Saturday, January 31, 2009

The Weekend Trader - 2009 Goals and More

Some thoughts on a Saturday morning as I'm waiting for Grace to come out of the shop. And if you're not familiar with the trading story of my car "Grace", I encourage you to check it out.

The Rate of Return Dilemma - As I've received several questions lately related to Rate of Return -- including in comments to yesterday's January summary -- I thought I'd try to help clarify my views on the topic.

Imagine you were a professional poker player with roughly $2.5 Million in "available" bankroll, and had to decide each day how much of those funds to allocate to the game to earn your daily keep. Essentially you have three choices: (1) Bring all of it and put it all in play and at risk (assuming the house rules would allow you to); (2) Bring all of it, yet only place a portion on the table and keep the rest in reserve; or (3) Bring and play with only a part of it.

Then let's assume you varied your allocation over the course of a year, depending on a combination of varying table regulations, perceived table conditions, and simple personal preference.

Then assume you earned $1.0M over the course of a year, and then someone asks you what rate of return you earned as the result of your poker playing. What is the correct answer?

A. 40%
B. 200%
C. 1000%
D. Possibly any of the above.

Some might quickly respond "A" ($1.0M / $2.5M). My answer on the other hand -- without hesitation -- would be D, which helps explain why I think Rate of Return is often completely irrelevant and abused when it comes to analyzing performance, and is why many poker and independent trading pros don't track it. The plot thickens for tournament situations where a player buying into a satellite tourney for $100 ends up winning $2.0 Million. What was his ROR?

And while I realize that such a benchmark can help compare fund and manager performance in the public sector, and even used it as a "fun" personal benchmark during the 2008 race just to see what I could do, it remains largely off my radar in terms of personal goals and performance because of the complexities noted above.

Essentially, I'd define allocation of my trading capital as similar to #2 and #3 above. And while I used the conservative industry definition of #1 above (net profit divided by total account capital) in benchmarking against CTA funds last year, some could argue the figure was actually understated since I usually employed strategy #3 throughout the year, trading only a modest portion of the of the accumulated capital as I never really increased betting size during the time.

Such is why like many independent "trade for ourselves" traders, I'm really only interested in one number: Net Income. It's simple and clear. Or said another way, I view trading income as a salary. Raw dollars.

2009 Goal - OK, it's set. And it remains similar to last year, with one twist in that instead of looking solely at Jan-Dec 2009, I'm going to also continually track my most recent 12-month performance. And both goals will be set at $1.2 Million, which reflects a slight increase over the initial $1.0 Million 2008 goal, while also allowing for downtime as the result of non-market and personal priorities and obligations. It also results in a nice round number of $100K/month, which so long as I hover around there, will tell me I'm on track without having to focus on distracting analyses.

Like anything, it's subject to revision up or down (the beauty of trading for ourselves ... we get to make up all the rules), but that's where my head is currently at.

Sure, I could be Archie Karas or Stu Ungar and put it all at risk (Option 1 above). But I'm not going there. I'll be 48 in a little over a month and want to balance pushing and motivating myself with enjoying the prime years of my life.

And if I miss the goal and "only" earn $750K? You certainly won't find me jumping off any bridges.

Personal Requests - I've received a few comments recently asking me if I'd be willing to enter into a coaching/mentoring or money management arrangement, which I purposely haven't posted (some have asked the comments to remain private).

My general response remains that I don't have any current plans to go back into formal coaching, and I'll likely never trade anything except my own capital as I'm most comfortable having manager and client in the same body since "both" know each others style and tolerance for risk very well.

Blog Evolution - Having said that, I haven't given up on further enhancing this continuing blog effort in a big way. Those that know me know I'm always looking to do something that's never been done before (call me a maverick) and challenging the status quo and industry hype. Chatrooms and advisory services are all but dead, and there's something out there that remains untapped.

And while I still haven't put my fingers the next evolutionary step, I firmly believe we can grow this network in a way that will knock each other's socks off and continue to serve the collective good. And this is where I could use your input.

One of the things I'm seriously considering is hosting a live roundtable session on a weekend in the Northeast should there be sufficient interest, as well as establishing a small ongoing trader support group in the Boston area. If there's enough interest, I'll consider it, but I'd want to keep it under the radar and non-commercial. Maybe we'd even play some poker.

Online blogs and chats are great, but like poker, there's something to be said for sitting around the fire in person talking shop. I'm also still considering resurrecting the online after hours PalTalk lounge.

As always, comments/ideas/input are welcome.

Enjoy the weekend.

Friday, January 30, 2009

Friday Notes - An Imperfect Month

4:00pm Let it be said that I probably made more mistakes this month than I've made in a long while. And if you scan back through many of the January blog entries, you'll see that while I began the month with some mental R&R (trading each day, but lightly), I haven't been satisfied with recent results.

My early morning performance -- traditionally a strength of mine over the years -- has generally been poor and has often resulted in my needing to make more midday adjustments on the fly than I'd like. Too many. And such was the case again this morning when I was just enough out-of-sync to suboptimize the classic morning-after-trend oscillations, although I again did OK with the midday short sequences to more than offset the early sloppiness. Trade sequences have also been sloppier than I'd like as I continue to work on re-establishing a consistent, non-hesitant, crisp trade execution flow.

And yet, as we peek at the chip score for the first time this year, I'm still awaiting my first daily chip loss of the year. 21 trading sessions, 21 chip gains. 23 overall in a row. I almost wish it weren't true, as the P&L on the other hand leaves a lot to be desired. If stacked against the '08 months, it would rank a mere 10th of 12, although certainly a decent improvement over December where I essentially locked up the year mid-month, and not that far off from January '08. And I'm traditionally a slow starter.

Yet this is why I hate statistics and pay little attention to them. As I've said ad infinitum, I care about one number: Net Profit. 21/21 means nothing, aside from a general view of consistency -- including possibly consistently mediocre. And while those new to the blog continue to try to calculate and make sense of all sorts of stats such as win/loss %, average points per trade, etc., I'll go on record once again saying such analysis in my view is a highly irrelevant after-the-fact statistic.

I also don't care for Rate of Return analyses, despite last year's benchmarking effort which was more for fun than anything. I'm a bottom line guy, period. Plus, too many games can be played with RORs in terms of moving balances around, purposely and effectively trading only a portion of tradable capital for risk control, or growing tiny amounts of capital with extreme high-risk leverage. It's simply not important to me, and I'd take $1M annually with a declining ROR every year in a heartbeat.

Yet we'll take one final and brief look at January, before forgetting it as soon as the virtual words are typed:

January 2009
Daily Gains: $119,259
Daily Losses: $0
Commissions: -$17,084
Overheads: -$3,271
Net Profit: $98,904
Daily Win/Loss %: 100%
Contracts Traded: 34,788
- Projected 2009 annualized: $1,186,848 (Careful with this; it's annualization of only one month.)
- Last three months annualized: $1,448,396
- Last twelve months actual: $1,630,942

My only comment about the pace figures is I don't like the declining #s from largest timeframe (12 mos) to the most immediate timeframe (1 mo), although Dec & Jan include an intentional slowdown so I can't make too much of it. Still, I'd rather see the three figures trend the other way.

Now, it's history and forgotten. The foundation for the rest of the year is now set, and it's time to build the house.

And I have to decide whether I'm truly going to get serious about the '09 trade. I've said I'm now ready. I've said I'm now well-rested. I've said last year is now fully and completely behind me and forgotten.

But as always, talk is cheap. I'm going to have to prove it again. Not to anyone looking over my shoulder ... just to myself. I'm my toughest critic and it will always be that way.

It was a very imperfect month and I have a lot of work ahead of me.

It's time for less talk and more action.

The wall studs go up on Monday.

We'll "chat" more over the weekend.

Thursday, January 29, 2009

Thursday Notes - Driving Handcuffed

4:00pm I've never driven handcuffed, but I imagine the last few days of trading provide me some idea of what it might be like. I say that because I feel the intraday market pace -- there's that word again -- has been absolutely horrendous.

And while the VIX has been of some help in terms of not supporting strong emotion either way, and has provided a "general" long (15-min downtrend) or short (uptrend) backdrop, its frequent flat-lining as noted on the attached chart is highly indicative of the less-than-stellar market pace.

In terms of today's trade, I started poorly by focusing long on the gap down toward hourly support (continued limited size until I saw more market data), and got chopped up a bit with poor entries before recovering later in the day by -- yes, again -- shorting midday climbs after the morning gave us cues that there would likely be limited upside. Such is why I divided today's scorecard into two sessions, and left left me with yet another very modest chip gain which is getting very old very quickly. And note my personal perception of day-to-day pace as circled on the scorecard.

And so this highly "intriguing" month continues. In all my years of trading, I frankly don't recall ever having a month without a single losing day. And if I did, it might very well be a sign that I'm not pushing hard enough. If you recall, last year's largest daily career loss early in October ended with a positive week and was the precursor to the best month ever as reflected in the 2008 daily summary chart. On the flip side, it's been quite a while since I ended a month without at least one +$15K chip gain (which would be coded dark green on the scorecard based on current definitions), and January will likely end that way as I typically trade very light on Fridays.

An interesting start to what I'm sure will be an interesting year.

Every year is.

Poker night tonight ... I'll post and check comments later tonight.

Wednesday, January 28, 2009

** VIDEO ** The Blood is Pumping

Tonight, I talk about perhaps finally finding some motivation to kick me into gear for 2009 and the ridiculous doom and gloom currently prevalent in the industry.

I also follow up on the recent blog discussions on CME costs and talk about ways to grow the blog or resurrect the after hours lounge for the benefit of all -- comments encouraged -- as site hits have doubled in the last week alone and are now approaching 1,000 daily visitors ... and for a simple personal diary (go figure). I guess we're not in Kansas anymore Toto.

Anyway, I felt like venting, so here goes:

Heading to bed early tonight, and will post comments and replies in the morning.

Wednesday Notes - The Little Things

4:46pm I'll be the first to admit that my January has been less than spectacular, which we'll review for the first time on Friday. When we do, I expect the results will reflect a combination of a mental break from the '08 non-stop race and a desire to simply try to establish some new momentum for the new year. Essentially, I'll likely classify the month as reflecting a lot of "little wins", including today where I traded lightly (normal for me on FOMC days), stayed out of trouble, and booked another small win.

Yet sometimes, it's the little things that add up. Take the attached "micro" chart which in itself looks fairly meaningless in terms of a one-minute chart and two very small moves. Yet stopping on the long attempt and reversing on the short attempt with larger size (see notes in box ... click chart to enlarge) allowed me to avoid a loss and do better than breakeven with the adjustment in size upon seeing more market data.

It doesn't look like much, and clearly wouldn't make any headlines. Yet these are the "little" wins that no one likes to talk about [not worthy of guru chest-pumping I suppose] that can add up over time in terms of avoided losses and small scores.

There will be occasional triples and home runs in 2009, as well as strikeouts and hit by pitches. That much is certain. Yet in the meantime, I'll have to accept the 20th consecutive small daily chip gain as I continue to wait for that pitch over the plate at a time when focus and execution match opportunity.

As the countdown ticker to the left suggests, we're barely into the '09 journey.

337 days is a long way to go, and the only score that matters is -- as you should all know by now -- that on 12/31/09.

The game is still young.

Feeling like doing a video tonight ... stay tuned.

Special Post - Final CME Pricing Thoughts

I thought I'd put yesterday's post on the benefit of CME costs in final perspective to close out the commission discussion. So as I much as I didn't want to glance back at '08, for the record here's how my '08 results would have been under a non-member (vs. member) CME pricing model:

Per contract per side savings between CME Lease Member and Non-Member commissions:
$0.68 1st 200 Contracts/Day
$0.93 > 200 Contracts/Day

Member Commission Savings:
2008 CME Contracts Traded: 586,184
50,000 Contracts (200 per day x 250 days) x $0.68 Savings = $34,000
536,184 Contracts x $0.93 Savings = $498,651

Lease Fee (Actual '08 Costs) = $22,600

Net Savings $34,000 + $498,651 - $22,600 = $510,051

2008 Net Results adjusted for use of non-CME member rates:
Actual $1,635,103 +214%
Adjusted for Non-Member Pricing $1,125,052 +147%

As suspected, this proves out I didn't need to be a member of the Merc to still generate a substantial bottom line given my trading style. In fact, my initial target still would have been exceeded. Does member pricing further improve the bottom line? Of course. But is it mandatory? Not at all.

Further, as was correctly pointed out by a couple of traders yesterday, being a member has no bearing whatsoever on being able to buy the bid or sell the ask.

The real issue is likely that which I touched on yesterday, which is the non-CME broker portion of the commission rate (often bundled with the CME portion for a single quoted rate). Again, traders should definitely shop around for the best combination of price and service, and if you're paying the high rates referenced in the argument, you're clearly getting hosed by your broker.

I hope that helps put everything in perspective.

Now let's focus on trading!

Tuesday, January 27, 2009

Tuesday Notes - Awaiting the Green Light

6:35pm 'Twas a rather dull day on the trading front as ES traded completely within Monday's range and looks for some catalyst to break the current logjam.

At this end, I kept trading volume on the light side (3rd lightest of the month) as noted on the updated scorecard, even staying away from many possible 1- or 5-min trend pullbacks as both volume and pace were extremely suspect throughout the session. Frankly, I felt the pace was pathetic, and you know how much pace means to me.

As I write this, I see ES is up 13 points in the overnight session, and it will be interesting to see if the market decides to gap out of the range as it again tries to frustrate intraday players looking to time the break.

Nevertheless, three sessions remain before we close this "first hour" of the 2009 trade, and I'm going to be on alert to try to match any uptick in market patterns, volume, and pace with a similar increase in interest at this end.

I do feel I'm beginning to dance a bit with the market -- despite continued modest chip gains -- at least in terms of matching its pace. Right now, we both seem to be in park as the gear shift waits for the green light.

I'll keep the text short tonight as I was a bit long-winded in today's earlier post.

Special Post - CME Rate Impacts

I don't normally repost comments from prior posts in the main blog, yet I thought it might be helpful to repost a part of last night's dialogue that dealt with the impact my member commission rates have on the bottom line.

The impetus for the discussion was a fairly extensive audio viewpoint from an industry peer (Austin Passamonte) of my '08 performance ... which I'm of course trying very hard to forget as the past is past! If you're interested, I encourage you to first listen to the link, then continue to my response below. Austin and I exchanged emails this morning, and I thanked him for his perspective. I'll also add this to the Key Post index to the lower left for folks to reference from time to time when analyzing their own commission rates.

Anyway, here are my comments from last evening, with additional thoughts at the end as I've had some more time to reflect on them:

Hi Glen and thanks for the very insightful link of which I was not aware.

I'll touch on some of the comments over time (it's late here and I just checked the mail before heading to bed), but in the meantime here are a few immediate thoughts.

First, I thought his general commentary was very strong and he touched on several relevant points which mirror some of the things we've discussed here.

With respect to CME member rates benefiting me, there's no question about that, although we'd need to make one adjustment to the math as 8% of the total 637,766 contracts traded were related to Eurex that isn't related to CME membership and that I essentially considered continual "investment capital" in "learning" that market as I had a very small gross from it. The total CME # was actually 586,184.

However, even after adjusting the math, his point would remain relevant in that the savings in commission costs is a significant factor in generating the strong bottom line. No doubt about that as I'm often managing risk on speculative trades with scratches and re-entries while also providing liquidity at times which can quickly drive up trading volume.I also agree that becoming a CME member doesn't guarantee success, and thought he was right on point there as well.

One thought I'll add though is it doesn't take a huge trading volume to justify leasing a seat to get the lower costs. I currently pay $2,200/month, which based on an analysis I did some time ago, meant I had to "only" trade about 250 contracts a day to ensure the cost of the lease was covered by the savings in commissions over time. [When I became a member in early '04, I actually tracked my monthly volumes carefully for a while to ensure the lease was always justified.]

And yes, 250 can still be considered high for many, although it's only about 10% of my 2008 volume ... meaning one doesn't have to trade quite as frequently or with as much size to still benefit from the reduced rates. So justifying a lease could be more within reach for some than at first blush, although as he mentions, it's certainly no replacement for needing to acquire the skill aspect of the profession.

Yet the commission point remains relevant and I would make an analogy to running a store where cost control is paramount in generating the strongest margins. Ensuring one pays wholesale costs and overall cost control are critical.

One last thought on the commission issue is that the more both retail and wholesale traders push for reduced broker costs (the non-CME component of the fee), the more we'll hopefully see continued reductions in industry commission costs for both types of traders. And yes, we do have a voice with our wallets and choice of brokers in a competitive broker marketplace. [Even when I was "retail", I was able to pursue lower fees, although certainly higher volumes provide a stronger negotiating position.] Yet again, this thought addresses the non-CME part of the rate as the CME piece is set by the Merc.

A few other responses to what I again thought was an overall solid audio:

Prior teaching & products - Yes, as many know I used to teach and at one time wrote articles and developed simulation and other learning tools that were available at TradingMarkets [btw, my trading records over time have always been open to Larry Connors who had previously vouched for much of the "pre-blog" results]. I stopped doing so primarily to focus on my own trading. I believe the older material stock hasn't been replenished, and currently have no current plans to resurrect formal teaching. [Plus, I'm having a ball with the blog and I touch on many of the former concepts in my constant babbling here.]

His reinforcement that I currently have a supplemental non-trading income to pay bills is also of course true as we've discussed here. And yes, I'll continue to advocate that such income is a huge help in the mental pressure aspect, much like I imagine golf pros have sponsorships pay for their meals while they focus on executing and sharpening the skills of golf. Spousal income, part-time income, running other businesses are of course all options.

So does it help me mentally? Absolutely. Is it mandatory? Not at all as I've traded consistently successfully in the past when I was trading full-time and it was my sole income. It's of course hard to quantify how much reduced pressure impacts one's current bottom line -- including mine -- as it's an intangible concept.

So his points are again strong and reinforce much of what we've discussed here. A successful business requires both strong execution and cost management, which is true in the business of trading. [Perhaps that's where that costly MBA is finally paying off.] Subsequent thought: We can choose to be Wal-Mart or the local hardware store. Both are right, yet each has a different cost structure, margin, and bottom line. Yet the core principles of selling and running the business for both remain the same.

*** End of Response ***

A follow-up thought is that one of the mistakes I made early in my career was not pursuing a Merc seat lease given my particular style. One reason is that many brokers have vested interests in keeping their commissions high (arguably another one of the industry's dirty little secrets that puts money in other people's pockets), and thus there's very little published material out there on cost/benefit analysis. Plus, some vendors have relationships with brokers which further compounds the issue. So I had to learn the hard way by digging for myself and discovering that there were ways to drive rates down that no one had told me about.

Even for traders who can't justify a lease, I would argue that many retail rates out there, including some referenced in the clip, are far too high and there are better deals around. Like any consumer, I encourage folks to shop around and let the market -- not brokers -- set the rates. Some brokers for example will decrease rates as volume grows. Mine even gave me a grace period at one time in terms of keeping rates affordable before my volume grew to recent levels with the hope of future business.

Given the current economic woes, it's a buyer's market, and we should use that to our advantage when we're "buying" the necessary infrastructure for a successful business.

Lastly, I'm going to do a similar analysis to that presented in the audio clip for January when the month is over, which I think may be helpful in light of my reduced trading volumes during the month and very infrequent Eurex trading. I suspect the results will help show that while costs of course remain key, that it will make more sense for the less frequent trader.

It's a great and professional discussion/debate to have, and I thank Glen and Austin for their input.

We should all continue to question and challenge life, including discussions held in this continuing diary.

Monday, January 26, 2009

Special Post - Chinese Bamboo Tree Reprint

Please Note: The following is a reprint of a post by Eric Aronson from www., whose website domain apparently expired on 1/1/09. The content reflects one of most powerful concepts I've been exposed to in my 47 years, and had a profound impact on me throughout 2008. All credit for the material goes to Eric.

Keep Watering Your Bamboo Tree - Eric Aronson

In the Far East, there is a tree called the Chinese bamboo tree. This remarkable tree is different from most trees in that it doesn't grow in the usual fashion. While most trees grow steadily over a period of years, the Chinese bamboo tree doesn't break through the ground for the first four years. Then, in the fifth year, an amazing thing happens - the tree begins to grow at an astonishing rate. In fact, in a period of just five weeks, a Chinese bamboo tree can grow to a height of 90 feet. It's almost as if you can actually see the tree growing before your very eyes.

Well, I'm convinced that life often works in a similar way. You can work for weeks, months and even years on your dream with no visible signs of progress and then, all of the sudden, things take off. Your business becomes profitable beyond your wildest dreams. Your marriage becomes more vibrant and passionate than you ever thought it could be. Your contribution to your church, social organization and community becomes more significant than you have ever imagined.

Yet, all of this requires one thing - faith. The growers of the Chinese bamboo tree have faith that if they keep watering and fertilizing the ground, the tree will break through. Well, you must have the same kind of faith in your bamboo tree, whether it is to run a successful business, win a Pulitzer Prize, raise well-adjusted children, or what have you. You must have faith that if you keep making the calls, honing your craft, reading to your children, reaching out to your spouse or asking for donations, that you too will see rapid growth in the future.

This is the hard part for most of us. We get so excited about the idea that's been planted inside of us that we simply can't wait for it to blossom. Therefore, within days or weeks of the initial planting, we become discouraged and begin to second guess ourselves.

Sometimes, in our doubt, we dig up our seed and plant it elsewhere, in hopes that it will quickly rise in more fertile ground. We see this very often in people who change jobs every year or so. We also see it in people who change churches, organizations and even spouses in the pursuit of greener pastures. More often than not, these people are greatly disappointed when their tree doesn't grow any faster in the new location.

Other times, people will water the ground for a time but then, quickly become discouraged. They start to wonder if it's worth all of the effort. This is particularly true when they see their neighbors having success with other trees. They start to think, "What am I doing trying to grow a bamboo tree? If I had planted a lemon tree, I'd have a few lemons by now." These are the people who return to their old jobs and their old ways. They walk away from their dream in exchange for a "sure thing."

Sadly, what they fail to realize is that pursuing your dream is a sure thing if you just don't give up. So long as you keep watering and fertilizing your dream, it will come to fruition. It may take weeks. It may take months. It may even take years, but eventually, the roots will take hold and your tree will grow. And when it does, it will grow in remarkable ways.

We've seen this happen so many times. Henry Ford had to water his bamboo tree through five business failures before he finally succeeded with the Ford Motor Company. Richard Hooker had to water his bamboo tree for seven years and through 21 rejections by publishers until his humorous war novel, M*A*S*H became a runaway bestseller, spawning a movie and one of the longest-running television series of all-time. Another great bamboo grower was the legendary jockey Eddie Arcaro. Arcaro lost his first 250 races as a jockey before going on to win 17 Triple Crown races and 554 stakes races for total purse earnings of more than $30 million.

Well, you have a bamboo tree inside of you just waiting to break through. So keep watering and believing and you too will be flying high before you know it.

Monday Notes - It Just Takes One

5:10pm For those new to the blog (more on that in a bit), I hate Mondays. Simply look at last year's stats by day of week. There's just something about restarting the engine after a break in market pace that I'll likely always struggle with, whether it be coming back from a weekend or still trying to get the 2009 engine up to full RPMs and running smoothly.

Nevertheless, I suppose today was a modest success in that I learned from the morning refusal of the market to move strongly off its late morning 5-minute trend support -- which cost me much of the earlier morning gain -- and used the info to take the sure strong clip in the afternoon before regrouping for tomorrow.

I'd earlier passed on holding the initial morning pullback for anything more than a quick scalp as I don't typically hold a position when economic news is pending. Turned out that could have been the trade of the day as I looked for the next later morning bus -- which as mentioned above turned out to be a local vs. the express.

Yet I suppose it just takes that one trade to make the day, and today is now history and irrelevant.

A few housekeeping notes:

A reminder that the scorecard to the left reflects a fictitious prior-day draw column to keep my mind in lockstep with the drawdown concept.

If anyone printed a copy of the Chinese Bamboo Tree link from Eric Aronson that we referenced throughout '08 (the domain is no longer valid), please let me know via a comment and I'll likely have you email me a copy. It was a classic that I'd like to recreate for everyone, and I'll give Eric credit for the substance. [Note: opw provided the info after I posted this. I'll post a fresh link shortly. Thanks for the quick response opw!]

A continued welcome to all new "onlookers" as the web count spiked (yikes ... again!) over the weekend apparently as a result of the Jazz Trader post which was syndicated at and last week's interview with old friend Tim Bourquin. Let's see how we can continue to strengthen each other as we move forward and grow.

btw, I made my worst poker move ever in a charity tournament last night when I folded pocket 3s in first position (8 other bettors behind me) and the flop came 3-3-8. I just didn't think a call would hold up pre-flop given how aggressive everyone else had been up to that point, and didn't want to waste the initial capital. Turns out no one raised the pot and the call would have stood up. A pure Donkey move ... always call with a low pair and back off later if the pot gets raised.

It also proves I may need to loosen up both my poker and trading, as they tend to go hand in hand.

Have a pleasant evening.

Sunday, January 25, 2009

The Weekend Trader - Trading an Edge

If someone new to trading were to ask me to sum up trading in one sentence, it might be: Find an edge -- any edge -- and then go into a secluded place and trade the hell out of it.

Now let's have some fun and dissect the two words highlighted:

Advance warning: I received some junk mail touting a trading "advisory service" the other day which again got my blood boiling, so vendors should change the channel now.

First, let's talk about "edge". One could easily argue that there may literally be an infinite number of trading "edges" out there. Yet I don't know about you, but I still get tons of junk mail -- both via the old fashioned USPS and email -- from services telling us they'll sell us their edge. Advisory services, chatroom horse race callers, subscription services ... you name it.

And while the volume of such "junk" has certainly declined since the sick daytrading hype days of the late 90's and early 00's where everyone from vacuum cleaner salesmen to former construction gurus suddenly became "experts" after learning a pattern or two, it's still out there and probably always will be to some degree.

An edge is of course simply statistical probability that scenario A will more likely occur than scenario B. Nothing more, nothing less. And at the risk of making the most obvious trading statement of the century, the industry hype touting any particular "edge" is simply marketing noise. Nothing more, nothing less.

All the fancy pattern names ... including one whose name suggests it's the end-all, be-all of patterns and could also cure cancer ... are also simply marketing. Umm, last I checked, no pattern provided 100% results. If I want to buy a truck, I can choose from hundreds of combinations of makes, colors, and accessories. You can call it a Toyota Tundra or a Dodge Ram. In the end, they're both just pick-up trucks. And a market pullback is just a market pullback ... do we really need to name it? If I want to buy Ibuprofen, I can choose from Advil, Motrin, Nuprin, and Medipren. Yet despite the fancy names and billions of dollars spent on marketing, they're all the same dang thing! Plus, the marketed "name brands" cost more to cover the costs of ... yup ... marketing.

There's a classic line in the first Shrek movie where Donkey jumps up and down while shouting, "Oh! Oh! Pick me! Oh, I know! I know! Me, me!" No need to continue the thought ... 'nuff said.

Now let's talk about the "secluded place".

OK, let's assume -- and hang with me on this -- that you've indeed found a bona-fide edge, hopefully through a quality education reinforced by experience. Or perhaps you even made the leap to "purchase" the edge from somewhere. Again, we'll assume the edge is legitimate.

The next head-scratching part is that some sellers then even go so far as to entice you to pay some sort of recurring "advisory service" or live "trade with me" subscription after you've been sold the initial edge. Huh??? OK, I made the first leap and assumed the purchased edge was bona-fide. But if selling the edge in the first place assumes we're uneducated (one could argue "stupid"), then does paying for a guide dog assume we're also blind? Even worse, this "value-added" ongoing subscription is sometimes justified as "necessary" so we can fully understand why the edge didn't work any given time because of X, Y, or Z. Or so the "analyst" can prove his/her greatness by screaming how they "called" the market. Duhhhhh, it's called p-r-o-b-a-b-i-l-i-t-y.

Back to our ongoing poker analogy, imagine buying a book that says pocket Kings are a good starting hand. (First, I hope you didn't pay much for that quality advice!) Then when we're indeed dealt Kings, do we really need someone standing over our shoulder telling us that we have them? And then listen to them explain why they were beat by pocket Aces a few times?? And pay them to do it??? Sounds like Sears trying to sell me a maintenance agreement on socks.

Yes, I've long been outspoken on this issue over the years and as a result have taken some heat from -- big surprise -- "analysts" a.k.a. "vendors". And I'll likely take some heat for today's diary post as well. One of the better recent blog debates on this topic appeared in the comments to the December Wish List Post. And my views remain opinion as always, so there's no right or wrong. Yet simply put, I detest any part of this industry that doesn't promote self-sufficiency or whose boiler room substance is based primarily on marketing. Always have ... always will.

Now before my inbox floods again, I'll repeat that there are quality educational resources and venues out there that can help reduce the costly learning curve that is an absolute necessity in this biz. They're probably the ones making the least amount of noise and are thus the toughest to find. And if you needed an initial push, find them, ask for their detailed current trading records (not phantom "call" records; rather bona-fide results reflecting recent market conditions that take into consideration fills, order execution, transaction costs, and the mental aspect), and learn from them. btw, my guess is the "edge" you discover is incredibly simple ... but that's a topic for another time.

And while some traders may indeed trade better in a group environment, if it were me, and if I chose to care more about developing confidence and a true lifelong feel for the market than non-income producing social networking or newsletter reading for a fee, I'd make advance plans to quickly leave the nest. If the service was truly legit, they'd be trying to help push you out the door.

Then I'd take that edge ... or any edge ... and trade the hell out of it.

My guess is you'll know what to do with Pocket Kings.

Enjoy the rest of your weekend.

Saturday, January 24, 2009

** VIDEO ** The Weekend Trader

I thought I'd go the video route this morning instead of the keyboard.

[Please note there's an error in that I said Dr. Bob Rotella is a coach of "trader" greats ... he's a professional golf coach.]

I'll post the traditional weekend text thoughts on Sunday. After recording this, I decided to cancel my trip to CT.

Have a great weekend.

Friday, January 23, 2009

Friday Notes - Laying a Foundation?

5:45pm At one time during last night's local weekly poker tournament, I folded pocket 8s in first position. For non-poker players, that means I was dealt two eights -- a decent starting hand -- yet decided to fold as there were still seven other players to bet after me. I simply didn't feel like playing a marginal hand and wanted to wait for something better.

That seems to sum up my January trading so far for me as I've traded very close to the vest by (1) keeping my involvement and bets on the lighter side and (2) keeping the trade sequence holding times extremely short.

And yes it's frustrated me at times. A lot. Yet the more I've thought about it, the more I think that perhaps January is simply laying a foundation for the rest of the year's "trade". Most who've been following the blog know my perspective on the trading year: it's essentially a single trade (or day) as noted in the countdown clock to the left, with lots of relatively meaningless noise except in aggregation.

And speaking of meaningless noise, I thought today was particularly "noisy" (welcome to earnings season) which is why I coded "Pace Conviction" red on the scoresheet. And my day's P&L looked similar as it fluctuated from green to red and back to green two or three times during the day as I was trying to match the market's erratic pulse, before I closed down around 3pm on the day's modest equity highs. Essentially, I accomplished my typical Friday goal of avoiding doing something stupid that would otherwise ruin a good weekend before it even started.

So 3 weeks down and 49 to go. And in one week, 8% of the 2009 "trade" will be complete and we'll take our first glance at the cumulative P&L. My first serious look will be at the quarter mark on 3/31. And while I've struggled this month with focus and "desire" on the heels of last year's Bamboo nurturing, I do sense a new foundation or root system may be building that I again can't yet see -- a foundation that now includes 17 consecutive days of somehow booking chip gains and avoiding trouble while I continue to search for my 2009 game face.

As I've said before, the streak means nothing to me as I'd take a strong P&L over some stupid streak number every day. Besides, the fictitious draw always makes me think yesterday was a loss anyway, which is how I'll view today when Monday arrives. Yet both the confidence and desire seem to be slowly reemerging from hibernation.

Hopefully, I won't see my shadow on Groundhog Day.

Better yet -- like the movie -- maybe we can try to repeat just some of 2008.

I'll post a video on Saturday A.M. and "The Weekend Trader" as usual.

Thursday, January 22, 2009

Thursday Notes - Roller Coaster Day

5:50pm Years ago, I attended a Driver's Ed course that included a training simulation where you were driving through a parking lot and everything was thrown at you. First, a car backs out in front of you. Then a loose baby carriage. Then the baby's mother running after the carriage.

Today felt a lot like that. First, as many were likely positioning long pre-open on the gap down toward Wednesday's supports (I sure was), Microsoft comes out with poor earnings. Then at open the market teases us with holding supports and climbing, before it fails and trends down. Then the market breaks midday consolidation and looks as if it will trend strong into the close -- even holding its first pullback -- before doing a Wile E. Coyote cliff dive

Trading can be a funny business. Yesterday, I was ticked that I didn't maximize what I felt was available potential. Today on the other hand, I came close to squeezing everything I could out of a roller coaster day where change was the word of the day, and as a result colored much of the performance grid to the left at least bright green. I was especially satisfied with how I reacted to the continual change in market conditions.

As is sometimes the case, most of my prime sequences today were 1st pullback types, where I entered on the first pullback and took the trade off as the market made its first thrust. The afternoon was a good example where I nailed both the 5- and 10-minute pullbacks (see attached charts; click to enlarge), and took the high-probability scalp into the next push of retail buying before retreating to cash. And in both cases, that's all the market gave as the S&Ps traded completely within yesterday's range.

On strong trend days, such a strategy looks foolish (although if the market does run, there's usually a high % contra-trend trade or 1st pullback on the next larger timeframe). On days like today, it looks incredibly smart.

It's really neither.

It's simply trading.

Poker night tonight ... I'll check comments later tonight.

Wednesday, January 21, 2009

Wednesday Notes - Head Faked

6:10pm This may be the strangest post of this blog yet, but I'm frankly finding myself almost hoping for a hard hit now to snap me out of what I feel has been a lackluster and sub-optimal performance over the past few sessions, as I continue to try to match at least some of the intensity of 2008. And for those who wondered why I refused to slow down while in last year's prolonged zone, this is exactly why as I knew once I slowed down that it would be difficult to restart the motivational engine.

And if that didn't sound strange, try this: My extreme displeasure is despite the fact that I've yet to have a losing day in '09 as the consecutive day chip gain streak reached 15 today. Yet my performance clearly continues to lack the spark and sizzle of last year.

I really thought today would do it. My favorite pattern, increased volatility, etc. Yet I stumbled and bumbled a bit in the morning, and incurred the cost of several scratches and stops (including getting shaken on the attached 10:25am head fake with decent size) before finding at least some rhythm to end the day with an OK, albeit sub-optimal gain.

And while I'm sure I'm not alone on trading the morning rhythm poorly which took almost a full hour to finally continue the hourly downtrend after the overnight downtrend pullback gap and trap (highly unusual for it to take that long on the morning after trend day ... case in point Europe today which peaked in its first 20 minutes), I don't normally get faked out. Oh sure I reentered and eventually made it back and more, but I initially felt like a basketball player leaving his feet on a pump fake as the opponent -- the market in this case -- went right around me and scored. If you entered and held, nice job and I tip my hat to you.

Most might look at my performance this month and call it a great success, especially since I purposely began the year by scaling back and catching my breath. Yet as I try to restart the engine, I'm not pleased. My sizes are too light at times and my "desire" continues to be spotty as noted on the performance chart to the left. I frankly almost feel as if I'm bored at times.

My car (named "Grace" for those missing last August's post; that's a whole story within itself) was in the shop for the past two days getting a new valve. I discovered the problem when I was getting a foul odor inside the car. Grace was moving OK, but clearly not at peak performance and it smelled bad.

Sounds like my current trading.

Tuesday, January 20, 2009

Tuesday Notes - Mobile Trading

6:30pm I thought today was one of the more interesting days in the following respects:

- It was a Tuesday, but really a Monday (my least favorite day of the week for obvious reasons).

- It was inauguration day. I hate possible midday market moving news ... did you see that 12 point ES cliff drop after the swearing in?

- I was forced to be away from the markets during the early and late action.

- I had to trade the 10:30am short pullback sequence from my car on the highway, which provided the bulk of the day's take. Thank goodness for Sprint Wireless.

- It was a trend day (also not a favorite for liquidity-providing traders who need frequent re-entry points), yet with marked volatility in terms of price swings and not always easy to time short re-entries.

In fact, you'd have to reverse each bullet point above to provide my preferred trading backdrop. And yet despite such obstacles, the day was somehow another modest success (updated peformance chart to left updated) as we get ready for -- everyone repeat after me -- possible m-o-r-n-i-n-g a-f-t-e-r t-r-e-n-d d-a-y.

In terms of charts, the attached 15 minute VIX and ES charts (click to enlarge) were solid guides, and following the TICK was often critical in terms of timing entries.

And while today wasn't a typical day in my trading life given the backdrop painted above, and I thus shouldn't draw many conclusions from it, I still sense I'm somewhat sleepwalking through the month and am wondering if will take a hard hit or heavy win for me to get the adrenaline pumping again.

I should find out either way very soon.

Monday, January 19, 2009

Monday Notes - Breakfast in Europe

7:10pm Yes, this is probably the latest weekday post I've made since beginning the blog last July, primarily because I was focused on non-market endeavors for much of this U.S. Holiday. Nevertheless, I did manage an early morning FESX and ES sequence on the 8:00am breakdown (going long the overextension and short the pullback) for some small scraps just to keep the head into the game and the recent momentum going.

For those taking the trading day off in the U.S. (and I for the most part did exactly that), it was a good reminder that there is a world outside the immediate borders.

Sunday, January 18, 2009

The Weekend Trader - Early Year Reflections

A few thoughts on another chilly Sunday morning in the Northeast.

Early 2009 Reflections - It's now been roughly a full month since my 2008 "energy tank" went empty and I drastically scaled back trading and locked in the '08 trailing stop. Then if you'll recall, as I contemplated actually taking some time off to start '09, I instead chose to continue trading and simply begin the year with a $1 Dollar goal with much less self-imposed stress and reduced trading frequency, including minimal overnight and Europe trading.

Yet a very strange thing has happened since I essentially began my version of a "vacation", in that 16 of the last 18 sessions (89%) have been positive, including the last 12 in a row. Now of course the P&L has been very modest during this stretch -- at least compared to last fall -- and streaks mean little as I'd prefer a large bottom line with a poor win/loss % over a lesser bottom line with a large win/loss %. And I've undoubtedly sacrificed some earnings potential by scaling back.

Or have I???

The question is fully rhetorical and I don't want to even attempt to answer it. Yet as I alluded to in last week's sneak peek interview (official release Tuesday 1/20), I'm beginning to feel the competitive juices stir again, a hint of which may be evident in last week's trading volume cranking up a notch. It's also evident that I've needed almost a full month of "vacation" to recoup some of the zapped energy from last year.

It's likely that when I do begin pushing again, I'll experience increased P&L volatility as a trade-off for a stronger overall bottom line. Yet for now, I'm going to continue to take January "easy", although that tide could change soon.

U.S. Airways River Landing - I've thought long and hard about making an analogy between trading and "Sully" Sullenberger's heroic actions last week in landing his crippled plane in the Hudson. And while I've said over the years that I feel there are many similarities between airline pilots and traders, I thought I'd pass on this one as his spilt second life-saving actions far exceeded any trading decision one can make in terms of significance.

Performance Scorecard Archive - Please note I've added an archive link section in the left margin for 2008 weekly performance scorecards. And while the scorecard concept remains a complete experiment which I'm not sure will continue throughout the year, I thought the historical record might be helpful for now.

Trader Lifeline Network - You'll also note I've added a unlinked menu item to the left entitled "Trader Lifeline", which reflects a concept currently bouncing around in my head that involves providing a venue for interested traders to vent personal frustration, document successes, and otherwise interact with each other to form an even stronger supportive bond with others who follow the blog. And based on a recent conversation with Larry Connors, there are several high-end, full-time professionals now following our journey as a result of his mentioning the site at an MTA presentation and his exclusive Chairman's Club.

And while this blog remains my personal motivational journal and way of keeping my own head in the game, I'd like to make it even more helpful to onlookers in terms of providing a forum to connect with others. Any and all ideas and input are welcome, and stay tuned for more details.

Enjoy the rest of your weekend.

Saturday, January 17, 2009

The Weekend Trader - The Svithjod Rock

High up in the North in the land called Svithjod, there stands a rock. It is 100 miles high and 100 miles wide. Once every thousand years a little bird comes to the rock to sharpen its beak. When the rock has thus been worn away, then a single day of eternity will have gone by. -- Hendrik Willem Van Loon

I first came across this quote when I was young, and it had a profound impact on me then. And like many of life's principles, it also forms part of the underlying foundation for my perspective on trading.

Ever get upset or overly excited about the results of a single trade execution? First re-read the above quote (chest-beating advisory service horse race callers included), and then consider the following:

If I took my 2008 trading volume of 637,766 contracts and adjusted it downward by 10% for conservative purposes, that would total about 574,000 contracts per year. If I then divided that by an average trading size of 40 contracts (probably in the ballpark, keeping mind I'm sometimes far heavier), and then divided the result by two to try to capture a complete buy-sell sequence, that would result in over 7,000 trade sequences annually, or about 30 per day.

We'll also assume there are 230 trading days in the year (there are actually about 250 U.S. trading days excluding holidays, and we'll take off another 20 days for vacation and other commitments), and that one has a 20 year trading career. The career span of course assumes a successful trader with longevity, and so the 20 year figure may be ultra-conservative.

So, the following stats are relevant when I close my first trade on Monday:

The trade will reflect 0.014% of a trading year and 0.0007% of a trading career. Double the career span to 40 years, and the trade will reflect 0.00036% of all trades made. Then, factor in the ongoing mental decisions that are made over the course of the trade sequence (sizing, holding time, scaling in and out), and one could argue the % truly approaches zero.

Trade far less frequently? No problem, simply adjust all of the numbers downward. The % results would be similar.

Now it's of course true that the financial impact of a single trade or day can have a large impact on one's bottom line, as it's often those home run or disastrous single results that can drive the bottom line hard one way or the other. And this might be especially true for swing traders needing to ride profitable trends, traders executing inappropriate strategies, or momentary brain cramps. Yet, the point obviously is that a single trade decision or sequence often means so very little in the scheme of things.

The countdown clock to the left is simply one way of my keeping the Svithjod rock in perspective over the course of the year's "single trade".

It's my way of stepping out of the moment ... in trading and in life.

Look for additional posts over the weekend as I look at making a few blog enhancements to benefit all.

Friday, January 16, 2009

Friday Notes - Slow P&L Crawl

6:10pm Well, I'm not one known for a loss of words, although I really couldn't think of much to say about today. It's not that I didn't trade much as I was fairly active at over 3,000 contracts traded, but the day just seemed to go on without event at this end as I teetered between positive and negative much of the day, finally ending very modestly green on a day where I suppose the good simply outweighed the bad.

The only regret I had was getting up around 7am ... shortly after Europe and the U.S. overnight session climbed off a textbook Europe 15-minute pullback. That didn't sit too well with me. And ironically, I would have likely been at my station for the move had I not played poker well into the night where I feel I played my best prolonged, focused poker ever and won a local tournament. Go figure.

I've updated the performance scorecard to the left which certainly shows a drop in focus and conviction today, although the bottom line continues to creep up and the week's cumulative gain wasn't that bad. I'm purposely avoiding discussing #s until we get at least to the end of January as it's still far too early for them to mean anything. It's still a rather slow crawl, yet at least the direction remains forward as I continue to look to get in a more motivated and intense 2009 groove.

I'll have more thoughts as always over the weekend.

Thursday, January 15, 2009

Special Post - Interview with Tim Bourquin

Earlier today, I granted old friend Tim Bourquin of,, and the Traders Expo a phone interview. The interview is about 25 minutes long, and you can find it here.

Today we covered a wide range of topics, including my general trading philosophy, providing liquidity, specializing in the S&Ps, holding periods, trade sizing, "daytrading", performance targets, market rhythms (including last fall's), the fictitious drawdown concept, my views on 2008, and my still-emerging plans for 2009.

Thursday Notes - Tale of Two Sessions

4:15pm I'll try to keep this simple.

Morning summary: I sucked and mentally "fired" my trader. I never could get the motor running and it seemed I was a step slow and dancing to the wrong tune. "He" was fired just after noon.

Afternoon summary: The replacement trader did great. Of course it helped that "he" also stepped into a market rhythm that suited his style, yet "he" seemed to dance quite nicely and only stepped on a few feet.

In all seriousness, it was quite an intraday turnaround in my trading, with the morning and afternoon performances contrasting as much as the market. And the change wasn't simply because the market climbed in the PM (hell, I could care less which way it goes ... so long as it goes). It was a change in pace with -- finally -- some emotion showing in the market as shorts got stuck in the afternoon squeeze.

In fact, the two performances were so distinct, that I broke the scorecard to the left into two columns -- one for each "session". The only area for improvement in the afternoon was that I stopped at about 3:45pm and passed on holding part of a long on the late afternoon retracement. Yet by that time, I'd turned a bothersome morning performance and P&L around and simply decided to shut the engine down and go back at it in the morning. Much of the afternoon's take was the result of short-scalping unsustainable emotional panic buying, which provided a fertile ground for both long and short scalps as the market chopped its way back toward the upper end of its hourly downtrend channel.

The increase in today's personal volume was largely the result of "fighting" my way back into rhythm by providing a great deal of liquidity while I was trying to get my game back, which is simply how I'm wired. Many traders often find their rhythm by backing off. I tend to instead sometimes step up the trading to get the adrenaline flowing and force myself back in rhythm. As always, different strokes for different folks.

In terms of today's charts and technical indicators, the VIX gets the chart of the day award, followed in second place by the hourly (lower right chart) and 120-minute charts, both of which showed the market significantly stretched to the downside. Yet the market certainly did its best to frustrate the hell out of "early" reversal traders -- both in the morning session for longs and in the afternoon session for shorts. And yes, I was early at times, although I kept the morning damage manageable which I think psychologically helped me keep hammering away as the afternoon rhythm took over.

And so I end the day still waiting for that first loss of 2009 which I fully expected would occur today. It and other losing days of course will find their way to the performance chart.

Yet apparently it will take at least another day.

Look for another post tonight with a link to an interview I gave to old friend Tim Bourquin earlier today.

Wednesday, January 14, 2009

Wednesday Notes - Size Matters

4:30pm Well, after trying a few long probes shortly after the opening bell rang in anticipation of at least a modest approach toward 860 -- and getting stopped on two attempts -- I finally got the idea and simply sat back looking for that one high-probability midday short retracement which we indeed got on the noon climb (we've seen this dance before). The result was a decent turnaround from a poor start to end the day in the green. The rest of the day was more or less a chopfest of which I had little interest.

As noted in the updated performance matrix to the left, you may note that for the first time this year, I self-graded myself dark green on size management. And for those wondering what it would take for me to finally make that happen, I view today as a good example as I kept sizes small on the early long nibble attempts, while putting some meat on during the midday short retracement when I had a lot more market data on which to base the entry. And for those who don't believe in varying sizes, I can't provide a better example of the positive impact it can have on one's bottom line. Or said another way and using our ongoing poker analogy, I certainly would bet pockets Kings heavier than 9-10 suited. So in my view, size matters.

Yet as we approach the midpoint of this first month of the new journey, I still feel as if I'm not in complete sync. It's a odd feeling as I've managed to end each day of the month green, although it's been far more of a waltz than a polka as my volume remains on the lighter side, and the days have been more along the lines of singles and doubles versus the home runs of last fall. In other words and going back to yesterday's post, I still feel like I'm hopping on that one found shoe.

Yet I suppose hopping is better than sitting, and so we'll go back at it tomorrow trying to keep moving ahead.

One step at a time.

Tuesday, January 13, 2009

Tuesday PM Notes - Simplifying the Game

While watching tonight's Bruins - Canadiens game, Andy Brickley (the color commentator) mentioned that one of the reasons Montreal is playing well is that "they've simplified their game". What he meant was that they pass up ice quickly, head to the net, and shoot toward the goal from any angle. Simply put, they react ... quickly.

After watching the first period, it's clear that the Habs (Canadiens for non-hockey enthusiasts) are clearly on their game. They know where each teammate will be before they get there, and pass to the open space to where the teammate will be ... not where he currently is. And while it seems they do so without thinking, I imagine the years of practice and repetition have programmed their minds and actions in such a way where it just seems they're not thinking. The Habs are clearly in the proverbial zone.

Thinking back to today's trade, it was a similar game of simplicity, reaction, and reflexes. Simplicity based on repetition of a very simple pattern. Reaction based on years of burning the probable pattern following a trend day into one's brain and anticipating where the market is likely to be a few seconds or minutes later -- versus where it currently is. Those that have been following the blog likely know the pattern well. No thinking. Or perhaps better said ... no over-thinking. Just reacting.

I also noticed several times where the market did its best to shake ES traders from their conviction with a third cruel 1-min stop-triggering surge before the expected reversal took hold (see attached chart ... click to enlarge). That's where the years of pattern burning came in handy. All in all, I tended to hang in there fairly well today with few scratches or stops.

Sure it's always about probability, as the market sometimes trends hard two days in a row right out of the gates. It's rare, but it happens ... just like pocket Kings can get trumped by pocket Aces.

Yet like poker, probability over a long period of time is what it's all about.

Back to the hockey game ... and yes, I'm a Bruins' fan.

Tuesday Notes - Textbook A.M. After Trend

4:00pm As I said last week, there's nothing wrong with chop when you expect it, and we indeed got the textbook and high-probability morning oscillations after yesterday's trend day, which I was pretty much able to match throughout much of the session.

The result at this end was a pick-up in trading volume -- finally getting back over the 2,000 daily contract mark -- as the result of multiple wholesale fades of early price or TICK extremes (low probability of extending on the morning after a strong trend), and a decent chip gain that was just shy of dark green. [See updated matrix at left.] And while the #s aren't relevant, I'm currently defining the bottom line colors as: light green +$1 to +$7.5K; bright green +$7.5K to +$15K; dark green > +$15K. Chip loss colors are the same in reverse. It's of course waaaay to early to even think about keeping numerical score, but I figured I'd avoid the inevitable questions on how I'm currently defining the chip count colors.

And while I feel I'm still not matching the intensity and cheek-to-cheek dance from last fall, I certainly felt as comfortable trading today as I have in a while ... like stepping into an old comfortable pair of slippers.

It's of course nice to see the market provide equal opportunity to the trend traders (yesterday) and oscillation traders (today). Yet it's when one matches both step for step where a prolonged dance with the market can begin, as was the case throughout much of '08.

I'm still clearly not there yet, but I may have found at least one of the dancing shoes.

I'll keep looking for the other one.

Monday, January 12, 2009

Monday Notes - Slow Drip Day

4:00pm Most who have known me over the years know I don't trade much or make much of my keep on slow drip trend days like today, as I'm simply not an "Enter and Hold for the Day" guy. Never have been, never will, never care to be. And while I was able to short the 10am retracement, which provided the bulk of today's modest chip gain, I'll give today to the swing traders short the market and prepare for tomorrow's possible oscillation morning.

No question there was a buyer's strike today, and I had little interest in contra-trend longs given the slow drip pace amidst the climbing VIX, although it seems a whole lot of traders on both sides remain on the sidelines as volume and pace thus far early in the year continues to be less than stellar. At this end, my personal volume continues to lag significantly behind my 2008 average, which I expect will pick up as the year moves on.

Please note I've moved the current week's performance scorecard to the left hand margin to save space and so I don't have to keep showing it in each blog post. I'll update it at the end of each trading day.

Sunday, January 11, 2009

The Weekend Trader - The Jazz Trader

Yesterday, I had the pleasure of attending a concert of the state's top high school musicians, of which my daughter (who plays violin) was a part. The concert participants consisted of a chorus, jazz band, symphony orchestra, and concert band. And the music was simply incredible, especially considering that those involved had just two practice sessions together (Thurs and Fri), although they'd of course each individually practiced their pieces for a month or so leading up to the event.

Yet when the jazz band took over, I couldn't help my mind drifting back to trading throughout much of the 20-minute session. The reason was that I saw similarity after similarity between the players, each of whom took a turn to step out of the band to do an improvisational solo, and futures traders. And here's why.

Throughout the performance, there was an underlying rhythm -- a pace which was kept by the director subtlety through some simple finger snaps -- as well as sheet music, which was of course used as a guide for the players. Yet when it was time for the improv pieces, up stepped each player to the front where he/she performed without sheet music, playing the tune as he/she saw fit from the heart. And while the underlying beat provided by the director and rest of the band remained in the background, the inspiring improv solo performances clearly reflected each player's soul, vision, and individuality, and they combined for a truly outstanding performance.

Yup, here's where I segue into trading. Those of us that take up the "instrument" of trading and are "students" of the market are indeed those improv soloists, where the market provides the beat and we are free to trade as we interpret the piece. As I've often said, there's no right way to trade (except I suppose for ultimately making sure net purchase prices are less than net sales prices after expenses like any business), just as there's no right way for an jazz saxophonist to play his/her piece.

I'm sure there were a few missed notes, momentary loss of the underlying rhythm, and some performance stress during yesterday's jazz band set ... which also happens to describe almost every day of my trading career. Yet I certainly didn't notice them as they were buried in the net performance, which was all that mattered.

There may very well be as many ways to trade as there are ways to interpret one's musical soul: Speculating, providing liquidity, hedging, swing trading, scalp trading, range trading, breakout trading, trend trading, 5-minute chart trading, 60-minute chart trading, emotional extreme contra-trend wholesaling ... not to mention the thousands of trading "instruments" out there. There's simply no "holy grail" or "right way".

Someone asked me last night why I didn't short into the shallow 30-second chart pullbacks on Friday's opening cliff drop. My response was essentially that I wanted to short, but personally rarely take shallow pullbacks on market spikes as I prefer lower-risk deeper retracements, which may appear as the first pullback on a larger timeframe (my eventual short was the first pullback and bear flag on the 5-minute chart). And as I'm waiting, I may very well test the waters and provide some liquidity to those bailing on pure emotion, which eventually snaps back at some point ... often hard.

And while the question was completely appropriate, perhaps my response should have been more along the lines of yesterday's soloists, in that it's probably as irrelevant for me to look back on how I played a given pattern as it would be for me to ask why the horn player chose to pass on the screeching high-"C" climax and instead took a momentary breath to rejoin the band's rhythm. Neither was right, yet both were right.

As a quick aside, I also read a recent piece that essentially concluded that one can't profit from trying to time short-term price movements. Wowzer ... talk about a head-scratcher.

I suppose we are all market "players" in the truest sense of the word. We must learn the underlying market beat of course, yet the best players seem to play their own tune that reflects their individual strengths, heart, and soul.

The sheet music will always remain unwritten until we step out of the band and up to the mike to write it.

Don't be afraid to step out of the crowd and up to the mike in trading -- or life -- and play your soul. Don't be afraid to write your own music.

I suspect that some of the greatest tunes ever contemplated were never heard because they remained on the composer's desk or in the solist's heart. And perhaps some of the best trades ever considered were never made because they remained in a trader's mind for fear of doing something unique or against popular convention.

Have a great and inspiring week.

Saturday, January 10, 2009

** VIDEO ** Notes on Friday's Chart

In today's video, I add a few more thoughts relating to the use of Friday's chart and plotted trades.

[Please note it's somewhat unclear toward the end of the video whether I said "did" or "didn't" with respect to trading Friday afternoon. I meant "didn't" as my last trade was indeed closed at 11:28am as plotted.]

Enjoy the weekend.

The Weekend Trader - Looking Ahead

Some thoughts on a chilly morning in the Northeast.

Momentum - The older I get, the more I'm intrigued by the concept of momentum. And one has to again only look as far as the local sports scene.

- The 2008-09 Celtics win a team record 19 in a row to run their record to 27-2, looking completely unstoppable ... and then as if a switch were flipped, they go on to lose seven of their next nine including last night's loss to LeBron & Company.

- The 2007 Patriots go 18-0 before a Hail Mary helmet Super Bowl catch seems to trigger an onslaught of lost perfection, a rash of injuries to star players, and simple bad luck (the only way I can describe an 11-5 team missing the playoffs).

- And who can forget the 2004 Yankees who were tearing apart the Red Sox with a 19-8 complete stomping in Game 3 of the ALCS to go up 3-0, before the Yanks suddenly can't do anything right, while the Sox rise from the dead and become the first MLB team to ever come back from 0-3 to win the series.

I know I've mentioned this topic several times in recent months, including my recognition that my prolonged trading "in the zone" (as I suppose Mark Douglas would say) in the fall of 2008 seemed at times to be fueled solely by pure momentum. For one day blended into another, and into another, and before you knew it September 1st turned into December 15th. It was like one of those times when you're driving where you suddenly realize you can't remember making the last three turns.

And knowing that momentum would ultimately come to an end was the main reason I refused to slow down last year until the tank was completely empty and performance began to subside. As trading, poker, and life have all taught me, when conditions are right (however you define "conditions"), you push and don't let up. There will time to rest later.

Yet as I've mentioned over the last week, it's now time to find new momentum. This week was a start, but only a very small step. Which leads me to ...

Looking Ahead - I've now taken down all references to 2008 on this main page, aside from a "Personal Challenge" link that I've purposely buried in the bottom left margin just in case I ever need a momentary confidence boost. Simply put, I don't ever want to risk catching my eye looking back at the rear view mirror as I try to drive forward. As the quote at the top left correctly infers, yesterday's success can breed complacency and failure. As far as I'm concerned now, 2008 never happened. It's yesterday's game, old news, and irrelevant.

Which leads me to thinking again about the beta scorecard I've begun using. As I mentioned on Friday, I see one huge potential problem with it, and it's the concept that self-scoring myself green is in direct conflict with the fact that I clearly perform my best when I'm uncomfortable with my recent performance. And you don't fix what isn't broken ... lest we go back to the hard lessons of Seve Ballesteros in "Golf is Not a Game of Perfect" when someone recommended he change his "artistic" approach to his game which put him in an extended funk from which he never really fully recovered.

So I need to give the concept some more thought, but will keep using it for now.

Last Night's Trade Plotting
- I'm going to post a video later this morning to expand on yesterday's trade notes to make sure everyone places the day, chart, and trades in proper perspective. In the meantime, suffice it to say that the chart itself is a small part of the whole picture, and I'll expand on that more in the video.