Wednesday, August 13, 2008

Wednesday Notes - Tale of Two Markets

12:03pm I don't know why, but I tend to trade better when mad. After botching an overnight opportunity in the DAX on its late-day breakdown out of consolidation prior to the U.S. open, I got pissed and have finally got back in lockstep with the U.S. market. I guess it's how I'm wired and why the fictitious draw programming works for me (that is, when I actually believe it ... which is becoming an issue I'm struggling with).

15- and 30-minute has initial resistance above in the mid 1280s, and I'd like to either buy the next leg down or fade a clear retracement with some size. Just a matter of the market cooperating before and after! Not much to ask, is it?

I almost did a late night blog entry last night as I was thinking out loud trying to figure out if I've gotten complacent in these late dog days of summer in terms of reduced size and interest at times, or if my size management has actually done a decent job of keeping me out of trouble -- and if so, I'm simply beating myself up over nothing. I decided to instead get a good night's sleep after figuring that time would provide the answers ... time in the context of a few more trading sessions before I jumped to any conclusions. Plus, I was tired from watching the 36 runs in the Red Sox - Rangers game!

I sometimes think back to Herb Brooks' constant encouragement to his team during the 1980 Miracle On Ice run ... "Play Your Game" (when he wasn't cursing at them). Those words ring very true to me any time I feel unsettled, and I'm relying on them strongly as this summer nears an end and days of treading water run together. My game? Chip away at the market providing some liquidity day after day -- sometimes marking time -- until such time I feel I'm locked into an opportunity at which point the defense comes off the field and the offense finally lets loose. Right now, the defense looks tired and is screaming at the coach saying they want to come out of the game. And the offense is taking off their warmups.

12:42 Want to begin establishing a short position if ES gets to 1283 with a preferred position closer to 1285-86. Been nibbling on the short side on this midday climb, but keeping size light and holding time tight (even for me).

1:16pm Longs have some work to do as we're back below Friday's breakout for now.

1:28pm Shorted partial 1282 in case that's all she wrote. Will let it run against me; managing risk with size. Can run to the 30/60 min (1286-88) and still sustain downtrend.

1:32pm Added small 84.75.

1:48pm Right read on expected squeeze; wrong read on extent. Did some dancing on size mgt and re-entries. Flat now and looking for possible reentry on any divergences with 30/60 min at back.

2:04pm Reestablishing short position 88.00. Prefer to see 1 min turn now to add. Hard stop at 90.00. Will take it out on TICK drop.

2:11pm Dive little TICK, dive.

2:12pm Flat best cover 86.25. Didn't add ... traded what I had. Too much action to memorialize all activity, but think I captured the gist of it. Just missed a clean reversal long at 1:50pm as I was scratching the short sequence on the drop and had bids in below to reverse. Want a mulligan on that one. Very fertile ES scalping market on overreactions. Reassessing charts now as we have multiple timeframe ping-pong going on.

2:25pm Quick self-assessment. Decent size management ... a good reminder that risk can be managed by size, stops, or both. Never had full size on and had a fairly loose leash on initial short probes. Seems I ended up essentially flat on the sequences. A reminder if you're looking over my shoulder that I do fade immediate moves at times to provide liquidity ... but have seat belts and airbags at my disposal. I prefer to trade with the 1-min trend, yet sometimes I'll put some probe bets on, expecting the market to run against me initially.

2:34pm Still kicking myself over that 1:50pm reversal pitch over the heart of the plate that I just missed. Good battle of a strong 5-min uptrend banging up against 30- & 60-min resistance. Not too interested for reentering right now as they battle it out, and less interested in shorting.

3:01pm Tale of two intraday trends with equal opportunity ... trend shorts win in the A.M.; trend longs early P.M.; overreaction longs A.M.; overreaction shorts & longs P.M. Trader flexibility critical today as in not getting locked into changing biases. Personally, I think it's tough to clean up on both sides ... probably better to stay out of trouble on one. Did pretty well here on the shift at least by staying off the short trend bias as the day went on. Potential longer-term triangle as we now bounce around a bit, but decent wholesale opportunities within the larger range with good pace. Also a good day showing why moving averages only relevant when used in combo with momementum & strength indicators.

3:04pm Gain preservation mode.

3:45pm Clipped a couple of stretched bungee scalps to end the day. Decent comeback from the early DAX mess to end +$9K with a solid ES showing. Missed enough opportunities and was still wrong enough though to have plenty to work on tomorrow ... not a bad combo.

140 days to go.


Anonymous said...


Thanks for the blog, good to read you. Was wondering what your thoughts are on the relative importance of reward to risk ratios and win rates. It seems to be that the only approaches that make money over time are the ones that have much larger average wins than average losses with a respectable win rate (say 50-60%) rather than the ones that show higher win rates of 70% but with smaller average wins to average losses. And this regardless of style. Do you have any thoughts on this issue?


Don Miller said...

Hi SS.

Tough for me to say, aside from talking to my own style and experience which essentially views an entire day as a "trade". This is because I often trade frequently throughout the day and place little emphasis on specific trades.

In my case, I typically have a fairly high daily gain vs. draw ratio (based on a net day's result), with the lesser frequent draws often being larger than the average win. [That's actually common among liquidity-providing traders, where their avg loss exceeds their avg gain on those significant squeeze days or if they're out of rhythm, yet they're net + over time since the end-of-day win/loss is so high.]

You could probably extrapolate that particular style to specific trades as well, yet I imagine one could run various math scenarios of varying avg # and $ of wins and losses, and find several combinations that result in similiar net + or -.

I've never run the #s, yet feel there are multiple ways to "paint one's trading canvas" based on comfort, personality, and of course a methodology that indeed reults in a net + over the long haul. I doubt there's a right answer :-).

Thoughts from this end anyway.