Saturday, March 7, 2009

The Weekend Trader - Throwing Down the Gauntlet

Some thoughts on this weekend as the 2009 countdown clock has now moved under the 300 day mark, which tells me the 2009 game is in full swing and I need to keep the recent momentum going.

"No Regrets" - Some diary onlookers have commented favorably on my adding "No Regrets" to the daily scoresheet. Over the years, I've found focusing on a goal of having no regrets by the end of the day (with or without a formal scoresheet ... which remember I just began using recently as an experiment) can be a huge help in avoiding the woulda/shoulda/coulda hindsight pain.

This concept came in handy when I first pursued a trading career, especially as I -- like everyone -- drove through the early potholes, ruined a few axles, and occasionally thought about giving up. And after Tuesday's trade, it became clear that for some reason I'd begun hesitating at times and needed some way to recapture trust in my instincts and simply accept the lesser probability outcome if I was wrong.

Obviously, it seems to have helped ... at least a little bit.

Indicator Preference - I still occasionally get questions asking me why I don't use certain indicators, the most recent one addressing candlesticks. My canned response -- which btw will never change -- is "why do some people like black cars and others red?" Or said another way, if I want to know how cold it is outside, I have several choices ... check the thermometer outside the window, check my Google home page, tune into the Weather Channel and wait for "Local on the 8s", or step outside and feel it. I don't need to check them all! So I usually just check the thermometer and then confirm it when I step outside. And I don't care if the thermometer is digital or mercury based.

When it comes to charts, it's the K.I.S.S. rule for me and I simply try to keep my charts as basic and uncluttered as possible. Some of the charts I saw at the Expo would make one's head spin. Hey, if you want to drive a Ferrari -- or perhaps a better analogy is a Lear Jet ... and on auto pilot for that matter -- down the street to the grocery store several times a day, then perhaps you're more interested in the fancy plane than getting the goods. Yea, I know there are lots of vendors selling Lear Jets and auto pilots ... 'nuff said.

Don't get me wrong ... I like toys. But I'd rather be focused on earning income. Plus, for many younger traders, "toys" are a crutch ... pure and simple ... and are like trying to cure nearsightedness with Aviator sunglasses. And while crutches can of course help, most people who use them just need to learn how to walk.

Hell, all I know is this. Crutches sold to people who should just get off their a$$ and learn to walk make money for crutch vendors. Fancy PCs and displays put money in vendor pockets, and guru horse race advisory "do this" calls put money in guru pockets. Both are crutches. There are only two pockets I'm interested in putting money in ... and I happen to be wearing both of them.

And while I don't give advice on this site, if it were me teaching my daughter to run to the store and back, I'd say, "There's the car. It's proven to be highly dependable, has an accelerator, brake, and steering wheel, and the store is right there (pointing). See you in ten minutes."

I'm not kidding when I say much of my trading is done on a 11" laptop when I'm traveling, and it has no detrimental effect on my trading. None. And even my main trading station consists of a single trading screen. Yea, I know, it's not eye candy ... but I don't care for high-priced junk food.

As with life, less is more for this trader ... a lesson I've learned many, many times in my soon-to-be (next Tuesday ... hint) 48 years on this planet.

Trader Transaction Tax Updates - A reminder that Green & Company posts occasional updates on their view of the tax issue on their blog. I check it from time to time, and there was a recent update on March 4. My most recent comment on this can be found at the end of Wednesday's post.

Views on "Ejection Lever" Stops - As I've often said, I'm a huge believer in managing risk, yet rarely use "stops". Huh?? Well, let me clarify that I rarely use my definition of a "stop" which to me means completely forgoing an attempted trade sequence when the initial premise for the trade is no longer valid.

Now we need to keep three thing in mind. First, I manage risk primarily with size. Second, I'm usually beginning to enter when prices approach wholesale levels ... meaning I already have a decent starting hand, so the probability is usually pretty high and I've got to be pretty damn wrong for the market to move hard against me. And third, I often scratch and reenter trades -- which I only consider as temporary pauses to reassess, followed by re-entries at better prices or upon further confirmation -- which are not stops.

So to me, stops are the final "cease and desist" order.

OK, so when do I use them? Well, I had to dig out the tool on Friday morning after the range break to the north on strong volume failed to do anything other than pause on the pullbacks (see attached chart; 5-min on top 60-min on bottom; click to enlarge). So the sequence went something like: provide liquidity for the panic short coverers, cover on the retracement toward the mean, and then position 2 or 3 times to reverse into the pullback long entry, scratching several times along the way, before finally "stopping" pursuit.

Yea, I know the 60-min was down, and had there been a double top of sorts, the entire wholesale world would have been shorting the hell out of any weaker second pop ... too obvious of course. Yet I certainly expected there to be what I call some interim 5-min vs. 60-min ping-pong activity. But the market of course had other ideas, and I had to pull the ejection lever.

2009 Goal Update - After toying with another slightly higher figure earlier in the year, I've decided to not fix what's not broken, and have adjusted my '09 bottom line goal to mirror the initial '08 goal of $1 Million. Should I exceed it, I'll do the same thing as last year in terms of setting it as a trailing stop and being on a 100% free roll, yet should I earn only a penny over it, it will be an extremely satisfying year to go back-to-back.

And yes, for the first time in a while, I personally revisited the final 2008 "Night to Dance" diary entry the other day (which btw was always meant primarily as a motivational tool for others), which included the following blurb:

Regardless of what happens in 2009 and beyond, no one will ever be able to take 2008 away from me. Ever. Like other far more important life milestones, the year will find its own place in a corner of my heart that I'll be able to tap whenever I question my ability to conquer a challenge in front of me.

Why did I look back? Well frankly, I needed a morale boost. For as extremely harsh as I am with my own trading and performance day in and day out, I needed to tap that feeling -- if only for a brief moment. I needed to see that carrot on the stick.

As I mentioned in
last weekend's video, the industry's top CTAs rarely -- if ever -- have two exceptional years in a row. As such, some have recently suggested that my 2008 performance was an anomaly, and that it would be impossible to sustain the necessary focus and skill level to have back-to-back million dollar years, especially in "this market environment" (whatever the hell that means ... last I checked markets still go up and down).

At that very moment, the 2009 gauntlet was thrown down and the internal bulletin board material went up.

I suppose some will never understand that rattling the beast only makes him hungrier. Well, consider the cage door opened.

And should I fail? Well, I'll have no regrets (** see footnote below).

Have a relaxing and peaceful weekend.

** btw ... I don't plan on failing.


James Edwards-Marche said...

"There are only two pockets I'm interested in putting money in ... and I happen to be wearing both of them." LOL!

I absolutely agree that alot of traders miss the woods for the trees when looking for the latest equipment. It's food for thought to hear of someone like you doing so well with basic, no frills hardware.

YM-Trader said...

Hallelujah for simplicity. When I first started as a rookie 10 years ago I was such an infomaniac its a wonder I could ever place a trade. Today, on my single monitor, on a 5year old Dell, I find myself guilty of not even noticing what my one and only "below the chart" indicator is doing, as I daytrade the YM. I can't imagine how some people can watch 3 monitors to trade one market.

Moe said...

Hi Don
My friend and mentor. Thank you for your great web site. I've personally gained so much knowledge from this site . Excellent work!

Moe M

bcecil said...

First time I have come out of lurk mode, and, first of all, I want to thank you so very much for this blog. Been trading since 1978 and on line trading since 1996 and this site is one of the best things I have ever seen!!!
In mathematics and statistics, the arithmetic mean (or simply the mean) of a list of numbers is the sum of all of the list divided by the number of items in the list. Are you somehow applying that concept in your trading, from the following statement today or does it have other meaning for you? "provide liquidity for the panic short coverers, cover on the retracement toward the mean, and then position 2 or 3 times "

Also hope your poker went well for you last night.. Thanks again Bob Cecil

George "Winace" Swanson said...

"especially in "this market environment" (whatever the hell that means ... last I checked markets still go up and down)."

I could not have said it better myself!

As far as the crutches... one on my biggest hurdles in trading. Once i realized their uselessness, I had to divert. That was difficult! I even made a few of my own oscillators/indicators which people paid me for their use. Man I feel like a schmuck for that one. One of my former lives was that of an electronics engineer, so toys a plenty were at my disposal. Now most of my crapp sits idle while I trade from my 10.2" netbook!!! It connects through my network, or when I go mobile, my Blackberry serves as a modem. Keeping it simple is key, although I do have my 17" laptop with Sprint cell card as back-up. The journey through ones trading career is amazing, it always comes back full circle to keeping it simple. Great post, have a great weekend.

silverstartrading said...


Thanks for your public journal, very nice to read (read daily by myself). I'm a noobie moving into intermediate realms...and having fully experienced the pain and joy of "hard" stops I take it when you say "Ejection Lever" Stops you have no hard stop in place, but had to pull the lever due to the market behavior/reversal?

E said...

God bless Don Miller.

Words of wisdom from you every day.

For me, I had to start with "too much information" to find out what is really relevant and valuable to my trading success.

The next step was to discard the junk and focus on the tools that I couldn't live without.

I read two books with opposing views that have helped me resolve this dilemma. Supercrunching (examining vast sets of data) and Blink (Intuition). I needed to find a simple style that works for me consistently under pressure.

Ortiz will work on things during practice, but game time he is just using his swing that he brought that day.

This is a lonely profession, so learning how to stay focused and attend to the task of filling our pockets rather than tweaking indicators or chatting in guru rooms is well said Don.

I needed that advice, and can't thank you enough for this forum.

You may not be a favorite of the Picks and Shovels crowd, but you're my hero.

Have a great weekend all; spring in New England!

Charles said...

Don, good post...sometimes I just want to "K.I.S.S." you :)

On a more serious note, i've been foolin' around with Tradestation's easyLanguage lately, and was just wondering if you know of anyone who has actually built a profitable "black box"?


Don Miller said...

Bob C -

Thanks for the kind words. Feel free to continue "lurking" :-).

As for the game last night, I didn't do well as my pocket Aces lost to Kings over FIVES! on the river in an all-in cash game (very small stakes though ... a friendly neighborhood game).

Silvertrading - Pretty much, in terms of simply not believing there's any further chance of the market behaving as I expected.

Charles - No idea on black boxes ... but I do know they can't adapt on the fly and I'd never trust them. They certainly eliminate "human error" which plays a huge part in discretionary trading, yet that void would be filled by an equally fallible "system error" in terms of their inability to adapt in real-time.


steve said...

Powerful post today! These are all topics I ruminated over today, as I took care of the kids. (Which reminded me of your comment of having a hard time as a trader with young kids!). Great thoughts on stops, makes me wonder if I actually use them too much and don't just scratch out of something faster.

Jean H said...

On the same topic of simplicity, I have noticed that many trade the emini futures rather than stocks. Have you always traded futures? There are so many stocks to daily sort thru and make decisions on. This is beginning seem similiar to "so many" indicators. If you did trade stocks early on what made you decide to change markets? Thank you for sharing your how you work through things and make things work for you to stay profitable.

Don Miller said...

Hi Jean -

Yes, I did trade stocks at one time -- using much the same style as today -- yet migrated to ETFs and then futures after stock spreads went from 1/8ths to pennies, which had the effect of reducing spread margins by 90+%.

Even when I traded them though, I usually traded only a few, and often used the futures as a confirming indicator.

Now of course, I pretty much trade one market ... ES.

Hope that helps.