August 11 2010 Overlay and Trades

I think this post is worth a couple reads.

I easily have 3 or 4 days worth of material that I could cover from today. I could probably do a day long seminar on all the lessons that could be learned.

I had an ugly streak early on followed by an amazing comeback and minor win on the day thanks to a lone ES trade that was all premise with no setup.

Prep Read

The first thing I would like to cover is the read this morning. I very rarely have my primary visualization extending a zone right at the open.

The most probable outcome is always going to be that a zone holds. I do not build the prep based on merely probabilities however. The prep is a detailed consensus of all technical aspects that I know reconciled with my gut feeling on sentiment.

Usually when I premise for a zone to break at open I have second thoughts but one major rule of my prep is that I go with my initial read. Whatever I see and feel as soon as I sit at my work station. No modifying or arranging except in very rare scenarios.

The reads have continued to be shockingly accurate day in and day out. However, one thing that I have been repeatedly telling traders I communicate with throughout the day is that the read is not enough to successfully enter a trade and exit with a profit.

First Sequence On TF

I wish I had more time to really elaborate on this. I need to document the most important observation of the day and probably for the week here.

I started the day with 3 losing trades for approximately - 50 ticks. This is a significant losing sequence for me.

This was not a clean loss, it was a mistake that was avoidable. The problem is that I was trading patterns at a support zone instead of following a premise.

Try to follow. I told another trader as I was working my second entry that there was no game here. What I meant by that is there was no trap, squeeze, or push happening. The price was simply taking a breather and congesting prior to continuing down.

There were more reasons technically to get long then short. There was a support zone, price was stretched, price made an inside higher low, price put in a long pull back retest setup, and support zones hold more than they fail.

One simple factor out weighs all others...the market had been contracting for days and extended down this morning...premise was for the price to continue to extend down period.

There would be no squeeze and no pull back on the extended leg down. Nobody was buying and nobody was covering. There was no game there because price was just drifting. The players were not even trying to draw me in, I drew myself in looking at patterns and not focusing on the overall game.

I knew it half way through the second trade but I was committed to the premise and had to follow through. The third entry was simply an angry attempt to get back at the market. It had a pattern but nothing else.

I will escalate a situation and worsen my position once I get into a fight. That stubbornness makes me a tough trader but can also lead to some ugliness.

One aspect that was reinforced today is that almost any setup will win if you are directionally correct. It is crucial to stay on the right side of the market even if the setups are not great. It is also crucial to stay out when direction is in question.

There were plenty of better areas to exploit the rest of the day. Note that all my stops were in the long side and all my wins were on the short side. This is no coincidence. There were no big squeezes today thus no reactionary profits to be had.

It is extremely encouraging that I adjusted to this.

Fight Back Scalps

After the bad sequence, I regrouped and got on the right side of the market. My plan was just to hit the short side and not get shaken out. There was nothing but air below on the TF. The ES was junk and not trad-able at this time (high volume high market depth grind down).

The problem was every time I entered short, the price would stall. Causing some break evens. Since I was down, I was a little bit on the defensive which was the wrong thing to do. It resulted in me adjusting to taking the most whole entries and exits.

It was a good adaptation as the edge on any entry on the TF2 chart was literally 4-7 ticks. I took what I could get and fought back.

You can see that I was not quite done fading myself as I hit another long entry pattern just prior to lunch. This had a premise though. I could have squeezed. It was probably the cleanest entry so far but lost. Still a fade but had some merit.

My Core Trades Are Concepts and Not Setups

A big difference in my trading lately and what is mostly responsible for the much improved performance is the fact that I am no longer merely taking patterns or playing zones.

I am engaging the other market players. Each of my best entries has a theme to it like "most retailers are looking short due to this pattern but I will get long because I think the players will try to get them in and jam them."

It is no longer about what I think I should do. It is about what I think others are doing wrong and trying to exploit it. Each trade has a concept. That means that the concept is not over because an area gets broken or the price has moved more against me than I would like.

It has allowed me to stay in my entries as long as I need to but also to get out much sooner with profits with the understanding that intra day wholesale opportunities happen fast and need to be exploited quickly.

I have also noticed my losing exits being much sharper. Often right at the point if the trade tilting prior to failure.

Anytime I have not had a concept with consideration for what others are doing behind one of my trades in the past 6 weeks, it has not gone well.

I must trust that I will feel the concepts. Instead of trying to find one, I must let it find me. My best trades have often come after the initial move.

I have really found a lot of success in talking myself through what is happening throughout the day and building a bias of how I beleive others will fail.

Beginning To Reconcile With Past Failures

I have realized over the past month that my grinding performance earlier this year was due in part to the fact that I was tracking zones on a high time frame and expecting to exploit them with a fast time from stop from entry point; while having a slow time frame exit point.

This was like trying to make a detailed painting with a giant paint brush. Perception, time, distance, and symmetry were all mis-aligned. There was no edge. I was just oscillating back from retail to whole over and over again intra trade.

The exit was completely random regardless of pattern or premise. This had nothing to do with my skill or interaction. It was a just plain mis-calibrated approach. That is why I could never find answers to the divergence between my prep and my PNL.

The divergence was in essence a lack of harmony between the time frame and size of the analysis and the actual playing field. Had I kept doing what I was doing I likely never would have accomplished the edge I wanted.

I am starting to understand this. It is a start and a major break through but by no means is the answer to all my trading issues.

Comeback Today and Time To Address The Winning Streak

Today was marathon trading session. I had 15 or 16 trades and came back from a tough early sequence.

I used all my skill today and frankly read the market far better than I traded it. I still hung in there and managed to get in the black.

I have been reluctant to talk about or even think about the streak that I have been on. This is due to my ability in the past to make new equity highs and then take a giant swan dive off a cliff.

I have not been counting the days or points involved in this recent run up. I know it is the longest and most consistent of my career so far.

It is not good to talk about good trading. It always ends badly. However, I have to bring it up today because I extended the streak by a thread today.

While I can not expect this to continue without a draw at some point, I am starting to realize that I can indeed expect to come in and win everyday and that a losing day should be a rare event.

This puts me one step closer to the elite status of trading that I have sacrificed virtually everything to obtain.

I also know that I have a long way to go and one thing that will not change is that a successful trader must continue to have everything on the line in order to continue advancing.