Wednesday, September 10, 2008

Wednesday Notes - Solid Performance

3:50am Decided to scramble the brain a bit (old trick from Robin Dayne) to try and step up performance by trading a couple of NQ sequences for the first time in over a year, as well as work out yesterday's "getting going" kinks in the Globex session ... especially in case ES traded back toward Tuesday's rock solid resistance overnight. And lo and behold the market presented the above action (click charts to enlarge) as Europe's open -- and even its pre-open positioning -- took the DAX and ES right to the brick wall for three subsequent smackdowns.

Caught the DAX opening short and got a good chunk of its drop, although I purposely had better size and holding time on ES and caught a few of its convulsions. Toughest thing frankly was trading it on no sleep (haven't been to bed yet) ... but the read, execution, and conviction -- the "c" word has been missing as of late -- were all there and got the "day" off on a better foot.

Heading for a nap now.

6:57am Two hour nap ... which means I'll be toast by 2pm. As I look at the charts -- and while it was good to be around for the Globex session (which falls into the "90% of success is often just simply showing up" and "you have to be willing to do what others won't do" categories) -- I'm a bit concerned about the predictability of the normal session as ES has had no less than four solid short approaches to the 1240 area with the expected smackdowns overnight. Usually, such overnight action lessens the probability of similar action in the normal session ... although it can of course still happen if the resistance and underlying trend is strong enough and so I'll trust it this morning until broken.

10:42am ES indeed provided another opportunity for those sleeping through the night as we're in classic morning-after-trend mode. Ironically, the Globex pace seemed easier to trade, but I did catch a piece of the 15-min resistance short. Still have to work on that 9:30-9:45 crispness though. On sidelines here waiting for the dealer to deal the next quality hand. Long-term, seems down is the way to go, but short-term a coin flip.

11:48am Did some bottom fishing on the 11:30am price vs. TICK divergence, although the oversold snapback profits compensated for some foot-in-the-water long testing stops. Slowing down here and lack of sleep catching up with me. Nice extreme scalping market ... textbook day-after-trend action with strong volatility. Noticing I'm not as "early" as I was yesterday on fade entries ... critical in this market and likely reflects my conviction of the expected market pace.

ES on the fence heading into the lunch hour. Little interest here.

I mentioned earlier I traded NQ to scramble the brain a bit. Just seemed I needed to trade another market to clear my head a bit and think it helped. Netted a whopping $25 (that's dollars) ... but the task served its purpose.

12:48pm No trades. Been looking for an extreme to fade, but tight range for the most part.

1:17pm Teeny liquidity-providing $0.75 scalp on tiny range break. Just don't see anything though and not interested in playing ping pong in a phone booth.

1:39pm Taking this range break attempt long. Long from 34.75, took 1 already, and will add on pullback if we get it. Free-riding rest. VIX poised to pop ES.

1:43pm Added 34.75. This can pop toward 40 if shorts get scampering. Stop at 32.00 (about where 1-min 3LB would turn down).

1:47pm Scratched 33.00/33.25 for loss; Didn't move quickly enough. May reload if it breaks last high, but that attempt was pathetic.

1:51pm Good decision to scratch Don. Nice read. Will only take a break of 36.00 long now.

1:58pm Nibbling on scalp short now 32.75 (If it ain't going up ............) Think we have stuck longs on that last pop. Small size though and in income preservation mode for the PM.

2:02pm Flat; best cover 31.00. Let's see which way they take this now ... 5 min trend flat as a pancake ... NOT fertile conditions and a total coin flip. Seem to be getting second wind now (me ... not the market), but don't think it will last. Need to see more cards now. Don't guess Don!

2:13pm Long from 35.50 & 36.00. Took 1 pt and free-riding rest Should see approach to 40 now.

2:15pm Pared 38.00; Sitting at 39.75 & 40.75 on rest.

2:16pm 39.75 hit. Nice. Keeping PM sizes modest. Not sure how I'm still on my game ... been a looooong day. Don't question it Don; just react.

2:18pm 40.75 hit. Sweeeeet. That may be it unless we get a short-covering capitulation spike to short. Resistance in mid 40s, but won't touch short unless it spikes toward 1250. Nice profits in hand today and not handing over my chips to anyone.

2:25pm Focus fading big-time now ... bordering on exhaustion. Who says trading isn't a sport?? Where's the relief pitcher?? Just don't bring in Papelbon. Getting some water.

2:36pm Resistance zone here, but mind not clear enough to trade it ... reflexes poor ... watching only. 1236-1244 clear range for now. How about a Globex-type 15 point spike to short???

2:54pm Shorted breakdown of 41 for a point.

2:58pm Long off 37-38 for a point.

3:02pm Clearing hitting diminishing returns on my trades. Also very tentative. Where's my blankie?

3:23pm I'm officially toast now.

A solid $27K net.

111 days to go. I might just make it.

Someone please hand me a towel.


Anonymous said...

Great trading Don!

MK said...

You're hurting the market plenty now that we are is SEPT - nice going!

I like the idea about how you scale-in/out of both your entries and your exits but I can't quit envision how you do it still.

A lot of your trades are 1pt winners but I assume you are risking more than 1pt on most of those trades? I know you say you manage risk with size, but when you enter a trade, there is an expectation of what you might get vs what you might risk? Any idea what the average winner and average loser is across your trade? Maybe difficult to answer that with your high freq trading.

All my best for the remainder of SEPT.

With kind regards,

Don Miller said...

Hey MK.

I'll try my best to respond to your question. Forgive me in advance if I begin babbling off topic :-).

First, as I mentioned in a recent comment, I truly view the entire day as a single trade. I know that sounds odd, but I do, and that perception has helped me greatly in recent years. So one way I can respond is to say that I have a very high percentage of winning days (the last August post of the visual equity curve can help provide perspective of frequency and extent of day wins vs. losses).

Such is the situation with many liquidity-providing CME "locals" as they often have a high % of solid days, and even if it's offset by the occasional large loss (much larger than the average win), it's still long-term profitable.

Now taking that concept to specific intraday trades, I'd say the same thing in that "most of the time" I have a high % of small wins and scratches vs. losses, such that even a few losses that exceed the average gain still results in a net +.

When I taught years ago, I would compare these scenarios:

9 wins for $1.00 plus 1 loss for -$2.00 = +$7.00 Net at a 90% win/loss.


6 wins for $2.00 plus 4 losses for -$1.00 = +8.00 at a 60% win/loss.

Obviously, pretty close net performance.

I definitely lean more toward the first in terms of both (1) intraday trades and (2) the "each day is a single trade" concept. [As a quick aside, this is another area where I feel there are huge misconceptions in terms of people thinking that the risked loss has to be less than the speculated gain. Of course the win/loss has to be pretty high.]

On an intraday basis, it's frankly pretty difficult to have a substantial losing sequence when one has any read at all on the market and is constantly adjusting size up or down based on what the market is doing ... especially when adequately capitalized where only a small % of capital is risked on the initial entry. For example, I often scale into a 60 contract position size in 15 or 30 increments, and scale out similarly ... although usually more slowly. For me, scaling in and out makes up for so many market and performance imperfections, it's a great tool. I don't look at a trade as simply being black or white (right or wrong) ... there are many shades of gray and the market usually doesn't provide such precision.

Yet I could -- and sometimes do -- step up size well beyond that.

Having said that, consecutive losing trades and days do happen and I need only point to my early July two-day brain cramp and portions of several days in the blog to prove that I can be out of sync with the best of them :-).

I hope that helps.

{btw, thanks for the kind words ... yet remember I have to view today as a nasty draw to set up tomorrow)

Stay well.


Don Miller said...

Also forgot to discuss size management (the third leg of the trading stool in addition to win/loss $ and win/loss %) in response to MK's question.

See Thursday's 9/11 main post for more discussion on the topic.


MK said...

Hi Don,

Thanks for the informative reply.

"[As a quick aside, this is another area where I feel there are huge misconceptions in terms of people thinking that the risked loss has to be less than the speculated gain. Of course the win/loss has to be pretty high.]"

Exactly! This is why I asked the question. That is the thinking I have been led to believe but have noticed that the way you trade is probably reversed. Often I get trade ideas where I am pretty sure I could get a point, but pass on them because I will need to risk more than a point probably (or at least risk 1 point) to play. Now I see, you are not so concerned with the reward to risk ratio.

Excellent comments on your 'sequence' style of trading. Very interested in learning more about that as I am perched over your shoulder throughout this journal.

Thanks again for the descriptive post.

All my best,