Thursday, September 18, 2014

New 30 Day Challenge: Developing New System

Scalping Sucks

Well after months of working at it, the system from my original 30 day challenge does indeed work.  I ended up positive about a grand at the end of it, but it comes with so many problems.  The biggest is the fact that you have to be insanely disciplined and put your own personal feelings to the side.  My biggest challenge was fighting the URGE to counter trend trade.

It is human nature to want to get in at the very bottom, and sell at the very top.  Instead of trying to join the trend, I kept finding myself wanting to counter trend trade.  It was obvious that I was wrong in hindsight, but human nature is pretty powerful.  If trading was easy, everyone would be doing it.  I believe that it is inherently designed to be go against human nature.

I believe that scalping out one point on the E-Mini is just not worth it, and too much of your profits are being eaten up by commission and fees.  After all was said and done, I believe that way too much of my hard earned money went to pay for the broker.

Instead, I spent a significant amount of time developing a trend following strategy using a few different indicators.  While, a lot of people might not have trouble with the urge to want to counter trend trade, I do.  I have a simple indicator that lets me know when the market is trending or consolidating (and what side to be on).  I use another to spot divergences, and let me know that a reversal is imitate.  I also use two more that are simply used for entry points.  I will go into more detail on the system below.  It is still in development! DO NOT USE IT LIVE!

New 30 Day Challenge

Instrument: /CL (Crude Oil Futures)
Contract Size: 1 Contract (Proof of Concept)
Indicators:  AroonIndicator, VolumeZoneOscillator, FW_MMG, FW_SOAP,  PersonsPivots, and WoodiesPivots
Moving Averages: 21, 50, 100, 200
Chart Time Frames: 5 Minute (Main), 1 Hour ( Longer Reference)

There are two-three types of trades with this system. I say 2-3 because while there are three different reasons why you would be taking a trade, two of them look almost identical on the charts.  You are just taking them for different reasons.

Trade Type 1: Trend Reversal
This type of trade is a bit risky mainly because it requires you to do some interpretation.  I would recommend waiting for a conformation of a reversal before trading it, but I am willing to take a risky trade if the price action matches the indicators.

You would be looking for a divergence between the price action and the VolumeZoneOscillator.  I would also be looking for nasty looking candle to confirm that we might be reversing.  Basically, if you are looking to go short, then the price action would need to make a new high of the day, while the VolumeZoneOscillator making a lower high.

Here (two yellow boxes labeled point 1) we have a brand new high of the day, that is significantly higher then the consolidation.  The break out actually would match Trade Type 2 and 3, and you could have easily been in position to capture the 20 tick move.  The problem is that the VolumeZoneOscillator is screaming that there is something wrong, and then the nasty looking candle (Green Boxes labeled 2) confirms that we might be reversing.  It would still be a risky trade, but I would have taken it all the way down to the Pivot Points, 80 ticks.

Trade Type 2: Consolidation Breakout
This type of trade requires that there is a clear range established, and that the Aroonindicator lines are going parallel to each other.  You would simply try and position yourself for the breakout, or you could simply sell it when it reaches the other end of the range.  This actually happened in the previous example, but the range was so tight that it wouldn't make much money.  From about 8:05 to 8:35 the AroonIndicator was indicating a period of consolidation, and then you got a 30-40 tick pop.

On the other hand, sometimes the range is so wide that your target is just the other side of the range.  Either way, you just have to play it by ear.

Trade Type 3: Follow the Trend 
When trades types one or two get stopped out with small moves in your favor, then you might need to follow the trend. 
In this example, we have a trade that is consistently following the trend and making legs up.  I find these the hardest to trade, but the idea would be to buy in when it is testing the high of the previous leg. 

The Trading System: In Development

Here's where things are a little bit fuzzy. I am still working on the fixed betting system. It is hard to explain in words when you should close trades, how wide your stop should be, and just managing the trade in general. For example, in trade type one, if the trade does not reverse and instead enters a period of consolidation instead, then you should scratch the trade.  I will be working on this portion of the trading system as part of my 30 day challenge, and I will attempt to quantify everything.

Monday, February 24, 2014

Midir's Stock Market Challenge: Day 14

Results For Today

Trades: 3
Total Contracts: 3
Winners: 3
Scratch: 0
Losers: 0
Profit: $132.48 after commission
Gross: $150

Taking It Easy

I've been taking it easy since my platform crashed costing me a nasty loss. While I already recovered, I've still been feeling a bit off edge. I decided to trade singles till I get back to my comfort level. It was a very easy trend day today, very bad day for anyone who tried to counter trend trade. I marked a short, but I did not take it. It would have worked out, but it was such a strong trend.

Trade 1: Entry off the EMA on open with paper buyers on pit audio.
Trade 2:  Two legged pull back to EMA with a second entry long.  This was a little bit more risky then trade one as you were pretty close to the highs of Friday.
Trade 3: Second entry long after the trend broke with the EMA.  I figured at least we would make a new high before reversing.  Turns out we kept going.

Thursday, February 20, 2014

Temporary Interuption: Day 10,11, 12, and 13


 Results For The Duration of the Interruption

Trades: 6
Total Contracts: 8
Winners: 5
Scratch: 0
Losers: 1
Profit: $10.30 after commission
Gross: $46.72

Temporary Interruption

This was definitely not my week. Two weeks ago, Friday, TDAmeritrade's Platform ThinkOrSwim crashed on my a minute or two after I entered a trade. I logged back in pretty quick. I look and realized that price hasn't moved, and think to myself that I'm glad it didn't go against me. A minute or two later I realize I'm not getting tick data. After some investigating, I realized that I'm actually down $500 bucks. I closed the trade -$300 bucks lower then my max stop should have been.

Basically, I got caught in a short trap right on pit open. I actually use an automatic trigger system that automatically places my stops as soon as I get into a trade.  I am also looking for a new broker.  I didn't have stable data all of Friday.  It would keep freezing after working for 5-10 minutes, and it made it impossible to trade.

I ended up having to work a lot of overtime all of the week during prime trading hours.  I didn't really get to trade until Tuesday, Wednesday, and Thursday this week.  It took all of those three days to make back the $500 buck loss.

Recipe: How To Blow Out Your Account

A lot of other brokers offer $500 dollar ES trades per contract.  This lets you over leverage your account very quickly.  TDameritrade requires about $5,000 per ES contract, and it makes it very hard to blow out your account in a single day.

One common mistake new traders make is applying the martingale betting strategy.  When a trade goes against them they try and average their costs down.  The problem is that this works great on range days, as the trade usually comes back to where they got trapped.  This method fails very quickly on trending days, and you combine it with $500 dollar per ES contract brokers then you get a recipe for disaster.  A trade can keep trying to pick tops only to keep loosing more and more money, until they run out of money.

Always stick with your stops! If I took my $200 dollar loss, I would be up $300 dollars right now.  It's very easy to make up a $200 dollar loss, but takes a bit longer to make up a $500 dollar loss.  There's a psychological component that effects your trading when you are trying to make up a loss that is going to take longer then a day to make up.  I found myself trying to take greater risks, and I had to step away more then once to get myself back in the mindset.

I ended up transferring $400 dollars back to my trading account (I made $100 back at this point) from my bank account. Since I was able to visually see $10,000 dollars in my account, it took some of the pressure off!

Wednesday, February 5, 2014

Midir's Stock Market Challenge: Day 9

Results For Today

Trades: 2
Total Contracts: 4
Winners: 2
Runners:16 Ticks Over 2 Runners
Scratch: 0
Losers: 0
Profit: $276.64 after commission
Gross: $300

Difficult Day

Today was a very difficult trading day, and you really had to work to earn your money. I had no valid channels drawn until 1030, well not any that you could trade. I took the two trades as second entries short with a untested trend-line that was pretty hard to see. I used Pit Audio for extra confirmation on my trades. Both work out. Going to keep this post short, because it was very choppy today.  I really should have sat on my hands.

Trade 1: I drew the trend line off the lows, I dragged it to the top and prices stopped right there.  I took the second entry short, and had confirmation on pit audio

Trade 2: This trade worked ideally.  I took the 2nd entry short, and sold my runner at my target!

Tuesday, February 4, 2014

Midir's Stock Market Challenge: Day 8

Results For Today

Total Contracts: 7
Winners: 5
Runner:16 Ticks Over 3 Runners
Scratch: 1 (+2 Ticks)
Losers: 0
Profit: $397.44 after commission
Gross: $450

Channel To Range To Channel

What a great day! I got kinda upset with my first trade, because I only took one contract. So out of a 8 point move I only banked 1 point. I decided it was time to get more aggressive.  I'm getting tired of missing all these trades because I was scared unless it was ideal.  I've watched so many trades I didn't take work out great, and missing that great runner was the final straw.  Time to start making some real money.

I'm also going to try doing this a little different.  I labeled all my trades, and I will describe why I took each one in a more organized fashion.

Trade 1: Second entry long with a first break of the overnight ascending channel.  It never retested the lower channel line or the top, so I figured it would head at least there.  One contract, only for it to continue in my direction.

Trade 2: It was a bit aggressive, but it was a new high after a trend line break.  I'll admit I was a bit off-edge on this trade, and decided to get aggressive.  I only banked 2 ticks on the runner (came back and stopped me out).  I should have sold the runner sooner.

Trade 3: I missed two trades because I had to take my eyes off the market, but I realized we were in a trading range.  Again, I entered with two contracts.  It was a new low with a second entry long.  I banked 9 ticks on the runner.  Could have banked more.  Oh well.

Trade 4: I made my profit goals for today, and I figured I would just make a little gravy.  I decided I would only trade one contract for now.  I did commit a big "no no" when it comes to trading.  I added something untested to my strategy and started to listening to pit noise with commentary.  Goldman Sachs came in and started buying so I scratched the trade. 

Trade 5: I saw what looked like a new trend line, and the short side looked a bit weak.  I saw a second entry short, but Goldman Sachs came in buying, so I figured it might trap.  I took it for a quick 50 bucks.

Trade 6: As I was typing this there was another trade that set up.  I decided to push my luck and went in with two contracts.  Closed the runner at +6 ticks, because of the fed speaker coming up.  Picture is included below.

Monday, February 3, 2014

Midir's Stock Market Challenge: Day 7

Results For Today

Trades: 5
Total Contracts: 5
Runner: No Runner
Scratch: 1
Losers: 1/2 (scratch would have been stopped out)
Profit: $120.80 after commission
Gross: $150.00

Everyone Makes Mistakes

It was a strong down day, and I did my best to keep myself from wanting to counter trend trade.  I know that is my biggest weakness.  I did a great job at it too, until I didn't.  I took a second entry long against the trend, and it decided to trap and head against me.  I did see the trap and quickly scratched the trade at -4 ticks.

You have to be able to admit your wrong, otherwise the market will prove you wrong by blowing out your account.  One of your main goals should be to live to trade another day, but it is very easy to find yourself trapped and frozen with fear not knowing what to do.  I remember one trade I did early in my career as a futures trader where I wouldn't accept a $500 dollar loss.  It quickly turned into a $2,000 dollar loss before reversing with me selling at +1 tick.  You should NEVER take $2,000 dollars worth of heat for a 1 tick profit.  This is how you blow out accounts, after this trade finished I went back to Simulation Trading to practice.

Massive Down Day: ES

It's funny because in a massive down day, my first trade of the day was a second entry long. It worked out, and I would consider it a valid trade. The descending channel was not yet established.  I missed the second entry short because I did not have a channel drawn yet.  I missed the second entry short because I still didn't have the channel drawn.  I took the very next entry short for another 4 ticks of profit, followed by another.

I could see that the descending trend was getting weak because we did not test the bottom of the channel on two attempts.  We broke out of the channel, and then tested the low once more outside of the channel.  This is depicted by the three gray circles, and I was looking for a chance to go long.  There was not a second entry long, so I passed on the trade.  Instead, I did take the second entry short blind as soon as it triggered.  I got another 4 ticks.

We continued down, and eventually entered into a small range.  we broke lower which turned into another channel, but I decided to counter-trend trade.  It was a pretty decent set up to go higher, but it would have had to go through the EMA for me to scalp me 4 ticks.  It ended up turning into a trap, and thankfully I realized it was a trap and scratched the trade -4 ticks.  A full stop would have been -8 ticks.


A problem that I am seeing over the course of these last 7 days is the fact that I am not being aggressive enough. I will not take all the trades that are presented to me, even though there is nothing wrong with them.  Another problem is that the trades I do take do not have a runner because I do not buy with two contracts.

So there are two solutions to my problem, first I could take more trades.  Not a bad idea, more trades will give me more experience.  Another idea is that I could enter with two contracts, and let the other one ride. The final option is to do nothing at all and keep scalping 4 ticks at a time. 

I think I may try option two and try and get some runners.

Sunday, February 2, 2014

Tecnical Analysis of General Motors Stock


Forex, futures, stock, and options trading is not appropriate for everyone. There is a substantial risk of loss associated with trading these markets. Losses can and will occur.  I am applying a method that I use for Futures for the analysis of stocks.

General Motors

Symbol: GM

Very interesting break out of the bottom of the channel that GM has been in for months. It looks like the markets are not sure what to do with the stock, even on the very day it broke out the candle ended up being a Doji (an indecision candle). I see too much indecision for me to risk much money on, but it doesn't look to bad for a retest of the highs. The problem is that it doesn't look too bad for a short entry either. Lets take a look at the chart and do some analysis to see if we can't figure this out.

A:  First, we have a channel that the stock has been in for months. Pretty strong channel, and this is the first time the channel has been broken to the downside.
B: We have a horizontal support line that has functioned as resistance and support in the past.
C:  Strong, almost unsustainable, move down.
D: Here is a pretty strong Bearish signal. We have a new high that broke out of the top of the channel, and then a retest of that high.

1.) Doji that broke out the bottom of the channel.
2.) What looks like a retest of the bottom of the channel line, but I see something else.  If you do a little candlestick math and add candle number one with this candle then I see a hammer (bullish candle). Basically, it's a failed breakout of the of the bottom of the channel.
3.) Here we have a very strong gap down, and then It's stopped dead in it's track and it bonces back up.  I could consider this the first break of the bottom of the channel.
4.) This is the retest of the bottom of the channel.
5.) We have another move that's lower, but it is stopped dead at the support line.

The Analysis
Here are some of the interesting things that I see.  Each time the stock attempted to move lower, Candles 1,3, and 5 it was stopped.  The interesting thing is that on candles 3 and 5 the stock did in fact move a few ticks lower then the attempt before it.  This should have run a few stops, but instead the selling was absorbed.  This is a very strong move sort term move down, but the overall trend of the market has been up for months.

If it breaks lower and then reverses I would see it as a sort trap, and I would go long immediately.  It could also be part of a measured move, but we still don't have any sort of pullback. Overall, I think this is a good chance to go long some GM stock.  I would set a stop below of candle number 5 and see if you couldn't catch a ride back to the EMA.  Options might be a good bet for this type of trade.

My Personal Trading Problem
The problem I have with this stock is with candle number 5.  In order to get a entry that would adhere to my trading rules, I would have to wait for a bar that goes above the bar before it.  Not a big deal, but then I would have to place my stop below bar number 5.  This means that I would need to have a stop that is a bit outside of my comfort zone if I was to take a large position in the stock.  Given how much indecision their has been on this stock, I recommend exercising caution!