Friday, August 1, 2008

The Weekend Trader (Early Edition)

First things first. I did hold onto the morning gains and cut my size drastically on the few small remaining lures I put into the water. No sense trading late on a summer Friday on the first day of the month. Plus, I didn't see anything spectacular after the morning session. So for the first time in a while, I'd give myself an A on both reads and execution, didn't overtrade, and am satisfied with my performance -- for the moment.


A few weeks ago, I'd mentioned my recent poker experiences and the profound impact it's had on my trading. And one of the concepts that translates well to the trading industry is managing a growing chip count. For example, one of the huge flaws in my poker game -- especially in tournaments -- is getting sloppy with a large chip count. For example, I find myself playing many more marginal hands, essentially getting away from the tight play that grew the stack in the first place. And earlier this week, I did just that and went from chip leader among the remaining five (of 30) to the first one out fairly quickly. And what's interesting is that it's not like I start playing 2-7 unsuited ... rather I start playing hands like A-8 suited, or a low pocket pair that I don't fold after the flop doesn't turn up trips. Next thing you know, I wonder where the chips went and then have to play more aggressively to get it back.

Prior to this year, dealing with trading successes over a period of time was also a large issue for me. Yet ironically, I saw the problem much more clearly at the card table which planted one of the seeds for the fictitious draw approach. In other words, always play as if you have limited chips. Some traders accomplish that by simply withdrawing funds from their growing balances. At this end, I've chosen to deal with it psychologically by not viewing my balance and simply getting myself to believe a portion has been lost. All I can say is that in eight months of this approach, it's worked. And when something works ...

Which brings me back to this blog. As I enter the second month of my constant babbling after the looooong hiatus, I'm curious as to whether opening this frank and personal diary has been helpful to those looking over my shoulder. I do know hits on the blog have increased dramatically since we began this trek, simply through word of mouth and nothing more. And it's been intriguing to say the least at this end, as I feel a bit like Sidney Freedman of M*A*S*H writing letters to Sigmund Freud for therapy. I think it's been helpful for me, yet the truth will be known at the end of the year when I compare my non-blog performance in the first six months of 2008 with the post-blog performance.

I sincerely view this business as people helping people. Yes, it's a competitive market where equity is shifted from the large majority to the small minority. But to the extent we can support each other and help plant some seeds that grow that minority ever so slightly, I'd love to be a small part of that.

Feel free to comment as always.


Anonymous said...


Your thoughts, concepts, approach to trading are extremely beneficial to me. I find myself looking forward to reading your daily blogs w/ great anticipation. I must honestly say, I took a step back from trading for a bit due to various circumstances I may discuss w/ you down the road but do trade the market from a swing perspective.

Following the market is my passion. In fact, I greatly took advantage of the internet boom & bubble back in ’98 – ’01 as a professional trader for a day-trading firm headquartered in Las Vegas. My title was independent contractor for the firm (Bright Trading) which basically meant for a seat fee of around $500/month & a starting capital of around $25K I was able to utilize their trading technology, capital, & conversion strategies (option technique that allows a trader to short stocks on a down tick) to successfully trade the equities market. As you know, this type of market is no longer & when I was trading it was primarily in the equities market & not the futures market. I have since moved entirely to the futures market & trade an option strategy month-to-month which generates around a 20-30% return annually on a consistent basis. As long as I manage the inevitable losses (which I have successfully done) this type of return is quite achievable. However, this return comes nothing close to what I was able to make back in the good old days.

My dream/goal is to get back to professionally trading as my sole source of income & I believe this may be accomplished by implementing a good portion of your approach to trading the emini’s into my game plan. I know this can be done & am mentally, financially, physically preparing myself for this to take place sometime in the future. I made some mistakes that I never plan to repeat & put myself in a position where I had to go back into the workforce & get a “real job” as some people like to say. This has been quite a humbling experience to say the least but has been good for me in respect that I never plan on repeating the past mistakes that put me in this position. I’ve gone through a difficult two years. I was self-employed for eight years but like I said, I made some foolish mistakes the required me to go back to W2 land. I’m confident, I’ll get back into trading when I’m back on solid ground & I GREATLY appreciate you allowing me to look over your shoulder.

You mentioned in your most recent blog how much viewers were really getting out of your posts. I can honestly tell you they mean a TON to me! There is nothing like being able to share in the thoughts of someone who is a professional trading who is doing what I hope & pray I will be able to do sometime in the future. Don, I’m a religious guy as I know you are as well so I feel I can share this w/ you. A few months ago I had a dream that I was able to look over your shoulder for a few days in a live/real-person setup to physically experience & pick your brain w/ regards to how you successfully trade for a living. I remember afterwards talking to my wife about this experience & how it was strange since I’m no longer trading from a day-trading perspective but from a swing perspective, i.e. larger time-frames & sometimes month to month w/ regards to my option strategies. She just nodded & went back to what she was doing. She’s use to me talking about the market & to be honest, I know she gets tired of hearing about it. My thought to this dream is that it is now coming true through your trading blog.

I’ve begun paper trading the emini’s since you began your blog & so far so good. I’m doing my best to take the highest probability trades & to know my scale in/scale out points as well as my stopping points ahead of time so to make it as realistic as possible. I’m hoping after a few months I’ll have a solid track record under my belt.

I’m sorry to drag this on for as long as I have & I can assure you, this is not the norm for me. I typically get straight to the point on something then move on. I just want to let you know that I am passionate about the market as I know you are & I very much appreciate having the opportunity to look over your shoulder. I look forward to viewing more of your blogs in the future & appreciate you sharing w/ me.

God Bless,


Don Miller said...

Hi traderboy.

Wow ... talk about "working in mysterious ways". This business also continues to frustrate, challenge, entice, and energize me all at the same time. Perhaps our neverending goal is to simply strive each day to get better at what we do, and learn enough to first make do and then thrive.

As I mentioned in a couple of my earlier posts, the resurrection of the Bamboo Tree concept was in part because it has hit home with me big-time this year. I never imagined it would take close to a decade to overcome some of my greatest challenges. [No worry about ego, I have plenty others to overcome, some of which will always be with me!] And without getting overly philsophical, I've witnessed firsthand how that's happened in life as well with personal tragedy followed by a totally unexpected rise to greater heights ... and certainly not the result of anything "I" did.

Jimmy Valvano had it right, and you've given me some thoughts for the other Weekend post which will be up shortly.

Stay well.


MK said...

Hi Don,

I too am finding myself looking forward to reading your posts each day. Sharing the good, the bad, and the ugly is very inspirational and allows me to glimpse inside a professional traders mind. Something that is hard to come by when one trades as a monk from home.

I would be fascinated to learn more about your 'sequences'. I think they are when you trade around and idea by scaling in/out of a core position until the idea plays out, but I am not entirely sure. If my thinking is right, I would like to look more closely into the decision making process of the scale in/out decisions. This may be too much to ask for due to the time involved, because I understand that sometimes you have to dance fairly quickly. Just thought I would put this out there though in case it is possible.

With kind regards,

Don Miller said...

Hi MK.

Yes, I define a sequence as essentially going from a flat to flat position with the basic premise of entering at wholesale prices and exiting at retail prices. And yes, sometimes it's a fast dance.

Of course, everyone paints the canvas with their own brush and there's no right or wrong way [unless your actions are resulting in net losses over time ... then I think it's pretty safe to way you may want to find a better alternative!]

I've chosen scaling in and out to (1) make up for the imperfections of the market by trading "around" key levels, (2) use my relative size as risk management moreso than price-based stops alone [i.e. if I have a 1/5 position on, I'm managing risk with size and for the moment and don't focus on a price-based stop], and (3) provide some market liquidity at the same time.

My typical entries are (1) first trend pullbacks with the objective of exiting on the move back toward the last trend peak and (2) fading EXTREME moves and exiting on the reversion to the mean snapback. I'll typically always take some initial profit quickly as price moves in my direction. And yes, fading extremes carries its own risk which can be substantial if one is early or not trading with the objective of exiting immeidately on the snapback. When I'm talking about extremes, I'm talking about where traders are clearly throwing the baby out with the bathwater.

I may enter 50 sequences a day, or maybe just 10. I also probe and scratch a lot of stuff with small size. For me, I find it better to sense the market flow if I'm swimming in the river vs. watching from the shore, but there's a cost of doing so that can add up quickly. Remember, my commissions are extremely low as a member of the Merc.

I still have challenges with optimal exits as I know I tend to exit too soon when I have solid entries. Playing poker has helped me see that more clearly and I'm continuing to work on improving it.

Again, it's just what I do, as there's no right way. Hope that helps.