Yesterday was the day from hell!
Yesterday I put 2 trades on in the real $ account. I bought 1 ES @ 762 with a 10-pt stop (trying to catch a falling knife), and I got stopped out with a $500 loss. I went long again with 1 contract @ 752 with a stop at 742 (again, trying to catch a falling knife). I was expecting a small short-covering rally. Unfortunately, I accidentally exited out of my 752 long position after-hours due to an order entry mistake using IB's Trader Workstation platform, which is probably one of the worst trading platforms out there. It was pretty frustrating seeing ES trading at 780+ over night. To remedy that, I ordered Ninja Trader. Aside from the trading hickups, it was just a bad day over all. I even missed my stop on the train ride back home so got off and had to catch another train going the other way to get back to my stop which ended up costing me an extra 40 minutes. There were other issues too, but no need to go into detail. It was just a really bad day.
Changes going forward
I'll be using Ninja Trader in Live Trading mode connected to IB's TWS on my Sim account with IB. At some point, I plan on switching that to my real $ IB account but don't have a set time-frame on when that will happen. Could be a week or a month, I really don't know.
I will be cutting size to 1-3 contracts. Yesterday's $700 loss made me realize I'm not ready to trade anything over 3 contracts. Most of my trades will be 1-2 contracts.
Goal for next week
The goal for next week is to play around with different stop-loss levels and finalize a tighter stop. In the past, I've been using a 5-point stop but that's probably a bit too wide. I need to find the sweet spot where the stop-loss provides damage control for the trades where I'm just dead wrong, but at the same time, doesn't wiggle me out of the winners. From similar analysis in the past, I think that's around 3 pts but next week's focus will solely be on stops and the goal is to hae a conclusion by the end of the week. Trading is all about continuosly adapting to market conditions so nothing is set in stone, but I would like to tighten up the stops a bit. Yesterday's 10-point stop didn't really provide the damage control I'm looking for. Imagine if that was on bigger size!
Setting up for failure?
Given my current situation, I wonder if I'm setting myself up for failure. The S&P is a brutal market dominated by professional traders. I'm trading against professional traders with a lot exeperience, big accounts, multiple screens, cheaper commissions and full-time focus/dedication to trading. Meanwhile, my current situation is trading part-time off a single laptop connected via a broadband card from a train with less than 25 minutes to make any trades! Sounds like I'm bringing a knife to a gun fight! I'll continue trading on the sim for a while because it provides exposure to patterns and keeps me involved in the market so if/when I go full-time, I'll have a head start but I don't know if live trading (profitably) in my current situation is realistic. Post a comment if you have any thoughts on this topic.
My views on trading the E-Mini S&P 500 Futures utilizing Price Action, Market Structure, Volume/Market Profile and the Auction Market Process. Visit www.EMiniPlayer.net for Daily Key Support/Resistance Zones, Trade Plan and Educational Recaps.
Friday, November 21, 2008
Friday 11/21/2008 - Reset
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I've been in your situation, I was running a small business while trying to swing trade, it was very frustrating. I've been doing this now full time for 8 years and well, my equity chart will show you how that's been going the past year. The time you have to trade is a problem. The good thing is that it's during the morning which for day trading is the best time. The bad thing is that with less than an hour a day, your not getting much practice time in. Here's the real killer, I've never heard of anyone becoming consistently profitable in this business in under 5-8 years. I've also heard several pro's say that part time trading is like expecting to go pro in let's say basketball, while only being able to practice for a couple of hours on the weekend. Now I'm not trying to discourage you by sounding so grim, but I say this because I had very unrealistic expectations when I got into trading, and had I known how hard it was going to be I would have done things a little different. As far as the trading instrument goes, no matter what you trade your going up against pro's with better equipment and knowledge, it's all the same. If you really love this business and can't imagine doing anything else, then don't give up, but you REALLY have to want it BAD. Here's what I would do if I could go back 10 years and start over, I'd find a coach/mentor to help me. Most importantly I'd find a shrink who works with traders to help me with the psychological part of trading (and don't make the same mistake I did by thinking that's a bunch of crap). Then I'd paper trade till I had 4-6 months of consistent profits (all this would mean is that I had a good system and can spot the setups on the right edge). Now comes the hard part, executing that system without any emotions getting in the way. That's where the trading shrink comes in, they're expensive, but your going to pay one way or another, using the shrink will save you time (years). When you do trade with cash, I'd trade the smallest allowable size till your consistent, this will slow down the burn rate. The big question you have to ask yourself is, how bad do you want it. This is a business where only the very good ones make money consistently,and if anyone tells you otherwise, grab your wallet and run, fast.ReplyDelete
Michael, I completely agree with you on the psychological road blocks in trading. That's why I follow Dr.Brett's blog, and am currently reading his book on trading psychology. I'm profitable in sim trading, which tells me that I do have some grasp of spotting trends and trade-able areas, but have to face the psychological road blocks. I really do want to transition to fulltime trading at some point in my life. For now, I'll continue on the sim and see how it goes. Thanks for your feedback!ReplyDelete
I have a couple of comments for you.
The first is regarding stop losses. I'll tell you from experience, it's wrong to try to come to a conclusion about a standard stop size. The reality is, your stop sizes should be varying as market volatility varies. If you see that we're in a day where the swings are very large (like we've had lately) then you may want to use 5 point stops or somewhere around there. If however, you see smaller swings, less momentum and less volume on the day, then 2.5 point stops might be optimal. If things get extra crazy and we're making 20 point moves in just minutes, then a 10 point stop may not be too large. There's no real formula.... it just becomes an intuitive thing to vary your stop sizes as you gain experience, and you may even vary them within the same day from trade to trade depending on conditions. And indeed it's a NECESSITY to keep varying them in general depending on the kind of day it is, or you are either going to get chopped up (if your stops are too small for the day's volatility) or you're going to have bad reward/risk on exits (if your stops are too large). Later, when you start trading multiple contracts, even your size will start varying as a function of your stop, so that your dollar risk remains the same regardless of volatility. If you have a $25,000 account and are risking 2% of it per trade ($500), then a 5 point stop would imply you trade 2 contracts (5 points x $50/point x 2 = $500) and if you have a 2.5 point stop you would trade 4 contracts etc. A great book to read that explains the process of trading brilliantly (better than anything I've ever seen) is Van Tharp's "Trade Your Way to Financial Freedom". It's a true classic that will elevate your understanding of trading as a process to new levels.
For my second comment, I read a couple of your blog posts and you are doing well for a new trader and seem to know quite a bit about the market. However, trying to day trade the e-minis with real money part time, and especially on a train with one laptop may indeed be shooting yourself in the foot. What's your reason for wanting to start part time and in such a way? Is it to make money or is it to get better experience? If it's the former, obviously that's a wrong path. If it's the latter my opinion is that if you take your sim trading seriously and truly convince yourself mentally that it's real money then you can gain just as much experience sim trading. Yes the psychology of trading real money is harder but initially you want to build up your technical and mechanical trading skills so you have a solid skill-base with which good psychology can make for consistent profits. Without those skills all the great psychology in the world and you'll still lose money.
In the end to truly make it as a trader (especially an e-minis day trader) you need wholehearted commitment. That means that you can sim trade part time until you feel you can be consistently profitable, but at that point you have to take it full time. You're not trying to be a swing or long-term trader to be able to do it part-time. If you want to compete with the pros then you have to be there with utmost focus each day all day. What I initally did when I wanted to become a trader (it was my dream), was to work and save a decent chunk of money while studying the markets and the trading process. Then when I had enough saved up to open and account and have living expenses for a year or so (so that i wouldn't need to rely on my trading to live on initially) I quit my job and dedicated myself fully to this. The full dedication not only allows more focus and faster learning, but it has the intangible quality of giving you the spirit to persevere tough times. In essence, if you try to tip toe in part time with real money, not only are you at a disadvantage, but you're not fully committed so that when the tough times come (and they will) it'll be all too easy not to dig deep and persevere. On the other hand being fully committed means that you have crossed the bridge and then burned it behind you so that there is no return. Because of this you will find the strength to succeed simply because you MUST succeed. Necessity will make you work harder and do anything possible to succeed. That's what happened with me... because I had quit my job (although remember I did it wisely having money to survive for more than a year) I HAD to succeed, and even when I wanted to give up and cry, I dug deep and hung in there.... and now I'm truly reaping the benefits.
So to conclude this extra long comment, have the patience to do this right from the start, and in the end I guarantee you the road will end up being shorter and better than trying to rush in thinking it's good for you.
Best of luck, and if you have any questions let me know.
One more thing....ReplyDelete
I agree with Michael's post in general, but I have to disagree with the comment about no one becoming consistently profitable in under 5-8 years. I became consistently profitable after about 1 year, and I personally know several traders who did it in around 1-2 years. The only thing is that I had spent 2 full years before that studying markets, myself, and the trading process. So in essence it took about 3 years.
I think for longer-term traders it may take longer because they have less exposure to market patterns. But for day traders, they can indeed have accelerated learning curves (all the traders that I know that have become consistently profitable relatively quickly were day traders). And you only have to watch the world series of Poker to see some 20 and younger year olds winning consistently to see that it can be done in a compressed period of time.
But with all of these people, the accelerated time it took doesn't do justice to the amount of commitment and work it took. I worked on my trading more than 10 hours a day, including a lot of hours on the weekends to become profitable.
So in the end the good news is that if you can save money, learn more about the markets and yourself, and practice part time for the next couple of years, then when you finally start live and fully committed, you may see good results within the first year. That has been my experience.
Best of luck,
Ziad, thanks so much for the detailed response. I'm trading part-time on the train because that's the only real time I can dedicate to the markets. The goal is to become proficient at pattern recognition and risk/trade management. I've traded up to 10 contracts on my real account before and can definitely recall the psychological stress that produced. I just need to make sure I'm being as realistic as I can possibly be in my Sim trading. That's why I purchased Ninja Trader, and connected it to my sim account with IB. It adds a little bit of latency, and I think the fills are more realistic than Tradestaion's sim. After reading your reply, I realize I should not rush into this with real $ since making a real $ profit is not the immediate goal. So I'll continue my education on the sim, and post my trades here as I've been doing since I started this journal. I would appreciate it if you would come back to this blog from time to time and post your feedback. Could you also send me your email address or contact info? Would love to chat sometime. My email address is eminiplayer at gmail.comReplyDelete
I look forward to hearing from you.