Sunday, February 1, 2009

The Weekend Trader - Super Sunday Thoughts

Some thoughts on this Super Bowl Sunday:

Prior Day Comment Responses - A reminder for all that some of the best discussion on this site takes place in the Comments sections of prior day's posts, and I encourage serious onlookers to always go back a few days and see if there's been new discussion or follow-up to recent posts. The last few days are good examples.

My Readings - One recent comment asked me what market material I usually read. My response was during the day, two sections of Barrons on Sunday, and an occasional peek at Dr. Brett's site. Other than that, I have no interest at all in reading anything that might provoke thoughts that would interfere with consistently applying a proven methodology reflecting a decade of work.

K.I.S.S. - And speaking of Dr. Brett, he had a good post last week discussing 3 basic trade setups. It was great timing considering I mentioned in last weekend's post on "Trading an Edge" that trading edges are usually incredibly simple. Continued note to self: Keep it simple, stupid.

My Trading Screen
- For those new to the blog, there's a good pic of my trading screen embedded in last year's August 15 post. The only difference now is that I'm using eSignal charts instead of Tradestation, but the layout and placement of screens, including the DOM order entry window overlay on the chart, remain the same.

Trading Small Accounts - There seems to be a growing perception that I can generate the results I have simply because I have a large account of over $2M. The best way to put that to rest is that while I can trade close to 500 contracts based on current contract margin requirements, my typical trade sequence size usually ranges from 15 to 60, and I don't recall ever having 100 contracts on during January. And 15 contracts only requires a $93K account (15 x $6,188 initial margin = $92,820). For me, it's simply a matter of chipping away with lots of singles and doubles and letting the countdown clock to the left do most of the work.

Now to anticipate questions on this (heck, I'm a trader and it's my job to anticipate), why haven't I increased size? Four primary reasons:

First and foremost, as I've learned over the years, "Why fix what isn't broken?" I'm very comfortable trading lots in multiples of 15 or 30 [over and over again of course] and it works for me. And thinking back to my trading career and Golf is Not a Game of Perfect where Seve Ballesteros tried "tinkering" with an already successful game which all but ruined him, I'm well aware of the dangers of trying to improve something that works. Remember how we ended up with Coke Classic after the "New Coke" bombed?? I also hate the new BMW styles which is why I'm going to try to keep Grace (born 2004 and adopted 2007) for years to come.

Second, it allows me to put less of my capital at risk over time, which provides me with a huge psychological edge as time goes on. Again, as pointed out in yesterday's post, I'm only interested in profit ... not ROR.

Third, I've seen the dangers firsthand of using large capital to increase size above acceptable risk proportions by fading perceived market extremes (remember, most of my trading is about fading extremes ... extreme pullbacks or extreme unsustainable emotional spikes). Last year's day from hell -- which by the way gets a large number of hits daily (must be like why many watch NASCAR ... for the crashes) -- is a prime example where having the large balance caught me. Simply put, deep pockets can hurt as much as help, if not more so.

And fourth, keeping sizes to comfort levels allows me to maintain an ongoing untapped "future" challenge in my hip pocket should I decide to ever focus on increasing size substantially. That alone will require substantial focus and dedication which I'm not currently ready to pursue.

Again, there are no absolute rights or wrongs in this business ... only lots of grays and personal preference.

To me, Trading will always remain an art. And as I've mentioned in the past, I believe we all have a blank canvas and can choose to paint by numbers or go freehand. We can listen to computer programs or someone screaming over our shoulder telling us how to paint, or we can go into a quiet corner and become a self-sufficient artist.

We can certainly pay for some initial lessons and even some continuing education from quality and proven instructors (I'd of course first certainly want to see the actual pictures they painted ... but don't get me going) -- nothing wrong with that. Yet in the end, the final picture is a reflection of our own personality and soul.

The next blank canvas and brushes arrive tomorrow.

Enjoy the big game and rest of your weekend.


NQJ said...

Hi Don,

Thanks for posting your thoughts. As for trading a small account...I have just started paper trading 1 nq contract scalping for 1-3 points. Using mostly your multiple-time frame method (3, 5, 15, 30, 60 & daily), ma (5 & 20). On Friday had 19 entries, with 17 profitable, 1 break even and 1 a 2 point loss. The largest draw down was for 4 points. Most cases (especially when the trade was in the direction of the trend) i was getting out too early.

What i noticed about the whole exercise is that unless i take a big loss of say 5 points ($100 on 1 contract), i am nicely profitable at the end of the day. It is much easier to make $20 - $50 per trade (on 1 contract) then make $200 - $500. And since i am looking at so many time frames, there are so many trade signals that are generated constantly, some of which have a lot of things confirming the trade (confluence).

Of course i have always been very profitable with paper trading :-) I get the best fills, am very detached about the money, and willing to take the risk.

Thanks so much for all the free info you have posted out on the internet. What is so remarkable to me is that bollinger bands, moving averages, stochastics are really technical analysis 101 stuff and yet i have never looked at them together. I just hope i can stick to this and make the $, instead of looking for something that will give me $ for no risk at all :-)

Repo 105 said...

Don, Your updates are really helpful, thanks. I also have started to relate trading to golf since I have played for so long. The best tip I have ever recieved was from Brad Faxon. When approached by another player on the practice green at an event he was asked what he was working on. His simple reply was "not caring". He putted his best when he felt like he didn't care if the ball went in the hole, so he practiced it so he could duplicate the feeling on the golf course. It's amazing how trading, golf, and poker are so interconnected. I never thought to re-read my golf books to help with my trading until I found your blog.

Don Miller said...

Flag & Wedge -

Thanks for the post. Sounds like you described my typical day, except that I almost always scale in and out.

Best continued wishes.


Don Miller said...

Miramar -

Indeed. Golf, trading, and poker are all so very similar. I don't golf much because of a bad lower back [that's my excuse anyway], but the concepts ring so true.

One of my favorite analogies between trading and golf was the idea of how one responds to shanking one into the woods, in terms of chipping out and accepting/taking the hit versus trying to drill it through the two-inch hole in the tree, as well as not trying to make an immediate double eagle on the next hole.

And then there are all of the parallels to lack of perfection.


E said...

Poker, no clue.

Despite having terrific pizza nearby (pepe's or sally's), I would love to join you for pizza and beer (whatever)in the Boston area if you ever have a get together.

Golf, now we're talking, having played it successfully at the collegiate level.

Move the ball forward, keep it in play.

Think about risk and reward before swinging.

See the perfect shot in my mind before I pick up the club.

Never let one bad swing ruin the round.

Use the swing that I have that day while playing and adjust later at the practice tee.

Have a mental tiger in my tank.

It's almost spring guys!

And apply these ideas to my trading business and to life.

Just do it.

I have met sheer genius in Don Miller, and I am humbled to share some ideas with you and your followers.


Don Miller said...

E -

Thanks for the comments, but I must dispute the genius comment (which I know you meant in fun).

I'm of course just like everyone else in that I screw up with the best of them.

Just wanted to go on record with that :-).

Stay well.


Don Miller said...

Great golf shot link though!

Severino said...

Hello Don,

I have read all of your post since you have unselfishly started sharing your Trading Journal, including the hidden gems in the comments section. I do not remember you commenting on why you do not use candlestick charting. Because of their telling signals it seems that they would compliment your style of trading, such as a hanging man, (appears at top of uptrend), evening and morning stars (warns of reversals) etc.

I know you do not typically favor trading the last half hour but do you trade the lunch time lull?

Do you use OCO (order cancels order) or OSO (order sends order)?

I am glad that you constantly remind readers that this is a style that best suits you and that we must find our on way. Fading is one of the biggest killers of new traders and is definitely not for someone that does not have a decent grip on their vices.

Go Steelers, (Grew up in Pittsburgh)


Don Miller said...

Hi Sev -

I don't use candlesticks simply for personal preference, as I instead prefer to look at what's happening within a single bar by viewing action on the next shorter timeframe. Again, no need for me to add more to my charts than I need as I try to keep things incredibly simple.

I do trade sometimes during the lunch hour, but I'd be surprised if it was net profitable over the course of the year.

I don't currently use OCO or OSO, although I toyed with it when I used prior platforms. I also don't have resting electronic stops in the market, again prefering to fly manually and manage risk primarily with size.

In terms of "fading", we should all be careful -- including me -- with how we use the term. For example, one might be trading with a very strong larger term trend and thus "fading" the immediate short-term snapback on the approach. [It often comes down to how much price premium we want to pay for confirmation of a continuation, knowing that entering after a confirming move could already be eating into profits.]

Yet I generally agree with your comment.

In terms of tonight's game, I still can't believe the 11-5 Pats who completely trashed the Cardinals 47-7 didn't make the playoffs! Perhaps it was the football gods' way of evening the score for videogate.


Charles said...

So Don, let's 'agree' that you're not a genius...what would it take(you or anyone else) to become one?

i.e. what's the definition of 'genius'?

(a little "filler" question for ya while I think of something useful to add to this excellent discussion)


Don Miller said...

Not sure Charles. But I do know some days I feel like a Moron, which has only a slightly higher IQ than Imbecile, although it's two steps about Idiot.


Severino said...

My emotions are wrecked after that game. I would defiantly score a red on the “Performance Scorecard.” I better take Monday off….

Get In Get Out said...

Don, Just curious on why you decided to switch from trade station charts to esignal?

Don Miller said...


I was having some technical difficulties a while back with TS, plus TS doesn't have a good 3 line break chart.

Yet both have similar funcationality and I could easily switch back and forth if needed.


Cranky Guy said...

hi, new here and i have not found a detailed explanation of Mr. Millers trading method. Any assistance is appreciated

Don Miller said...

Hi Jeff and welcome to the blog.

Keep in mind this is primarily my trading journal, yet you can probably get a decent feel my what I do skimming the posts. The audio interview link to the left may also help.


Glems111 said...

Hey Don,

Just reading some of your post. Great job with your goals.
I been reading and noticed that you may get a rountable together. I live in the Boston area as well as you also. I have recently have been in contact with a few people looking to get together to discuss the markets. We like to keep it small to get qaulity discussions and would like to see if you may be interested. We would luv to have you.


Dragon Slayer said...

Hi Don, I started reading your blog about 2 weeks ago. Great Stuff! Thank you!

I have borrowed your weekly performance worksheet. One part that I don't understand , and have left blank until now is "Pace". What do you mean by pace?
Your idea of a after hours chat room sounds great to me. I probably am one of only a handful of traders that trades ES from my home in Sweden, I therefore had very limited ability to throw ideas back and forth with people that do the same. I do visit a pretty great message board (if you can call it that) "Market ticker" and I usually post in the ES area. I have tried to get a few of the traders over there to join me in a chat room I set up but interest was lacking. Anyway, if you do decide to go ahead with the chat room idea then I would definitely be joining you there.
Thanks again for the great blog!


Don Miller said...

Ahh ... pace.

More important to me than any other aspect of trading.

It's actually hard to describe except suffice it to say that it's a smooth rhythm or "dance" that remains fairly sustained over the course of the day.

It may actually be better to describe what it's NOT: It's not a market that has significant periods of lull and pause. It's not a market that feels like one is alternating flooring the accelerator with slamming on the brakes. It's not a market remains incredibly rangebound over long periods of time. It's not what the market has been as of late.

Again, these are all my definitions which may be completely meaningless to most. Yet I consider pace THE most important aspect of the market that influences my ability to dance cheek-to-cheek as "we" did last fall.

Tough to dance when the music keeps stopping.


Glems111 said...

Hey Don,
I am not sure if you have recieved my prevous post but will try again.

I just like to say great Job on
your goals. Everyone should have a plan and a goal to start with and try not to deviate from that goal. I know from my experience that when I reach a certain profit(my plan) goal I shut the computer off and cease my trading for the day. Prior to not having a goal I would think that if I reached the profit, I would just to myself I can make more (greedy) and lose.
This method has given me a better edge to trading. To keep it short everyone should have a plan and stick with it.
Also, I noticed that you may be interested in having a roundtable.
I live in Boston area I just began getting a few people together for coffee to discuss the markets. We would luv to have you join us.

Glenn L

Dragon Slayer said...

OK! I get it, Pace! Thanks Don. Wow, I thought it was only me that got frustrated at what Pace isn't!


Don Miller said...

Hi Glen -

Whatever works for you in terms of goals.

One thing to "consider" (remember, I'm just taking to myself and never give advice here), is to let market opportunity dictate when one trades or not.

Last year's bamboo was largely the result of pressing when I had the advantage hard.

Having said that, there are times I'm very cautious such as after 3:30pm, regardless of opportunity, so perhaps it just reinforces we're all individuals with unique strengths and preferences.

I'll keep you posted on Boston stuff ... maybe we can do a weekend on the Cape sometime.


Glems111 said...

Thakyou! Just let me know when it's best for you to get together