Day's Anatomy- 16th November 2012...Readers' Poll 2!

Notice the direction of ALL the trades.

I suddenly started thinking about this post that I made years ago. 2) & 4) in particular.

It (No 4 from the above link) was the same when I started this blog. That is likely why I deliberately started avoiding tracking day-to-day progress in the first place.

Do you see the obvious clues?

In the above equity chart:

Light Green
   = Paper Trading.
Dark Green
   = Live Trading.
Blue
    = Daily Blogging.
So I'm giving myself at least a month of trades without a single blog post (I'll continue updating my records though..spreadsheet, videos etc). Then I'll probably be back to report on any changes.

So I've either succumbed to the pressure of real-money trading or, coincidentally, what I'm doing stopped working when I made the switch. Or maybe it's just a draw down in an otherwise profitable approach.

What do you think?? (see poll on the right of the blog)

Back in a month!

Day's Anatomy- 15th November 2012

Knew this type of day was round the corner...

I've seen this pattern in my trading many times. Too many almost-successes (several trades that were good for target, close-to-execution trades that easily returned target-making pip amounts etc etc). Then you just let go....like sellers giving up at the beginning of a break out.

Luckily, I use stops, both trade and daily.

Was one step behind PA today. Would have been a losing day anyway.

Day's Anatomy- 14th November 2012

Pretty good day it terms of behaviour. No knee-jerk reactions.

Still struggling with the discretion involved...had I have taken every potential trade candidate, I would have had lots of opportunity for winning trades of varying degree, along with 2-3 extra losers. Statistically that is the thing to do..goes without saying.

Psychologically it isn't. At least not for where I am with my trading. Taking trades, win, lose or draw, uses up emotional capital, of which I have little! Managing trades is my stronger suit. So I'm aiming to do more with less...

Day's Anatomy- 13th November 2012- Changing Your "Reality".

Today, 5 of the 6 trades taken were good, well thought out trade. 3 losers of varying size and a couple decent winners. The bad one was the third loser/4th trade.

Missed the xxx24 @ the high of day by a hair. That would've got me to my target for the day. Took the next trade long, a loser. No problem. Then, rather than go with the other side of the trade- despite the 1 min wicks against my prior long ZoA i.e S becomes R- I tried to almost bully the market to go my way by moving the trendline (ZoA) slightly lower down to allow me to take the long again..."just in case I was off the first time".

I'd say the market beat me but the truth is (and always will be) that I beat myself.


That was my momentary loss of control/calm today. I attribute it to the near miss and the fear of losing in the direction that was supposed to have brought me to target. Irrational, illogical....and completely human.

Came back with a fresh logical approach and reversed the damage for basically a scratch day.

It's not that there is any one way to read the market, but you certainly can't modify reality of your strategy to try to escape losses, maintain control or whatever it is that motivates you to mess with what works. You have to know that you will take losses (the "good" ones) but, moreover, you have to want to take losses as part of a profitable trading routine.

Avoiding those losses means you are no longer trading your system, which means random trading. Random trading means losses equal to trading costs over the long term.

Day's Anatomy- 12th November 2012

I tried, but can't find an unforced error in my trading today. Yippee!

The eagle-eyed may notice a bunch of other trade markers on the chart other than the ones I've marked up. Those aren't my trades ;) More about that in a future post!

As Scalpy says,  

"There are four types of trades. Good winners, bad winners, good losers and bad losers."

Today, I only have the good variety of winners and losers on my chart so, as such, can't really add much in terms of commentary here.

What I can say is that the three days since switching back to SIM have, magically, been net positive overall. I guess I should be happy...*sigh*

As I've said before, the passing grade is now higher than before. I hope this will be enough to bolster my confidence to the extent that there is little/no difference between my SIM discretion and Live account discretion.

It's funny, as a youngster, I always used to wonder why sports people sometimes had such difficulty bridging the gap between practice performance and match performance. Confidence and Faith...

Thoughts

Here are a few of the thoughts I wrote down after deciding to return to SIM earlier this week.

Instant Gratification & Sugar-

If you eat too many foods with a high Glycemic Index, you end up increasing your blood sugar levels too quickly which causes the release of an emergency release of Insulin. Your body then stores that excess sugar in your body as fat- where it is relatively dormant/harmless- rather than allow it to remain in the circulatory system where it can do more harm.

What does this have to do with trading? Well, simply put, if you look for instant gratification there, you are going to be disappointed. You are likely to cut your winners short in order to "win". You are more likely to trade just to get the high of trading. This ties in to the "avoiding discomfort" piece below...

Control- We do all kinds of things to try to maintain control. Stay in the market for shorter periods of time, tighten stops, loosen stops, change systems etc etc. I believe that we have to give up a degree of control in order to profit. If you can't embrace uncertainty you will forever be slave to control (i.e trying to eliminate "gaps", which I have referenced many times in the blog)

Confidence- I asked myself that question because I often suffer from lack of confidence within a trading day let alone over a large number of trades. The lower the expectancy, the more consistent you have to be to reap the potential rewards from it. So, if I second guess the method after only a few trades, I don't have a hope in hell of stitching together enough trades (10's of them), without error, to harness the edge.

Exits: TA or Stats??- My own studies suggest that, like stops, there is no advantage in using TA over MFE based targets. It's hard to let go of old ideas but seeing, say, 80% of your trades go 0.7R in favour before stopping you out because you were waiting for a certain TA marker (prior high, moving average etc) can get tiring (hypothetical example...not my case).

Minding "The Gap"- This is where my focus is now. Giving up the control we all want to exert on our lives (otherwise we wouldn't be trying to make money from trading in the first place) for the long-term good...avoiding the sugar!

It might be giving up control between stop and target. Or, perhaps, between entry and X minutes. Maybe allowing yourself to feel a certain level of discomfort before intervening with order-altering action...

Here's a link to an article that mentions the fact that we are mostly empty space. 

"Matter is mostly empty space. If you took away the empty space between atoms, pushed them together until they were touching, the human body would be compressed to about the size of a pencil eraser. Or to put it another way, the human body is 99.996% empty space. But since atoms are also mostly empty space, you could push them together until the nuclei were touching. If you did, the human body would be too small to see." 

We need those gaps! 

 

Day's Anatomy- 9th November 2012

Yesterday saw me up 28 pips within the first three trades which I then drew back to 10.2 pips by the end of the session (as always, the numbers are before costs). I traded past my daily tgt just to prove to myself whether it was still necessary. It is. The quality of my decisions after moving too far away from zero- in either direction- decreases dramatically. Hence the need for daily stops/targets.

Today was the kind of day I enjoy...as much as anyone can enjoy a flat day at least. Even though the end tally doesn't match the hypothetical one, it offered all kinds of lessons to anyone who was listening. Seeing exactly where you went wrong is half of the battle.

Day's Anatomy- 7th November 2012

Done with live trading, and possibly with this regular blogging effort, for the foreseeable future. As much as I was looking forward to getting back to trading the live account, I'd much rather have something to work with when I'm back than piss it all away fighting with myself.

Need more confidence and that's only going to come by trading the method profitably in consistent fashion.

It's going to hurt when I return to and pass equity highs knowing that the largest draw down within the equity curve is the only part traded with real cash, but that will only serve to confirm what the problem is... should that scenario happen.

Day's Anatomy- 6th November 2012

Day's Anatomy- 5th November 2012

Drawing down (?!) the account, while not pleasant, doesn't bother me as much as the fact that I'm doing things differently compared to what I was doing while SIM trading. I look at my spreadsheet and see way too many trades with decent MFE (the opposite of MAE..) that were exited before reaching those pip values. There were various reasons for this but, to be honest, none of them were valid.

So I'm officially scared. Not of losing money, but of the uncertainty of my decisions (one of the cons of a discretionary approach).

Seriously thinking about returning to SIM with a higher "Pass Rate" necessary to graduate to live trading than I previously imposed on myself.

Expectations About Expectancy.

Anybody who is serious about becoming a profitable trader will probably know what Expectancy is, if they've been around long enough. But, just in case, here's a quick overview.

Expectancy can be calculated using the following formula:

Expectancy= (Average Win * Win Rate)-(Average Loss * Loss Rate)

This needs to be calculated using a "statistically significant data set"- for a swing trader that might mean testing over years or even decades of data. Intra-day traders will probably need a month or two of data. The time over which your data is collected matters because you are inevitably going to test over various market conditions but the number (N) of trades is crucial. The larger the number, the more reliable the expectancy.

So, let's say you forward/back test a trade idea, taking 100 trades. Your WR is 40% (0.4) and your Avg Win is twice your Avg Loss then...

E= (2 * 0.4)-(1*0.6)=0.2... This means, on average, you make 20% (0.2) of whatever your risk (R) is per trade for every trade you make. Positive Expectancy! Yay!

But that's only half the story.

Here are the six charts from the "Readers' Poll" post. The last results I saw (before they magically disappeared from the poll! EDIT: They are back..for now. 5/11/12) had the winner as 3,4 & 6, which is the right answer.

What do they have in common? They each contain 10 random equity curve outcomes by trading a system/method with a Avg Win 3X larger than the Avg Loss with a WR of 30%. This equates to E=0.199.

The other three charts show 10 random equity curve outcomes with the same Expectancy except the combination of R:R (Reward to Risk ratio) and WR is different- Avg Win 1X Avg Loss with WR 60%.

The few people who voted were able to agree with a majority vote that the charts which belonged to a given group looked different to the charts that didn't. The difference is Variance.

A trading system with a lower WR and higher R:R (such as charts 3,4 & 6) will have a higher variance from the mean, an imaginary straight line that transects the wobbly move upwards (assuming positive expectancy). Likewise, a trading system with a higher WR and lower R:R will have a smoother, straighter equity curve that is closer to being like the mean of the data set.

The comparatively very different outcomes possible between the curves, as well as within the curves themselves, within a high variance approach makes sticking it out with a method as difficult as holding on to a trade that whips it's way to a target.

It's not just where the strategy ends up (Expectancy) but how it gets there (a function of WR and RR) that counts.

Day's Anatomy- 2nd November 2012

Definite improvement with trend days. I am no longer, at least not habitually, the one to repeatedly buy a falling market or repeatedly sell a rising one. A real problem for those fixated on trading reversals. It's a very common occurrence for people to want to exert their own desires on- and try to forecast- a market direction. But if the wall is blue...

34 trades this week (too many). -0.9 pips. I bet my broker is happy :/

Day's Anatomy 1st November 2012

Sometimes your method for entry will allow for large RR with lower WR. Other times the opposite. There is much to be said as to whether we should look to find an indicator within our market analysis to switch from one mode to the other (hardest option).

Or, perhaps we should just stick to one of them and ride out the inevitable draw downs in a hopefully up-trending equity curve?

I haven't found the answer. I'm guessing it's  the second one though...