Tuesday, October 14, 2008

Tuesday Notes - Solid Performance

11:54am Nice to see the market acting "normally" within abnormal conditions. Despite the craziness of yesterday's record bounce out of the abyss, we indeed got the expected morning-after-trend action that so often follows a trend day. And as is usually the case, it was the traders' turn to earn their keep from the more predictable day after trend action -- versus yesterday's "trend" of over 100 points on ES (... and if anyone tries to convince you that yesterday's run was a high-probability expectation, I've got some Jan. 2009 Patriots Super Bowl tickets to sell you.) I'll take high probability every day.

At this end, I traded both long and short, with most of the morning's $40K chip gain coming from shorting the opening gap and adding upon confirmation of the initial turn. I could have sized stronger at the open for a home run, but instead opted for modest size and the solid extra base hit as I wasn't as focused as I would like to start the day. I mean I was focused, but not with that added element where I'd be comfortable trading mega-size.

So the week chip counts start: -$11K Monday (playing defense on low probability trend day) and +$40K today (playing offense on high probability morning after trend), or about what I would expect from a win/loss ratio perspective given the two types of days, and I remain pretty pleased with how I managed yesterday. I'm sure many "the S&P NEVER climbs 100 points in a day" traders got torched. Sure, it hasn't happened before and probably won't ever happen again, but that's still not "never".

1:06pm Not sure I'll trade much this PM as the afternoon of the oscillation day is typically a crap shoot at best. The daily downtrend could certainly resume (ummmm, yesterday's 100 point move and the overnight gap was a pullback on a daily downtrend as noted in the chart), but I'm a bit tired and still don't feel particularly sharp. Putting the defense back on the field now and not giving away the morning's work.

3:34pm OK, calling it a day. Nudged the chip count to +$44K by shorting the PM breakdown and then doing some light buying on the 3LB turn north. Very pleased with overall management the last two days. Earlier in my career I would have gotten hurt yesterday and then been too pissed off to trade today well. A decade of experience taught otherwise, and "Day 2" is when I make much of my keep.

I'll do a video shortly on my strong feelings of why "Day 2" is so much more predictable than "Day 1" ... Day 1 usually being the trend day. I find it's often best to simply let "Day 1" happen without major damage.

Also made another decent dent in the Q4 bonus which shot up to 41% complete with 2 1/2 months still to go.


Steve0617 said...


Are you using point stops or 'eyeball' (it looks like the trade premise failed) stops? I had one of my worst days today because I continued to use my point stops. I got some sloppy entries and then got chopped around (which in 'normal' volatility would have been within the stop distance) and kicked out of 70+% of my trades.

Kept getting back in because the trade premise was still valid and got whacked again and again.


So, eyeball stops or point stops for you during this extreme volatility?

Don Miller said...

Hi Steve.

Hang in there ... I can relate and have had some gawd awful days this year as well.

There's no doubt the volatility is tossing a lot of traders around, and it's taken me a bit of getting banged up to adapt. I think all one can do (my opinion only) in this environment is look for "zones" and manage risk more with reduced size than point-based stops.

Two- or three-point stops which may work well in a "thick" trading environment are pretty useless when ES is moving 5 points in the blink of an eye.

Keeping size small to modest initially and adding when the trade is moving in my direction seems to have helped, but it's admittedly a very different environment vs. what we've grown accustomed to before the crash.

Not sure that helps, but thoughts from here anyway. We can kick around ideas tomorrow night in PalTalk if you'll be around.

Hang in there.


Anonymous said...

Hi Don,

I really enjoy your blog and appreciate the useful feedback like what you provided above.

I must have been in the same boat as Steve because I got whacked time and time again too but just kept coming back for more. It was brutal and unfortunately I let it feel like a personal attack by the time the day was over. I even tried my version of EESM during the day and got whacked on those too. Oh it was nasty.

The tip you provided to Steve will help me too as long as I can apply it to the right market. I feel a bit better too knowing I'm not alone in finding this day difficult.

Thanks again Don for the blog and the helpful insights you provide. And Steve, best of luck to both of us in our recovery mode.