Friday, June 26, 2009

Learning to Become a Successful Trader

The following was posted as a comment by Ziad in reply to a post on Michael Brenke's Blog, but I'm posting it here (with Ziad's permission) because I believe it contains extremely valuable and genuine insights coming from a very disciplined and successful trader. I would also like to include the following quote by Dr.Brett Steenbarger

"Too many traders are looking for setups, when in fact they're the ones being set up."


Hi Michael,

I've been reading your blog for quite a while now but haven't commented yet. However, I feel I need to comment now.

If you don't mind I'm going to be very straight forward, and blunt even, but I hope you'll take it from a spirit of sincerity and genuine desire to help. It's going to be a long comment, so I'm going to break it up into 2 or 3 comments.

Here's the situation as I see it: For the last few months, and possibly much longer, you've just been spinning your wheels while thinking that you are getting somewhere. The reason for this is that you are going about learning how to trade in the wrong way, in my opinion. I say this because I've been trading much less than you, a little over 2 years now, and yet because of the way I went about learning and what I focused on, last year I netted $150k while nearly quintupling my account, without a single losing month, and while only risking a very small portion of my account on any single trade. Now there could be many reasons for the difference in performance, but I think one of the main reasons has to do with what you are focusing on and how you are going about the learning process.

To try to put it as succinctly as possible, in my view traders that are focusing all their attention on "set-ups" and finding out which combinations of indicators work are never going to become profitable. They are trying to follow the advice of trading books that say trading is simple and psychology is everything. So they search for set-ups that 'work', and that can take the guess work out of trading. They want to be "disciplined" and have simple rules that guide all their actions. But there's a few problems with this. Namely, while psychology is HUGE, it's not everything. And while trading is all about simple principles, actually having an edge is NOT simple. It's a myth that you can have a couple simple price or indicator set-ups and make money consistently if only you are disciplined. That's a load of crap. It keeps the dream alive for wannabe traders who never realize what it's truly about. Well let me tell you what it's truly about...

Trading is about being okay with ambiguity. It's about tolerating confusion. It's about sitting with discomfort and being at peace with it. It's about not having an exact script of when to trade or not to trade, or what's really a high odds trade, and being okay with that. It's about exceptions to the rules. It's about contradiction. It's about uncertainty.

And yet traders left and right want to make it simple. They want to reduce it to a few simple set-ups to trade with discipline. And yet the market is not simple. The market is all about uncertainty, and complexity, and ambiguity. Simple set-ups could never capture that, and they can never give you a true lasting edge.

So what's the solution? Is the problem in the simple set-ups themselves? No, it's in how they're being used. The bottom line is, every trader needs to learn to READ the markets. This means that simple rules will not do. There has to be a synthesis of different elements (whether they be price action, indicators, inter-market themes or whatever), and real-time interpretation must take place. It has to be all about CONTEXT. Once you can read the markets, and don't fool yourself it is a very complex process, then you can choose to employ "simple" set-ups to enter and exit. But the real work will be in interpreting the market to see when you should use which kind of set-up. Seeing a hammer or whatever near a support means nothing unless you've identified the broader picture and gotten a sense of the kind of tactics you should be using, and what the odds are for different scenarios unfolding.

Now I know you, and most traders do this to a certain extent, but your main focus is on the set-ups. It's not on reading the market from minute to minute, hour to hour, figuring out the odds of it doing this or doing that, adapting dynamically, and thinking of trade ideas from all your observation as the day unfolds. Rather, it's waiting for some simple set-up to pop up and then taking it.

Now is it easier emotionally to have clear set-ups to wait for and trade in this simple manner? Absolutely. But who said 'easy' would make you money. If I've learned anything, it's that the market rewards what is hard to do. It's hard to have ambiguity surrounding your market reads. It's hard being uncertain. It's hard dealing with competing and sometimes conflicting signs. And yet, this is what it's all about. You have to stop trying to avoid this by needing things to be clear cut. And is it hard to be disciplined when there's so much uncertainty about what is the right trade to make? Of course. But instead of trying to avoid the uncertainty by looking for simple set-ups, or some straight-forward method, train your mind to be able to deal with the uncertainty.

As for the learning process of how you go about doing this, it's all about being constantly engaged with the markets, trying to figure things out and learn from experience. For me, for instance, what I did was each and every day take notes in a journal all about market action and what I think it means, and how I should trade, and what is working and what's not. I didn't write a journal describing the trades I took, or what my emotions were during the day. It was all about market action. And it was all my perception and interpretation. Day after day, week after week, making mistakes, wrong calls, being clueless as to what was going on, not knowing how I should trade, not knowing if my views made sense or not, and yet I continued taking notes and learning. Then I would view charts and combinations of historical intraday charts, and I'd note certain behavior. For example, I'd study trend day after trend day and try to notice what they had in common and how I could have picked up on it in real time. Then I'd study range days. Then I'd study a price chart of the ES versus the Advance decline line and see what the relationship was across many different days. Then I'd do the same with the ES and TICK chart. And on and on. Over time, this gave me a feel for the markets, and a certain understanding of how certain days differ and many subtle signs and tells for each type of environment and context.

As for set-ups, I didn't use any predefined ones. I just formed trading ideas and then tried to get in at good trade locations. Even this, which is the art of execution, is quite complicated and not straight forward. I started realizing that in some environments it's best to wait for pullbacks, in others I need to get in at market or I'll be left in the dust. In some markets I can buy low and sell high, in other markets the opposite is in order. And so on.

I became consistently profitable in a timeframe of a few months by doing this. But of course before that I had read 30 or 40 books and so I had all the technical background. I had also worked a lot on my psychology and personal issues. But all of this was in conjunction with a method of learning and trading the markets that was mostly in opposition to what the general wisdom says about simple set-ups and exact rules.

Now of course you might say that everyone has their own style, some discretionary and some not. Absolutely. But even the purely mechanical traders are very adept at reading markets, and are aware of all of the complexity and ambiguity inherent in it. Their system might end up being simple, but it will come about through a very deep and complex understanding of markets. And usually this system will take the market environment (i.e. context) into account. It wont just be simple mindless set-ups.

In the end, all of what I am saying is meaningless unless you come to a personal realization. Take a look at your trading career thus far. Do you truly believe that if you just learn to focus and take all of your set-ups then your equity curve will reverse and you'll be a consistently profitable trader? Why would the world's top institutions spend millions and billions on R&D when a few simple set-ups could make them all of the money. This doesn't mean that to make money you need extremely complex mathematical models. Far from it. What it does mean is that you need extremely complex mental maps that take time and experience to develop, and that will never develop if you spend the whole trading day simply waiting for set-ups to materialize. That just won't cut it.

Right now your learning curve is stagnant because you're not truly studying the markets. Your day is wasted in waiting mode. It's not in observing and absorbing mode. Also, because you fear loss, you aren't willing to experiment. This means that you aren't making mistakes and failing regularly, which is what you need to do to learn quickly.

So to conclude, based on all of the above, my advice to you would be to stop trading and make a mental shift. Realize what you need to do to become successful, and it's definitely not staying on this endlessly unfruitful path being supported by the hope of future profits. You're just running in your place unless you change your focus and your learning method. And if you thought the journey was tough so far, you haven't seen anything yet. Get ready for uncertainty and ambiguity like you've never seen it before. But this shouldn't be scary. It should be exciting, because this is what trading is all about. This is why it's called an ART. And it truly becomes one when you change your focus and your learning process. Then everything, including success, becomes possible. And until then, it'll be a distant dream that keeps appearing to be so close and yet stays so far away.

So you need to re-align with a new thought system and then get on the simulator and trade. Take losses. Make mistakes. Be clueless. Don't be afraid of it. It's okay, that's the only way you'll progress. And trust me, progress you will.

Best of luck to you, and I wish you much success.



I haven't posted since I started the new job because, quite frankly, I haven't had anything market-related to post up here and this is a trading journal/blog after all, so I try to keep the content focused on trading. The job and school are going fine although I'm in serious need of some sleep since I'm only getting 5 hrs of sleep every night. So what does this have to do with trading? Nothing yet, so I'll move on to the topic of this post: TUITION.

I logged in to my school's online portal yesterday to pay the tuition for the summer quarter (almost $8,000), and was curious to see how much cash I've dropped at this school. I ran a quick report and the total came out to over $60,000 that I've already paid! And I was at another school for my first year so this figure doesn't even take that $20K+ into account. I have 9 more classes to go after summer so that's another $18,000 in tuition. Just doing some rough math, the total tuition cost for my Bachelor's in Information Systems comes out to over $100,000. And what does this piece of paper get someone who's fresh out of college? In this economy, they'd be lucky to even get a job. If they were able get a job straight out of college, I think it would pay $35-50K. Lets do the math here: Over $100K and several years of education would get an IS major $35-50K. Then WHY do new traders expect to make six-figures their first year when all they've invested in tuition is a few grand in losses, and a few hundred bucks in charting software and some books? Maybe it's because they equate trading to gambling and hope to win big. If you're gonna trade professionally, that attitude simply can't work. Treat it like a profession and the chances of you actually becoming a professional trader increase exponentially. Btw, I'm saying this to myself more than anyone else so please don't get the wrong idea that I'm preaching or something. This Blog is first a journal for myself, and then the world.

Perhaps this post will help a new trader put things in perspective, and manage expectations - it sure did for me.

Friday, June 12, 2009

Friday 06/12/09 - End of 1st Week on Live $ Acct

I have to run some errands so will update this post later this evening. The hesitation problem is slowly going away; I guess I should have expected some hesitation since this was my first week back on the Real $ account. I'm ending the week down about $250 after commissions. I placed 24 trades this morning, and was down $185 on NQ at one point; made it all back and then some on a couple of solid trades that I held for 5-6 pts each. Holding on to winners is also a big problem for me, and it looks like I'm making some progress in that area as well.

Stats for Live/Real$ Trades in ES:
# of Trades 10.00
Longs 0.00
Shorts 10.00
% Break-Even: 50.00
% Win 20.00
% Loss 30.00
Avg Win 1.25
Avg Loss -0.42
Largest Win (pts) 1.50
Largest Loss (pts) -0.50
Total Win (pts) 2.50
Total Loss (pts) -1.25
Net Gain/Loss (pts) 1.25
ES Daily Range 11.00
P/L as % of Daily Range 11.36

Stats for Live/Real$ Trades in NQ:
# of Trades 14.00
Longs 14.00
Shorts 0.00
% Break-Even: 7.14
% Win 28.57
% Loss 64.29
Avg Win 2.94
Avg Loss -1.11
Largest Win (pts) 6.00
Largest Loss (pts) -1.50
Total Win (pts) 11.75
Total Loss (pts) -10.00
Net Gain/Loss (pts) 1.75
NQ Daily Range 21.25
P/L as % of Daily Range 8.24

2:10 PM (Central) Update - Got back to my desk around 1:30 PM and figured I would Sim it...this is soo much easier on Sim!

Thursday, June 11, 2009

Thursday 06/11/09 - Indecisive Market

938.25, 936.50, 935.50, 934.75, 936.50 - those are the closing prices over the past 5 trading sessions. I realize the market is at an inflection point and really wish it would make up its mind already! With the recent price action, I'm afraid to buy break-outs and almost as afraid to short break-downs (refer to yesterday afternoon's 50% retracement back up).

My goal today was mostly to stay out of trouble on contract rollover day, and to get into a rhythm with my trading, i.e. get comfortable entering/exiting trades on the Live account. I may have over-done it, but I placed 27 trades today (6 on the ES and 21 scalps on the NQ). I don't usually trade the NQ but I keep a 5-min chart of NQ up to get a feel for sector participation on big moves. For example, ES was trading above it's 1st hour high in the afternoon session while NQ was trading below it's 1st hour high. I began scalping the NQ just to get comfortable entering/exiting the market, and the NQ doesn't really do much damage since it's a smaller contract. I ended positive on the NQ and ES but broke even on the day after commissions.

Some positive points from today:
1. I'm slowly getting a little better at executing trades with less hesitation. Still a looong way to go!
2. I added to a winning position in the NQ.
3. I was down $140 or so in the early afternoon and could have called it a day, but continued pressing on and made back the loss.

The main negative point from today was that I didn't hold on to my winners. I was short in NQ from 1503-1507 several times but after a few 2.5pt stop-outs, I got a little shy and started taking quick winners to get back to positive territory. I was short in the ES at 844.50 and 845ish late afternoon but didn't hold it long enough because I was afraid they would run it back up like they did yesterday. Considering ES was above it's 1st hour high till 2:25 PM (central), there was a chance that price could rally back into the close. It also bounced off the 945 area so many times.

Overall, I'm still down $267.50 on the week. I have to run some errands tomorrow so will only be trading the first couple of hours.

ES (5-Min)

ES (Daily)

Wednesday, June 10, 2009

Wed. 06/10/09 - A lot harder than it looks

A lot of newbies jump into the markets in hopes of "easy money". They read about the (very few) successful traders, their high roller life-styles, ability to work from anywhere in the world, etc. and jump into the market with dreams of grandeur: making thousands or millions while sipping a cocktail on a sandy beach. Trading is so NOT like that. It's an extremely challenging and difficult way to earn a living. It tests you mentally, physically and psychologically all at once. Right when you think you've got it figured out, the market proves you wrong and tests your confidence. The charts are also VERY deceiving since they make it look so EASY in hindsight. Show any newbie a 5-min chart, and they'll be quick to point out how much money you could make (ironically self-acclaimed gurus also use this trick). To cut it short, this shit ain't easy so think more than twice before you jump in, and even then, don't do it for the money.

I made around $80 bucks today, and they were probably the hardest $80 I've made in my life. I was talking to Matt on Yahoo IM when I placed and exited a trade for a profit, and I told him "I've never been so happy making so little" LOL - and trust me, it wasn't because I made a few bucks, I was happy because I finally executed a trade according to plan, and was rewarded for it. I was acting like a bitch most of the day; hesitating on all my setups, not entering the market when I should, etc. I'll go over a few trade setups that I would have taken on Sim but for some reason, did not take now that I'm Live. Here's how my day went...

ES (5-Min) - Pre-Market Short-Sell Setup

I really wanted to short at 950 in pre-market, but hesitated thinking "I should wait till market opens and let the opening range get set". I then thought "I should place a sell stop 2 ticks below the 848.50 level in case we get a sell off at the open"...and even put in the order, but later pulled it out thinking "946.50-947 is support - why short so close to support?". Missed some nice down-side action. Lets move on to the next area...

ES (5-Min) - 9:00 AM Central - Trade #1

Over here, I see that the 944.25 area held and is a potential double-bottom from the over-night price action, and I think we'll rally back up now so I hit it Long at 944.75 with a 1-pt stop-loss; a "low-risk" trade in my mind. Price moved so fast against me, I got 1 tick slippage on my stop taking a 5-tick loss. In hindsight, I should have waited for a bullish candle to close above 947.25 and then looked to perhaps buy a pullback. That should have been an indication that price was set on heading lower, but we've had such choppy price action leading up to today, that the possibility of a strong trend down day didn't really cross my mind. Moving on...

ES (5-Min) - 9:45 AM Central - Not Going Long Now

Plenty of support at 939.50, but after taking that prior loss, I decided to stay away from the Long side. Was looking to enter short on a retracement back up to the 944 area but price didn't get there.

ES (5-Min) - 12:00 PM Central - Treasury Auction Coming Up

At this point, I'm glad I stayed out of Longs and am shocked that ES is testing the 936 area. This was a pretty solid area. I look at the consolidation heading into the treasury auction and place a buy stop at 941.50 and a short-sell stop at 935.50 to catch the move in either direction. At the last minute, I bitch out, and pull my sell-stop order thinking "934.50 is support so why risk 6 ticks just to make 4 ticks".

ES (5-Min) - 12:55 PM Central - WHY did I pull my sell-stop at 935.50?!?

Frustrated as all hell now - Wondering if I'll ever make it in this business. Will 932.00 hold? Holy sh*t! How low can this market go? Don't you shorts eventually have to COVER? Come on!

ES (5-Min) - 1:40 PM Central - Trade #2

OK - finally seeing some signs of a bottom. Would like to short if price gets back to mid-point and/or VWAP but for now, this could be a nice scalp to the Long side. Hammer at the lows followed by a strong bullish candle. Should try a Long at the mid-point of the bull candle. Was tired of missing so many trades, so manned up at entered Long at 930.25 with a 6-tick stop. Price moved up fast to my target 933.25. I was actually expecting price to get back to 935.50 area but I didn't want to over-stay since this was a counter-trend setup. At this point, I was too emotionally and mentally drained so called it a day.

ES (5-Min) - I can't believe price retraced back up to over 940 this late in the day!

What a day! Glad it's over.

ES (Daily) - Bull Flag?

The Daily chart is still looking bullish to me. Looks like a bull flag on the daily, and we now have 4 dojis in a row, and we're at the low end of the up channel. Will we get a break-out tomorrow? Who knows. I certainly don't! Retail Sales and Jobless Claims data out at 7:30 AM (central) tomorrow morning. Trade well!

Tuesday, June 9, 2009

Tuesday 06/09/09 - Live on the Real $ Acct

I switched over to the Live/Real $ account yesterday. No matter how much time you've spent on the Sim, the transition to the Real $ account always brings about some psychological hurdles that one has to work through. That may not be the case with a new trader who starts on Sim, and then switches over to real $, but for someone who's made hundreds of trades with dollars on the line (me), it brings back some old memories and fears. I traded piss poor yesterday placing 3 scalp trades for +1 tick each because for some weird psychological reason, I really wanted my first day on Live trading to be positive.

After realizing that this was a big problem, I looked back at my journal from late 2003 and noticed that "early exits" were a problem even back then. To help solve the problem, I figured I would be more patient and give my trades time to work. Problem is, when you're entering fundamentally bad trades, the additional time only works against you. And that's what happened today. I gave my trades time to work; and that resulted in me taking full stop-outs on almost ALL of my trades today (-1.5 pts per trade). Ironically, I gave all the losers time to work, while cutting the good trades short at break-even.

ES (1-Min) - Morning Trades

I went Long in the morning after it looked like price wasn't going for gap fill and was stopped out for -1.5 pts. After seeing the momentum shift to the downside, I entered short at 942.00 except this time, I was quick to move my stop-loss to break-even, so I got stopped out at break-even on a good entry. After that, the gap filled, and I figured we were ready to resume the up move and began hitting it Long and giving it time (to hit my stop-loss). The three Long trades that followed were fundamentally poor trades from the get go, and didn't even go with my method. I guess those could be classified as "revenge" trades :-/ After being down -5.75 pts, I figured it was best that I stop and come back in the PM session.

ES (1-Min) - Afternoon Trades

My friend who I'm teaching was sitting right next to me, trading his own real $ account, and he entered Long at 945.50 area on the break-out of the first hour high. I told him that 946.50 was resistance from yesterday's high so it's probably best that he stay out until we get a confirmed break-out above that area, and then he can enter Long on a pullback. It'd be sweet if I followed that advice myself. Instead, I got caught up in the price action, and hit it Long at 946.25 and was stopped out a minute later. I then immediately entered short at 944.50. That trade went a point or so in favor and then retraced back up...I had already moved my stop-loss to break-even and missed the down-side action that followed.

So to summarize, I traded like an idiot today and did the complete opposite of what I should have been doing. I held the losers and cut winners at break-even. Now I can either beat myself up over an almost $400 loss, or I can try to learn from my mistakes and make a better effort later in the week. I'll go with the latter. Plus, no one day should make/break a trader. I'm just glad I didn't do too much damage.

Any comments/advice appreciated. I'm not posting the stats because they're obvious from the trade chart (5 losers, 2 scratch trades, -7 pts).

ES (60-Min)

Sunday, June 7, 2009

There goes my summer

I'm still in the process of finishing my undergrad degree in Information Systems (12 more classes to go!) and signed up for a full class load over summer (accelerated classes in the evenings 6:00-9:15PM). Classes start on June 15, which is also the day I start the new job in downtown. With full-time work and school, Monday - Thursday, I'll be leaving the house around 7:30 AM and getting back home around 11 PM. No class on Friday so I'll get home around 6:30 PM. But with this schedule, trading will probably have to be put on the back-burner (for now), unless I can figure out some way to cram it into my schedule; maybe trade over my lunch break or something. We'll see.

I will be trading on the live/real$ account this week though since it's my last week of "freedom". My daily loss limit is 5-6 pts; once hit, I will switch back to Sim for that day, and be back at it on the real $ account the following day.

An update on my friend who I've been teaching: he netted over 100 ES pts on the Sim his first month. His last day of work was May 29th. He funded his live account last week, and traded Live/Real$ on Friday. He was up around $300 in the morning, then took a -$50 loss, and in the process of trying to make back those $50 bucks, he lost all his morning gains and then some, ending the day down -$250 or so. He should've just called it a day at +$250 or +$200, or at break-even. Lesson learned on his part. He'll be back at it on Monday on the real $ account. Here's something ironic; I'm being hired by the company he just got laid off from, and he'll be trading full-time now until he can find another job :D

That's about it for now, wish me luck. Enjoy rest of your weekend!

Friday, June 5, 2009

Friday 06/05/09 - Short Day For Me

Busy with several errands today (wrapping up the remodeling of my condo in downtown Chicago), so was distracted most of the morning with phone calls, and was in/out of my home office so missed that nice short setup. Have to head to the city now. Made a tiny +3 pts, even though I was short at 950 before the big drop, and Long at 940.25 before the retracement back up. At least I was right directionally. I'll probably update this post later tonight with some updated charts, etc.

ES/$TICK (1-Min)

ES (5-Min)

Thursday, June 4, 2009

Thursday 06/04/09 - Specialize in ONE Market

I didn't post anything on Tuesday because the day was spent on group trading education/mentoring with a couple of friends at my place.

Yesterday, I got the genius idea of trying out the mini-Russel 2000 futures (TF), and I thought I could just pull up some TF charts; adjust the time-frame on the tickbar charts and dive right in. Talk about being naive! The TF moves has its own rhythm compared to the ES, and over the course of the last few months, my mind has been trained to be in sync with the moves on the ES. I traded the TF in the morning, and was down -1.2 pts, which isn't too bad, but I quickly learned that you can't just jump into a new market/index without some research and dedicated screen time. Then later in the evening, I happened to be at Barnes & Noble and was browsing through John Carter's book in which he states that newer traders should start with the Mini-Dow (YM) since it's an "easier" instrument to trade, and has less professional participation. I figured I'd give it a shot, so I went over the Daily, 60-min, 15-min and 5 min YM charts, and set up my charts to trade the YM this morning. Again; not a great idea. I ended the first hour at break-even and then came to my senses and switched back to trading the S&P500. That was a good call. It was like I was back in my old neighborhood; in familiar territory. I traded the ES from 9:30 AM (central) till about 1 PM and netted +7.50 pts. This little exercise in trading the TF and YM showed me the importance of specializing in ONE market. The ES moves in a certain way, and after watching if for several months I've become comfortable with the way it moves. Over time you get a feel for how a certain market/instrument moves; to the point where you can get a feel for short-term direction just by looking at price action on the DOM. So no more dabbling in other markets trying to find the "easier" one to trade. Here are the Stats from today's trades in the ES:

# of Trades 18
Longs 11
Shorts 7
% Break-Even: 16.67
% Win 66.67
% Loss 16.67
Avg Win 0.85
Avg Loss -0.92
Largest Win (pts) 2.00
Largest Loss (pts) -1.50
Total Win (pts) 10.25
Total Loss (pts) -2.75
Net Gain/Loss (pts) 7.50
ES Daily Range 14.00
P/L as % of Daily Range 53.57

Not sure how many of you use Twitter, but I use it to document my thoughts and what I'm seeing Intraday. I'm also on StockTwits. You can go here: if you'd like to go over my posts and intraday charts from this morning highlighting support/resistance, $TICK Divergence setups, etc. Following are a few of my Twitter posts from today:
10:19 AM - Bulls in control as long as price remains above 835.50 on a 5-min CLOSING basis
10:24 AM - Good place to take some profits on Longs $ES_F Also seeing negative $TICK divergence on 1-min
10:27 AM - Shorted the pop into overhead resistance and negative $TICK divergence
10:59 AM - Trying a scalp short with tight stop-loss here
11:02 AM - Out for +2 pts
11:16 AM - Some support here
12:47 PM -$TICK Divergence providing some nice scalps today
12:56 PM - 938.50 important area for Longs IMHO
2:00 PM - Prior Resistance, now Support. I would avoid 938-942 or Scalp the range. - Done for day at +7.50 pts
2:01 PM - Negative $TICK divergence throughout the last hour

Report on Employment Situation out at 7:30 AM tomorrow. Going forward, I'd like to see price remain above 916.50 on a Closing basis for Bulls to remain in control. We also need to be mindful of overhead resistance at 950. Following two charts show the "big picture" structure I'm working with.

ES (60-Min)

ES (Daily)

Monday, June 1, 2009

Monday 06/01/09 - Break Out

I'll start today's post with the Stats, and then briefly go over some of today's good and bad points:
# of Trades 17
Longs 15
Shorts 2
% Break-Even: 11.76
% Win 47.06
% Loss 41.18
Avg Win 1.38
Avg Loss -0.86
Largest Win (pts) 2.50
Largest Loss (pts) -1.50
Total Win (pts) 11.00
Total Loss (pts) -6.00
Net Gain/Loss (pts) 5.00
ES Daily Range 17.75
P/L as % of Daily Range 28.17

I'll go over the good points first: Avg Win was greater than Avg Loss, Largest Win was greater than Largest Loss, and finally almost 90% of today's traders were in direction of Trend. It was also nice seeing price hit 943 since that's been the expected target on this up swing for a few weeks now (refer to the Daily price charts posted over the last few weeks).

Now to the mistakes:

I entered Long at 943.25 on a Buy Stop at 10:59 AM (central); price moved up to 943.75, and then retraced down to 941.75, stopping me out at a -1 pt loss in the process. I wasn't monitoring the sectors or might have noticed the lack of participation from XLF. The monitoring of sectors resulted in a lot of missed trades over the last couple of weeks, so I figured I'd keep it simple today and was just using the 610 tick and 5-min chart. I think I should probably keep an eye on the key sectors such as XLF and XLE, but not utilize them to base specific entries/exits. It was also close to lunch time so perhaps I should've been more careful. Regardless, no big deal, it was just a -1 pt loss.

I then bought the break out again around 11:35 AM using a Buy Stop at 844.25. The 5-min chart printed a couple of dojis, and I had a couple of opportunities to exit at break-even, but I kept holding. I wasn't watching the 1-min NYSE $TICK or would have noticed the very obvious negative divergence when price retraced a bit and then moved back up to 944.50 (price moved higher while $TICK printed a lower high). The multiple dojis should also have served as a warning sign to get out at break-even when the market gave me the chance. I took this same trade later in the afternoon, and exited for a +2 pt profit but the difference was HOW price moved into that 944 area the second time around. The first time, it moved up on weak momentum, whereas, the second time around, the momentum was fairly strong, and the trade worked out. Momentum is Key for short term trading, IMHO.

All in all, an educational day (like every other trading day), and at least I was able to end it in the black. I have two of my friends coming over tomorrow for some group trading education/mentoring, so that will be tomorrow's focus.

Pending Home Sales Index out at 9:00 AM (central) tomorrow. Expecting support at 928.25-932.00; resistance at 947.25 and 955.50. At this point, looking for 916.50 to hold on a closing basis for up-trend to continue. Also need to be aware of open gap at 918.00

I'll end today's post with the following image highlighting Chuck's mantra (refer to comments from Thursday's post, definitely worth a read)