Thursday, July 31, 2008

Cleaning the Slate for August

This chart says a lot:

No, it's not yesterday's ES 5-min chart or the Boston fans' preference for trading Manny Ramirez ... it's my actual July daily equity curve. And if you've been following the blog, you'll see the performance in general lockstep with my daily comments.

Here's what stands out to me as I look back at July and prepare for August:

- Decent start, then the blunder of the year followed by rapid EESM recovery, one more strong push, and then consolidation.

- 18 profitable days; 5 draws

- 7 days with gains > $15K; 2 days with losses > $15K [$15K being my approximate benchmark for a decent or atrocious day]

- And back to point #1, a clear lackluster performance over the past week or so.

Conclusions? I see two. First, the EESM recovery mode clearly took its toll on my trading later in the month. The intense state of focus during that week of comeback activity was just that -- intense. You could have poured hot water on me on any day during that time and I probably wouldn't have noticed. Yet it was a necessary interval to address what happens to me once every year or two.

Second, I haven't adjusted enough to the late summer trading pace where volumes have been limited to dogpile in/out moves in the first and last 30 minutes of the session. Got another one to close today, this time to the downside ... 4 days and counting of extreme closing dogpiles. Oh, do I look forward to fall trading again!

What doesn't show in the chart is that about 1/3 of my net gains for the month came from the DAX ... which is an extremely high percentage for me. This also tells me that such trading in the early morning hours has taken its toll on my focus as the transition is made to the U.S. markets later in the day.

I share this info in part to remind myself and anyone looking over my shoulder that this business is so much more than simply chart patterns. Again, this is where market technicians and chatroom gurus leave people high and dry, but I digress. It's about the whole package. When I first look at my suboptimal results over the past week, and then I look at the chart patterns, I scratch my head big-time. Yet when considering at how the month has unfolded, the time of the year, etc., it comes into a very clear perspective.

If you look back at my posts or published writings over the years, you should notice that I talk more about my challenges than my successes. Even now, despite topping $100K in monthly earnings for the fifth time this year, I have to enter August with a renewed comeback mindset, as if I've once again just experienced a mind-numbing fall. The actual curve above shows consolidation over the past week. The key now is to mentally translate that consolidation to a serious drawdown -- and believe that it really happened that way.

Thus I begin August in a mental hole and have to start yet another comeback month. For the eighth time this year, I have to scrap and scrape to get back to even ground. I've just lost a significant portion of my capital, can feel my stomach tightening over the grotesqueness of the fall from grace, and must do everything in my power to start yet again. How could it happen? What must I do to prevent it? In other words, here's the mall map and directory:

If you're looking for pats on the back, don't look here. I haven't accomplished anything. Nothing. Nada. Zilch. We're always just one Hail Mary/Helmet catch away from ruining a year's worth of strong work in one fell swoop. The other team has just marched down the field and scored. Thankfully, we're not yet at the two-minute warning and there's time to come back. But not much.

Wednesday, July 30, 2008

Wednesday's Trade - Work Remains

6:08am OK, this is getting a bit frustrating. Pitcher and batter been going at it for 2+ days now and this batter keeps going to the rosin to get a better grip. The DAX indeed had that pullback toward closing supports in the Europe sessions, but essentially got table scraps as the pace has been tough. Got myself into a hole 4:30am-5:00am, but slightly positive on the day now. Nothing like a squiggly/wiggly 5x bottom on the 3 min chart into strong 30-min support to frustrate dip-buying traders before the turn. Fairly tight overnight range and ES holding the 1260 area for now. Would love ES long in the high 1250s after open, but haven't gotten it in the overnight session ... thus the early DAX trading. Noticing I'm holding the bat tight am a bit early on the swing ... sort of like trading with scared capital. Going to focus on making contact and letting the wood do the work in the main session.

7:08am Planning ahead, game plan will be looking for the first decent dip with rock solid support in the low 1250s as the wind beneath my wings. Second choice will be to short any approach to 1270 on a high TICK reading, but I prefer the trend pullback option!

4:02pm First, yes this is a nine-hour gap between posts. In-between went something like this: Had to adjust plan to yet another gap and run; Nailed the first top; Had to leave my station when the first primo bounce came so missed that; Got chopped up a bit midday and gave back some gains; and closed on a couple of decent scalp sequences on the PM climb. All in all, a positive day, but I'm still not at all satisfied with my management in this dogpile in/out summer market.

Grades & Observations.

Trade Execution & Management: C It's been a long while since I gave away more than 50% of my gains by end-of-day which happened today. Not good. 1,445 contracts traded: Too large a sum considering the market. Not selective enough on entries.

Market Reads: B Reading well, even with executions still missing by a beat or two. It's very much been a summer market in terms of start/stop pace. I've also noticed I've had to adjust more times than not to an opening rhythm which was somewhat different than expected. (Today's early post above is a good example re: ES planning; another reason subscription fortune teller services aren't worth the weight in their tarot cards. You have to be flexible real-time.)

Interesting that both the DAX and ES had ugly-paced bounce points into their respective 30-minute supports. Ugly meaning multiple bottoms with somewhat volatile bottom-building which made clean entries a bit tough. It's also extremely interesting to see yet another closing trend run -- which makes ES closing with strong trends for three straight days. One thing is certain, that won't keep happening forever.

I should actually be satisfied with this month's performance heading into the last day. Started strong; had the infamous brain cramp; rebounded faster than I ever had and then some; and now some less-than-optimal results in three strong trend days. The P&L will show very strong #s for the month, yet as usual it won't reflect opportunity loss and I'm not pleased.

Simply put, a great deal of work remains. The chip pile continues to grow, but I won't accept less than optimal results.

Tuesday, July 29, 2008

Tuesday's Trade - Deja Vu

For the second day in a row, traders fading extreme trends got hammered much of the day ... especially into the close. We did get a bit of the expected early morning post-trend chop, although the VIX warning sign was out pretty early in terms of a less likely return to Monday's lows and a possible strength day.

Here? It took me a full day and a half to finally match the rhythm of the market and I had a decent afternoon buying dips in the clear uptrend and strength. Yet it was again tough for me to load the boat with size given the lack of stellar entries with markets at overextended intraday levels. Trade of the day for the second day in a row was entering on the pre-3pm power trend pullback, yet I kept size modest in case the market pulled in toward the close. Talk about deja vu with that 2:45pm pullback.

Frankly treading water a bit with two extreme back-to-back trend days, as it's been an intraday swing trader market [not my strength]. Reads have been OK, but execution not consistent enough for me in terms of matching the market's pulse.

So call it two at-bats and two walks heading into the week's middle innings with confidence. Eying the first strong pullback in the morning to lean into one, but will re-evaluate as the game plays out.

Monday, July 28, 2008

Fouling Off Pitches

Today was interesting, for it seemed that my body kept telling me all day that it's still Sunday as I felt a bit lethargic throughout the session and could never get the blood pumping. Oh, I traded here and there, but between not feeling particularly energized and not having much chart conviction (aside from the 2:40pm pop to short), I would say I felt like David Ortiz in last night's Sox-Yanks game where he simply kept fouling off tough pitches until he found that pitch he could drill into the stands (which of course he did).

Yet if you've been reading much of this blog at all, you'll know that it's not today that invigorates me, but tomorrow. It's frankly becoming a bit scary to see as many trend and post-trend days as we've had lately -- and for summer trading. "Scary" of course falling in the "Too Good to Be True" category in terms of Day 2 probability. Call it the gift that keeps on giving -- or hammering those fighting each days trend (Day 1) or oscillation (Day 2) rhythms.

So we'll keep it short and sweet tonight as I enter tomorrow with the bat on my shoulders with a 2-2 count waiting for a pitch I can drill. How about a nice hanging curveball over the middle of the plate in the context of an 8-point overnight futures pop?

The week has yet to begin.

Saturday, July 26, 2008

Chinese Bamboo Tree

I wanted to republish the link to a great discussion of the Chinese Bamboo Tree by Eric Aronson that Frank reminded me of in his comment on July 20. [Note: The link will take you to a reprint on this site as Eric's website domain apparently expired on 1-1-09.] It's from 2004 and is a must read that I'll revisit in greater detail when the year draws to a close. Thanks Frank.

Also, a quick welcome to my old "Inner Circle" friends. The I.C. was an intense group mentoring program we held for a couple dozen traders that spanned 2004-05. I finally located some of the old email addresses [many were outdated though, so feel free to share this link with the team] and have invited them to join those currently "looking over my shoulder". I hope your Bamboo Tree has or is ready to sprout, whether it be in trading or life's other endeavors.

Seems like old times.

The Weekend Trader (Saturday Edition)

We'll title today's entry: "Land of the Unknown." I thought about "Fear of the Unknown", but scratched it for what should become obvious reasons.

I continue to find myself in a land completely unfamiliar to me in this journey of 2008. Perhaps that's one of the subconscious reasons I chose to reconnect with past friends and start this blog. Who knows. All I know is I'm keenly aware that few people have attempted to pursue the mission that I've chosen to pursue. A million dollar income target; One year; Just shy of a 150% return; Consistent performance every month sustained over twelve months; In an industry where decisions are made continually and where burnout is all but impossible to avoid; In a field where probability rules and certainty drools; Where the market's tide is constantly shifting; Through bad beats, missed opportunities, brain cramps, occasional illness, etc.; With an aging - albeit surprisingly sharper than ever - 47 year old body in a highly competitive industry full of twenty-somethings; While balancing family and non-market obligations. I'm trying hard not to laugh.

I truly believe that everyone experiences something like this in his/her life. Maybe it's some kind of self-actualization thing in Maslow's hierarchy of needs. One's ultimate goal, Holy Grail, Mount Everest, or Gold Medal (hopefully, not one's Moby Dick!). I have to believe anyone looking over my shoulder can relate in some way.

And it's not all about the money. I'd by lying if I didn't say that it's more than partly about the money ... after all, it does reflect my source of income! Sure, if accomplished, the kids' college tuition will be taken care of, career decisions will become simpler, and the speaking engagement invitations (which I typically avoid like the plague) will increase. Yet it would not be unlike winning a World Poker Tour or PGA Title where one's satisfaction is based as much -- if not more -- on one's performance as it is the financial reward.

The world is of course full of "It can't be done" skeptics. And frankly, the majority of the time they may be right. History has certainly shown that the vast majority who get close to reaching similar goals self-implode. Teams come back from huge deficits only to lose momentum and focus to get them over the top. A certain not-to-be-named local NFL team goes perfect all season until a ridiculous helmet catch on a Hail Mary in the waning moments of a long season. Poker tournament chip stacks (another field driven by continual probability decisions) gained over hundreds of hands are taken down in less than a dozen. And to this day, I still haven't found any "investors" who held onto those temporary Internet stock bubble gains from a decade ago.

Admittedly, I'm a bit tired right now as I reflect on this Saturday. The recent momentary mental slip and subsequent rapid comeback have zapped my energy somewhat, and we're currently in the dog days of summer trading. And I stink at taking vacations ... even short ones.

Yet this is where I must rededicate myself and take the road less traveled. For I must internally summon every ounce of strength, experience, and self-motivation to take a right when most people choose left. I must be in the small minority and do what others are unwilling or unable to do. I must rely on a strength greater than me.

I will make it. No maybes, wannabes, hoping, listening to naysayers, etc. What is currently temporary must become permanent. In the words of Gene Kranz, lead flight director of Mission Control for Apollo 13, "Failure is not an option."

Yoda had it right, "Try not. Do or do not, there is no try."

A little over five months to go. 45% of the year. I can't let up as excuses won't be tolerated. A lot of work remains, and there will be time to rest when the season is over.

Which brings me yet again to the chart that has brought me this far:

I'm thinking that all I need is one more five-month comeback.

Friday, July 25, 2008

The Weekend Trader (Early Edition)

Some heartfelt thoughts heading into the weekend to anyone "looking over my shoulder".

Please remember this is my personal trading diary and a mechanism for me to think out loud, and as such may contain feelings and comments that must be put into perspective.

The main concept that comes to mind is my commenting on actual earnings/losses. For I've long held the perspective that personal earnings are just that, personal, and I'll go to my grave feeling that way. And during all my teaching and publishing years, I made it a point to never discuss my or other traders' tangible dollars in terms of income, losses, equity base, etc., keeping all comments to points, rates of return, etc.

Yet in my personal diary -- which I recognize is being shared with a growing group -- I must discuss them. First, I'm writing to myself. Second, actual earnings/losses are a reflection of the entire trading experience, including appropriate sizing and risk management aspects. What good is a 2 point gain if it's only on 10 contracts?? Third, I've already mentioned that I have a very specific $1M income objective this year trading an initial capital base of about $700K, and as a result I have to mark the scorecard reflecting progress toward that goal (notwithstanding the fact that I still won't view my actual equity except for June 30 and December 31). And I cannot -- and will not -- be deterred from this mission. I do like the idea of using a poker "chip count" analogy which I've recently begun and may stick with that which seems to depersonalize things in a healthy manner.

And this last point is critically important: If you're looking over my shoulder and sense ego, boasting, etc., then you're missing the true intent of this blog or weren't privy to my writings from earlier years. Simply put, chest-pumping -- which I loathe -- will kill my mental edge and swing the door wide open to invite complacency. Which of course does me no good at all unless I'm trying to sell products or services, which I'm not. I'm also hoping my open discussion of blunders puts that to rest. I can screw up with the best of them!! And lastely, I have to always trade as if I'm coming from behind -- without of course actually being behind -- for that is when I'm at my best.

Having said that, I think this blog can be a win-win. It will keep me on focus while perhaps triggering ideas and self-evaluation in the minds of onlookers that can't be triggered via other mechanisms. For I've always enjoyed discovering helpful tools that don't exist in the industry -- as was the case when I often traded live to teach -- and maybe this will join the list. All I know is I'm enjoying this!

So let the great journey and poker game continue.

Friday Morning Sequences

8:00 am Back from a nap after doing some early DAX trading. [More on that in a moment.] Following up on closing thoughts from yesterday, obviously late-day buyers never showed up despite the attempted turn after a prolonged trend. Still, it was another good example of how the 5-min 3 line break was a great guide during a trend day as it turned back south after the bounce attempt:

3 Line Break [ESignal refers to it as "Point Break"] is a great indicator when the market is trending, although it's less relevant when the market is in consolidation/oscillation mode. Steve Nisson has some good stuff about it in his books.

Interesting that Europe didn't gap up into the resistance from yesterday, but did trade up to it on an intraday basis where I was able to nab some shorts:

I've found the DAX rhythm extremely tricky -- often prone to trend extreme spikes on low liquidity -- and it's a bit tough for me to trade both it and ES given differences in pace & the fact that the DAX is priced 5x that of ES [kind of like playing both cash and tournament No-Limit Hold 'em]. Some hard lessons in the past have resulted in keeping my sizes very modest in that market. And up until this year, I had problems making the transition from the closing of that market to the opening of the U.S. market. For some reason, I've been able to improve that by treating them as totally distinct events and charts. Still, good eye and decent trades thus far with profits in pocket as I now focus on the U.S. open. The low 1260s "should" be early resistance. We'll see.

A quick note on multiple timeframes. While I love and fully exploit the concept to determine market bias and which timeframe is currently in play, there's an inherent danger in terms of using them to justify ignoring stops. ["Hey, I'm OK ... the next larger timeframe is at my back."] Still, there's usually always one timeframe in play, and using the lesser timeframes as triggers can help reduce the chance of stop-blowing.

8:39am Low liquidity ES Globex spike to 1260 on the Durable Orders #. Scalped a small short sequence. Best entry fill 59.75 and covered on the drop toward 58. Going to wait for normal session open to attempt any sizes. By the way, I rarely look at news. Right now, I have no idea what the # was, or whether it met or beat expectations (I assume so). I do have and the TV talking heads accessible, but usually only peek if the market is acting completely out of the ordinary. Gets back to how irrelevant news really is unless it's something catastrophic. However, I am aware of the economic calendar. Don't forget Don that we have Michigan Sentiment and New Home Sales today at 10am.

8:55am Entering my personal no-trade zone of 9:00-9:30am. Gotten me in a lot of trouble over the years, similar to 3:30-4:00pm. Getting better at simply not trading then.

9:01am OK, bent my rule a bit after looking at yesterday's closing charts again [Mom always said look both ways before crossing the street], shorting on the small pop back to 57.50. Navigating the no-trade zone by keeping sizes small. Covering on the drop. Flat; best cover 56.00. That should be it for me until open. Going with the strong short bias after we open though with resistance in the low 1260s. Need to refocus for that. Hope the 10am data doesn't ruin the plan.

9:25am Rule bend #2 shorted a small lot at 58.50 "just in case" that's it for the pop. Wide leash and will let it run toward 61. Managing risk with size. Target cover 55s. Want better entry during liquid session but who knows if we'll get it. Feels like it may shoot straight down at the bell, but we'll see.

9:30am Added to short 58.25. This should plummet.

9:38am Flat ... best cover 55.25. Got 2 solid points on the meat. Can still run more but probability questionable. I want Aces or Kings. btw, if I could define my perfect trade, it would be high probability 2 points with size. Size was still fairly modest given the timeframe but OK. If it runs further, will gear up for the next overreaction entry.

9:50am So far, a repeat of yesterday where I underestimated the extent of the barf-a-thon. Could have held some until the TICK went negative which I was watching. Oh well, solid read, strong entry points, and got initial target. Maybe the DAX didn't gap up into resistance but ES sure did. Economic data coming up shortly.

9:57am Took bathroom break. Wowzer 8 point pop. Cover looking pretty good now. Eying potential short 62ish if we pop on news.

10:01am Short avg 61.50; best entry 62.25; stop 63.

10:05am Looking for a Wile E Coyote dive toward 57.

10:17am Bit of a rough ride during that 10:11 to 10:17 window, but finally getting the drop. A few covers, scratches, re-entries, along the way to manage risk and P&L. Still expecting 57ish. Free-rolling on partial lot with 62 stop.

10:22 Feels like it for the upside wiggles. Sitting in 57s for final covers.

10:25 Flat at 57.50. Can't complain. Again, there could be more but do I care? Will take 4 points any day. Still underestimating the runs a bit though. Look at this 30min ES chart and compare to the DAX one at the top. Love it when both plans work.

10:34 That may be it for the day. Increased chip count by $16K to end a very solid week. Don't want to give it away. Look for the weekend update shortly.

Thursday, July 24, 2008

Thursday's Notes & Market Bias

11:17am OK, let's start blogging for today. Not as much on my game as I was yesterday, yet having a decent day given the early intraday bear trend that began evolving immediately after market open ... the 10:30-11:00 chopfest notwithstanding. Shorting 5- and 15-minute downtrend retracements and covering on the extensions (or the same thing contra-trend in reverse). Immediate trend is extended a bit so watching to see if we get lunchtime capitulation toward the 1264 support area. Buy orders queued in the 64s if we get a spike down and will go to market if it gets close on a pause. Want one more push here (11:29am).

Like every trader, my entries and trade executions are full of imperfections. And some days, they downright suck. A bit early, a bit late, too small size, too large size, system outages, missed fills, distractions, yadda yadda yadda. This is where market bias comes to the rescue which seems to be the case in today's early trade. Nothing like market bias confirmed by half a dozen indicators on multiple timeframes to make up for what will always be imperfect executions.

11:35am Nice. Best fill 65.50 on the pause and out on the reflex spike. VIX at HOD; 5 min trend and 3 line break still south. Could get strong support here from Tuesday's range break. Some Tick-Price strength divergence on that last drop. Prefer to see a 1 min turn though to hold longer off that support. Any turn likely to be tricky given approaching lunchtime pace. Resistance now in the mid 1270s for next strong short opportunity which is my main focus for re-entry. 15 min oversold and want a deep retracement. Want some meat on sizing there if we get it.

12:12pm zzzzzzzzzzzzzzzz. No decent retracement to short.

12:35pm Not as interested in longs here unless we get a clear 1 min turn. 2pm should be interesting if volume comes in. Does this support hold? Note 5 Min 3 Line Break has had no turns since open:

Needs a period close above 1267.75 to change. 12:52 Nibbled on a short sequence at 68. Still want a stronger move up to short size. Keeping sizes very modest thus far.

1:30pm Stuck my toe into a long tester and stubbed toe for 3/4 point. Fortunately, it was only the little toe testing the water. Note to self: Resistance trend lines approaching from north, so shorting further move up may be troublesome. Now we seem in more of a breakout mode heading into the PM. Stay flexible Don. Will retry long on trades going off at 68. Could squeeze shorts toward 72. Not interested in breakdown shorts at these levels. Dow -164; ES -17 on day. VIX potential further move north on 15 min. Conflicting signals = stay on sideline. Plus, I'm a terrible breakout trader.

2:08pm VIX winning for now. 5 Min 3 Line Break still short. 13 consecutive short bars. Rare.

2:16pm Volume spike on breakdown & VIX pop off the above coiled chart. Lack of long trend change triggers kept me out of intraday trend reversal trade. Strong reads Don. On sidelines and watching. Tough to short down here, but better flat than long! Maybe one tidy short scalp on a move toward 63. Won't stick around long if we get it with tight stop.

2:23pm ES ticked 62.50 ... I'm sitting at 62.75 and won't chase. Only want 3/4 pt on scalp. Will cancel if not filled.

2:25pm Pulled order. There's the imperfect market at work. Scalp would have been good for 1.75 max, but fills would have been tough and I would have had to be wholesale on both sides. Maybe 1 point was doable. If it implodes further, I don't care as that would queue up tomorrow's post-trend sequence yet again. Not going to get cute. 90 mins to go.

2:35pm So much for Tuesday's support. Investors gritting their teeth again (if they have any left). Glub, glub, glub. In hindsight, a bit conservative on that post-breakdown short miss, but I'd rather let an extended trend extend further than get caught the majority of the times when there's quick intraday capitulation and turn. That's my excuse anyway. I hate afternoon trading!

Updated 5 min 3 Line Break: 19 consecutive bars.

3:00pm Bar count now at 20! Needs a period close above 61. Watch them frustrate all the bottom pickers by turning in the last hour. I see lots of cute/heroic scalp entries, but that's what they are ... cute and heroic. No thanks. Too much slop and starting to think about tomorrow's plan but that depends on how we close. Still sitting on AM profits.

3:09pm Finally got that short sequence from 63.25 (nice wholesale fill ... someone panic covered at the wrong time). 5 Min 3 Line Break finally turned up. Keeping sequences tight. Doubt we'll see the lows again now ... if we do, all the better for the morning. Eyes now on tomorrow. Chip count +$11K on the day on only 565 contracts (extremely low for me).


Wednesday, July 23, 2008

Wednesday Epilogue - Protecting Gains

3:32pm Did a good job of protecting gains and not getting chopped up in the afternoon slop. Didn't make a trade since the last post and frankly only glanced at the market a couple of times after noon. Kings and Aces were dealt in the morning and had to be bet strong before the marginal hands got dealt.

I'm especially pleased with the results given I'm dealing with a whopper of a summer head cold ... which is often a recipe for unfocused disaster.

Yet today is done and must be forgotten (aside from yet another mental reinforcement of the day after trend day concept) and tomorrow is a clean slate.

Whether ES weakens further longer-term after the morning blow-off top is anyone's guess. Anything is possible ... especially during earnings week.

So let the game begin anew.

Textbook Morning After Prior-Day Trend

11:37am OK, backing away from the keyboard after an OK morning as the market pauses. One of the benefits of this blog was supposed to be keeping me out of trouble when the market stopped moving, so it's time to type. Thus far, my reads carrying over from yesterday have been strong, and I'd give myself an A for reads and entry, and a B for holding time. I didn't hold the post-10:30am ES short as long as I would have liked, but I'm ok with the result. The decrease in volatility and resulting change in pace is admittedly taking a bit of getting used to. Got a few nuggets trading the DAX in the wee hours as well with a similar sequence -> shorting into the first climb. Gotta love the morning after the prior-day trend!

I'd love to see a strong breakdown from this midday consolidation to buy any overreaction to the downside (strong 15-min trend support), but it would have to be near 1275 as the new prime objective for the rest of the day is to protect the $18K in morning profits. Don't screw up the rest of the day Don!

12:20pm Geesh, if I knew that I had to do was ask. Nice drop to 1278 where I picked up a nice long scalp sequence. Not being overly aggressive down here given the extent of the recent run, but expecting support for the moment. Flat on the scalp but will buy one more push down if we get it.

12:24pm Love that 15-min chart!! Bought the last push down and taking it out on the climb. Preparing for major gain preservation mode shortly. Outstanding market pace and I'm dancing with it cheek-to-cheek. Expecting the oscillations to begin narrowing. This could be it for the meat. Watching now. 1 min 3 Line Break still south into the larger timeframe supports, but that's often a trailing indicator on the day after trend.

12:33pm Took 1 pt stop on small 15 lot. First stop of day. Careful Don. VIX climbing.

12:40pm OK, support held and made up for initial stop on re-entry. That may be it for the day. $25K in profits and don't want to get sloppy.

As I've said in the past, I'll always share the good, the bad, and the ugly. Today was a good day.

Tuesday, July 22, 2008

Go With Your Strengths

Just took a peek at the close after I'd shut things down for the day around 2pm (due in part to non-market commitments) and noticed the post-3:30pm moonshot. Now there are two ways to look at this:

(1) Damn, I missed the move!


(2) Get immediately in the "Day After Trend" Mindset to prepare for tomorrow's opening trade sequences.

Now before we choose the obvious preference, we must first immediately revise the phrasing for #1 to "OK, I missed part of that move!" given the fact that most traders don't catch (or intend on catching) the full move. That alone should neutralize any emotional baggage associated with not participating in a market move.

Nevertheless, the clear choice of mindset #2 for this trader reflects:

a) Stewing does no good. Been there done that;
b) My strength and the vast majority of my earnings comes prior to 3:30pm;
c) My greatest losses come from trading after 3:30pm (especially fading extreme trends);
d) My greatest gains typically come from the day after trend; and
e) All I care about is tomorrow's trade potential. OK, this only works in tandem with effective execution during tomorrow, the planning of which must now be my top priority.

Yea, I know this all sounds preachy -- even if I'm just talking to myself -- but I easily have a few hundred thousand dollars worth of scars validating these simple truths that are on page 1 of every Trading For Dummies or Trading 101 textbook. So it's not lip service ... it's conviction.

Stayed pretty sharp today scalping and feeling the market's pulse, but I'll need to be even sharper tomorrow to maximize potential. I'll need to read and sense the other poker players' hands, many of whom were experiencing "c" big-time at today's close. Did the market call their final bluffs? Did their Kings get cracked by today's Aces? If so, will Kings take tomorrow's pot? (Hell, likely yea as it sure felt like short-term capitulation panic buying at close).

But that's not a prediction. All I know is I'm going with my strengths tomorrow.

Monday, July 21, 2008

Listen to the Market

Today's ES theme? Listen to the market.

It's 3:27pm and neither I nor the market had any conviction today. And if the market runs 20 points in the next 30 minutes, I could care less. Tomorrow will be here soon enough and there's typically too much risk of eroding capital in the last hour [been there, done that] . Did a decent job of keeping the powder dry today, and the best pace and entries actually came during Europe's session before most of the U.S. was awake. Take a look at the DAX, or even ES before the 9:30am open and you'll see the breakouts.

And speaking of listening:

Don't listen to chatroom snake-oil salesmen and horse race callers. The charts have the only voice that matters.

Don't listen to analysts trying to explain "why" a market moved or didn't. The "why" doesn't matter. The fact that buyers or sellers (or neither as was the case today) were stronger does. I'll leave mind-reading to others more qualified.

Don't listen to your trading buddies for confirmation. If you're lacking confidence or conviction, don't trade until you have or rediscover it.

Don't listen to that devilish inner voice tempting you to force trades just to try to make some silly "daily average". That would be like trying to win something from every poker hand, including 2-7 unsuited. Let the average be an interesting but completely irrelevant after-the-fact math exercise. Don't try to create it.

Don't listen to this blog if you're looking for a "how-to". If certain concepts sink in and seem relevant, great as it's cost me plenty in learning capital. However, we're individual artists with our own canvases. How you paint the portrait or whether you choose to pick up the brush at all are both deeply personal decisions.

Looking forward to better opportunities on Tuesday.

Saturday, July 19, 2008

The Weekend Trader (Saturday Edition)

Random thoughts to refocus for the coming week:

British Open - Watching Greg Norman at 53 leading the British Open after three rounds is quite an inspiration to this 47 year-old trader.

CaddyBlog - I could actually rename this blog "CaddyBlog". Since I have no trading caddy/coach [and no desire to do so], the blog is my way of talking to myself and staying in the right mindset both during and after market hours. And while I've occasionally worked with a trading coach in the past to work out a few kinks, it frankly comes down to reading the greens -- er, I mean the market -- staying focused and making shots.

December 31, 2008 - If I have one objective for the rest of the year, it's to simply get to December 31. Of course, I have a 2008 earnings objective -- including one very specific milestone. But it's no where close to time to focus on the score yet as so much work remains. As Bill Belichick says [in my best monotone voice], "We take one game at a time." [and oh by the way, don't lose focus on the last game! See what happens when the Defense takes a two-minute break after 18 games of perfection??]. It makes for boring news -- and possibly blogs -- but it's a requirement for any degree of sustained success. The only score that matters to me is the final tally on December 31.

Blog Comments - I welcome and encourage your comments. I know this can be a lonely business and if we can form a cohesive group to support and strengthen one another, all the better. If this evolves into a small community of mature, professional traders -- all with a common goal -- we'd really have some fun. So far, access to this blog has been solely via word of mouth and one brief mention in my friend Dr. Steenbarger's blog. In the meantime, I consider this a great vehicle to log my personal diary. If it's only read by me and I accomplish my goals, it will have served its purpose.

The Right Trading Method - There ain't one. If experience has taught me anything, it's that there are many ways to trade the same market -- the key is knowing the bias, staying focused, and executing. The chatrooms of the 1990s and early 2000s did this industry a great disservice, and their leaders and owners made a ton of money from unsuspecting people who had no business trying to trade. Pay no attention to that man behind the curtain. Show me tangible results with your own money over a sustained period of time, and I may listen.

When I first started writing and coaching at the request of a few publications years ago, one seasoned trader told me to speak with him again after I had been in the business for a decade and had the scars to prove it. [I'll leave out the actual more colorful language.] He was right.

Things I Can Do Better This Week - Too many to mention. I had a decent week, but in many ways my entry timing, holding time, and sizing could all have been much better. When you feel you've made it, watch out. It's always about tomorrow. And If I don't feel this way heading into each trading day, I should hang 'em up right then.

Last Week's Lessons - Tuesday and Thursday were great examples of two things: (1) Extreme market trends almost always last longer than one expects; and (2) Sometimes fading is the only entry. I was early in both going long on Tuesday's panic selling and shorting Thursday's panic buying. Yet sometimes incurring short-term pain seems the only way to profit from extremes. Case in point was a clear lack of a double top on Thursday's post-open panic buying where ES did an 8-point elevator shaft dive for 12 minutes after reaching its high. By the time one of my 1-min indicators turned down, ES was already five points off the high.

Visualization Time - As I manage each and every trade for the coming week, this is the state of mind that I must be in:

I will let the market drive trading income like a stretched bungee ready to snap. In doing so, I will see my Chinese Bamboo Tree grow larger than I could have ever imagined.

Time to water the tree.

Friday, July 18, 2008

The Weekend Trader (Early Edition)

I'm starting on this weekend's edition on Friday morning given the early market chop. Looks like a capital preservation day so far. We'll do today's post in the form of diary notes, with live market/trade observations in italics.

I hate earnings reporting season. Nothing like constant blah-blah-blah rhetoric to put a damper on natural market rhythms. Objective? Stay out of trouble. Consider any earnings a bonus.

Note to self: Never trade day two like day one. You make most of your income on day two, so don't ever worry about missing a day one move. ["Day one" meaning the initial impulse move ... can be day, trade, week, etc.]

Note #2 to self: Continue to trade what other people can't/won't. You love trend pullbacks, but you're also adept at fading trend extremes. "The trend is your friend" is the most misunderstood market myth out there. What trend timeframe? Has the trend run its course? Is there stochastic/tick divergence? Does 3 Line Break show 20 consecutive bars in the trend? Is it the third -- and likely final -- push? Have the stuck positions finally emptied their stomachs?

10:30am Looking to fade any approach toward 1260, but market back in its salmon-swimming mode. Been sitting at the 1258 bus stop for short entries, but nothing yet.

And speaking of "stuck", this week was a good reminder that markets move fastest when traders are covering losing positions. Stuck traders drive prices harder than anything as fear is greater than greed. Nothing like being cash 95% of the time, and in the market 5% [but over and over again]. Ah, if fund managers only had that ability.

Nice to see my EESM recovery mode narrowed from 20 days [last significant bonehead draw many moons ago] to seven. Here's last week's actual EESM equity curve:

Note the chart scale purposely skewed to show (1) upside and (2) future time. If you're printing equity charts, this is a must. The most important part of this chart? THE BLANK SIDE TO THE TOP AND RIGHT!

10:58am Faded the initial approach toward 60, but pop too strong, scratched short and scalped long on first pullback. Sticking to tighter scalps than normal today. This is why I also don't believe in chatroom "advisory services" a.k.a. horse race callers who have no skin in game or refuse to share their own trades. Don't get me going.

11:11am VIX turning down ... another ES leg up? Watching. Not too interested in sardine can trading. I want Jacks or better ... so far, it's all been marginal A-8. Third approach toward 1262. Maybe we get DAX-like short capitulation spike toward 70.

11:20am Fold, fold, fold, fold. The beach starting to look pretty darn good.

Had an interesting poker night last night. Played well but lost in our weekly tourney by going all in with a full house. Problem was the other guy had a higher full house. Did decent in a small cash game later though.

Skimming The Tao of Poker again ... pages 148-149. It's such a great read for the bathroom, nightstand, or trading breaks. It's written in USA Today-like snippets and sooooooo applicable to trading. Rule #222 on page 148 talks about finding ways to reach back to when we were the sharpest. Brings a certain fictitious -- er, I mean real --- equity chart to mind!

Teaching my youngest daughter to drive. Reminds me of not looking back at trading results to predict your trading future ... kind of like learning to drive by looking through the rearview mirror.

11:45am Need one decent chart pattern & entry. Just one ... is that too much to ask? Maybe so on a summer Friday.

12:18pm That looks like all the north side for ES. Looking to short into 5-min downtrend on a retracement.

12:25 Shorted 45 ES at 56. Want 75bp for 15 and hold 30. This could tank and I want some position on in case.

12:29 Covered the 15 and holding 30 short. Let's see if the late-to-the-game longs are caught! Covered another 15 at 54.50 and looking for the tankola now on the free ride. Will scale out into any further drop.

12:35 Flat; best cover price 53.75. Will reload short on any climb or buy any mini-capitulation. Not sure we have the volume for a full panic midday on a summer Friday.

12:48pm OK, got that one good trade. Look out below if selling picks up as I can't see longs buying dips on day 3 of the moonshot too aggressively, but time will tell. The short covering appears pretty much done.

12:59pm Selling picking up. Scalping lightly from short side. Any break of the downtrend and will wrap it up for the day. Indicators mixed.

1:33pm Just awoke from a nap. ES officially in no-man's land and wrapping it up.

A very good week, but it means absolutely nothing on Monday. Lots of work left in the year, but now it's time for some sun and perhaps some poker over the weekend.

Thursday, July 17, 2008

Planning and Trading a PreMarket Bias

9:08am OK, going to take advantage of this blog to discipline myself with holding a pre-market short. Shorted 30 ES at average of 51.50 pre-market and plan on covers at 44 & 45 OR by 10:30am ET. Will let that stand on its own and wiggle as a mid-term intraday swing trade. Managing risk with very modest size. Will also establish separate short positions on any clear confirmation or further climb. Looks like a major gap & trap after yesterday's earnings short covering rally. Will short any approach to 58 with stops above 60. ES 50 points off Tuesday's low and nothing goes straight up. Stayed away from shorting yesterday but timing is now. Philly Fed the remaining news item at 10m ET. Focusssssssss Don.

10:13am Whew! Underestimated the extent of the post-open run. I hate it when the market is obvious BUT the whole world sees it. Too early on shorting the approach to 59 (along with the rest of the market ... duh!!) and scrambled a bit, but the read was right on. Day after trend day is usually my favorite. Ironically, best profits came on buying the first dip heavy to 47s and exiting 49s. Taking a breath here. Will short any approach toward 56 or buy next hard dip and that may be it for day.

10:50am Nabbed that last dip in the 46s and already took it out. Want to buy and hold any further dip into the strong 15-min uptrend support.

11:02am Turning out to be a good rhythm today for 2 points scalps. Strong resistance to the north and strong support to the south. Very good volume and market pace today, and it was worth staying on the sidelines for much of yesterday.

11:26am Rebought on the nice dip to the low 40s and took it out on the rebound.

OK, here's my view of today's performance thus far. The early morning blog entry helped me get focused. I knew how the market was likely to act and had convictions to trade the expectation. Despite the fact that I was early on the initial short and had to improvise a bit, I feel good about my trading which for the most part was in lockstep with the market. And unlike the last two days, I feel my P&L thus far is a fair representation of my trading decisions. [Up $25K for the morning.]

At this point, I'm likely done for the day. No reason to overtrade (is there ever Don??) Nice to see a pre-market plan work!

Wednesday, July 16, 2008

When Profit Does Not Reflect Peformance - Part 2

2:06pm I didn't expect to do a mirrored sequel to yesterday's theme, yet with today's chopfest I feel pretty good about today's slight draw thus far (couple of $000). So again, the P&L doesn't reflect performance. Sort of like folding marginal hand after marginal hand in poker ... nothing to show for it except a modest cost of antes. Waiting for a decent 5-min trend and pace to emerge to provide some foglights in today's pea soup. Not too optimistic about it at the current pace. Volume pathetic today after yesterday's barf-a-thon. Feels like market trying to swim upstream against the current. Let's see how strong a swimmer ES is. Tough finding prime wholesale entry points with minimal risk. Patience.

2:21pm Scalped a whopping 75bp (3350 to 3425) on 15 contracts on tick-to-zero entry in 5 min uptrend. Not trusting this pace at all. Good read, but still want better trigger and pace. Don't get cute Don. Brick wall at 3900 until broken, but tough to short with VIX 15-min downtrend poised for another potential leg down. Battle of the Titans.

2:57pm Pace still sucks. One this is clear ... shorts trying to short the swimming salmon keeping ES afloat. 3900 resistance still holding.

3:08pm Resistance broken by 50bp ... too funny. Sitting and watching.

3:15pm Reminds me of my first few years of trading. I'd be trying to short this market and taking stop after stop. That was then. Waiting for a better starting hand than 3-7 unsuited! May not get it today. Fidgeting with poker chips, that's about it.

3:22pm Scorecard ($2,803) draw and pretty comfortable with overall management today. Kept sizes down and slowed waaaaay down when market wasn't cooperating. Investors win today and tomorrow will be here soon enough. Ironically, the Globex session seemed to have the better pace and entry points with incredible range. Didn't maximize opportunity there, but that's about the only negative on the day.

4:06pm Indicator of the day (ES 1-Min 3 Line Break). Note how even the smallest of trends never turned down in the PM. Great example of this helping clear the fog when the MAs are in a chopfest.

Tuesday, July 15, 2008

When Profit Does Not Reflect Performance

You'd think with EESM recovery now at 95% today (we'll stop tracking it now as I've effectively recovered my worst draw of the year in 7 days) and $15K in pocket, I'd give myself a higher grade than a D today. OK, we'll go D+.

Why? Simple. I undersized the 30+ VIX long entries shortly after 10am ET when the stuck longs from the last day, week, year (you get the point) were losing their breakfast, lunch, dinner, and retirement funds shortly after 10am ET. Pure panic and I saw it. Oh, I got a few morsels, but as I saw ES holding 1200 with the TICK literally off my chart (which scales 1000 to -1000), I opted for a double instead of a grand slam.

Now I shouldn't be too hard on myself as I had a non-market commitment shortly after 10am, yet this was one of those "cancel all appointments" mornings. Oh, to have a mulligan on that one. Ironically, the majority of my profits came shorting the runaway spike at 11:15am right into the 15 minute downtrend support brick wall.

The good news is I feel I'm continuing to read the market well, and I tend to find that next sweet spot after missing an earlier one.

I'd better as I need an A tomorrow to bring up the report card average.

Monday, July 14, 2008

Monday Intraday Journal

11:06am Going to try something new in terms of intraday blogging. Remember Don, this is your personal trading journal that you're writing to yourself. When I feel the market settling into consolidation/chop/etc., I'm going to head to the sidelines and post my observations. Call it reporting to Dr. Steenbarger's Internal Observer.

Based on the 5-minute chart, we're settling into a tight chop. Decent start to the week trading long for scalps pre-market before having a definite short bias once the U.S. bell rang with stops above Friday's high. Took 2-3 points and re-entered on some pops. Keeping sizes very modest to start the week and letting volatility drive the P&L.

11:18am Just scratched a short sequence on another post-break pullback; confirms the meat is off the bones for now. Decent job protecting A.M. gains ... only gave back about $500 on a $11K morning. ES has breakdown potential heading into the P.M. but watching for now. Next trade might be long on capitulation. In capital preservation mode.

11:48 ES hanging on to 1235 by a thread. Look out below if that dam gives way. VIX climbing and primed for another push up.

11:58 Still on sidelines watching. Longs are clearly stuck from the morning buys and puking ... going long at 1226.

Wow, exited for 1.5 on pop but underestimated the extent of the post-puke bounce. Need better hand/eye coordination in this volatility. Next move short.

12:04 Shorting 31.75 for scalp and will take it out on drop. Out 29.25. Still good reads Don. 25.50 now the new puke point.

This intraday blogging to self will either help or hinder. So far, seems to be helping. Going to evaluate end-of-day. Back on sidelines.

Tough day for "investors". And the VIX STILL hasn't passed the magic 30 mark. Investors waaaaaay too complacent.

12:17 Have short entries queued up in the 32s, not sure we'll get there though. 5 min trend down.

12:20 Got 3225 & 3250; Want 1 point for half and hold rest.

12:22 OK, getting tired and feeling personal greed setting in a bit. Took 1 point on most and scratched rest. 1 Minute 3 Line-Break just turned long which is a warning. Might still get another push south on 5 min but back on sidelines.

12:55 Definitely left some money on the table on that last one. Oh well. I'll be shocked if the VIX doesn't spike this afternoon.

1:12 VIX 29.20. Tick, tick, tick. Watching only; tough to find good entry points.

1:25 zzzzzzzzzzzz. No trades for last hour.

1:48 Nice scalp sequences, long on 1 min turn then short off 35 resistance. Flat for now. Clear resistance at 35 until broken. Keeping contract sizes extremely moderate (below 50) for the most part. Definitely want to do an end-of-day recap of the blog's impact on my trading today. So far, it is keeping me focused and respecting all key indicators. I do know I'm leaving $$ on the table, but that's the largest negative of the day so far.

2:24 Doubt I'll take another trade. Tired, had decent day, and it had better be a ridiculously good entry. VIX coming back down. I know this much -> My historical record of last hour trading is clearly net negative.

OK, did this intraday experiment work? Perhaps. Stayed out of trouble (DEE-FENSE), and on right side of market for most part. Day profits at $17K and EESM recovery now at 74% in under a week. Not sure I'll do this every day though ... maybe from time to time if I need to refocus.

Time will tell.

Saturday, July 12, 2008

The Weekend Trader (Beta Column)

Two of my favorite columnists are Mike Lupica (NY Daily News) and Bill Simmons ( Mike's got a great recurring weekend sports column called "Shooting from the Lip" where he talks about random -- but relevant -- thoughts at the end of the piece. It's a great read, even as a Boston fan. On the other side, Bill writes outstanding and humorous pieces about his experiences -- high and low -- of being a Boston sports fan. As we enter down this new blog journey, I'm going to incorporate a little of both. So let's start:

Why the Blog?
Three reasons. But let's start with the first two: (1) It's fun, and (2) I enjoy writing. Many know that I used to write daily trading columns for a major online trading publication, but that grew old as my market energies were directed away from trading and the necessary R&R during downtimes. I also hated editors challenging my ever-so-candid market views about snake oil columnists & chatroom salesmen who don't trade. Here, there are no editors, deadline pressures, or hidden product selling agendas. Feel free to submit comments and I'll look at all of them as I can. It will be fun to see how this spreads simply by word of mouth. I'm also going to experiment with some You Tube stuff.

Reason 3? I was seriously thinking about publishing a book in 2009 that chronicled lessons learned in accomplishing my self-imposed $1M trading goal (net of expenses) this year. [Why the goal? Why do people climb Mt. Everest? I guess I needed a fresh, new incentive to go with the new 2008 ceiling-removing mindset.] Then I thought, wouldn't sharing thoughts live as the year progresses be a more helpful tool? The only self-benefit I see at this end is to help me stay focused on my goal while renewing friendships with many of my industry friends. Heck, whatever floats your boat.

Hey, if Curt Schilling can have a blog, why not?

Playing Defense
When the Celtics won the championship this year, they won largely by playing defense. In fact when the trophy presentation was made at the new Boston Garden last month, the fans actually chanted "DEE-FENSE". Well on Monday, I forgot to play defense. Didn't have my feet planted, let LeBron James and Kobe Bryant go right by me time after time, and couldn't get any offense going either. Yet by Friday afternoon, my defense was back on track which -- as is the case in sports so many times -- then drove the offense.

Case in point: I had planned on staying on the sidelines Friday afternoon and was actually writing Friday's blog entry when Bernake came out with some market-moving comments. Truth be said, any match would have sparked a mammoth short cover rally given the oversold conditions and reduced Friday PM liquidity, even if it was Jim Cramer blowing his nose. Anyway, I saw the spike approach its first "this is ridiculous" unsustainable spike at about 2:50pm ET, got off the bench and shorted, covering quickly into the retracement. Then it was back to the bench ready to head for the shower for the second time, but keeping one eye on the game. Then, as ES got completely out of control at about 3:06, I got the second short off within a point of its peak, again covering on the retracement -- albeit more slowly this time. In the process, I had to keep changing my EESM attainment logged in yesterday's post from 39% to 45% to 53%.

What did defense have to do with it? Plenty. Given a similar situation on Monday, I was active in the market at the time, providing liquidity as I did throughout the day, and didn't react to the charging Kobe -- again and again. On Friday, I was simply staying in the backcourt and not participating in the offense at all until all five players from the other team (we'll call them the "Lakers") literally collapsed on the court and then someone handed me the ball. Oh, sort of like the Celtic's Glen Davis going through all five of the Lakers at the end of the Game 6 obliteration. In both cases my timing was exceptional. I also chose to lay the ball in both times -- in terms of size and holding time -- versus risking an unnecessary injury on a slam dunk right before the weekend.

Defense wins championships. As we journey toward the end of this year, I expect to give you a million reasons why.

Friday, July 11, 2008

Wouldn't You Know It

This is a good one.

Once there was a well-known trader who went into public exile for 2 1/2 years to -- among other things -- focus his market energies 100% on trading. In doing so, he crafted a renewed and proven comeback mindset effective 1/1/08 with a fictitious equity drawdown to minimize the risk of an actual drawdown.

And the mindset worked incredibly well ... for six months, six days, and about fourteen hours.

Then, he made his first and worst sloppy trade sequence of the year ... right after he restarted his blog.

Wouldn't you know it.

Yup, it happened. I got sloppy on Monday afternoon with respect to size management in a highly volatile market and got caught as the squeezee vs. the squeezor. Now while it's true those of us at the CME who provide market liquidity do get caught from time to time in squeezes, that's not an acceptable excuse. Like I said last week -- and have for the last decade in various forums -- I'll always share the God's honest truth including the good, the bad, and the ugly.

Then, as has often happened during most drawdown phases, the start of the next day started poorly as I was pressing.

But here's where the tide turned. At that point -- in the middle of day two -- I said enough, and went immediately into "EESM" -- "Emergency and Extended Scalp Mode" -- which essentially means, "get size down, and scalp like hell until you get your rhythm back and restore the drawdown". Kind of like a self-imposed trip to the penalty box and shower for a high-sticking major and game misconduct. It includes beginning with a trade-by-trade profitability log on day one, followed by tracking the % comeback day-by-day until 100% is reached.

Now early in my career, it might take a month or more to restore the drawdown. Every successful trader has been there -- and I mean EVERY. But here I sit at 3:15 on Friday afternoon -- a mere 3 days after EESM started -- and I've recovered 53%. [btw, thanks for those last two PM shorts Mr. Bernake ... nice closing trades for the weekend.]

Day 1 of EESM was typical of comeback mode: 24 trades; 21 winners; average ES point gain a tiny 0.40; net take for the day $12K.

Conclusions? Perhaps even despite the best of safeguards, it sometimes takes that one real experience to reinforce intent. The chart still did the trick though as the draw was far, far less than that shown in the fictitious chart (remember, the fictitious draw is meant to be earth-shattering beyond what should ever happen), and history has shown that the comeback will occur ... it's simply a matter of doing everything possible to ensure the timeframe is as short as possible.

It's also a reminder that risk in this business can be minimized, but never eliminated.

Sunday, July 6, 2008

Poker Impacts

Filling in some more missing pieces of the 30-month gap, I began playing small-stakes no-limit poker about a year ago -- partly because I've always wanted to and partly because I thought I'd learned enough watching and studying it that I'd have a decent shot at winning from time to time. [Yes, I'm still competitive in the worst way ... that hasn't changed over the last few years.] What I didn't realize, however, is that the subsequent experiences would have positive effects on my trading.

So last summer, I started playing in a local league that awards points in weekly tournaments for final table players, with the winner getting 500 points, second place getting 250, and so on. Then, at the end of each quarter, the person with the most points gains entry into a Foxwoods tournament with the chance to win a few thousand dollars. It's a fun group led by a great guy (thanks Jeff) who taught me some of the early ropes.

Which leads me to my first poker -> market comparison: Even in a small group of 20-30, the players reflect all segments of humanity, with strong parallels to market participants. Examples include the gamblers, the self-proclaimed know-it-alls, the bluffers, the sore losers, the sore winners ... you get the point. Just like the market. And while I've always advocated that any serious trader read The Tao of Poker, and have seen my published trading columns placed side-by-side with Phil Helmuth's poker columns in the past given the strategy similarities, it took experiencing cards first hand to have some of the notions sink into this trader's stubborn brain.

Most of you know my trading strategies. At the poker table, I consider myself to be a simple, inexperienced amateur with one basic strategy: play tight, quality hands the majority of the time, and vary from that only on occasion. It's essentially up to the other guy to figure out when I'm varying. And it's worked fairly well as I ended up winning this year's 1st Quarter event, and then finished in the money at the subsequent Foxwoods tourney, finishing 13th of about 120. [Footnote: the winnings pretty much paid for gas and a few meals as the real money is finishing in the top five.]

OK, so what does this have to do with my trading? Here are a few reflections:

1. Poker has magnified my personal trading weaknesses, and in some way has transferred potential market blunders from my large S&P trades to small scale poker losses [as in: Largest career S&P loss ever $80K; Largest Poker loss to date: $650]. Example: I suck when I'm tired. Period. Happens in poker all the time. I remember a few weeks ago when I was up strong in a cash game, and then gave much of it away in one hand at 3am on a poorly read hand after a six-hour stint. Seems that reinforcement has reduced the # of times I've tried to trade tired in the market.

2. You can't expect to win at poker [or the market] if you limit your time exposure, as probability requires time to play out in both cards and in the market. I still struggle with this in the market given non-market obligations, but I can say that I trade less now when I'm faced with a limited trading window vs. before I began my poker journey.

3. Bet strong and add to your position when you have a strong hand ... especially the nuts. This notion has had the greatest positive influence on my trading. Size at the right time matters in both poker and trading, as one can make a month's worth of income on a single trade/hand. I will say that I'm better at this in my trading vs. poker, giving the occasional necessity to hide one's hand strength in poker. At the table, I still struggle with deciding when to go for it vs. hiding. No need to hide hand strength when trading the S&Ps electronically!

In fact, I credit poker reinforcement directly for my size & trade management last Thursday, when I bought heavy within a point of the market's morning puke point and had my best take in several years in about a ten minute window. [I could almost hear Jeff saying, "Bet those trips strong".]

Of coursing sensing with high probability that one has the nuts and actually having it are two different things. At least in trading, there are position reducing stop actions that can take effect when wrong. In no-limit hold 'em, if you're wrong ... see ya. [I still find myself calling a poker all-in with what often turns out to be the second-best possible hand. Happened yesterday when I had Aces over Kings and didn't put my opponent on three Jacks. Lost a bit on that one. Another time yesterday, I had A-K and the flop -- I kid you not -- came A-A-A. Once-in-a-lifetime hand. Problem was there was no money in the pot and just two of us ... one was the Big Blind with a likely crappy hand ... who checked it down to the river where I couldn't even get a small value bet called. Imagine, having one of the best hands you can have and getting zippo for it.] Which brings me to another thought ...

3. Tilt. Happens at both the table and market. Advantage unemotional pros. 'Nuff said. And lastly ...

4. Playing poker has made trading "feel" easy in comparison. Any decent card player knows the element of short-term luck is a key factor in poker. "Short-term luck/long-term skill" is the winning combination cited by most poker pros. And while on rare occasions "luck" occurs in the markets [i.e. being long when a surprise interest rate cut is announced], the "luck" factor is pretty much absent in the trading world.

This luck factor still aggravates me to death in my poker game. Like anyone, I've drowned at the river in non-cash tournament games by some donkey whose called my trip Aces with a 1% hand but catches runner-runner to fill out his 2-6 straight. I've then seen myself morph into the very "sore loser" that I used to criticize, spewing something like "You called with that crap??"

But those are the gamblers playing with either none of their personal cash at stake (free tournaments) or playing cash games for a very short time before they bust. Thankfully, the market is a true cash game where the gamblers always donate their chips to the pros.

I'd hate to try to earn my living at the table ... but I'll keep playing for the trading benefits.

Saturday, July 5, 2008

Why Has It Worked?

My mid-year sanity check has my brain in high gear, especially as it relates to the chart mentioned in my last post in terms of "why has it worked?"

Here are a few thoughts:

(1) The bounce is similar to actual performance after draws. Essentially it's "been there, done that" and thus reflects concrete evidence that has evidently been burned into my brain to support the expected performance bounce.

(2) The chart reflects one of my all time favorite setups: a reversion toward the mean -- a.k.a. 1st pullback following a break to new highs -- in a clear uptrend, albeit at ridiculous proportions. The fact that the chart is an equity curve and not a market chart makes no difference. I've often found that life's charts are extremely similar those of the market. Consolidation breakouts, doldrum days, peaks & valleys ... you get the point.

(3) By believing that "eventual day from hell that's just around the corner" that used to plague my trading has already occurred, the likelihood that I'll self implode due to some silly subconscious income-limiting belief has been greatly reduced. In fact at this very moment, I'm looking at the chart pissed as heck that I just drew down that badly on Friday to prepare for the coming week. "How could it happen?" "What did or didn't I do?" "Back off from the next trade until damn sure it's the right high probability setup!" All soul searching for Monday.

(4) It just "feels" right. I can't explain it, but it has made my trading feel more natural and unforced, and as a result I find myself holding good entries longer, withstanding more wiggles, and trading larger sizes more naturally. Perhaps it's because I know -- even without viewing the scorecard -- that there's an underlying growth in capital such that has alleviated much of any former capital-related fear component. Who knows? All I can say is that it just feels as if the world is at it should be.

Some day, I'll share the actual results of this week, but that's for another day. I've got a comeback to focus on.

Friday, July 4, 2008

The Cornerstone

One of the things I did at the beginning of this year was to take a hard look at all of my trading shortcomings. In doing so, I discovered that one of my greatest weaknesses was getting sloppy and away from my game plan after a period of significant equity growth. On most occasions, the result was a drawdown and an resulting equity ceiling -- both real and perceived. Yet a decade of history also showed that one of my greatest strengths has always been refocusing and coming back from these times. That is when I've experienced my greatest focus and performance.

So this year, I decided to do two things:

(1) Get myself in the "comeback" mindset in every moment of every trade of every day; and

(2) Not look at my actual equity balance until June 30 and December 31.

For #1, I created the following visualization chart:

What does it reflect? Well, the solid blue line reflects my actual equity curve over a period of time leading up to January 1 -- and this is key -- up to the point of the peak. The subsequent sharp blue retracement line reflects a fictitious and exaggerated significant drawdown, and the dotted rebound reflects how I have traditionally traded after a drawdown.

So effective January 1, I trained myself to believe that I had just experienced a devastating loss and was refocusing for the greatest comeback of all. Then day after day, I mentally put myself at the trough of the "V" bottom just above "support" -- in every moment of every trade of every day. It took some training to turn fiction into firm belief, but I can truly state that I believe this low point is where I will always stand on my equity curve.

As far as #2 and not looking at my balance, it was a pure cold-turkey move as I have always booked my P&L daily and reconciled my brokerage statement balance to my internal records. So effective January, I made it a point to simply view only the portion of my daily statement that contained the trades (to ensure I was flat) and the daily gain/loss and commissions (for booking purposes).

Paraphrasing Dr. Brett Steenbarger, it's difficult -- if not impossible -- for one to trade and keep score. And yes, it was extremely difficult and painful at first, before it eventually became a routine.

I can't begin to overstate what these two actions have done for my trading and fund performance. I looked at total performance and accumulated balance at the end of June for the first time this year, and the results were astonishing. Each of the six months ranked among my best producing months ever, and the true curve is a continuation from the peak above. [But the above chart will be the only one I view, perhaps until I retire.]

Those who know me know that I've always believed and preached that trading is 99% between the ears. The vast array of technical setups provide probability, but that's it. I credit Dr. Steenbarger and his work for triggering much of my thought and action.

I encourage you to find your inner demons & worst weaknesses, fess up to them, and then take action to correct them -- no matter how crazy it seems. In trading and in life.

Trading Philosophy & Foundation

For those not familiar with me, it would probably help to recap my background, philosophies and trading style -- which will also cut down on emails!

47 Years Young; Ten Years Trading Equities, ETFs, & Futures; Member of the Chicago Mercantile Exchange since 2004; NASD Series 65 Certified; Published in numerous trading publications including SFO and Stocks & Commodities; Publications include:

"Don Miller and the Ultimate Entrepreneurial Experience" Technical Analysis of Stocks & Commodities January 2005

"ETFs and E-Mini Futures: A Side-By-Side Review"
SFO Magazine December 2002

"What's Up with the QQQ?" SFO Magazine September 2002

"Trading the QQQ" Technical Analysis of Stocks & Commodities July 2002

Fund Traded
A private fund of about $1.3 Million.

Profit Objective
50% Annual Return

2008 YTD Performance (through June)
Fully Supported by Brokerage Statements

Trading Style
I'm clearly a short-term trader and member of the CME [so my commissions are low]. I trade both long and short with the intent of entering at wholesale prices and exiting at retail prices, and in doing so help provide liquidity to the market.

Technical Indicators Used
Moving Averages, Stochastics, ADX, NYSE TICK, 3 Line Break on Multiple Timeframes

Trading Infrastructure
MF Global Broker (THE best in the industry; Contact Pat Lafferty], Trading Technologies Trade Entry Platform, TradeStation & ESignal chart feeds; Three CPUs including a Sony Vaio laptop with wireless WAN, Comcast & Sprint PCS internet

Current Trading Vehicles
Primarily S&P EMini Futures; Some DAX Futures

Favorite Setups
1st Pullback in Trend; Fading Market Extremes

Market Dislikes
Hype chatrooms or market subscriptions from people who DON'T TRADE but want you to put YOUR money at risk.

Biggest Trading Errors
Too many to mention; Experience IS the best teacher. You name it, I've done it.

Largest Trading Success
Surviving the 1st ten years and thereby providing the opportunity to thrive; What doesn't kill you DOES make you stronger.

OK, enough of that. Let's begin filling in the gaps of the last thirty months.

Out of Hiding

Where does one begin after a 2 1/2 year break from the public eye?

As some of you may know, February 2006 was my last public post after years of teaching traders and writing for various trading publications & websites. Two and 1/2 years. Gas prices were a heckuva lot lower and the Celtics were pre-Garnett.

And while I had planned on remaining "off the radar" until the beginning of 2009, I want to begin sharing the revelations I've discovered that have taken my trading to a completely new paradigm [Here's a tease as noted in Dr. Brett Steenbarger's 6/7/08 post], as well as start a formal logging of daily thoughts, trades, and results. And yes, as I've always done in the past, I'll post actual results ... good, bad, ugly, and fully supported by trading records.

As has been the case in my past "public" life, this will be a completely no-hype site. I hate it, period. I'm a trader ... pure and simple ... and consider the ethical portion of this business to be more important than any other aspect of trading. The sole purpose of my posts will be to share observations from one person's perspective for those who choose to follow my journey to consider.

So let the journey begin anew.