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PositiveDev's trading journey


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Correction to previous post, there was in fact a signal yesterday, a buy signal on DIA at 19:55 however I missed it. The market had been choppy most of the day and I'd had a difficult day at work so I had decided to just watch the markets for a few minutes once I got home and as nothing was happening, I thought I'd give it a rest for the night. Clearly, that was a mistake. I missed a decent buy signal;

DIA1955-1.png

 

The market rallied some 17 points following the signal;

NASDAQ16061115points-1.png

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The positives and negatives of my trading system;

 

icon-plus.png

 

1 Low number of trades generated - approximately 25 trades per month (therefore low commissions).

2 Low amount risked per trade - 3.25 points.

3 Consistent so far with an average of 100 points per month.

4 Sometimes catches tops / bottoms for very good entry points.

5 Scalable.

6 Highly profitable - average of 100 points gained per month whilst risking approx 81.25 points per month (25 X 3.25)

 

 

 

icon-minus.png

1 High profitability is a function of just a few trades per month therefore to achieve the system's full potential none of the signals can be missed.

2 Not time efficient - a lot of time is spent waiting for signals with capital being inactive.

 

 

I am very pleased with this system I developed however it is frustrating to see that the full potential can only be actualised when trading it full-time, rather than part-time as I am doing. As a few trades per month contribute most of the profits, that means if I miss one or two signals whilst at work then while I still make a profit on the rest it's not the spectacular results I should be getting based on the potential of the system. For example in May there were 7 really good signals but only 3 traded as I was working when the other ones were generated.

 

A real source of frustration.

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Sell signal on DIA at 16:25 (whilst I was at work);

DIA1625.png

 

The indicator signalled at 16:25, as the market was rallying, I'd have entered on the first black downward Heikin Ashi candle at 16:31.

 

Potential entry and exit;

Entryexit.pngScreenshot2011-06-09at214301.png

 

The pre-market low acted as resistance later in the day.

 

Entry would have been at 2201, then after the market sold off it rallied some and would have taken out my 8 point trailing stop for a 6.5 point gain.

 

I'm able to trade full time next week....

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~Some quotes;

 

"With self-discipline anything is possible"

-TR

 

"Energy and persistence conquer all things."

-Benjamin Franklin

 

"You can have anything you want - if you want it badly enough. You can be anything you want to be, do anything you set out to accomplish if you hold to that desire with singleness of purpose."

-Abraham Lincoln

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I've been looking at calculating the expectancy of my system;

 

Expectancy = (Probability of Win * Average Win) – (Probability of Loss * Average Loss)

 

Currently all of the signals since the start of March using the 8 point trailing stop balance out at exactly 50% winners / 50% losers. Average win is 9.75 NASDAQ points, average loss -3 NASDAQ points.

 

So (0.5 X 9.75) - (0.5*-3) = 3.375 points

 

However this doesn't include commissions, at $6 per round trip that is 0.3 NASDAQ points so;

 

So (0.5 X 9.45) - (0.5*-3) = 3.225 points

 

That's broadly similar to my impression for the system in that on average for every point risked I gain a point.

 

Looking back a few posts ago I said;

 

The positives and negatives of my trading system;

Highly profitable - average of 100 points gained per month whilst risking approx 81.25 points per month (25 X 3.25)

I looked at March, April and May and the actual average points per month figure is 103.92 and the signals over the same period were 95, very close to 1 per calendar day. That's 31.67 signals or trades on average per month therefore;

 

31.67 X 3.25 = 102.93 points being risked per month (number of trades X number of points used per stop) for an average gain of 103.92 points

 

Including commissions;

 

31.67 X 0.3 = 9.5 points

 

So potential average gain per month after commissions is 103.92 - 9.5 = 94.42

 

So on average so far per month the system risks 102.93 points for an average of 94.42 points profit so that fits in closely with the expectancy of 3.225 points versus the amount risked per trade including round trip commission of 3.55 points.

 

So far this month the system has returned 55 points (49 after commissions), I on the other hand have not, I missed trades available whilst at work and a couple as a result of lack of concentration / lack of focus.

 

If the system remains consistent at around the 103.92 points per month level then this suggests that there should be approximately 45 points available to be gained for the rest of the signals I get this month.

 

Consistency is everything so I will be keeping a close eye on whether this continues. I think really I am going to need 12 months of data before I can make an accurate assessment on consistency and expectancy of my system.

 

Clearly the main thing I need to work on now is not the system, or what the potential is, but my execution of it in order to unlock that potential.

 

 

 

I went through Van Tharp's tharptradertest and it classed me as an Administrative Trader -

 

 

Some lines from the resulting report -

 

"You tend to be practical, realistic and decisive"

 

"You love the details of trading system analysis and development"

 

"You can tend to be overly critical and only notice the negatives in your trading"

 

That sounds about right. The third is partly true, I am very critical but I think I am balanced when it comes to looking at the positives and negatives in my trading.

 

also;

 

"Leveraging your strengths and addressing your challenges as an Administrative Trader;

 

Strength 1 - Executing Trading Systems

 

Because of your nature, you will tend to understand trading system operations relatively easily.

 

Strength 2 - Data Analysis and Business Planning

 

Your love of data and analysis help you in this strategic area for traders. If you have the steps, you can easily build a solid business plan to use as the foundation for your trading.

 

Strength 3 - Treating Trading like a Business

 

With a solid plan, Administrative Traders will have no trouble viewing trading as a business."

 

 

I would generally agree with the above.

 

 

"Challenge 1 - Following Misguided Advice

 

You love the details of trading system analysis and development, but your efforts can be misguided if you are following the wrong guidelines or advice.

 

Challenge 2 - Experiencing Stress

 

Under stress, you may question your commitment to trading as a profession because it doesn't feel fulfilling or personally satisfying.

 

Challenge 3 - Being Overly Critical of Yourself

 

You can tend to be overly critical and only notice the negatives in your trading. If you do not learn to recognize your mistakes, you could come unstuck."

 

 

Well, I don't feel like I'm following guidelines or advice (although I have gained much from many others), it makes it sound as if some would follow others and I suppose some might do that, I use what I think could be useful. Not sure about Challenge 2, at least I haven't hit a point where I have questioned my commitment. On 3 I think being very critical is a good thing if you can see the positives and negatives in a balanced way at the same time. The last part could apply to anyone but I'll certainly be mindful of this.

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Sell signal on SPY at 16:45;

SPY1645.png

 

Filled at 2240.75, clearly this was against what was nearly a 2% rally in the NASDAQ but I have to take the signals, otherwise I'm gambling, not trading. The rally was characterised by having only very minor retracements, which is what you would expect on such a strong up day. This made me feel that it would either go sideways or there would be a sharp retracement. There was initially a slight sell off so I moved my stop to 2242.50, the market then moved up to 2242.75, taking out my stop in the process for a 1.75 point loss. Since then it's been all sideways.

 

Entry and exit;

Entryandexit-8.pngScreenshot2011-06-09at214301.png

 

 

There was an issue I came up against at the start of trade whereby my indicator chart for SPY suggested there may be an entry for a long at the open;

 

SPY signal chart at the close last night

Signal.png

 

If the indicator moved up a double bottom buy signal could be viewed as having been generated. After the first 5 minutes of trade this appeared to be the case;

Signalfirst5minutes.png

 

However I have been deliberating over whether to class these types of formation as valid signals or not, since the very last part is formed on a new trading day. In reality though, what I am trading is patterns on my indicator, therefore I have decided from today that the time the formation completes should not matter, and that I should trade them as long as they complete on the day I am intending to trade. The issue had been clouded further by the fact that on occasion, I get signals that trigger a buy or sell right on the close. Should I class those ones as buy or sell signals on the open of the next day's trade? I really don't think so. This type of scenario doesn't come up that often but is relevant since there are occasions where the market just goes one way for the day, sometimes with an initial move in the opposite direction. In any event it didn't seem clear enough of a signal so I very well may not have taken it, even if I had already made a decision on whether to trade this type of formation beforehand. I look for two sharp spikes to "test" a level that I then view as support or resistance in the value of the index, that the index should then be inclined to trade away from, following the signal. In many ways today was the reverse of the 1st of June, on that day I had a sell signal as the market was rallying, this enabled me to class the initial rally then as a false rally, and therefore I shorted it at what became the top, once the rally fizzled out;

 

NASDAQ 1st June;

Entryandexit-2.pngScreenshot2011-06-09at214301.png

 

 

I mentioned a few posts back that I was looking at using futures data, rather than ETF data for my indicator charts, and whilst I have them set up and ready to go I have remained using the original ones, since I've not had time to properly examine what the differences might be. In theory the futures based ones should be more accurate.

 

This is my indicator using data from E-Mini S&P futures, rather than SPY;

Screenshot2011-06-21at180840.png

 

There is a clear buy signal generated on the open, clearing as a buy signal at 14:35, had I been watching this today, it would have enabled me to do much the same as on 1st June, wait for the market to finish the move in the opposite direction, and then get in, in the direction of the indicator, right at an extreme price point of the day, in today's case the low. There was also the same buy signal on the futures based indicator for the Dow Jones Industrial Average. There was no sell signal at 16:45 on the indicator using E-Mini S&P futures data today.

 

I'll keep using the ETF based indicator since it's working well so far but from today I'll keep a track of the futures based ones. Over time I can track whether it would be better to switch. In the meantime, if I have a signal I'm unsure about, I'll check out the futures based indicators for clarification.

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No signals (on standard indicator) therefore no trades today.

 

As mentioned a couple of posts ago I am monitoring a new way of calculating my indicator based on futures data, I will continue to do this whilst trading my original indicator. It'll be interesting to see how the futures based one performs, I may switch the the new calculation method depending on the results.

 

Using futures data there was a sell signal on E-mini NASDAQ at 19:05;

NQ1905.png

 

This would have been stopped out for a 3.25 point loss.

 

Also a sell signal on E-Mini S&P at 19:35;

ES1930.png

 

First and second sell signals;

Screenshot2011-06-22at205548.png

 

A 14 point move for the 2nd one so far (with 4 minutes to the close)

 

Also, looking back, using futures data there was a daily time-frame buy signal for the NASDAQ, triggered on the close of 20/06/11;

DailybuyNASDAQ.png

 

 

 

Also, this from yesterday showing a range break on my indicator, triggered 5 minutes after the open;

Tradingrangebreak.png

 

It may be interesting to keep an eye on this type of range break for the future.

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Since 1st March there have been 110 signals using my indicator, 72 bearish, 38 bullish. That's a 65% / 35% split, it seemed too biased to the downside. However 59% of the trading days since 1st March have been down days, with 41% closing higher. There is still a slight downside bias though. Of the 90 signals traded, 70% were shorts, 30% longs. Of those longs, 37% were winners. Amongst the shorts, 35% were winners.

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Sell signal at 15:50 on SPY today;

SPY1550.png

 

Filled at 2201.25, the market immediately started rallying, this seemed destined to get stopped out and did so at 2204.50 for a 3.25 point loss. That was a short very close to the low of the day (2199.50)...

 

 

Then a further sell signal on DIA at 18:45;

SPY1845.png

 

This was a tricky entry, my indicator gave what appeared to be a sell signal at 18:40 but at that point it was right on the borderline between being a sell signal or not, this meant I had to wait for proper confirmation at 18:45, I was then filled at 2229.50, 4 points lower than where the market was 5 minutes prior. The market slowly declined down to as low as 2217.50 at one point however the news came out about the IMF's approval of Greece's austerity plan (sincere wishes of luck to the IMF on that one). The market than rallied 28 points within 20 minutes, taking out my trailing stop in the process for a 4 point gain.

 

 

Entry and exit on both trades;

Screenshot2011-06-23at205529.pngScreenshot2011-06-09at214301.png

 

 

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

As mentioned previously I am monitoring my indicator charts using futures data instead of ETF data, in order to see if more accurate signals result...

 

For the futures based indicator today there was also a sell signal on E-Mini S&P 500 (ES) at 15:50;

ES1550.png

 

Obviously would have been a 3.25 point loss.

 

 

A buy signal on Dow Jones Industrial Average futures (YM) at 17:35;

YM1735.png

 

This would have led to a 10.25 point gain.

 

 

Also further sell signal on ES (and YM) at 18:55;

ES1855.png

 

Would have been stopped out for a 3.25 point loss.

 

 

 

A buy signal on E-Mini NASDAQ futures at 20:00;

NQ1955.png

 

I would estimate that I would have been filled at 2231 as this was just after the start of the sharp rally, this would have been fortuitous timing and would have led to a 9 point gain.

 

So for today the futures based indicator would have led to a gain of 19.25 points as opposed to the ETF based one I'm currently using that gained 0.75 of a point today. When looking at the final results I think I'll remove the 9 points from that last signal since that just seemed to fortuitously co-incide with the release of some bullish news.

 

 

Also...I am monitoring another indicator I developed - Directional NDX;

DirectionalNDX.png

 

Again I am not trading this right now, just monitoring it, it gave a nice buy signal at 15:55 today, just before a rally from the low. I'll keep a track on hows this performs over time to see whether It's useful enough to integrate into my trading. The general idea is that if it is accurate enough I can take short momentum based trades using this, for the times when my main indicator is quiet.

 

 

 

 

I received Victor Niederhoffer's first book in the mail today;

Screenshot2011-06-23at221644.png

 

I've only had a quick look so far but here's a great quote from the preface;

 

"In statistical terms, I figure I have traded about 2 million contracts in my life thus far, with an average profit of $70 per contract. This average profit is approximately 700 standard deviations away from randomness, a departure that would occur by chance alone about as frequently as the spare parts in an automotive salvage lot might spontaneously assemble themselves into a McDonald's restaurant"

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Since 1st March there have been 110 signals using my indicator, 72 bearish, 38 bullish. That's a 65% / 35% split, it seemed too biased to the downside. However 59% of the trading days since 1st March have been down days, with 41% closing higher. There is still a slight downside bias though. Of the 90 signals traded, 70% were shorts, 30% longs. Of those longs, 37% were winners. Amongst the shorts, 35% were winners.

 

Go on then...your conclusion is?

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Go on then...your conclusion is?

 

I was looking at why there were more sell signals than buy signals, the indicator doesn't have a downside bias that it originally appeared to have, that's why I looked at the split of long and short signals in comparison to up days and down days for the same period. Between 1st March and 22nd June the markets have had more down days than up days, and that is the main reason why there have been more sell signals than buy signals on my indicator. Eg In a bear phase you would expect to get more sell signals.

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Thanks for the reply, yes that would be likely to most. Asked out of interest you found any reason to be surprised by your analysis. As someone who doesn't really rely heavily on technicals, your thoughts are of great interest to me, purely to see when technicals get confounded by wider events or in certain cases specific newsflow.

 

This is one of the best threads on GEI for me :)

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Will update for futures based indicator signals tomorrow...

 

There was a sell signal on E-Mini S&P futures at 17:05;

NQ170514from2224.png

 

If taken as a sell on the NASDAQ, it occurred at 2224, the market did decline to as low as 2210 however I probably would have exited just prior to market close, 2214, for a 10 point gain.

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This is one of the best threads on GEI for me :)

 

Thanks, I do try and veer over into blog territory to make it interesting for people (rather than just post the trades). Actually I have an intra-day journal also with commentary and thoughts on the markets, but I don't post that. My girlfriend has been trying to persuade me to set up a proper blog and I might do that at some point but it's a daunting and time consuming prospect to have to get all the existing entries and dump them in date order onto a blog....

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A truth drug for fake outs (and a break out)

 

Some time ago I used to look at equity markets and currency markets together, to look for divergences between the two that could suggest a move. Sometimes you would have a scenario develop whereby AUD/JPY, EUR/USD and AUD/USD would show lower highs, yet the S&P 500 would show a higher high, suggesting that equity markets were due a sell off. I looked at this on both intra-day and daily time frame charts. I have now come back to look again at this as it seems particularly applicable to trading futures on an intra-day basis. Essentially, equity markets can be manipulated to a certain extent, there are fake outs seen at times where you have an initial rally followed by a larger sell off, or vice versa. Currency markets on the other hand, are not easily manipulated unless you are a central bank or your surname is a palindrome.

 

This is a chart showing the E-Mini NASDAQ, AUD/JPY, EUR/USD, AUD/USD on a daily time frame chart covering the last year.

Screenshot2011-06-25at225240.png

 

It can be seen very clearly that whilst the NASDAQ made a double top the truth drug (the currency markets) made lower highs, suggesting the move lower in equity markets.

 

This next chart is an intraday chart showing E-Mini NASDAQ, AUD/JPY, EUR/USD, AUD/USD but covering 31st May, 1st June and 2nd June;Screenshot2011-06-25at221542.png

 

This shows instances where divergences appear between the NASDAQ and the currency markets.

 

1. This divergence is minor, but clear nonetheless, the NASDAQ makes a lower low whilst the AUD/JPY and AUD/USD make a higher low.

 

2. This divergence is much clearer, AUD/USD and particularly AUD/JPY make lower highs whilst the NASDAQ makes a higher high, a very clear fake out to the upside.

 

3. This divergence is the clearest example since on this occasion all of the currencies make lower highs whilst the NASDAQ makes a higher high, then promptly sells off to the tune of 17 points.

 

Certainly 2 and 3 look like clear attempts to get the retail traders long, and shortly thereafter Wile E. Daytrader realises that he has just run off the end of the cliff.

 

I mentioned before that my existing system is time inefficient, that is, I spend a lot of time waiting for signals. In some ways this is good, I don't want to overtrade, and whilst my broker would be much happier if I traded numerous times a day, it doesn't really suit my style. However, I have been looking at using something in addition to my existing strategy, and the type of divergences above may be what I am looking for. So I could take opportunities there, at times where there are no opportunities present on my normal indicator. There may even be times when they complement each other, and that may be useful also.

 

 

I thought this was quite interesting back on Tuesday this week, at 14:35 on 21st June my indicator (working on SPY) shot up sharply, whilst the market was selling off, suggesting a move higher, however since I didn't have a properly defined rule for the signal I got, I didn't trade the subsequent rally, however in hindsight I see the indicator level was at 2.66, in other words it had broken out of the channel in an emphatic way, suggesting the equity markets were undervalued (they were selling-off at the time)

Tradingrangebreak.png

 

I currently use basic technical analysis on my rather unconventional indicator, I am going to keep an eye out for this type of event again, as it suggests using other forms of technical analysis on my indicator (such as a break out from a range) may also be applicable to futures trading.

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