Saturday, June 20, 2015

F/T Week 3 in Review/New Setup Pattern

"Well Ed, you're in week 3 and you are a complete mess.  I am surprised that you haven't blown your account up yet.  At least you are keeping your losses somewhat under control , but you are not following your rules like you should.  The best thing that could have happened to you is being able to chat with other traders on Google Hangouts during the day to help keep you out of too much trouble".  This is an excerpt from my personal daily journal I write every night.  I think writing it and studying my charts have paid off tremendously and gives me a good foundation for success in trading.  I realize now that this is not a lazy mans profession as a lot of people think.  It takes dedication and a lot of hard work to get here and succeed.

I saw a video last night put out by Clay at  http://claytrader.com/  that I think may have saved me from myself.  http://claytrader.com/videos/trading-full-time-key-questions/  It identified the hidden mental hangup I have had since June 1st when I went full time.  I was worried about making enough to make a living.  Instead of focusing on a trade, making and following a plan, I was looking at how much money I can make and how close I would be to making what I needed to so I can pay the bills.  I have enough in the bank but I do not want to touch that so I was so focused on making it from my trading.  He helped me realize that by thinking that way I had very little chance of being successful in trading for a living.  I can have my rules in my face all day but if your psyche isn't right, you will not even think about your rules. So, thanks to Clay's video, I started this Friday out with a new attitude, and killed it.  It's 11:00 and over $1200 in realized gains so I'm done for the day unless a picture perfect setup hits my scan.

It was amazing how much was lifted off of my back.  Everyone for the last few weeks commented on how tense I was.  Even though I worked out every morning at the gym, I was still wound up tight.  Now I realize that all I need to be concerned about is following my rules and trading my setups.  Nothing else.  There is more money out there than I can ever make in  my lifetime so If I do what I have been doing and just bump up my position sizes, I will be just fine.  I can make peanuts for 2 or 3 days in a row but if I'm not ready for the big day because I am doubting myself and worrying about making money to pay bills, I will miss it.  So, if you are thinking about doing this full time or part time, watch this video.  Don't think about having to make money because it's there waiting for you.  Focus on your trading and following your rules and develop your own trading plan.  It's perfectly fine to work with someone who trades the style you trade and feed off of him/her while you are learning.  I do that everyday. The main thing is, just focus on your trading and the money will come.

I have to say that I have experienced every trading emotion over the last 3 weeks known to man.  Now that I have that out of the way I believe I can move forward right now. I'm not going to go into detail on all the mistakes I made because I have moved on from that but let's just say I had some bad Kool-aid that looked and tasted good at first but turned sour pretty quick (FOLD).  I traded it but not using any strategy that I have traded in the past.  The daily chart was over extended so I said short for the big HR.  That's what you need now to make it.  Big gains.  So I almost blew it all up chasing 1 ticker.  Yes I made some profit on it but I could have lost it all and then some.  I was lucky to get out and break free from that ticker when I did.  So from now on, my setups only.  I can make a living off of them and I can scale up when I am ready.  This is my month so far.  After looking at these numbers I don't feel too bad after all.  But a lot of improvement is needed.  I just do not feel that I have traded well at all these last couple of weeks.

                                                                              All Trades      Long Trades     Short Trades
Total Net Profit                                                         $7,072.72      $4,680.20        $2,392.52
Gross Profit                                                              $7,914.00      $5,277.00        $2,637.00
Gross Loss                                                              $841.28         $596.80            $244.48
Total Trades 68 50 18
Percent Profitable 77.94% 76% 83.33%
Winning Trades 53 38 15
Losing Trades 15 12 3
Avg Trade Net Profit $104.01 $93.60 $132.92
Avg Winning Trade $149.32 $138.87 $175.80
Avg % Gain 1.87% 1.68% 2.35%
Avg Losing Trade $56.09 $49.73 $81.49



One of my strengths I feel is the fact that I put a lot of time studying the charts of my trades as well as charts of my setups that I didn't trade.  I have noticed something in these charts that I have started tracking.  I don't know if it's a fluke or if it is a legitimate indicator that I can use to increase the profits on my trades.  Take a look at the highlighted areas on these charts:





I just recently added the 9EMA study to my charts.  When I would trade reversals sometimes the move up would get stuffed and I didn't understand why.  There wasn't any resistance anywhere near where the move failed.  Then someone mentioned about the 9EMA being an area of support or resistance.  It didn't make sense to me because the moving averages are a trailing study and I didn't understand how it can be used as an indicator of support or resistance.  But when I went back and added the 9EMA to some of my failed moves I saw where it moved up to the 9EMA and just rode it and then popped up or came back down.  Whatever it did I was usually out and if it did take off I was out of the move.  So ever since then I have used it on my charts.

Then I started noticing what you see in the highlighted areas on the charts above.  When I would go back and look at the gappers that made a move up to and over the 15 minute opening range high, I would get the 9EMA crossing over the VWAP and a strong move up.  I have always been a trader who tries to put enough technical info together to give me the best chance of making a successful trade, while the same time keeping it simple/stupid.  So I tend to look for things like this. I guess it's the engineering background in me.

On FIT, the crossover was .44 away from the 15 minute opening range high. This gave me an entry to get that extra profit with a defined risk.  I set my stop .05 below the VWAP.  This is what I set my stop at when I make trades off of the VWAP so I just adopted that rule for this strategy.  On ADXS the crossover happened about .50 away from the 15 min. opening high so this gave an extra profit before the 15 minute high breakout which was nice because the breakout was weak.  A month ago I would have made little to no profit on ADXS waiting for the breakout. Using this crossover as an entry point I would have made a decent profit on the move up.  This is what I'm looking for.  Ways to maximize my profits on my setups.

One of the things I have found is that on the strong moves the ticker is always trading just above the 9EMA prior to the crossover.  Of course not all tickers make the move after the crossover but since I have been tracking it 68% will make a decent move up.  The tickers that trade below when they crossover rarely will make a tradeable move up immediately or just fails.  Here is an example of one that took over an hour to make a significant move.  This is a low $ ticker so you would be trading it with some size but the lack of volume is what kept me out of this trade.  I knew without volume this ticker would struggle to move up.  Also for a day trader it would be difficult to hold a position through this chop:



Sometimes the crossover will happen pre-market.  KBH had a crossover premarket on Friday so this was an ideal trade out of the gate when it showed that kind of strength. But, I stuck to my rules and traded the 15 minute opening range breakout for a decent profit.  This ticker ended up making a strong late day move.



Here is another example that took a little bit of time to move but the crossover finally produced a big move up



This is usually what happens when I do not get the crossover.  It will come close in the first 15 minutes but will fail.  This would be a signal to take it off my breakout watch and move it to my breakdown watchlist for a potential short.



I won't trade off of this event alone.  I just use it in the vetting process to help me decide if I want to take the trade or not.  I will never base a trade off of 1 indicator or event.  Several pieces will have to come together for me to enter a trade.  But this is an indicator that would enable me to make extra profit by entering the breakout trade a little earlier with a set risk.  I am a person that looks for solid trades with built in risk management.  I have back tested it as well and it has proven to be a good indicator of a breakout over 70% of the time so I feel comfortable implementing it into my trade decision process.

Come visit me in chat:


12 comments:

  1. Another great post Ed. Detailed walkthrough providing readers a clear train of thought to your decision making and analysis processes.
    Ever thought of becoming a teacher?! What a big loss to the education and school system.

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  2. btw, I'm currently watching the Austrian F1 race and since you are a motorsport fan, wondered in the past if you ever watched a race? Or is it really not followed in US?

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    1. Yes, I have watched F1 races and some Indy car races. I wasn't a big fan of open-wheel cars growing up because they were not popular here in the southern US but as I began studying engineering I became fascinated with their design and the engineering behind them.

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  3. Again, Ed, I'd kill to have those stats! About that 9 EMA. Ever notice (most) settings for MACD are (12, 26, 9 EMA)? I do plot it out separately though.- usually alone.(don't like too much clutter).

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    1. Thanks. I haven't looked at the MACD before. I'm like you I like clean charts but the VWAP has been perfect for my setups and the 9 EMA just enhanced it.

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  4. Ed, you've spoken at length about your systems, scans and setups. Thank you!

    Many "setup" theory's on paper look very straightforward but I always struggle with focus, or lack of focus. Spend most of the day charting new and old tickers that hit non-technical IB scans and some Twitter Guru sheep alerts. While all this is going on I seem to never watch one ticker long enough to watch it setup. Probably answering my own question here but how did/do you manage your watchlist/focus and keep an eye out for that ideal setup that (touch wood) you find most days? I'm always seeking that perfect HR and miss all trades, then trade rubbish in frustration.

    Once you have your morning scans and watchlists identified, how do you refrain from being distracted by all the noise/analysis paralysis..?

    Thanks in advance for your kind input.
    All the best, cheers,
    Andrew

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    1. Thanks for the comments Andrew. The first thing is I do not go in to any trade looking for a home run. I am looking for singles. I hit one every now and then, but
      I'm not swinging for them.

      I only trade a couple of strategies that I am comfortable with. I only watch 6 charts at a time. I will chat with other traders or build models or read while I'm waiting on my charts to set up. I have alerts set at times to let me know when they get close but most of the time I just scan them manually. If my charts are slow setting up, I don't go looking for others. I know my setups my not work everyday so if I have a slow day, oh well. Tomorrow is a new day.

      Also, the key is having a plan for each ticker on watch. Only 1 of the 6 may set up but I have to have a complete trade plan for each ticker. 6 may be too many sometimes but it keeps my mind from wandering to something else.

      Hope this helps

      Ed

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    2. Ed, thanks very much for your thorough reply.

      NOT continually looking for other stocks that may offer a good/better setup is in my opinion where I need to take my trading pronto, you've given me my first 'aha' moment. Will turn off Twitter feed and ignore %gainer/loser scans after market open, will stop tweaking volume/% on scans.

      Before trading from home, you would do the same thing but with much fewer charts?

      Have tried a couple of Gap&Go's recently and been slammed by almost immediate sell-offs, fumbling around IB's platform didn't help - not able to sell/place stops fast enough. IB's platform is not built for speed. No excuses - just a cost of learning what is and isn't possible for me.

      Patient, focused trend reversals is what I need to focus on now.

      Thanks again Ed,
      Andrew




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    3. I did the same thing I do now when I was at work but I only tracked 4 tickers at a time. I do not trade gap and go's and I would not recommend them to someone trying to establish themselves as a trader. They are too fast and too easy to lose money on. Being down before the market has been open for 15 minutes will kill your moral, which in turn will hurt your trading performance throughout that day. I know this first hand. I've been through it.

      I would suggest taking that same gapper list and look for 15 minute opening range breakouts. Some work better than others but you will make profit if you trade them correctly. You can see on my Profit.ly feed that some may make $40 or $50 and some make much more. They are usually slower and easier to trade.

      After lunch I start looking for reversal trades and I use the % gainer/loser scanner to find potential reversals. I also have a top and bottom reversal scan as well. Once I find a few tickers to track I will hide the scans again and focus on my watches.

      I believe you have the right idea and you know exactly what you need to work on. That was a big hurdle for me. Knowing what I needed to do to get better. You've got half the battle won.

      Ed

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  5. do you have a scan for the 9ema crossing over vwap? I recently started trading this setup and it's almost a guaranteed run up.... of course you never know how much of a run up but for the most part it's solid....

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