trading with Krugman

[krugman25]

And Then There Were Two

Quick update: I have officially moved everything back over to my TD Ameritrade account where I will be trading from moving forward.

This year I started off with the goal of running a portfolio with three different strategies: premium selling, swing trading and buy-and-hold stocks. Due to an unforeseen medical emergency I had to liquidate all of my stock positions and withdraw a little less than half of the cash out of my trading account. While I was initially disappointed that I needed to do this, it turned out to be positive.

After closing my positions and withdrawing some funds I have had ample time to really figure out how I felt about this three prong portfolio I have been running for 3 short months. After some thought these were my basic takeaways:

• I had lost somewhere around 2 - 2.5% on my buy-and-hold stocks
• I am near break even, +/- 0.25% with options selling
• I have made around 1.5 - 2% swing trading.
• I started doing the buy-and-hold thing in 2019
• I start selling options premium in 2018
• I started swing trading in 2013
• I get annoyed when I am in a trade for more than a day or two
• I hate sitting on losing positions and watching the losses grow each day

The conclusion I came to was that I need to completely remove buy-and-hold from my strategy book. Firstly, I have the least experience with it. Secondly, ex-stock positions, my portfolio would be up a few percentage points right now. Thirdly, I actually stopped swing trading(the most profitable strategy so far this year) because the losses from the stock holding had put me in a bit of a mental/emotional funk. Fourthly, I just have no patience for it. It simply doesn't fit how I like to trade.

So in a nutshell I am going to put my mental, emotional and actual capital into the things that are making me a profit and that I am interested in continuing to do. So my 3 prong strategy has become a 2 prong strategy.

My Approach

I originally didn't want to hyper focus on trading since I wanted to give all 3 of my strategies equal attention. Now that I have decided to move forward with just the 2 strategies: premium selling and swing trading, I will go into a little bit more in depth on the swing trading side.

Explaining how I trade usually elicits virtual eye rolls and sighs. Maybe because it doesn't sound mechanical or objective enough? I am not sure. It's really simple though. I look at the charts, get a feeling about it, look for an entry signal, and set my order. Here's the problem, it's mostly subjective. That subjectivity is pretty much based on how I feel about the market, based on price movement. I can tell if a chart is tradable within the first few seconds of looking at it. If it looks tradable then I will spend an extra few minutes digging in and finding optimal entries/exits/hidden risks.

I can teach someone the little signals that I always look for and some of the trade management rules, but what I can't teach is that subjectivity that I base most of my trade analysis on. Without that piece, it wouldn't really work.

Candlestick Study

Since I won't be meticulously tracking my 3 prong portfolio I decided to make good use out of my time another way, which is doing a candlestick study. The last time I tracked and analyzed each one of my trades was back in 2014. This month I decided it was the right time to once again to meticulously track the setups I take and use that data to try and improve my trading. A few ways I am hoping this study will improve my trading are

• Help optimize my entry mechanics
• Help optimize my risk management and exit mechanics
• Look at my losers and figuring out if there are certain common denominator I can find in the price behavior to avoid sub-optimal setups.
• Study the minutia of each setup. For example, if price closes inside of a support and resistance zone, or it closes outside of it, how does that affect success rate, velocity of price movement, price retracement, etc.
• Help me understand my portfolio trade metrics: sharpe, risk-of-ruin, profit factor, r-squared, etc.

These are just a few things I am going to use the study for. What this study is not, is a journal. I am not interested in journaling about my trades or tracking my P&L, but rather I am interested in interrogating the absolute performance of the trades I take. One of the big things I want to walk away from this study with is to understand how much % of my account I should be risking on each trade. I am currently risking a very small % and want to have confidence in increasing it.

What My Trading Looks Like

I currently risk somewhere between 0.1 - 0.5% on each trade. One of my goals with this study is to understand if I can safely raise that to 1% or better. I currently measure my trading by risk and reward. I always start a trade with a maximum defined risk, and as the trade progresses the stop loss is moved per my mechanics or a subjective decision. I have price targets based on areas of the chart I have subjectively chosen to take profits where I may take part of all of the trade off the board. With this study I am measuring my overall performance by understanding how many rewards am I actually making per risk I am taking on average. Combining that with a win rate and some other info I can begin to understand a lot about the performance of my trading.

My approach also doesn't yield trades very often. I look for a specific type of setup and signal, and don't trade anything else. It can be feast or famine. Sometimes I will go weeks without a single setup and then suddenly a half dozen setups will appear in 1 week.

 

[krugman25]

The Candlestick Study Begins

I intend to keep the candlestick study close to my hip until it has around 100 trades recorded. At that point I will have a sample size that is starting to become statistically significant. In the meantime I need a little self motivation and something to talk about, so I will periodically post information about it. Today I want to take a look at the profit curve of the 6 closed trades on the books. I have it set up so I can input any % risk per trade, to get an overall % P&L curve. For now I am keeping the % risk model at 1%.

Below is the profit curve of the current trades in my study. As I said before, I will normally risk 0.1% - 0.5%. This is all in percent terms because I am not trying to count dollars to know how many steak dinners my wife and I can have, but rather absolute performance. If I want to count theoretical steak dinners I can figure that pretty easily from this chart and my account size.

Trade Details

Starting with the most recently closed trade which was also my first loss of the study, I closed an XLE bear call spread for a loss of 0.3x maximum risk (0.1% loss in real terms). I would normally not subjectively close a trade out like this, especially in a trade that is technically still valid and in play, but I had to stick a fork in this one for a number of reason. The most important reason is that I made a hasty, dumb decision on my entry and pretty much violated how I would normally enter a trade. Because of that I got one of the most sub-optimal entries possible and sat on a loss all week long. In reality, if I would have stuck to my rules, which generally involves a 50% or greater price retracement of the entry signal, I could have actually closed this out for a profit. The sub optimal entry had both negative psychological effects as well as greatly increased the risk I had to take on for this trade. There were some other lesser reasons such as I placed too much % risk in this trade, especially considering this was a counter trend trade (which I very seldomly do unless the stars align). Overall it was a big mistake of a trade and not surprising the first loss out of the 6 trades of this study. I properly chewed myself out for it and I am fairly certain it is not going to happen again.

Moving on then, I have 4 trades currently open: short AUDUSD, two short NZDUSD, and short EURUSD. I entered the 2 NZDUSD shorts at different price levels using 2 different entry techniques. The technique I use to enter the trade and the aggregate performance of each technique is also another metric I am tracking with this study, and why I track these as separate trades.

I haven't checked my charts yet to see if there are any new setups that have formed today. If not I expect to continue to hold these into next week until they are either stopped out or hit their targets.

 

[krugman25]

My trades were out of order in the first screenshot. They are now ordered by the date I closed them. I also added profit factor and r-squared.

 

[krugman25]

Is anyone here short financials or looking to short financials this week?

 

[krugman25]

Since I have thrown TradingView to the curb, I think I may try to just share my ToS charts. It lacks the nifty analysis and video features but it gets the job done.

Here is the pinbar I am setting in /CL. This is basically my thought process here.

1. HH/HL
2. Sideways Consolidation
3. Price bumps into the short term bullish trend line, breaks through it but pulls right back up. BOOM, you have a pin bar. Lots of shorts holding onto losing positions, should be good fuel for the next leg higher.

That's it. We have the overall trend bias, the fakeout at the short term trend line after sideways consolidation. Pretty much a bread and butter setup.

Too bad /CL is too large a product for my account to trade it. Maybe gentleman's bet instead.

Testing out the ToS chart sharing feature
Crude Oil - (Bullish) Pin Bar

I don't want to pat myself on the back too hard, but dang if this wasn't prescient.

All hail candlesticks.

 

[krugman25]

My first profit target was hit in NZDUSD @ 0.6769. One third of my position has been closed, holding the other 2/3 for the next leg. Trailing stop will be moved down for NZDUSD and EURUSD. Both positions are now guaranteed winners. Still waiting for AUDUSD to get moving but it looks like support could break soon.

 

[krugman25]

I woke up this morning to this treat

 

[krugman25]

There has been a lot of interesting price action today. I would love to talk about it but there are some scrubs who like to trade my analysis and then pat themselves on the back.

I will journal it here in a few days after it becomes too outdated to trade.

 

[krugman25]

I have closed out 4 positions today, all winners. I now have just 1 trade still open. I updated my study and also added some new metrics to help analyze my overall performance. The first thing to note is my extremely high profit factor. That is simply due to the fact that I have only taken a single loss of 0.3x, and the rest are winners. The next thing to note is that my winners are achieving an average RR of 1.4x. My average loss, which right now is just a single loss, is -0.3x. My win rate stands at 90%. Another thing to note is my profit curves ultra high R^2. That means that up to this point my profit curve is very linear without a lot of random variance. For someone not trading with milk money, this is important to me.

What does all of this mean? For starters I will state the obvious which is that one only needs a 1:1 RR with a 50% win rate to break even. Nobody wants to do all of this work to simply break even, but even that is a better outcome than most traders will ever achieve. With my 1.2 RR and 90% win rate, if I maintain anything even remotely close to that in the long run, I should see long term profits. The next point I want to make is that it would now take 12 consecutive losses at maximum loss for me to just break even. I hope I don't see that, but since 2013, I have certainly had half-a-dozen or so loss streaks before, so I am never going to discount the possibility.

Realistically speaking, I am going to start accruing more losses over time and expect some of these numbers to worsen. My long term goals are a PF above 3, r^2 above 0.8, win rate above 50%, and positive RR above 2. I am exceeding everywhere except in the positive RR category. While I can only take what the market gives me, I do know there have been a number of occasions over these 10 trades where I entered prematurely and exited prematurely. I would likely have a RR above 2 if I would have been more strict on my entries and exits. I have been working on my mechanics and rule set to hopefully improve this numbers. This candlestick study is also there to help me figure out the best mechanics for my trading style.

I would like to add some more metrics to my study. If anyone has any suggestions I would love to hear them.

I would also like to run these metrics on each 10 trade chunk. So at 100 trades I would have 10 groups of trades, each with their own metrics. The goal there would be to see how things of progressing/regressing over time.

 

[krugman25]

Entry and exit info for my EURUSD short I closed yesterday, Shorted at 1.1330 and exited at 1.1202, capturing almost 95% of the entire move from the 25th to today. The story was similar in my AUDUSD and NZDUSD trades as I captured around 90% of the peak-to-trough movement in those pairs as well. My entry was a DXY pin bar buy signal and exit was a pin bar pullback signal. The signals and analysis served me well as the dollar has weakened materially since I closed those positions yesterday.

I am still looking for opportunities in these pairs as well as a few others but will wait for the market to show its hand. Currently on deck is a synthetic short (short call/long put) in XLF and a short strangle in SPY which is building quite a bit of negative delta.