September 24 2009 Midday Post

It is usually not good when I do a midday post. The only way I can write is if I am not trading. The reason for not trading would be that I am out of sequence and need to wait for a "reset" to re-engage.

I am doing this post more for myself but I think everybody can gain insight from this. There was a significant move to the downside today.

I had the premise for this move on my prep. The 1065.00 area was the line in the sand.

1065.00 held and I needed a way to get short into the 1052.00 area for a good ratio and a chance at at least and extension beyond 1052.00.

I stopped myself into a breakout trade short at 1058.50 at 9:41 AM EST this morning. The trade had an initial 2.25 point excursion.

After it started moving back up, I began building a scenario for a higher low to be put in which put me into defensive mode (Breaking rules).

My Trading Style:

I mostly trade the tops and bottoms of ranges. This is where the most edge is. I have an arsenal of unique setups with directional bias in these areas. This is where I make money.

I understand all the other structure and can trade it but I absolutely hate trading in the middle area of a range (median).

I am especially reluctant to play a major higher low or lower high in the median of a range like we had this morning. This usually shows itself when the market is about to enter a major multi-day trend.

Back To This Morning's Trade:

There were other factors involved in the mismanagement of this trade. There usually are. We had a report out at 10:00 AM EST that would likely cause some volatility.

My current plan is to be aware of reports but do not trade around them. A report can not change the natural market structure that I trade.

With the combination of over thinking of the potential higher low (contrary to my original read), the report, and the fact that the I am shorting into support it was enough to cause me to move my stop to break even (rule violation and #1 equity killer of all time for me).

The trade hit my break even. After the report came out, price moved 1.25 points against my original entry, then proceeded to sell off 18 points.

I had one more entry chance but it was not good and right on top of the report volatility.

Why Am I so Irritated About This?

Two reasons:

1. I completely broke my rules. I says right there on the prep: "no break evens or cutting trades" and "no defense."

This never works out in my favor. How many times do I have to demonstrate this to myself?

2. I have been trading extremely well and about to make a new equity high. Today was an "outlier opportunity."

This means that it was a chance to make a huge advance. These need to be capitalized on. When they are skipped, it can cost days of progress or worse.

I know this stuff. I constantly write about it.

Simply put without meaning to sound arrogant, I am hardly ever wrong about direction or premise. Why the disconnect between my read and my performance?

Here is the answer: LACK OF COURAGE, CONVICTION, BELIEF, AND AGGRESSION.

HOW MANY TIMES ARE WE GOING TO REVIEW THIS?

If I am wrong, I should take the losses as the cost of doing business.

What if I was wrong today? Cost = $400.00. I was right and broke my rules. Cost = $1200.00 minimum.

Isn't this an easy decision. It is if we keep it simple. Not so much if we debate our initial read in the middle of price action.

Consequences:

Tilt. I need to bring this up.

After missing an "outlier" like I did today, I need to be careful and watch out for TILT. My natural reaction is to be overly aggressive. I have already taken a low probability trade today and been stopped out.

I believe in action/reaction progressions in life and equity curve. I pulled myself out of the natural winning event today and now the reaction could likely be a drawdown since I failed to make a new equity high.

It can lead to a series of losses and put a trader into a major hole.

It is a lot to have on the mind in addition to every thing else when trading. I need to pay attention to this. I have no advice for anybody in dealing with this. I can usually not avoid the reaction and it just sucks.

Observations and Adjustments (broken record):

1. I am banning all break evens until a 4 point excursion occurs on the first trade of the day from now on until further notice. No exceptions. NONE. Welcome to binary trading.

I am right too often to cut trades. It will not work. Again. It will not work.

2. The missing of OUTLIERS stops today. I need to go down swinging.

3. Stop building scenarios intra-trade. The initial read is the best.

We have been through these mantras over and over again. We will keep going through them until they are no longer necessary.