Tuesday, April 28, 2015

Update on Trading Strategy / Daily Journal 4/28/2015

It's been a busy couple of weeks for me so my journaling/blogging has suffered.  I still reviewed my trades every night but I did have time to copy charts and make notes during the day when I did find the time to trade.  I am dealing with a lot of emotions stemming from my decision to not sign my contract for next year and give this trading a shot.  I know I have what it takes but that doubt is starting to creep in from time to time.  But, I just try and put it out of my mind and trade on.

If you follow the morning gappers you have seen over the last few weeks that they have not produced the trades that they did at the beginning of the year.  Just like all of the other strategies I have learned over the past year, they tend to be hot and cold.  I believe the key to it all is something I learned in the military.  Improvise, adapt, and overcome.  This is how I have approached my trading.  So I have to periodically make these adjustments on how I trade.

I still look for morning gappers that have gapped up but now I also look for those tickers that may have gapped down.  I am still working on how to consistently trade these but I look for them to do one of two things right now.  I look for them to either open strong and retrace some of the gap down, or I look for them to sell off a little more at open.  I just watch the price action the first 15 minutes or so to help me determine how I will look to initially trade them .  But ultimately I am looking for them to reverse and give me a trade with the bottom reversal setup I like to trade.  Here is an example:

This ticker was on my gap down scanner and I gave it the first 15 minutes to try and give me some indication as to what trend it was going to take.  When it traded below the VWAP I felt it was going to continue to sell off for a little while longer before I got the reversal so I shorted it.  However, once I took a short position, the price action began to tell a different story and as soon as Level II indicated a possible trend change I exited my position and began to look for the reversal.  I missed the initial entry but I looked at the VWAP as a signal for my next trade.  If it bounced off of it and faded, I was shorting it.  If it pushed the VWAP and held above it, I was going in long. As you can see it held the VWAP and I took a long position.  I exited when I got a 1 point move.

This is the other ticker that I had on my gap down scanner that passed my vet.  I didn't trade it because I had so much else going on but this is an example of a ticker that gapped down pre-market and opened above the VWAP and stayed above it.  This would have been a long for me after it pulled back and bounced off of the VWAP.

Here are my Equityfeed Filter Builder settings:

Price Data:
     Last >=1
     Last <= 50
     % Change <=  -5

     Day's Volume >= 100,000
     Trades >= 100

I still vet these the same way I vet my gap up tickers.  If I do not have any hits by 9:15 I will change the volume to 50k.  Also, I will trade these using the 2 minute chart.  I switch to the 5 minute chart after 11 AM.

Like I said earlier it is still a work in progress so I am studying them to make sure I have covered all angles.

Sunday, April 12, 2015

10 Mistakes in Trading to Avoid at all Cost

I don't have much new to blog about since my last one because I have been more wrapped up in The Masters as I am every year.  I may be biased but it is the most beautiful golf course in America.  I think the south has some of the most beautiful plants, flowers, and trees on earth and they are all on display at Augusta National.

I do want to share with you a post from about a year ago that is on the "Bull Markets" message board. It would be a good idea to print these out and keep them handy because these could save you one day. I can honestly say I make sure I do my best not make any of these mistakes.  No one is perfect but when I get out of sorts I am making one or more of these mistakes.

Maybe the same old good advice...but how come we make these mistakes again and again?

1. Not having a plan - Without a plan, you are vulnerable to all kinds of emotions that make you act the wrong way at the worst moment. Before entering a trade, make sure you defined why you enter at this moment, the loss limit and the target. The trade must be part of a general strategy that you have tested and that will be applied over and over with consistency. If you are not sure about how to define and test a plan, you may follow a serious trading service and learn how to do it.

2. Forgetting the plan! - Under pressure, the human brain creates all sorts of strains and ideas that are not all beneficial to trading, far from for it. The best way not to be swayed by events is to blindly stick to the plan like a robot. After all, you tested it and it held water, right? The plan is the psychological lifeline.

3. Wanting to be right. - Unfortunately for the smartest and most educated among us, trading is not about being right by virtue of one's reasoning. It is about being right by virtue of events. The most pragmatic will win. Willing to get it right every time would make you stay too long in a losing trade, and at the end you will exit at a cost anyway and probably at the worst time. Accept with humility to be wrong and to lose what you have budgeted,. It can be half of the time, or many times in a row, it does not matter. It is a game of probability and of statistical expectation, not a game of truth nor an academic test.

4. Not caring about money management. - Money is your tool and your raw material; it has to be carefully managed. The management rules are part of the famous trading plan. Decide what portion of the trading capital you will bet, meaning you are ready to lose, on each trade. It is typically between 0.5 and 2% depending on the experience and the type of operation. Then compute the size of the position accordingly. To learn how to make this calculation,see this post. This approach strongly diminishes the chances of running out of capital after a streak of losses.

5. Expecting an oversized return from each trade. - Observation shows that a very small percentage of trades have a high profitability. Most of the trades will be either losers, or modest winners. The aim is that modest winners overcome the losers. Then the rare home runs will be bonuses and make the overall results brilliant. But if you dream about a high return for each trade, you won't be swift enough to take moderate profits and you will end up having more losers than necessary.

6. Limiting the size of the gain. - Abiding to the previous advice, some traders are too quick to cut the trades as soon as they have a small gain and feel reassured when they book many, limited profits. But doing this, they refuse to expose themselves to the exceptional, "black swan" type of event that can really spice up their trading. Letting the profits run while limiting the losses with stop-loss order renders the trading game asymmetrical in you favor. There is no paradox between this advice and the previous one: do not expect a fantastic profit on any particular trade, but give yourself the chance to harvest such a profit if it presents itself. There are several trade management techniques for that.

7. Entertaining unrealistic expectations. - A direct consequence of what has just been said. Generally, you will be grinding and milling profits day after day, like a shop keeper. Don't think you will earn a living by going "all in" and raking the table. You may do this a couple of times, but the hard laws of probability make sure that you surely blow your account at some point. Think of your trading position as items you want to sell at a given price, with a margin. Then carefully collect the margins.

8. Not defining expectations according to the plan. - Obviously, there is a relation between the plan (see 1 and 2) and what you can expect. Always do a calculation, be it sketchy or very approximate, of which level of expectations is supported by the plan, using what you know from back-testing or practical experience.

9. Looking for fun in trading. - If you trade in order to entertain yourself or for a thrill, or just because you are bored, you will lose. Good and profitable trading must be kind of boring, because then you just apply a pre-adopted plan. You separate execution from research and from strategy. Research on the trading plan may be and should be fun and thrilling, and this the pleasure moment. Then when execution begins, it is a business moment. What you enjoy when trading is not the effect of your smartness or your creativity: you enjoy being capable of applying a method with seriousness and discipline. Learn to pat yourself in the back just for being disciplined, even when the trade loses. It is a game of probability in the long run, not of being right (see 3)

10. Not reviewing what you have done. - Reviewing past trades serves two very distinct objectives. First, examining every trade, even the winners, is a way of checking to what extent you are applying the plan. In that respect you are controlling yourself. This must be done every week or even every day for the day traders. A second very different purpose is to evaluate not yourself, but the plan. No plan is ever perfect an each one can be slowly improved over time (but not radically transformed at every review!). Looking at the reasons why losing trades were such while the plan was applied may help you fine tuning some features (stop orders placement, profit targets...). Here the frequency of review is once a month, or less for day traders. Make changes to the plan only based on a review of several dozens trades.

Wednesday, April 8, 2015

Example of New Strategy/Trades for 4/8/2015

Today was a rough day for me in the markets.  Not because of any losses or anything like that, but because everything was chopping around and it was hard to just sit back and not trade.  For me, this was very frustrating.  Now that I have made the decision to go full time June 1st, all of these crazy thoughts are coming into my mind like, what if my setups don't come.  My morning gappers have slowed way down these last few weeks and I have been focusing more on reversals and trying to trade the front side of those moves.  I want to have at least 3 to 5 solid setups to look for at different times of the day to ensure I have at least a few opportunities at trades each day.  My biggest fear is that June 1st, everything dries up and I'm left with a blank screen.  I think I may need a psychiatrist!  I actually had a dream about that last night.

I had 2 trades today on 1 ticker.  This would be considered a textbook trade on the front and back side on my reversal strategy.  I learned the base strategy from the Day Trade Warrior chat room.  There is a moderator in the room named Corey and that is what he trades.  Bottom and top reversals.  I kind of expounded on his strategy and made it fit more of what I like to do.  I explained it in my previous post but I mentioned it again because today's trade was a textbook example.

$215 profit SWN Short Stock by AverageJoeTradr
$130 profit SWN Long Stock by AverageJoeTradr

The ticker hit my bottom reversal scanner after a major wash within the first 15 minutes of open.  I decided this morning to go ahead and run it right after I closed my morning gapper scanner.  I usually close it right after the open since it is useless when the market opens.  I normally wait until 10:30 or 11 to run my reversals but since I'm trying this new adaptation to the setup I said why not start it early and I'm glad I did.

Based on the RSI I knew this ticker wasn't ready to reverse and it had more down side to come so I took a short position on the 2nd red candle to make a new low at 24.45 with my risk on the high of the first red candle which was 24.40.  It faded down about .20 and had a couple of green candles but neither made a new high relative to the high of the last red candle (24.28) which was my mental trailing stop.  I always use the high of the previous candle as a stop once a trade has proven to be a winner.  I will take profits. So I held short.

Then I got a large green bullish hammer candle which made LOD with a ton of volume that confused the hell out of me but it got my attention. I said I would wait for the next candle. It opened high but quickly began to sell off so I thought a new LOD was coming. Wrong! A lot of buying kept coming in so on the second green candle I covered my short.  I said I wouldn't get long unless it broke the high of the large green hammer candle at 24.06, but when I went back and looked at the daily I changed it to 24.10.  It bounced off of 24.10 several times, thankfully while I was at lunch.  When I got back to class at 12:30 it was ready.  For once in my life a setup waited for me!  I went long expecting the push through the VWAP.  I expected a pull back to test the VWAP but it didn't come and I held until I got my 1st red candle to make a new low.

If I can trade all of them like this I would be just fine with that.  Give me 3 a day and the job will surely stay away!

Tuesday, April 7, 2015

Explanation of Reversal Setup - 4/7/2015 Daily Journal

Not a bad day after having my worse day of the year.  I didn't lose much yesterday because I stuck to my stops but the trading decisions I made were horrendous!  Stuck to my setups and rules today.  I need to do this everyday.

$AXTA - My first trade was based on my 15 minute opening range breakout setup I use with morning gappers.  Once the first three 5 minute candles printed I drew a green line to show the high and a red line to show the low of the first 15 minutes.  I actually trade these off of the 2 minute chart though.  I use the 5 minute chart for the initial setup and trade the price action with the 2 minute chart because these tickers move a little faster earlier in the day.  I guess I could use a 15 minute chart and the high and low of the 1st 15 minute candle but I need a little action!  Once I have my ranges set I wait for the stock to test the green line and pull back before I enter.  I have been faked out too many times by a ticker popping over the 15 minute high and then fade off.  Once it pulled back and made a higher low I entered but the move got stuffed again around 30.36 so I took the little profits and said I would wait and see if it could break the resistance at the .36 to .38 mark.  It had a nice grind up so I entered again for the HOD push through that prior resistance.  It made a quick move up that made me nervous so after the first 2 minute candle printed red I exited the trade for another small profit. As you can see this ticker came back and tested the prior resistance line I drew (green dotted line), and took off right up until close.  If I was home with all of my monitors I'm sure I would have seen this and rode that move up until close.

$80 profit AXTA Long Stock by AverageJoeTradr
$175 profit AXTA Long Stock by AverageJoeTradr

$PBF - This was a bottom reversal setup I setup that I like to trade after lunch.  I have an Equityfeed filter that helps me find these tickers but I have also found that some of these provide excellent shorting opportunities prior to the reversal.  I trade these off of the 5 minute chart to make sure I have the best chance of spotting the trend reversal. I found this one right after lunch so I missed the early rundown and the short opp was out by this point. I felt it was ready to reverse.  I waited for the first green candle to make a new high relative to the previous candle and when the next candle opened higher, I entered the trade. It pulled back a little then ran up over .20 pretty quick so it made me nervous and I got out.  Usually a big fade right back to where it came from is eminent and that is just what happened.  That satisfied my interest in this ticker and I left it alone.  Made a couple of bucks on it but the main win is that I stuck to my rules and I let the chart tell me what I needed to know.

$55 profit PBF Long Stock by AverageJoeTradr

$HAL was my last trade of the day and by far my most profitable. It hit my reversal scan after a nice move down but what I have learned from reading my previous charts I knew it wasn't ready to reverse.  It printed a green candle which made a new high after a doji but the sell volume was still too high along with the RSI which I would look to at least dip below 20.  So for me it was a good short opportunity. Based on the rules I have established for these trades, which i will share below, I exited too early but when you get a bullish hammer doji it is usually time to sell and I had a nice profit anyway.  However, it did have a slight recovery but it faded lower as the RSI increased.  Once it makes a new low with a higher RSI, for me that's a sell signal.

$348 profit HAL Short Stock by AverageJoeTradr

Equityfeed Bottom Reversal Screener Settings:

Price - Last >= 10
           Last <= 50 ( I will raise it to 75 at times when I want to see more tickers)

Days Volume >= 1,500,000

Percent Change <= -3  (Sometimes I'll drop it to -1 if I want to see more tickers)

RSI [ Interval:5m {Time Period 8}] <= 40

(Here's what I look for: When the ticker bottoms and makes the first new low after at least 5 red candles, I note the RSI. It will usually have a doji or a small green candle that did not make a new high compared to the previous candle but it would make you think it's trying to reverse.  I now look at that as a short opp and will take it if Level 2 shows more sellers in line than buyers. I will wait until it makes a new low where I would get another doji or small green candle that may make me think it's starting to reverse. I look at the RSI. If it is lower than the previous RSI, then I will still think short.  If the RSI is higher than when I noted it previously then I will look to exit my short position because I expect the reversal to come soon.)  I have studied my charts from the past month on these and that is what I have seen and it has worked every time I have tried it.)

Also, and I can't believe that I forgot to put this in, but one of the key factors in me entering a bottom reversal trade is where the SPY is trading. If it's trading below the VWAP or showing signs of significant weakness, I will be very skeptical about taking the trade.  Everything else would have to be perfect and if I do take the trade I will treat it as a scalp.  In all of my research of the trades I have takes 80% of the time instead of reversing the ticker will stop fading and consolidate or give a small move to the up side and then consolidate.  Like anything else, this market indicator is subject to change but it has worked well for me the last few months.

Monday, April 6, 2015

My Triple Red Day

I spent the whole weekend despising today because it was my first day back to work after an awesome Spring Break.  One decision I did make over the break was that I will start trading full time beginning June 1st.  I was excited about getting into the market with a different viewpoint. I had a new-found confidence in my trading but I said I would continue to work around my schedule at work and focus on my continued consistency.  I did not realize I had almost an 80% win rate for this year until someone pointed it out. I do feel I over-traded on Thursday but I did make money and I felt that I couldn't miss if I stick to my plan.

Today started out bad because when I got to work our network wasn't up to speed.  That should have been an omen for me right there.  But, it came on line and I went to work looking for gappers.  I had a few that looked promising but all faded quickly after the market open.  I kept an eye on them for a while but they never showed much promise for my setup.  I then switched gears like I normally do and start looking for reversals.  I was looking for top and bottom ones.  Then I remembered tha I was supposed to check the airlines today since they offered me so much opportunity on Thursday.  I realized then that I missed a couple of good scalps and really should have just watched and traded those but I went looking for a home-run type setup.  This was my first mistake.  I never look for home runs.  Why now, all of a sudden, I am looking for home runs?  Is it the full time mentality trying to creep in?

My first mistake was on EMR.  This was to be a top reversal.  It looked like it was up enough that it was ready to fade.  I always use a 5 minute chart on these to help me confirm a trend change and is the very reason my win rate is so high.  I never speculate, until now. There was no trigger candle.  No 5 minute candle in sight to have made a new low.  I did not read the chart, I read my ego.  In trading that never turns out good.  My stop was on the HOD to that point in time and it wasn't long before I was stopped out.  Lesson learned, right?  You would think so right?

So on to the next disaster.  Well, I guess this wasn't a disaster. GCI was a decent setup. I made sure I waited for the trigger candle to print before I entered.  My stop was tighter than usual but it really wouldn't have mattered in this case.  My stop was on the high of the trigger candle, instead of the low of the candle, or even LOD at that time.  This setup just didn't work for this trade for one reason or another.  After looking at this trade I would take this setup again because it was textbook.  Or maybe there is something hidden that I may need to look at next time.  But, that's why I keep a journal of all my trades with a chart and other technical information so if there is a trend that develops I will have a good chance of spotting it.

My last trade was me making another stupid mistake that I should not be making right now.  On ERY, again I didn't wait for the trigger candle to print and I entered the trade for no apparent reason.  I think I was just trying to get the trade in during the free time I had at work, which I learned a long time ago is a great way to lose money.  

Is this a sign that maybe I need to re-think my decision, or was this just a case of the "Mondays".  Only time will tell.  Tomorrow I will refocus and only take solid setups like I have been doing the past few months.  I guess the good thing is that I am able to recognize my mistakes.