Thursday, June 25, 2009

Thursday Notes - How I'll Spend My Summer Vacation

5:00pm This one should appease all of those onlookers who have just been looking for an opportunity to pile on, so let me just put it out there.

Headline: This decade-long trader and 5+ Year Member of the Merc who joined those who have breached the single-year million dollar mark last year will likely not make any money in June 2009.

So let me get this right, +$1.6M in 2008 including nine months over $100K and one over $300K, and net zippo over an entire four week stretch?? Yup ... true statement.

A bit shocking? Yup. Planned? Hell, no. Yet as they say, it is what it is.

So this has caused me to take great pause to consider what the heck has been going on over the last month -- in fact last two months as May was pretty poor -- to see if I've "lost it" ... and here's my list of take-aways as we get ready to welcome traders to the table on Saturday.

Key Negatives:

- Have often missed prime opportunities due either to non-market commitments (especially back and neck tests) or my own indifference ... which led to:
- Forced opportunities during marginal "hands" and a bit of "trying to make up for lost time" by pressing at the wrong/worst time.
- Diminished "feel" for the market as the result of missing key times and trying to start the engine midstream, as well as lower volatility (although it's still "me" ... not the market)
- My confidence is an issue.

Key Positives:

- I'm still swinging the bat.
- I had a number of solid trades (they were simply offset by the other crap and transaction costs)
- As of now, the June P&L after costs is still positive (albeit barely)
- I'll still bank +$400K for the 1st six months (of course most of it was earned in Q1!)

I could go on, but those are the highlights.

Yup, I bleed red just like everyone else. Reminds me again of that scene in Rocky IV when Ivan Drago finally gets cut and the announcers scream "The Russian is bleeding" and then Duke turns to Rocky and says, "He's worried! You cut him! You hurt him! You see? You see? He's not a machine, he's a man!"

As most should know my now, I view trading as a competitive mental sport, where performance momentum begats momentum. We saw that in spades last year with an avalanche of profit day after day and month after month. And right now, I'm trying like hell to hold back the rolling snowball so it doesn't become an avalanche in the other direction.

Which brings us to Rule #244 in The Tao of Poker that reminds us that such extended periods happen for professional athletes, and that there's not "something wrong with the universe" when it happens. A reminder this is why I floored it 24x7x52 last year ... lest we forget yesterday's key video about the need for "outliers".

OK, so what am I going to do about it??

Essentially nothing. I'm the same person I was in 2008, and am simply going to keep breathing and swinging, knowing that at some point the performance momentum will again turn in my favor, at which point I plan to again floor the accelerator. I also look at May and June as bit of a "Perfect Storm" in terms of my being tested in both the market and in my personal life.

So that's going to be how I spend my summer vacation ... one step at a time.

Until then, I'm preparing to welcome traders to our table on Saturday and very much look forward to personalizing the virtual relationships we've created in this community.

The table is almost set.

26 comments:

Charles Upton said...

Sensei Don, great vid yesterday(not good man, great). I always look forward to them as they often provide alot of delightful food for thought to chew on.

re:outliers...I like the theme of *when your edge is present, press it. When not, stay out of trouble*. Of course, this requires one must have developed some sort of edge in the first place, and the ability to sense it.

BTW, I know you know that my comment/question about back-to-back mil$ yrs. was rhetorical in nature, but it was aimed solely at the "bored with trading" thing you've talked about recently.

I've had similar feelings of late(it's like an ongoing "trading hangover" from '08 or something), and am trying to use it as an impetus to learn and develop additional strategies for different kinds of tape. Just gotta be sure my primary method does not suffer. Even though the idea almost seems too popular right now, I agree with you that something is brewing. But given the market's penchant for frustrating newcomers like myself, the moment I think I need to "make a change" will probably be right when I need to press the existing strategy.

On that note, here's to another kind of outlier -- VIX>50 at some point this year!


charleS

PS- hope the "Cape Cod Weather God" blesses the Bamboo cookout with great weather :-)

Nathanael said...

Certainly not alone this month Don.
It has been a slow month here too.
Today dumb trading and thinking I could "manage my way out" of a bad trade caused me to give back 40% of this month's accumulated profit. First time in a while I have let a loss get out of hand. Today certainly exposed a few bad habits.
Infuriating yet a good wake up call/slap in the face to improve one's game.

Don Miller said...

Nathaniel -

Been there a lot lately. Let's both rededicate ourselves to playing quality hands and playing them well.

Charles -

Thanks.

Don

Nathanael said...

I am with you on that!

E said...

When all the shorts are exhausted this market will pullback, and probably not before.

We just need to promise ourselves to get back up one time more than we get knocked down..

http://bit.ly/HmP3N

(In case you don't recognize Don, he is wearing white trunks...)

Meanwhile, here I am getting ready for the bamboo cookout and looking forward to rubbing elbows with some great people...

http://bit.ly/sN0zM

:)

TLtrader said...

Don,
thanks for your candid blog. Please don't be too hard on yourself because I think you've made youself a good role model to many wannabe daytraders.

TL

Don Miller said...

Good one E.

I'd never seen that fight and that's about what I feel like right now ...

... without the tattoo of course.

See you on Saturday.

Don

THE MAX FACTOR said...

Hi Don,

I was wondering if you keep an intra day P@L of your trades or do you look at the final number after the last trade of the day ??

Pete said...

I have a question and would like some feedback from anyone willing to answer on this blog.

I started trading 2 years ago. Starting out the first year I was only trading longer term and not trading intraday, but have been intraday trading for the past 9 months. It has been a back and forth battle. I love trading and I love the markets, but don't know whether I should keep going or when does someone get to the point that hey maybe I’m not cut out for this and I’m better suited for something else?

I have been profitable and done well at times but tend to give back my profits and more most of the time. One good month…then give it back the next month or 2 months later.

My question is how long should I give myself to (not make a living full time yet)but I love the markets and just want to be able to become a consistent trader but how do I know or what amount of time should one give themselves in order to decide if they are good enough to trade?

Please any feedback would be greatly appreciated.

Don Miller said...

Max -

The P&L is hidden, but I do reference it from time to time at various stages during the day as a baramoter for how I've done, as it's the only score that matters to me in the long run.

Don

Don Miller said...

Pete -

Let's see what others say. There are so many factors and variables in my view that make it tough to answer from a "distance", yet one of the better answers may be that deep down you'll know if you've given it your all and it's not working.

Don

FXpropTrader said...

Don, if I'm correct you make money in strongly trending markets with high vola.

At the moment we have low vola and sideways market.

I just read most traders (humans) lose or b/e in sideways action.

If I were you I'd just forget about the $$$$ targets focus energy on gardening or homebuilding or something like that while keeping eye on market on daily basis but not minute basis.

It's like trying to milk a bull this market at the moment.

Don Miller said...

Solid words FXProp.

My only added thought would be I still should be doing better as I've traditionally done in these markets ... not home runs, but solid singles ... if I can just align my mind and body with the market's current rhythm.

Been too many distraction seepages which has left me trading part-time from a focus perspective.

But I hear ya.

Don

Max Heat said...

Pete,
I'd say at least 5 years.

Don,
You sound a little burned out to me.

Mark

THE MAX FACTOR said...

Yes I tend to agree that hiding the P&L till the end of the day serves a more productive purpose than constantly having this number in front of you.... I do the same , I only check the number if I think I hit my stop-loss on the day in terms of dollar figures otherwise I think I have a pretty good idea anyway where I am during the day.

Trader Kevin said...

Pete,

Don nails it with "one of the better answers may be that deep down you'll know if you've given it your all and it's not working."

You have one of the key attributes. You need to love trading and love the markets.

Do you have an outside source of income?

Trader Kevin said...

FXpropTrader: "I just read most traders (humans) lose or b/e in sideways action...It's like trying to milk a bull this market at the moment."

I'm actually having a pretty decent month, but my time frame is 0-5 days as opposed to 0-5 minutes. These are the times when I'm glad I'm no longer a scalper.

Champ's Musings said...

Don,
Really enjoy your blog....keep it comin'...
Champa911

FXpropTrader said...

@Trader Kevin: Sure there's always someone making money.. you're right.

But nobody seems to be loosing or winning a lot. Most money can be made by scaling in and out of strong movements - short or long term. Not really lots of that around.

At the moment you'd need big leverage (aka big risk) to get the $ returns we saw in autumn 08 with Don's trading style. (my take from what I speculate the style could be)

Trader Kevin said...

FXpropTrader: "Nobody seems to be loosing or winning a lot."

Sharp swing traders made nice coin the first half of the month buying in the 920s (top of old range, bottom of new range).

Saying "Nobody seems to be...winning a lot" is a rationalization for a failure to adjust to changing market conditions. It' easier to say "Nobody's making money" than to figure out what's working now.

"Most money can be made by scaling in and out of strong movements--short or long term. Not really lots of that around."

There are many, many, many more ways to make money in the markets than "scaling in an out of strong movements."

"At the moment you'd need big leverage (aka big risk) to get the $ returns we saw in autumn 08 WITH DON'S TRADING STYLE." [EMPHASIS added.]

That's my point. It's not the scalper's season right now, but the markets are pretty good on a slightly longer time frame. So a trader can either adjust their time frame or accept that they're going to struggle until their style is back in season.

My gut feel is that this VIX has gotten ahead of itself on the downside and market pace should pick up soon as they push VIX back towards 30. That would improve market pace and make Don very happy.

FXpropTrader said...

Interesting/good points Trader Kevin. Just thought I'd try and find some hard facts to underpin your views or strengthen my mine.

But found figures for May that prove your point.

http://www.hedgeindex.com/hedgeindex/en/default.aspx?cy=USD

Most hedge funds across nearly all (except short bias) strategies had (very) good returns.

But managed futures had one of the lowest returns in May of all the strategies. (I guess that's Don's style?) And it was up just 0.85% compared to many other strategies paying off 4-5%. So that shows that it is hard for everyone in managed futures to get above average (good) returns?

Trader Kevin said...

FXpropTrader: "Just thought I'd try and find some hard facts to underpin your views or strengthen my mine."

My views are based on a quarter century of studying the markets and trading for a living. My advice is free, the wisdom is priceless, the utility is what you make of it.

"Managed futures had one of the lowest returns in May of all the strategies. (I guess that's Don's style?)"

No, Don't style is short-term scalping. He doesn't not manage money for anyone else. That he trades futures isn't relevant to this discussion. He could just as easily be trading SPY and the results would be similarly frustrating on a short-term time frame.

"It was up just 0.85% compared to many other strategies paying off 4-5%."

Do you understand that "just 0.85%" is more than 10% per year--and that's net of fees? In the context of this decade, that's an excellent rate of return.

"So that shows that it is hard for everyone in managed futures to get above average (good) returns?"

Managed futures do well in trending markets because most CTAs are trend followers. Managed futures tend to have a negative correlation with the stock market, which helps make them an attractive asset class.

FXpropTrader said...

"Do you understand that "just 0.85%" is more than 10% per year--and that's net of fees? In the context of this decade, that's an excellent rate of return."

I do understand that 12x 0.85% would be 10.2%. And maybe you understand that managed futures have had a terrible april (-3.24%) and year (-5.23%) as of end of May.

"No, Don's style is short-term scalping. He doesn't not manage money for anyone else. That he trades futures isn't relevant to this discussion. He could just as easily be trading SPY and the results would be similarly frustrating on a short-term time frame."

To that I'd answer that the definition of managed futures isn't set in stone but according to a wikipedia (german) article I found includes these catergories:

1. trend following
2. short term trading (Don?)
3. global macro
4. discretionary trading

I also didn't say Don is managing futures for anyone else but himself. A lot of hedge funds use mostly managers money. A lot of who never publish info on their perf.

"Sharp swing traders made nice coin the first half of the month buying in the 920s (top of old range, bottom of new range)."

This is interesting, but what, other than anecdotal evidence do you have for that? I have backed my view with a source that has data gathered from hundreds if not thousands of hedge funds...

With all due respect to your 25years experience, I'd suggest you keep open mind regarding this subject.

But great inputs. Good to read the stuff.

Trader Kevin said...

FXpropTrader: "I do understand that 12x 0.85% would be 10.2%."

Check your math. It's 1.0085^12 = 10.69%.

"The definition of managed futures isn't set in stone."

You have no idea what you're talking about. Managed futures, by definition, is money in a futures trading account that is being managed by someone else. In the U.S. that generally means a CTA or CPO.

Trader Kevin: "Sharp swing traders made nice coin the first half of the month buying in the 920s (top of old range, bottom of new range)."

FXpropTrader: "This is interesting, but what, other than anecdotal evidence do you have for that? I have backed my view with a source that has data gathered from hundreds if not thousands of hedge funds..."

Very few hedge funds are swing trading e-mini S&Ps.

As I said, my wisdom is priceless, but the utility is what you make of it. Perhaps when you have significantly more experience in the markets you can revisit this post and appreciate what I've tried to explain to you.

Best of luck with your trading career. You're going to need it if you continue to "trade based on 'gut feeling' and candlesticks to some extent."

Don Miller said...

Ummm ... ok, let's move on.

Thanks :-).

Don

Charles Upton said...

I just wanted to say thanks to Trader Kevin and FXprop for that interesting exchange.

Trader Kevin, you make alot of good points and FXprop, you debate in a good-natured spirit, which is admirable.

charleS