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Stats were bearish for month end closing. Hence I shorted the market but unfortunately my timing was bad. While I was fiddling with my stop loss order around 60 pts area, YM just zoomed 300 points in 5 mins. That's more than yesterday's range! I'm not sure whether it's because of inflation numbers released an hour ago. Didn't make any sense but I'm not asking questions anymore. Since it felt very similar to erratic DAX move earlier, I concluded that it's likely to be month end related PA and hence I decided to wait for a pullback to get out. I was lucky to get out during a deep PB with lot less damage but still -130 pts is not fun.
Though I wanted to call it a day, I noticed big sizes selling the top and hence decided to bet on the shorts again. However, I got in at a much better price this time and reclaimed my earlier loss. Though I had to endure some MAE, I was not too worried as it was liquidity hunting to shake out weak shorts. In fact, it made me even more confidence of this mean reversion trade. I'm glad that it's not a revenge trade. Though I could have pushed my shorts aggressively, I realized that this sort of price action and environment with month end moves is not my strength and hence calling it a day. Be safe out there. Happy weekend.
Though my long term goal is to increase my daily risk tolerance to 2000 USD (and I was getting there), I noticed significant increase in vigilance when I shifted from MES to ES. I also struggled to scale in, which is 'the magic bullet' for long term success, in my humble opinion. Hence, I decided to focus on my execution for the last 2 weeks and went back to micros this week.
What have I achieved so far?
1. I'm no longer adding to my loser. This is huge for me. Massive really. Since I start with 1/4 size, it guarantees that my losers are going to be small compared to my winners.
2. Adding to winners, as soon as I get confirmation that my trade idea is working. i.e new swing high or low in my direction. My aim is to try and scale up max size before I consider taking partial profits.
3. Always, always focusing on 'I'm wrong' price level. I'm using hard stops almost 80% of the times now. It's 100% if I'm counter-trend, judged by EMA clouds. It lot less frequent if we are in a chop/range especially when I suspect liquidity hunting with low relative volume. Mental stop works better then.
4. Much less attention to targets or profits. I still think about key levels like Y-H or Y-L to scale out but usually they are quite far from my entry levels, often >70% daily ATR. Hence, it automatically forces me to think about the above 3 points first.
5. Finally, I'm hopeful when my position is in green and nervous when it's in red. I no longer pray for a V recovery when I'm in a losing trade.
I feel like my thinking has been 'flipped' the moment I started focusing a lot on managing my losers. I no longer look at my P&L intraday except when I'm in a losing position. This is to simply make sure that I'm only holding the micros, NOT mini or full size contract.
Another good day of execution. Though it's a profitable day so far, I want to reflect and elaborate on my risk management strategy.
DAX opened with a big gap up, above Friday's high. I started the day with bullish bias, based on stats, but the risk reward only favored shorts. Hence I took a tentative short, AFTER seeing big sellers @high. Once price moved in my direction, I scaled in 1 more and took my profits @ pre-defined area. Risk was well defined at HOD. 100 points without breaking a sweat. So far so good.
Then the interesting part. Since price is down at 20 DMA, my initially preferred spot to buy, I went long. However, I was way too early for the party. Sellers kept pushing it down with ease and hence I bailed out @ break even during the rebound. Then tried again with no luck. Another lower low and hence bailed out @ break even. 3rd timed seemed to work and I even scaled in. But sellers were relentless and pushed it down again to another lower low. Got out breakeven/small loss again.
The reason I wanted to post this is to highlight the risks and benefits of 'hard stops'. Since I have the higher time frame trend behind my back, and lower relative volume, I felt reasonably confident that price was going to be choppy. Hence, I can get away with 'mental stop loss' and I did. The key here is to stick to the plan and get out at favorable price after the mental stop loss price is hit. Obviously this could have backfired spectacularly but I also have a 'must get out hard stop' well outside the noise and also kept my position size to just 1/4 of max to prevent structural damage to my account.
I must add that my 3 long attempts were BEFORE I received any long signals. This was partly due to my long bias from pre market prep and trying to be smart and 'jump the queue'. Another factor was my confidence in earlier success in picking up the top. I thought I could do the same with the bottom too. Will be more mindful in the future.
I wanted to practice the elusive 'switch trade' today.
Nikkei had bullish stats today but the opening trend was down. As per my execution rule, I had to 'start with the trend' but allowed to reverse if there is no follow through. So I was short from RTH open.
Once I saw big size buyers @ LOD and price moved up, against me, I took a small loss and I 'switched'. I hardly had any MAE and price slowly inched up and then zoomed up. My initial target of 200 points was hit, to the tick, during the 1st leg up.
It's not all hunky-dory. I wanted to enter again during pullback but demanded a deeper discount with a limit buy @ 700. She was not in a mood to give any. Whilst I stood, empty handed, She raced away and hit my eventual target 150 more points up. 1a
Regret can be lot more powerful than pleasure from profits.
I had a pretty decent day with Nikkei and grabbed 200 pts. I was a bit annoyed with myself for missing another 150 pts which was my profit target as explained above. My analysis was based on a 400 pts daily range. However, we ended up having a monster day of 700 pts. Bullish engulfing candlestick pattern day.
Did I regret not riding this move. Initially yes. But when I thought a bit more about it, not really. Though I aim to grab 70% of daily ATR, my analysis didn't anticipate this huge range. The likelihood of them happening is only 10-12%. The high probability outcome was for a higher close (65%) but after making lower low. I executed for that scenario and happy with that. I ackowledged the regret emotion and used it for further research. I do NOT want to miss future opportunities like this. What I have learnt is that once 'engulfing' pattern has developed, i.e after making higher high and lower low, it's safe to trade breakout mode with a very tight stop. Will remember this and try that next time.
Man your professional approach is great! Keep it up... killing winners always sucks but you crushed that trade and as you pointed out your analysis not emotions created the exit win win if you ask me
Thanks. I keep reminding myself that my current goal is not generating profits but developing skills. If I can use tennis analogy, I'm practicing serves, slices, volley etc. and aiming to become a 'pro'. I like the title 'holistic trader' actually.
Today, I picked one particular strategy which is 'switching' and I did that well. However, my monkey brain doesn't shut up and reminds me of things I missed. 'You got just 200 out of 700 loser. Looser'.
That's where journaling is very helpful for me. It's to remind myself of my intent, action and outcome. Very effective in making the monkey brain shut up.
DAX opened gap down, after testing 20 DMA yesterday. Statistically, it's bearish and I had no hesitation in shorting RTH open. Once I received more confirmation, I scaled in once.
Price reached daily ATR rather quickly and hence I scaled out with 100 pts gain.
Since trend was still down and the odds of bigger move is still significant, I shorted the bounce again. However, price became range bound and doozy but I didn't give up. Eventually played it safe and scaled out @ LOD. Still 1 lot short and positioned for a bigger move, if it happens.
ATR estimation, for the purpose of profit taking, is a tricky issue and I’m still learning.
The way I see it, there are 3 aspects to it. First is cash vs future. Second is the average of ‘x’ number of recent days. Finally, managing outliers.
1. I prefer Cash as the ETH volume is usually thin. Moreover, in Indices, it’s overnight movement is less relevant when the underlying stocks are not trading. Cash & futures generally have comparable ATR except when we open up/down with BIG gaps. I take the gaps into consideration but look for volume for clues. If the relative volume is high, then I expand my ATR expectations during those days and look for trend days.
2. My default value of ATR is 5 day average. I also heavily rely on Yesterday’s range. However, I use ‘approximate’ values and not pedantic about it. The key aspect is to try and align the range extremes with important levels like Y-H, Y-L, 20, 50 or 200 DMA so that I can try and join the liquidity hunt by big players. For example, DAX 5 day ATR is around 200 for Cash and a bit higher for futures. We opened 70 pts lower. Hence I used 130 pts as my initial target. However, the relative volume was a bit higher than usual and indicated that range extension is possible. Hence, I scaled in and eventually got out @ 220 pts ATR. However, DAX is currently sitting at 275 pts ATR and we are not done yet!. I know I will rarely get my exits right but will try not to regret, as I put some thoughts into my trade execution.
3. Managing outliers like compressed inside day or big engulfing days are currently quite difficult for me. I often get whiplashed during narrow days and miss a lot of profits on the table during big days. I think that’s the final frontier for me and once I handle them well, I can truly call myself a ‘pro’.
Will be more mindful in the future.