[swansjr]

I've been rather poor at keeping a trading journal in the recent past. So I've decided to start a journal here. I hope by posting daily updates (or nearly daily updates since I most likely won't post if I don't trade) I will feel more compelled to trade well. Hell, everyone can see my trades (the good, the bad and the ugly), right? So I better do this well.So, my hope is with this new accountability of showing my trades to fellow traders on this site, I may become more strict when executing trades against my trading plan. I've been also toying with the idea of recording my trades with a video screen capture program and a microphone. But that's another story.

I'm trading the EC market on a simulated account with tradestation. I follow a variation of the Watts scalping method. Below are a few of my key management rules which will most likely evolve over time.

Trading Times: 5:00am - 830am central.

Screens: 2225t long-term trend screen. 445t intermediate-trend screen and a 89t chart to pin-point entry and exit.

Position Size: I follow a repeating sequence: First trade of the day is done with one contract. If it's a winner I trade 2 contracts on the next trade. If this two lot position is a winner I go back to 1 contract and start the sequence all over again. All losing trades revert to 1 contract on the next trade.

Target 1: First target is 6 ticks from entry.

Target 2: Either 6 ticks from entry or runner. This is another discretionary area. If I perceive the market as "choppy" I will simply exit at 6 ticks. If I perceive the market as "trending" I will allow this second contract to trail. I use an opposite Keltner channel to exit.

Risk Per Trade: The maximum to risk is 20 ticks (20ticks * $12.50 per tick = $250). Many of the setups will risk far less per trade.

When to Stop Trading:

After two consecutive losing trades, stop trading for the day.
After two consecutive winning trades, stop trading for the day.

Maximum Day Loss: $300.


Again, my goal is to trade well - not to make money. Yep, that's right! I need to execute my plan as described and not get emotional and enter trades that I should not take. This has been a major problem.


So, here I go.

[BlowFish]

Good Luck!
..............

[bathrobe]

Best of luck to you.

[brownsfan019]

SJ - I think we are friendly enough here that I can provide my recos/concerns regarding your plan. Bear in mind it's my opinion and I'm just trying to help (don't want anyone to misconstrue the intent).

RISK/REWARD IS A BIG CONCERN
Some would tell you that risk/reward is everything, but it's not; however it is important to monitor. Since your r/r is going to be low (risking 20 ticks = $250 / to make 6 ticks = $75) your winning % will need to be high.

WINNING PERCENTAGE
Since r/r is low, you must monitor your winning % and find where you will be to see whether or not this system will work.

MAX DAILY LOSS
You say it's $300, but if you lose 1 time you will be at -$250. Are you planning to stop or keep trading b/c a 2nd stop will equal -$500? The way I see it, you'll need to revise that to say stop after 1 loss or 2 losses back-to-back.

LOSSES
The other consideration will be the average size of your loss. Your max is 20 ticks, but you say they can run smaller. While it's nice to plan for smaller losses, my comments make the assumption that a 20 tick stop can and will be in force. If you find the size of the stops to be much smaller, then the numbers obviously change. If you find your stops to be closer to 10 for example, the r/r is decent then and your max loss can take a few hits before being triggered.

POSITION SIZING
I'll be interested to see how your position sizing plan works. For documentation purposes, you might also want to track just trading a fixed 1 or 2 contracts to compare the end results. My concern on the position sizing you are going to implement is if trade #1 is a winner and trade #2 is a loser, your loss will be doubled, while your winner is only a single contract. So the key here will be the methodology showing you that more often than not, the 2nd trade will be a winner, so doubling up makes sense. This is why I would track just trading a fixed amount to compare b/c your numbers could look like this:

1 fixed: +6, -10 = -4
Pyramiding: +6, -10(x2) = -14
And potentially this series could repeat an entire morning...

So the EXACT same trade there could cost an additional 10 ticks in loss that would not be there if trading a fixed 1 contract. Yes, I am assuming that 2nd trade is a loss to illustrate the worst case scenario b/c IMO you need to be aware of what can happen on the downside. The upside is easy, it's the downside management that can make or break a person.

My concern is that you could have a small loss/break-even type day if trading a fixed amount, but a pyramiding style could magnify those losses and create a much larger loss on the day than necessary. Again, I am just thinking about the downside here. If the system constantly cranks out that 2nd trade as a winner, then the pyramiding would make sense.

FINAL SUGGESTION
Make sure you have a nice Excel sheet or something to track all the possible ways this system could be traded so you can see what the options are. What I mean is, track on the Excel trading a fixed 1-2 vs. pyramiding, track the win % overall AND of each type of trade (for example, is that 2nd trade where you pyramid doing extremely well or poor? If well, you might want to load up more there.) Classify your trades as a Trade 1/A/etc vs. a Trade 2/B/etc and track those closely. I have no idea how the Watts system trades, but if you have reversals and trend trades, track those as well.

While you are seeing how this exact system works, don't waste your time - see how other variants of it also work. You might just find that certain setups (ex - trend following Trade B pyramid is your prime setup) are more reliable than others.

Good luck!

[Head2k]

Originally Posted by swansjr »

Position Size: I follow a repeating sequence: First trade of the day is done with one contract. If it's a winner I trade 2 contracts on the next trade. If this two lot position is a winner I go back to 1 contract and start the sequence all over again. All losing trades revert to 1 contract on the next trade.

...

After two consecutive winning trades, stop trading for the day.

I don't get this. So after a winner you double up. And if it's another winner you revert back to 1 contract or stop trading?

And good luck.

[swansjr]

Originally Posted by brownsfan019 »

SJ - I think we are friendly enough here that I can provide my recos/concerns regarding your plan. Bear in mind it's my opinion and I'm just trying to help (don't want anyone to misconstrue the intent).
...snip...

Thanks much for the input. I certainly don't mind it and indeed, welcome it. It looks like you have many good suggestions.


The Risk/Reward is largely an unknown at this time. My maximum risk is 20 ticks but I know many (maybe most) of my trades will have a much tighter risk. This is due to the entry point and its relative position to moving averages and Keltner bands. Some trades may risk 8 pts. Others may be 10 pts. If the trade requires to too much risk - I skip it.

Furthermore, this is a mental test in following my trading plan. Even if I lose my virtual shirt in this I must pass my test. That is, did I get emotional and break my rules? Can I walk away from a losing day knowing that my rules demand walking away so I can trade another day? Or, will I start making emotional decisions?

This is also an information gathering exercise to see how this method functions (and more importantly how I function) in a simulated environment. You provide some excellent ideas such as tracking slight variations in the system. I already planned on documented my trades within a spreadsheet but I will also track slight variations in the system, as you suggested.

Again thanks for the input!

[swansjr]

Originally Posted by Head2k »

I don't get this. So after a winner you double up. And if it's another winner you revert back to 1 contract or stop trading?

And good luck.

That's right Head2k. My system is largely a trend following method and my first position of the day is testing the waters with one contract. If it works out I consider the trend intact and working in my favor. I then look for a second entry with two contracts for the sole reason of initiating a runner. This runner may get taken out very early or may run for a while. Either way, I consider the trend suspect and revert back to one contract. I then test again for the next leg of the move or a reversal.

This scheme may all prove to be rubbish. For example, already after weeks of historical and live practice, at times I see what appears to be a new trend forming. It is at this time maybe I should be initiating a two contract trade. Makes sense, right? This may prove to be a variation I should track within my spreadsheets.

Thanks.

[Head2k]

Originally Posted by swansjr »

That's right Head2k. My system is largely a trend following method and my first position of the day is testing the waters with one contract. If it works out I consider the trend intact and working in my favor. I then look for a second entry with two contracts for the sole reason of initiating a runner. This runner may get taken out very early or may run for a while. Either way, I consider the trend suspect and revert back to one contract. I then test again for the next leg of the move or a reversal.

This scheme may all prove to be rubbish. For example, already after weeks of historical and live practice, at times I see what appears to be a new trend forming. It is at this time maybe I should be initiating a two contract trade. Makes sense, right? This may prove to be a variation I should track within my spreadsheets.

Thanks.

Thanks for explanation. But I wanted to point out a discrepancy in your rules. In one rule you say that after two consecutive winners you reduce your position size and in another rule you say that after two consecutive winners you stop trading for the day. Or do I get it wrong?