Wednesday Notes - "The Jerk"

First things first before we get to Mr. Defazio's latest impression of Steve Martin at the end of this post.

5:00pm All things considered, an acceptable modest day at +$8K on very light trading volume at this end.

6:00pm OK, another day where the score doesn't tell the story. btw, here's my take on the "score" and why I reference it ... for all the talk about skill, executing a plan, and all the "warm and fuzzy" attributes noted on the scorecard to try to stay focused on the skill, in the long run it's ALL about the score. Yes, I believe daily & weekly #s mean little except in aggregation -- which is why I purposely avoid noting specific daily chip gain #s on the sheet and only show a general color -- yet we are trying to win this stinkin' game, aren't we?

I actually feel pretty good about my trading today in terms of having somewhat limited time to monitor the market during the morning session, while avoiding any late-day trouble during the post 3:30pm barf-a-thon. Most of the modest gains at this end came on the 2-3pm climb, as I was biased long after some price probes to the south failed to hold. Yet I kept size down given the market's tendency to not hold gains, which I was very comfortable with (vs. yesterday when I feel I undersized given the conditions).

btw, someone asked me in a comment the other day what I meant by "overextended", and my somewhat flip response was: Merriam-Webster defines "overextended" as "to extend or expand beyond a safe or reasonable point". Not sure I can do much better than that. Well, we can add today's late day 15-minute ES chart (attached; click to enlarge) to the dictionary.

So 725ish seems to be the magic number for now in terms of drawing a line in the sand to the north. Other than that, sticking to short-term trends continues to rule the day.

And thanks for all the comments last night, especially responding "knowing" I wasn't looking for advice. That tells me a lot about the professionalism of most of the onlookers. As the Pretenders say, "It's just a silly phase I'm going through."

Lastly, here's today's CNBC clip of THE JERK promoting the stupid tax bill. Just say no. He just doesn't get it ... and thanks to all forwarding the link since I don't watch the spin network. Good for CNBC for pushing back on him on behalf of traders (I can't believe I just wrote kudos for CNBC ... perhaps the world is indeed coming to an end.) And here's the link for the petition.

And a word to those on the Hill considering this: Picture this afternoon's late-day fall WITHOUT someone on the other side of the trade providing sellers a chance to get out ... think ES in the 600's. 500 anyone? Yea, that will fix everything ... not.

Tuesday Notes - A Difficult Dilemma

6:00pm I'll be frank as always ... I'm not pleased at all with my trading today. And let me say up front that I'm sure this post may sound like a martyr to newer onlookers. Just please keep in mind this diary will always reflect how this trader is currently feeling and gives me the right to vent to myself.

As for today, today's trade was a prime example of the daily +$12K tally not reflecting how I traded, and meaning absolutely nothing over the long run except in aggregation when the countdown clock to the left ticks to zero. In my view, I flat out sucked at times.

The two areas I'm most pi$$ed about today are (1) my abysmal trading prior to the U.S. Open and between noon and 12:30pm ET where I broke even during similar textbook sequences where I should have cleaned up, and (2) my general size management where I should have been far heavier on this classic ... and I mean classic day after trend day. And for the first time in many, many months, I had to walk away from my PC to clear my head for fear of letting my emotions get the best of me, and didn't trade after 2pm.

Let's see ... overnight Globex oscillations with resistance at Monday's 30-min trend line: Check. Globex oscillations in lock step with Europe's gap and trap: Check. Early ES oscillations upon the U.S. Open: Check. Post-trend day strong midday bounce off the low: Check. All expected and fully anticipated. Yet my size management ... especially adding upon confirmation of the 1-minute turns on this classic oscillation day ... was terrible, and I don't recall ever having more than 30 contracts on.

So forget today's +$12K take. Forget the $1 Million early '09 pace. Forget the 42/43 days profitable. The 2009 drive still simply isn't there and I'm still sleepwalking through days. Today I was dealt Aces and didn't bet them as I should have. And yes, this is a continuing hurdle that I've referenced time and time again thus far in the '09 journey ... one that I must face head on and put behind me. And while I fully realize I said a while ago I'd increase size to snap me into caring again, that obviously hasn't happened, as something inside me continues to scream at me, "don't change what ain't broken".

And so I continue to face one helluva personal dilemma: Simply keep on keeping on and be satisfied with the status quo, or somehow find a way to more fully take advantage of opportunities presented. Yea, I know, some are saying they wish they had a similar problem. Yet for me, finding the answer is starting to eat me up.

Someone asked me via comments the other day why I keep looking back at the 2008 moonshot, when for years I've constantly preached only looking ahead. It was a great question, and here was my response:

One other comment re: '08 in that I think it's human nature to internally benchmark oneself to past performances once you know your potential and capability, and perhaps that's sitting in the back of my mind as I harshly critique my early-2009 performance and lack of drive.

In fact, I've thought long and hard about looking back at the detail of days from last fall to perhaps find a clue as to what I'm not doing now that I did then. And yes, it would go against my grain of not usually looking back, which is one reason I've been reluctant to do so.

Yet just maybe it might help provide a missing clue in order to correct something that's not there right now and allow me to move ahead.

I'm not sure.

And as of today, I'm still "not sure". All I know is last year, I had 26 days over +$20K, including 7 over +$40K. This year -- despite a daily win/loss ratio that's off the charts -- I've had zero. And today should have easily been one of those days. Yet the brakes remain somewhat locked.

I'm sure some won't understand today's post ... which frankly if I were new to this diary, I'd say was full of B.S. Although those who have walked with me on this journey should fully understand. All I can say is that I'm constantly searching to execute to my fullest potential, and today wasn't it. Nor have the last three months. And why do the brakes remain slightly locked? Is it some kind of helpful protective force that I don't understand? And if so, is it supposed to be telling me something??

As always, these questions are rhetorical and I'm not looking for tips or answers ... for as anything with trading, the solution has to come from within.

And there are people across the ocean literally getting their heads cut off Don, so let's keep things in perspective.

Monday Notes - In Like a Lion ...

4:00pm Well, score one for patience today as it took until mid-afternoon for ES to finally present my idea of a high-probability wholesale short entry, and it was two speculative short sequences that provided most of today's decent +$9K chip gain, with liquidity-providing sequences pretty much scratching on the day. btw, a good example of what I discussed over the weekend in terms of my high volume being misleading ... most of my strong gains came on a few sequences.

Even then, ES did its best to shake me loose and it took a few scratches and immediate re-entries, along with some conviction in the pace and pattern to hang in there. See chart; Click to Enlarge.

Earlier, I'd passed on many of the other shallow bear trend retracements, in part because I wanted to first make sure my head was in the game ... remember, I often suck on Mondays ... and go for the ultra-high probability pattern before putting my chips in play. Essentially, until I felt I was focused, I wanted pocket Aces.

Of course, I'm sure some shorted the open and held, which will never be my game. I'll instead take high-probability clips for 200 Alex.

Hopefully, we'll see some early textbook morning oscillations after yet another investor barf day.

The Weekend Trader - Style Points

Some thoughts on this 300th post of the journey.

Negotiate those Commissions! - Ever walk into a hotel and pay their rack rate before checking discounts offered by AAA, Travelocity, etc.? Ever do so thinking you're "just staying for one night" and as such the hotel doesn't care to negotiate with the "little guy"? Ever wonder if the hotel wants to fill what would otherwise be a vacant room for a lesser price or simply lose the revenue? Yes, you know where I'm going, and this is another area where I'll remain an outspoken advocate for all types of traders.

First, let's try to put the commission discussion to rest once and for all by recapping a few key excerpts from the past while adding some final thoughts on the topic. To start, here are some recent relevant re-posts, portions of which I've bolded for further emphasis.

A follow-up thought is that one of the mistakes I made early in my career was not pursuing a Merc seat lease. One reason is that many brokers have vested interests in keeping their commissions high (arguably another one of the industry's dirty little secrets that puts money in other people's pockets), and thus there's very little published material out there on cost/benefit analysis. Plus, some vendors have relationships with brokers which further compounds the issue.

Even for traders who can't justify a lease, I would argue that many retail rates out there, including some referenced in the clip, are far too high and there are better deals around. Like any consumer, I encourage folks to shop around and let the market -- not brokers -- set the rates. Some brokers for example will decrease rates as volume grows. Mine even gave me a grace period at one time in terms of keeping rates affordable before my volume grew to recent levels with the hope of future business. Given the current economic woes, it's a buyer's market, and we should use that to our advantage when we're "buying" the necessary infrastructure for a successful business.

I would make an analogy to running a store where cost control is paramount in generating the strongest margins. Ensuring one pays wholesale costs and overall cost control are critical. The more both retail and wholesale traders push for reduced broker costs (the non-CME component of the fee), the more we'll hopefully see continued reductions in industry commission costs for both types of traders. And yes, we do have a voice with our wallets and choice of brokers in a competitive broker marketplace. [Even when I was "retail", I was able to pursue lower fees, although certainly higher volumes provide a stronger negotiating position.]

One interesting sidebar is that in a past life many years ago, I used to testify before legislative bodies on public utility rate setting. As a result, rate setting and cost management have always been in the front of my mind and is one helpful attribute that carried over from my long-ago pre-trading life. Plus, as traders, we know rates should always be set by the market.

My dad also once told me as a young child you'll never get what you don't ask for.

And yes, before my inbox is flooded with messages from brokers, many brokers do provide value-added services such as charting which are worth a higher price and that are passed onto traders in the form of higher commissions. No doubt about that. At that point, it's of course up to the trader to consider the value of the overall service being provided.

Trading Style - A related concept is that of my trading style. And since there seems to be renewed interest in both my volumes and approach -- especially among new onlookers -- here's a brief Q&A to help clarify:

Why is my volume so high? Largely because I provide both market liquidity and pursue speculative trades. Here's an excerpt from last night's response.

Keep in mind the my volume reflects both liquidity-providing trades (which reflect the largest volume and cost but smaller per-win profit) AND speculative trades (lesser volume, greater per-win profit). Yet I don't track the specific results as they blend into the overall day's trade.

What's the difference between my terms "liquidity-providing" and "speculative" trades? "Liquidity providing" is just that ... joining others to ensure there's a market on the other side of the trade (i.e. often posting on both the bid and ask). "Speculative" refers to trades which have greater potential for movement, and which I would categorize similar to what "retail" traders pursue.

What would my results look like if I had less volume and simply pursued "speculative" trades? (This likely gets to the crux of many of the questions from smaller volume traders, so let's just put it out there.) While per above the two types blend together and I don't track them, there's absolutely no doubt in my mind that the speculative trades reflect larger-sized wins on far less volume, and that there's a large number of liquidity-providing trades that lose or break even. No doubt at all. So at times, liquidity providing trades reduce my bottom line, just as non-winning (stopped, scratched, etc.) speculative trades would.

So while I have no data to back up a definitive conclusion, having a strong sense for my own trading, some of it is likely a wash. And lest we forget that many businesses use strategies where they sell a lot of high-volume, low-margin (or loss-leader) to "get customers in the door" so they can sell fewer items with much higher markups, which is where they make most of their money.

Both strategies of course likely contribute to the bottom line, otherwise one wouldn't pursue them (although I do sometimes trade just to keep in the flow, not expecting to earn anything from the immediate sequence as I've stated in the past. Remember I can sometimes feel the current better if swimming in it vs. watching from the shore, and am willing to incur the cost for a longer-term benefit). And while it wouldn't shock me if data ultimately proved that providing liquidity during unspeculative times detracted from the bottom line, their exact respective contributions remain uncertain as I only care about the overall package. Again, just one person's approach. Rick Barry shot free throws underhanded, and if I recall, was pretty good at it.

Lastly, I fully recognize that many of the volume, rate, and style questions are coming from newer onlookers. So to reinforce, my only intent in babbling here is to share what I do and what I've learned, not to say "Gee, trade this way and make a million dollars". Ummm, I'm not selling anything, remember? I've also added this post to the key post link menu in the lower left margin under "Providing Liquidity vs. Speculating".

Trading is a business, and we must treat it as such. And if sharing today's post simply results in one trader becoming proactive to successfully negotiate a reduced commission or shop for a better deal, it will reinforce why this silly diary is open the the public.

For it's always and only about strengthening each other.

Enjoy the rest of your weekend.

** VIDEO ** Expo Goodies; Top CTAs; Motivation

Tonight I have some fun with the New York Expo, compare the Top 2007 vs. 2008 CTA performances, and discuss what helped motivate me this week. You can also view Friday's post and February recap below.



Please note I'll be gone for much of Saturday, and will check comments when available.

Have a great weekend.

Friday Notes - Closing the Door on February

3:00pm

Dear Diary,

Yes, I'm posting early today as I want to avoid my personal landmines of potentially losing focus (a) late in the day, (b) on a Friday, and (c) at the end of the month ... for those timeframes close what I consider various "trades" (daily, weekly, and monthly). Of course they still mean little except in aggregation as the only relevant figure is that on 12/31.

With respect to today's trade, I did well both during the Globex and normal sessions, with most of the entries reflecting wholesale fades into some extreme panic buying and selling (some of my favorite sequences), with extreme TICKs being helpful during the regular session to help time entries when they coincided with price spikes. And of course I shorted several morning approaches toward 750 which became resistance after ES fell through its trap door in the Globex session. The result was a highly efficient +$12K chip gain on only 958 contracts to close the week out just shy of +$40K. My last trade was closing out a short at 12:38pm ET.

And so this second of twelve legs of the 2009 race comes to a close. Frankly, the only memory I have of it is that damn single day where I caused myself to lose a week or so of earnings which I thought about a lot last night while I was tossing and turning after that stupid poker beat. And perhaps that beat got me invigorated for today's trade, as most know I usually trade more focused when ticked off.

And while I recognize many don't understand why I beat myself up over what others might consider a decent performance, perhaps it's a small glimpse into what makes me tick and why 2008 was ... well, 2008. Being satisfied = complacency = stagnant personal and income growth. And as I said throughout last year's journey, it's not greed ... and if you think it is, you've missed the entire point of eight months of open diary blogging -- rather it's instead an intense inner drive to simply get better day after day and strive for sustained peak performance ... even knowing I'll often fall far short. Have I mentioned I don't like to lose??

btw, given the continued growth and eyeballs (Alexa reported another jump this week), I recognize some new to the journey may already be tired of hearing me babble, and/or consider this some kind of self-indulged ego trip. All I can say is that I've found this diary an excellent way to stay motivated and fully immersed in the market after hours, as well as a way to force myself to be accountable to both myself and the public. As the FAQ indicates, you're always welcome to change the channel.

Having said that, I've recently implemented a comment spam filter where I no longer receive junk comment spam. They're rare, yet that's one risk of being in the public eye that I fully expected and accept. Plus market makers for some reason are disliked in some circles anyway! If you're above board, no worry and keep the comments coming. For after having met with several folks in NY and having had a deeply personal conversation with a trader via phone the other day, I have no plans to drop the diary nor close it from public viewing, even while stepping up security. As long as this diary remains a win/win, the experiment will continue in spades. But I digress.

As for 2009, I remain off my 2008 pace due in part to that lone loss of the year on February 10th, which never should have happened and remains etched in my brain like a late-game NY Giants Hail Mary Super Bowl helmet catch (for it too was a lone blemish for the Pats). And there's a reason I vividly remember the details of all nine horror shows since joining the Merc in '04 ... for it usually causes me to ramp up focus several notches. And frankly, my most vivid memories of last year are those rare, but painful days from hell.

So with 17% of the year now in the books, we'll take one last look at February as I still search for this year's game face (which I still feel isn't there):

February 2009
Daily Gains: $131,561
Daily Losses: -$33,470 - Stupid ... it's amazing what a single distraction can set off
Commissions: -$19,149
Overheads: -$4,945 - Higher than normal as it includes my trip to NY
Net Profit: $73,997 +$83K off the monthly equity low
Daily Win/Loss %: 95% (18/19) - Obviously, the 3.9 Dollar Win/Loss ratio is more relevant
Contracts Traded: 37,534
Pace:
- Last twelve months actual: $ 1,605,825
- Projected 2009 YTD (Jan & Feb) annualized: $1,037,184
- Last three months annualized: $897,844 - A possible warning flag, except that it reflects pretty much shutting down for half of December; Normalizing for that, 3 Mos / 2.5 x 12 = just over $1M, so I'm not too worried ... yet.

And so as I begin to enter the "meat" of the trading year, I'm still wondering why I feel my foot remains on the brake at times. I know I purposely slammed on the brakes in mid-December, yet for some reason they still feel a bit locked even two months later (which is why I hated to let up, although it was still the right decision in hindsight). Perhaps that's why sports have off-seasons Don ... duh. Yet this week wasn't that bad, so perhaps it's a hint of things to come and that I'm starting to lace up the spikes ... finally.

Like baseball, spring training will be over before you know it, and so it's time to get the game face on.

Game on.

Look for a video and "The Weekend Trader" posts over the weekend as always.

Thursday Night Poker Notes

10:05pm I just had to post this to vent. First read my earlier post today about pocket Kings.

I made it to heads-up tonight, and with -- you guessed it -- pocket Kings, went all-in and strategically got the other guy with 10-J to call. Nice right?

Then, the flop comes K (really nice now ... trips), Q, 4. Rut ro.

So trip Kings vs a straight draw ... still OK as he only has 8 outs for the straight.

Then the dagger turn comes 9!!!!!!!!!! Damn. And of course the board didn't pair for the then-needed full house or show the case King.

I love poker, and it's done a world for my trading as I've explained before, but this is why I've said by comparison, trading "seems" far easier. For seldom do such suck-outs occur in the market, and even when they do, it's never an all-or-nothing proposition.