Is Profitable Scalping Possible..?

They say that it's impossible for a human to compete with the HFT algos...

Forex Futures trades for the last 30 days.

...looks like "they" may be wrong. 

I'll be back when I've hit the next milestone...

Combine PASSED! (again...)

Just in case you don't follow me on YouTube ....

I'm particularly happy with the risk control on a daily basis (Only one negative day greater than ~-$100 out of the 17 that were taken!).

I go in to much more detail in the video so I invite you to SUBSCRIBE if you want to follow along and see how I make it back to, and stay in, the funded account at TST.

Here's the latest FTP update.

See you on the other side!

Back On The Horse - Journey Back To Funded.

Still here and diligently working my way back to TopstepTrader's funded department.

They have FINALLY done away with the 10-Day rule that was such a challenge for me, due to the historical expectancy of my approach to the markets and the fact that being positive with the method (in a way sufficient to weather any bad luck in the form of a DD...) after 10 days in an account isn't a given.

As mentioned in my last post, I'm very active on You Tube now because "blogging is so 90's" (lol @ L&W) and I'm enjoying giving back to the medium that has given me so much inspiration and so many ideas.

If you haven't done so already, smash that "SUBSCRIBE" button and watch me hit those goals over the next few months!

One Hundred Percent!

1) Make the strategy as simple as possible. Okay, now make it even simpler! If it can't fit on a post-it note, it's too complicated.

2) Get comfortable refusing setups. There will be a bunch of "almost a trade" trades. Worse still, a lot of them will work spectacularly! It's like an Aladdin's cave of possibility...and we all know how that ends.

Be disciplined and "touch nothing but the lamp" (i.e. your exact setup).

3) Think super long-term (for results). For various reasons, I broke even in August AND November. But I've still managed 100% in 5.75 months. If I thought about the outcome of those months in the wrong way, it might cause me to lose faith and sway from the plan. Let's not even mention being concerned about a losing day...!!!

4) Think super short-term (for the process). Yes, it DOES matter if you take that extra trade. Or chase that market...or trade at night when you know you shouldn't. Lot's of small, repeated processes add up over time.


PS  No longer with TST. Long story short, they don't really support the profitable trader looking for actual funding. The irony is I would never have become one if not for their program and the dream of getting funded that they promote.

Business As Usual

I only traded 12 of the 21 trading days available this month and still managed to make that achievable ballpark figure that I have in my head. This was accomplished while experiencing three (yes, three!) earthquakes here in Italy. We weren't close enough for it to be any risk to us as we are about 87 Km away but, with the quake measuring a hefty 7.1 on the Richter Scale, it was close enough to move the house from side-to-side, rattle windows and leave objects displaced in the house. Not fun with a family of four. On the plus side, I like that even experiences like this didn't dent my trading composure.

I love not having to rely on WR for results (I "lose" pretty much twice as often as I "win") and I know that if I manage my psychology and follow the plan, the money will eventually follow.

Still waiting on the Funded Account credentials from TST. Should be anytime soon as I've just paid for the data fees and that means the account has been set up on the brokerage side. I'm also adjusting my expectation of take-home profits as commissions are noticeably higher than the Combine (As much as $4.78 compared to $3.68 respectively). Add in the $170 professional data fees and that takes a good chunk out of the monthly figures I've been posting.

The good news is, these costs are fixed. So while commissions will increase as contract load does, the data costs remain the same. Fast forward to 20 contracts per turn and $170 doesn't make up much of cost in terms of percentages at all (1% compared to 1 contract's massive 24%).

Push When Winning- Part II

Strategically adding to a winner to bag 6.7R, without increasing the original risk!

Don Miller- million dollar trader and educator- often spoke about one of the most misunderstood, and sorely neglected, ways of managing your risk. Push when you're winning and stop when you're not.

There are a few ways to do this:

1) Frequency of Stops.
2) Size.
3) Scaling In (not out!).
4) Daily Target/Daily Loss Ratio.
5) Reward/Risk Ratio.

Check out the short-lived, but very insightful, Trading After Dark series that Don created over 5 years ago for more on the above.

The only problem with all of the above methods is....they all won't work out in your favour some of the time. You need a thick skin, and a rock-solid, probabilistic mindset to allow a 3R win to come back and stop you out...or to stop trading for the day only to see that you could have made it all back if only you'd have continued ( etc. etc.).

4 Months In, MES Capital & Pushing When Winning.

Per contract of initial risk...some trades were scaled into.

It's been a long time since I've been on the back of such a consistent stretch of trading. What's more, the leverage involved has been smaller on average which makes the result even more significant. It's nice to see that the distribution is what was expected as far as the summer months are concerned. The graphs also tell the story of the resistance of the Combine target in August and the fearful trading of the FTP during the latter part of August into most of September. It'll be interesting to see what October will look like as volatility has arrived in full force and I'm free to put the pedal to the metal!

I've been doing a trial with MES Capital over the last week of trading. I'm doing well there so far but may have to sacrifice that for a bigger and better opportunity (which I'm keeping under my hat for now!). My initial experience with trying to learn more about the company was met with a less-than-warm welcome to say the least. This isn't encouraging as how you deal with people personally will often translate into how you deal with them in business, but I'm leaving my options open for now.

I've also thought about a comment that was made in my last post regarding pushing when winning. This is something that a lot of people struggle with in life in general, trading in particular. Our aversion to loss has us fighting the tape when we/the market isn't conducive to profitable trading and running away once we have some gains when the market suggests that there is much more to be had. I think a lot of this comes from our upbringing ("a bird in the hand is worth two in the bush"- Mum) and the way we were taught to think at school and in society in general. Winning is good, losing is bad....being right is honorable, being wrong is shameful...etc.

Combine PASSED!

After 2 years and many attempts, I've finally managed to pass TopstepTrader's $30K Combine!

The entire Combine lasted 57 trading days and 260 trades were taken. The vast majority of these trades were made across 4 instruments: 6A (Aus/Usd futures), 6B (Gbp/Usd), 6C (Cad/Usd) and YM (Dow Jones). 5 trades were taken in the ES (S&Ps) and 1 lone trade in CL (Crude futures).

A tightened up the strategy by making things more statistical and objective using the lessons learned  that I covered in this post. This change occurred 9 days into the Combine and is what I consider the beginning of orderly, rules-based trading within the entire data set.

The results after statistics were applied to the method.

The hardest part of achieving this result was giving up control. I used various techniques to help manage myself along the way, which I'll talk about in a future post.The range of emotions experienced were sometimes very hard to deal with, especially given the numerous stressors that have been present in my life over the last 12-18 months or so (births, deaths, financial difficulties, health and relationship...the list goes on and on).

I also met internal resistance when I reached the $1K mark and, then, when the finish line was in sight.

Next up: A post detailing the cost incurred to get to this point in my TST trading journey. Stay tuned :).

Running P&L In R

Keeping what I said regarding showing vs being firmly in mind, I've decided to share my running P&L with the trading blogosphere!




I've converted the chart from $$$ to risk units - this allows me to share the journey without the potential pressure of sharing the actual dollar gains/losses. Having said that, the usual caveat applies - if it messes with my ability to trade properly, it'll be gone quicker than cake at a Weight Watchers meeting!!

Reasons for doing this:

1)  During the years of following trading blogs, I only know of two that have consistently posted their P&L without conveniently skipping out periods of time (where anything could have happened!). This one  does so in points, while this one does so with $$$ and accompanying charts. I want to add an element of credibility to my posts so that people can verify how well the principles, spoken about in this blog, translate into real-world results.

2)  It's taken me a long time to begin to understand the nature of probability, variance etc. and how we need to fully understand our expectancy, the journey it can take us on, and adjust our expectations to be able to accept the journey without destroying the long-term edge. This curve will serve as a reminder for me when things look grim and as a reference for any future posts.

NOTE!: Friday 23rd September's result is not accurate as much bigger risks were taken to achieve the ~ -3R result in order to try to get above $0 in order to satisfy an FTP rule. I've normalized the result in order to not skew the curve but the result in actual risk taken would have been closer to zero.

Combine Completed!

.....No, I haven't passed yet. But I do have more information/feedback that will guide me towards doing so.

Here are the facts (in no particular order):-

1) The percentage of the target obtained in each of the eight Combines I've taken since last June has increased over time. They are noticeably larger after moving to the $30K Combine.

Here they are in chronological order. The ones in bold are $30K Combines-

3%, 9%, 3%, 37%, 0%, 0%, 49%, 80% (< The one I've just finished...stats in the above screen captures).

2) My plan when moving in to this last Combine was to take advantage of the information gleaned from previous Combines- especially the 5th and the 6th- here is a snapshot of my TST journal which summarises this information...

I basically found that I was able to very consistently net +$200 within 1-3 hours of liquid market action. I needed to allow for a $400 intraday draw for that to happen. The one day out of seven when I wasn't able to achieve this typically resulted in less than a $400 loss.

3) After having a "discussion" with the missus, we decided that I'd no longer talk about the story- the reason why this nearly happened/didn't happen and if I had just done this that or the other...just bare bones results in business-like fashion. Even then, it was to be limited to a weekly conversation if not a fortnightly one.

The period of adhering to this way of operating coincided with the initial run up towards the target.

4) The high coincides with the blog post documenting my results (along with the story of how I got there) along with more frequent conversations with Mrs MM.

What does this all mean to me?

*"1)" Suggests I'm making progress.

*Trading the $30K is the where I need to be.

*Daily structure and an unwillingness to indulge in stories or even results in the short-term is essential.

*I need to use the daily stop and not get drawn in to the idea of taking just one trade per day.

Will establish what I'm going to do in terms of a daily structure then get back on the horse.

Combine- Day 17.

On the back of a losing streak but finally starting to see a glimmer of what's necessary to move towards the combine target rather than bounce around break even, which is what I've been doing.

The second trade went nicely in favour but I only got partially filled and let my disappointment get the better of me, keeping the order for the remaining 8 contracts on the books when I should have been out for a minuscule profit. I ended up paying out as a result, throwing the day off by some $400. Need to be better prepared to do the right thing even when tested.

If you are going to step off a moving bus, you had better do so with conviction! The next few days in the Combine will demonstrate whether I have that or not as I look to replicate today's kind of engagement with the market consistently. I see two probable outcomes:

1) Quickly moving towards the profit objective- I've been trading alongside the Combine in SIM and, as has been the case for 2 years now, I'm satisfied that my method has edge. The issue will only ever be the ability to execute consistently with a cool head. If I don't do this then the other outcome will be....

2) Quickly failing the Combine- Not embracing this possibility is the surest way to make it happen as we tend to hide from information that threatens us or cling to an outcome we are searching for, quickly removing our ability to be objective.

So my goal isn't to pass the Combine...it's to trade the way I almost did today and let the chips fall where they may. I will gauge success or the lack thereof by the process I engage in NOT by the outcome of that process.

Let's see what happens.

Combine- Day 8.

Last Thursday was Day 7 and that was a profitable day with full contract size (10 contracts). Friday was a repeat of this scenario, except I did one better and just didn't watch the markets.

Since Monday, I've returned to my 19:00-20:00 CET hour (which is where I intend to stay for the rest of the Combine). I've taken just the one trade, today's, out of seven setups identified in those two hours. I managed to catch the only one that resulted in a loser an expense.

Easing in to 10 contract trading. Under water in the account but know the power of the edge so still feeling confident.

Combine End Of Week (EOW) Review 1.

Blue and Red values are winning and losing days respectively.

What I'm pleased with this week is my consistency of approach towards my interaction with the market. I chose how much I was prepared to lose and stuck to it, even if I used to find it difficult to "give up" (We have to learn to be good losers in order to win over the long haul). I knew I wanted to have bigger winning days than losing ones and so I made that possible by controlling the downside...

I see a few areas for improvement. In order of importance:-

1) Emotional Variance- As mentioned in this post, this is, in my opinion, the most detrimental threat to anyone's profitability. Tuesday's mild euphoria followed by extreme emotional fatigue the following day meant a lapse in my ability to wait. If I had done so, I would have had the opportunity of up to 5 points of profit rather than the -1.5 points that I ended up with.

Action Plan: I have enough awareness of self to catch this scenario as it's unfolding. I will be in bed earlier than midnight on those winning days that trigger such a reaction. No bed before midnight, no trading the next day.

2) Run Winners, Cut Losers- This can be intra-trade, trades relative to other trades or on a collection of trades that make up a period of time, such as a day. I did a good job with the first two but not with Tuesday (took one-and-done) and Friday's trade (lowered contract size) which inevitably capped the week. This was done on purpose but, as I said, it won't do long-term.

To do this requires trust. Trust that pushing when already up will result in more over the long-term. Trust that, as much as you think you can fight, giving in too soon will save you in the long run. We have to forget those odd occasions when we pushed and gave back gains or when we fought our way back from huge drawdown.

Action Plan: Risk at least one more trade (full-size) when I'm up as much as I'm prepared to be down on any given day. Know that, sometimes, this is going to mean taking a decent winning day and turning it in to a smaller one in order to reach those larger-than-average-losing-day winning days. Example: If I'm only prepared to lose $336 in any given day, then take that one extra trade when up $336 on any given day.

It's also interesting to note that, just by moving from 5 contracts to 1 on that last trade, I cut the weeks' expectancy by just over 10% - E= 0.1013 missing from what would have been 0.2767.

In a nutshell- Go to bed and push when you're winning.

Combine- Day 3.

Nothing to report here...only the feeling that I'm trading a losing approach simply because the first three trades have resulted in a net loss. Do the same thing tomorrow. Look at the result after 10 well managed trades in a row.

Back...

.....but only long enough to promote talk about my latest challenge.

As I hinted at before disappearing, it was time for a more holistic approach to life/trading success.

In the last 12 months I've radically changed my lifestyle: Diet, Meditation and regular exercise (Coming from an athletic background, I hadn't noticed that I was slowly...very
slowly...becoming rather sedentary) along with making sleep a priority again.

 So now that I am no longer addicted to trading (I regularly trade just an hour a day and actually have dinner with my family again. Everyday. Without fail! Something I hadn't done for years before..) and have smoothed out the Emotional Variance to a large extent , I feel as if I have what it takes to accomplish the much touted sign of true competence in trading:

I'm going to make 100% on my account risking 1.7% per trade.

Expectancy suggests that should take until late Nov/early Dec, but I'm targeting the end of the year. If it takes longer, so be it. Less time would be icing on the cake...

My progress can be followed on Twitter and also on YouTube....I'll share as much as I can without distracting myself from the task at hand. I've already noticed a difference the other day when I flipped Camtasia on to capture the live trading, so I'm not making any promises where videos are concerned!!!

Links at the top right hand side of the blog- See you there!

The Mighty Momo! Pt 2- Wood For The Trees.

Below is a recent example of the pattern in play. This time, I've included volume to show how that works with the progressively smaller magnitude waves of selling (See "The Mighty Momo!" for the original mark-up, which was a short)...

Picking out the mass of volume is the idea.

The lower volume on each successive leg of selling compared to the prior one is a sign that the sellers are losing conviction. Add in the "Golden Mean Extension"- which isn't always this clean- and you have something which gives a "trade-able bounce" (subjective: refer to the above link for my thoughts on that) around 80% of the time.

So, at first glance, it looks like volume isn't favourable for the above setup. But that's a case of missing the wood for the trees- just have a look at the body of volume. They do provide the decline we're looking for in order to take a trade. The "trees" do provide us with evidence of short-term trend exhaustion and, as such, give a heads-up as to where you'll find the pivot. Again this is not an exact science and you need to look at recent PA to determine how volume is signalling turns relative to price (at the exact pivots, slightly above/below etc).

Incidentally, I've noticed that the GME tends to also be present in terms of time. IB's charting package doesn't provide that tool, but it's quick to do with a calculator plus the approximate times the lows/highs occurred.

The Mighty Momo!

This pattern has formed the basis of the vast majority of trades that I've taken over the last 5 years and counting. Whether it be a derivative of the pattern (Pattern Failure or the Appendix) or the pattern itself...

Saying a pattern is "profitable" is, in my mind, completely ludicrous. Simply because it depends on too many factors. The pattern itself is almost irrelevant (but, paradoxically, extremely important in that it has to offer a tiny edge)...it's the framework - both systematic and mental - built around it that's (hopefully!) going to make it profitable for you.

Some of the answers to the many questions which have to be tackled when using this approach have their foundation built upon market dynamics. Some are based on the trader him/herself. Others are a combination of both:-

* What Time frame? The considerations are very different when used intra-day as opposed to swing trading...
* What high do you choose as your anchor? Why?
* How do you trade out of the third high? Reversal candlestick trigger? Channel break? Or do you just trade the level without "confirmation"
* How will the above alter your R:R? Will it alter your WR?? (See below)
* Are you using a fixed stop or a technical stop?
* How accurately can you pick off the highs? *Are you playing the statistical game or analytical one? That is, take profits that work based on R:R and WR or try to get to S/R / target levels based on...whatever?

There are probably more, but it's late and I want cereal!

Sandcastles- Shifting Thoughts And Supports

"sand·cas·tle  

n.

1. A castle-like structure built of wet sand, as by children at a beach.

2. Something that lacks substance or significance."

Trying to out-think your own logic is stupid on so many levels. 

Firstly, you can't collect any meaningful data about your interaction with the market if you are a neurotic, strategy-changing mess. So stop doing everything and start doing something consistently! Secondly, how can we learn to trust ourselves if we can't define what we are by what we do if we don't actually do any one thing?? 

Slave to a combination of Outcome Bias and Loss Aversion, we have the urge to circumnavigate our own strategies (!!!) in an attempt to avoid inevitable losses- or at least exert some control (there's that word again!) over when they do or do not occur...all we really do is miss the real chance to learn something about our long-term relationship with the market.

If, by your analysis, a pattern/setup was "strong" or "supposed to work", shouldn't that then offer a very profitable trade in the opposite direction of the failed pattern/setup especially if there is some sign of rejection on the other side of the stop zone...??

If it doesn't, then you're likely building on sand, at least on this occasion. The crucial thing is to let the market tell you that with a "failed trade" (Not necessarily an unprofitable trade...) rather than doubting your own train of thought...a sure sign of lack of trust and/or need for control. You can't modify what doesn't exist in the first place.

Incidentally, I'm back on the live account with half-size which has made all the difference. If one is having difficulty bringing practice performance into the live arena, I'd highly recommend trying to trade a part of whatever size was used in SIM forward-testing when attempting to go live.

Feels like SIM...but with tangible benefits :).

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! 

 

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.