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Important to determine what happened. You need to understand if the losses are part of a normal cycle, or if the method is no longer working either because market conditions have changed, or because of the way you are executing the method.
At the beginning of the month I put up some results from February:
Net: $820.79 = Gain of 2,461.24 less a loss of 1,640.45 (profit factor of 1.5)
45 Winners, 45 Losers, so 50% win/loss
Average win $54.69, average loss $36.45 W/L ratio: 1.50
Here are those same numbers for March:
Net: -$1,005.81 = gain $2,394.20 - loss $3400.01
49 winners, 78 losers; 39% win rate
Average win $48.86, average loss $43.59, W/L ratio: 1.12
Ugh. Attached is the equity curve for the last two months. I wish there were more learning curve visible in the equity curve. But at least Interactive Brokers is happy with the $841 they have now.
The last two weeks have been frustrating. I have been paper trading, and things seem ok there. Here are the stats for the last two days of paper trades in the six stocks I have been watching:
Net $1,219 = gain $1,809 - loss $590
20 winners, 19 losers, 51% win rate
Average win $90.45, average loss $31.05, W/L ratio: 2.9
Paper trading is far from perfect, but even if you assume $15/trade for slippage/commission, that would leave me with about a 50% win rate and a W/L of 1.64. Close to what I saw in February. That would be great. I will post my hypotheses of what happened a little later.
No more than 0.5% of capital at risk on any trade ($100 max, but so far it has been $20-50)
Trading for the day stops at a loss of 0.75% capital loss
I had three violations of max loss on a trade of $100: 3/6, 3/14 (only $1 over), 3/23. One of these was an "honest" mistake: left a trade on that I thought was closed, and it ran $158 against me before I realized what happened. The other two were the result of getting in late or lots of slippage that left me with more risk than I should have had based on where my stops needed to be and then having those stops hit. I knew my risk was too big at execution. There were a couple other trades where that happned, but all I need to do is sell one or two lots and bring risk back in.
I had five violations of max day loss of $150: 3/6 (-$267), 3/12 (-$167), 3/13 (-$159), 3/22 (-$154), 3/23 (-$235). Only two "flagrant" violations. 3/6 was the result of multiple orders open in excess of the days risk. I have no means to track risk in open trades. I could be down $100 for the day and have two trades with positive P&L at the moment, but $80 worth of loss possible. That $80 loss would take me passed the daily limit. 3/23 would not have happened without the CMI loss mentioned above. The three "small" violations were slippage taking me past limit.
I look at those days and think, boy it would be nice to have $232 (1.1% of capital) back. All I have to do is follow my rules.
A) What are the top five benefits you have seen as a result of regularly posting in this journal?
The forced tempo of reviewing trades. It is too easy to let days slip. Knowing that I was expected to post helped me review trades that otherwise would have slipped into a fast-fading memory.
I have seen weaknesses in my "program", see part B below.
I have a better idea of what I don't know. For example I know that almost all of my trades were exited on a stop just by how I set them up, but I have no idea how many of those were my initial stop level, breakeven, just below the EMA20, just below a prior swing hi/lo, etc. I need tags to track how I exit trades to better understand how I am doing in that aspect of trading. I don't know now.
Seeing that I need to know my set ups better. As I look back at some trades I struggle to see any type of set up. Part of this stemmed from my trading on 3min charts and the trades that are autogenerated for me are 2min charts, but some of those "set ups" are pretty wanting.
I have gotten the sense that if I really track my trades, this whole trading thing just might be possible. I think up until now I was always a little skeptical that it was all pipe dream, but the process of journaling has made becoming a profitable trader seem like a remote possibility. It is real work, but with a real outcome.
B) What are the top five problem areas you have identified as a result of regularly posting in this journal?
I have no tool to measure how much risk exposure I have on at any point in time. Not a huge problem now given the small account size, but that did contribute to a blown limit.
I do not have contingencies for many cases, like what to do with a trade if I am pulled away from my desk? Need to identify those and write them down.
Trading set up is weak. I don't have real time quotes on IB. I have Bloomberg at work with real time. But I have to manually key in orders and stops. This led to several errors where my the handle of my stop was off (121.66 vs 120.66) or I submitted a limit order that immediately closed my position rather than a stop. It would be easier and less error prone to trade off a chart, like in NinjaTrader.
I am prone to over trading and putting on several correlated trades. While the journal did curb some of that problem because I knew I would have to put together another chart, that was not a complete fix. I chose to focus on six stocks in different sectors, but they are still pretty correlated. If I had three longs on, it felt like I just had a large position that was tied to what the e-mini was doing.
Lack of time. On the train at 4:30a off the train at 5:30-6:30p, put the kids to bed, eat and be in bed early enough to stay awake the next day puts journaling crammed in on the train or late night - never seemed to have the time to do it justice. Probably means I don't have time to trade properly right now.
C) Were you initially reluctant to start this trading journal? If yes, why?
Yes. Time commitment of producing charts and commentary.
D) How do you feel, overall, about your journaling experience?
I have been posting headline stats and P&L, posting screen shots, and writing commentary on those trades as time permitted. But I really need a trade journal. I have almost no means to go back and systematically see how many of my failed breakout set ups works or how many were even valid. I have no idea how changing my stop strategy could impact my results. I have no idea how my decision to stop using price targets and only trailing stops impacted results, because I did not capture any of that in a reviewable format. I have put in some "screen time" and ridden the emotional roller coaster of live $ trades, but I am still far away from having the tools I need to improve. I am a little worried that continuing the public journal will take up time in producing a public post that could otherwise be used to do personal analysis.
E) Would you recommend to others that they should also start a trading journal?
I have a few things I need to get in place before I will benefit from the public trading journal. If others have those tools in place, yes, a trading journal makes sense. If you aren't sure where to start, the forced tempo of a trading journal will point out pretty quickly where you need to start. It is a nice "jump in the water to learn to swim" method of teaching. Not fun, but it gets you in the water.
Just paper this week. Print out charts at the end of the day; cover up and go bar-by-bar, enter on stops and move stop loss defensively.
Arrow indicates direction up=long down=short. Numbers on the top are risk of the trade (eg., 2x20 = 200 shares with $0.20 of risk per lot, so $40 total risk). The numbers at the bottom of the pager are the P&L for the trade.
Same drill as last week. Print out charts at the end of the day; cover up and go bar-by-bar, enter on stops and move stop loss defensively.
Arrow indicates direction up=long down=short. Numbers on the top are risk of the trade (eg., 2x20 = 200 shares with $0.20 of risk per lot, so $40 total risk). The numbers at the bottom of the pager are the P&L for the trade.
I read about this drill on a trading site. I don't follow the drill exactly: I use a 1 tick profit target and a 2 tick stop. So I have to be right about the short-term direction 66% of the time to break even.
Attached are screen shots of four hours of sim: 195 trades, about once every 75 seconds. For only 1 of the half hours was I under 66%. So I am getting a better sense of short term movements.