March 5 2010 Overlay, Trades, and Commentary

I had an excellent read this morning. There were not really too many outcomes. Even prior to the news release, the scenarios and areas to work off of were clear.

I executed a long just after the test and hold of 1126.00. The entry was a confirmed micro breakout entry. My gut said to bid into the thrust down into 1126.00 but my prep required me to wait for confirmation.

The trade looked excellent. I never doubted the upward bias but ended up scalping the trade instead of holding all day.

My simple answer to why is that I was not in the best position and thought there might be a retest of 1126.00.

Had there been a retest of 1126.00, I would have held even at a worse price. The tempo and wall a fake bids and offers made me very willing to scalp as well.

CLICK HERE for a short raw video of the trade

There is a larger issue I would like to explore here.

My thoughts on my trading plan and one entry/one exit or one contract trading

I do not scale into or out of my trades. I do not add to winning positions. I have attempted this in the past with mixed results.

My process right now is to master my edge with small size and then ramp up to larger size. I believe that I can develop enough execution skill to be able to get in and out with one entry and limited risk while still maintaining an edge.

The difficult part is creating outliers because I can not manipulate size based on the quality of the setup.

I am trying to develop a raw and consistent edge using fixed size and single exits which is very difficult.

My recent conclusion

I am correct on direction and premise almost all of the time but have only had a minimal edge lately.

I can beat the market right now but am prone to long grinds and break even spells. This is ok but I know I can do better.

The issue is that I manage my trades very tight. When I am wrong I always get stopped out for a loss. When I am right, I am only taking profits about 35% of the time.

My stubbornness in taking profits is making me dependent on my trades going in a straight line from entry to exit. The market is rarely going to cooperate.

I do not have a re-entry mechanism to get back into a move after it has come off a zone. I like playing off zones because I know exactly what my risk is.

Not engaging between zones is leaving a lot on the table.

Today is a good example. I scalped a premium entry but did not re-enter. I have known for some time that I do not like to re enter so my previous plan was just to hold.

I have stopped this because I was letting too many trades hit 4-6 points open equity and then stop me out.

It is not that I can not trade in between zones. I have many different ways to execute regardless of where the price is at.

The issue is that if I do not use a tight structural stop, I need to pretty much have no hard stop and let the price push against me until my premise is really invalidated.

Many traders trade this way. It requires taking occasional losses of 4-8 points. I have not been able to accept this.

The flip side of the argument is that if I take a 2 point loss 2 or 3 times on a re entry attempt because I did not give the trade any room, I have still lost 4-6 points on the attempt.

This is a matter of trust and feel. Trust in myself and feel are what I am working on now. This is key to being an elite trader.

I have the feel without a doubt. It is trust and confidence that I am working on now. I need to be able to let the price push against me when I feel strongly about a premise.

I am getting stopped out too often in the noise just to see my premise end up working.

I took a stab at this method on Tuesday when I bid into the move down just after the open. I stopped myself out at 3 points loss knowing it needed another 1 point of risk.

The price low ticked me and then went on to win. I lost that battle but demonstrated that I can open things up and get more aggressive.

To sum it up, I am going to slowly start taking quicker profits and allowing more risk in certain scenarios. I need to allow myself to trade and not get too caught up in the noise or micro structure.

It is very rare that the price ends up somewhere that surprises me. I need to exploit this.

Interesting observation this week

I beat the market this week. It was not a massive victory but is was acceptable in this action. I traded well but not enough.

Strangely enough my edge was created by several small 1 point trades that would have normally been break evens.

Had I held today's trade instead of scalped (like my original plan earlier this year), I would have had a larger profit this week BUT...

I do not want to have to make a career out of needing the market to move in a straight line to my target like it did today without significantly pulling back or testing my entry point.

I am not going to set out to just scalp either. My success will come by allowing myself to take high probability profits and slowly increasing trade frequency. Home runs will occur naturally.

It is key that I have more trades but I can not force them. We will explore this more next week.