[jasont]

My Plan Knows Best

Yesterday saw the return of pre November market volatility for most of the day. It was welcomed with a big smile by me as I had seen enough volatility during November to cover me for a while. Yesterday was by no means low volatility however the back and forth we saw was not as temperamental as it has been recently. I do hope we have seen the end of the November blues but won't presume it gone until I see a few more weeks of trading.

Yesterday I followed the plan to the letter. So far so good, 3 days traded and 3 days the plan was followed exactly. The day ended with an average gain but still leaves me at a net loss due to the tough day last week. I need to stick to the plan and if we see the reduction in volatility we have seen things should look good.

One thing that did stick in my mind about yesterday was the objection I had to most of my trades. On my two winning trades I actually looked at the market and believed a long trade would have been better than a short trade. If I was still trading with discretion I no doubt would have spent all of yesterday trying to buy the big bottom bounce that never happened. It just showed me that my plan knows better than me in regards to trading. The reason being is that it is based on facts and statistics rather than hunches and opinions.

I give myself a pat on the back for trading exactly according to plan even though there was times when I wanted to get out early or not enter at all. It was beneficial to stick to the rules even though it is not exactly human nature to follow the rules. All I can do is stick to the plan as that is what is necessary to make this work.

[jonbig04]

Nice job sticking to your rules. In the end, that's what matters.

[jasont]

Thanks Jon. I couldn't agree more.

[jasont]

Humbled Yet Again...

I honestly can't say I have had more winning days than losing days in my 3 years of trading. In fact I have had so many losing days that losing seems to be the expected outcome. Sort of how we become conditioned to things through constant exposure.

Last week I took two losing days that equaled a net loss for the week and that prompted an early stoppage of trading for the week. During my shortened week I have been getting some great advice from a very generous guy who has helped me immensely. He has helped me figure out a way to trade the way I was previously using price action but placing it into rules that can build consistency.

So during the past week I was going through different ways of trading price action the way I used to and coming up with different exits etc. It has been a major help and has allowed me to trade a strategy with reduced risk. This doesn't mean I am discarding my previous momentum strategy as it is very effective during the right periods. In the current market it is getting whipsawed out, so I am putting it on the shelf until we see a reduction in volatility to roughly the 20-40 point area on the VIX. Ideally by that time I will be effective enough with the price based method to incorporate both methods.

So during this week I have been trading my price based method with nice results. I do find it a bit harder to stick to the rules during quiet periods as I believe my own boredom gets me into trouble. However, Monday and Tuesday saw positive results even with a few dud trades in there against the rules. Had the dud trades not occurred I would have made roughly double the gains.

Yesterday on the other hand was a bitch of a day. I followed the rules most of the day and was getting cut up left right and center. Anyone who trades pullbacks rather than reversals will know what I mean about yesterdays market. I did pull some profitable trades too early which has become something to work on for tomorrow however with this method I am looking for the market to prove me right rather than wait for it to prove me wrong. I do numerous rules that guide these exits which is much better than I had previously with my price action based trading.

The one trade that irritated me was a long trade towards the end of the day. This method is based around waiting for volatility to contract on a pullback near support or resistance areas prior to entering a position when it confirms the area. Unfortunately the setup occurred however I didn't wait for the confirmation and I got in early. I was whipsawed out of the trade only to see it then confirm the trade and take off for a few points gain.

Two lessons I learnt from that particular trade was firstly, wait for the confirmation to occur prior to entering the entry order. That is extremely important and is there to remove the trades that get made during volatile movement back and forth. Wait for the volatility to subside which equates to buyers or sellers meeting more equally momentarily, then look for the break.

The second lesson was that if I do get shaken out of a trade but the market doesn't show me it is going the opposite way according to my rules, get the hell back in and try again. I have areas which the market needs to pass before I change my trade bias. Therefore if the market doesn't do those things that change my bias I must be ready to get straight back in. That is just part of the game.

One thing I did pick up on yesterday was that the market didn't really trend much in the bigger time frames and I actually have forgotten what the market used to do pre September. Is this what the market used to do back then? We had minor trends seen in smaller time frames which I did trade but for the most part they only moved a couple points. In fact looking at the daily chart we do see an odd congestion of inside days that we haven't seen for quite some time. The only promising thing about the past few days is that this type of congestion often encourages a big move in the near term. I ended the day down in points which was disappointing but those days happen in the market. I just need to stick to my rules that I know work and keep hitting at the plate.

[jasont]

The Doctors Orders...

I have been absent from recording my journal publicly over the past few weeks. Reason being that I wanted to get my thoughts down without the filtering which occurs when I know others will be reading. It has been an interesting time but one I believe has begun the process of good growth.

I have been trading but not over the holiday period as the lack of regulars makes for a market that I am not familiar with. As an example it is like playing basketball against the same team for 8 months or so and then all of a sudden they team you have become so familiar with playing against is changed for another team.

Many traders who have been at this long enough know they are trading the people and not the little candles or bars that are on the screen. Considering in the ES the big guys are the ones moving the market, when the big guys go, it is time to have a break with them.

So during my time away from the market I have been playing some poker to keep my mind sharp. I personally find myself to be a better poker player than trader. This intrigued me as I find, as many other traders have also found, that there are numerous similarities to playing poker as there is trading. I'm not going to go into them as anyone who both plays poker and trades know what they are.

However what did interest my was my difference in psychology whilst playing poker to what it is whilst trading. Interestingly enough I managed to find the route difference between why I could play poker better than trade. The problem wasn't a matter of analysis as that is my strong suit in both trading and poker. The problem lies with letting winners run and not cutting losses too short.

In poker one can choose to play a hand or fold, unless they are playing a blind, they can do so without any cost. A similar position is seen in trading as we wait for trades to present themselves. Staying out of the market costs nothing just as folding poor hands before paying the blind in poker. Now should one be forced to pay the blind or get good a hand they wish to play, the risk is paid up front. This is where things get interesting.

So when a player in poker finds a hand worth playing, his fee being the blind or calling to see the flop has been paid. This is gone unless the player wins the hand. There is no point mustering about paying this fee or any reason to hope it back. Any money in is psychologically deemed lost by myself.

Now in trading when one enters the market, nothing has been paid beyond brokerage. A stop loss, I would hope most use one, is in place however I don't seem to deem it as gone or lost to the market. This presents an added psychological factor in trading that I don't consider in poker. In poker when I decide to pay the fee to see the flop I am only thinking of winning. There is no reason to think about the money already in the pot as it is gone. The only consideration I have is to either quit where I am or analyze whether or not my cards are good enough to push for the win.

In trading, when I decide to enter the market, I have not yet lost my upfront cost. Therefore instead of only thinking about winning, I am also thinking about lowering my risk. I guess this mentality has been encouraged by the many traders that advocate if you are wrong, don't wait for your stop to be hit. Unfortunately I take that to the extreme case and don't wait enough time for my trade to show me gains on many trades.

This obviously is the case of concerning myself with the possible loss when I should be focusing on the possible gain. At least when trades are going in my direction. Thus the importance of bringing a stop to break even once the market has proved me correct according to my plan. This doesn't mean I don't enter a trade without thinking of possible loss but more so entering the trade already knowing what I need to see to be proven right. That way I can enter a trade with the mindset that I am likely to be wrong but letting the market show me I am right.

This relates to my poker where I pay to see the flop. In trading I am getting in knowing what I need to see to prove me right. Obviously if that doesn't occur I hit the exit quick sticks. I already know exactly what I am putting upfront even though my stop may be further back than where I am looking to exit. Just like in poker when you know your cards are duds and the other guy has a killer hand, you don't hope that it turns around. You fold your cards and move on.

[jasont]

2009...

The start of a new year is always a good time to assess past goals and develop new ones for trading as well as other areas of life. It is also a good time to look at the year ahead and prepare oneself for what may lie waiting in 2009. I'm not one for predictions on what we are likely to see, in fact I don't like trading in such a manner as it encourages me to close my mind to possibility.

Instead I like to look at what things need to be considered in the future and act accordingly when we meet them. I guess 2009 is going to be a very interesting year right from the beginning. We have a new president hitting the US on January 20 which no doubt is the biggest pre known news for the year. Not necessarily the fact that there is a new president but more so the speculation surrounding the actions the new president will take to deal with the current economic situation.

One can't help but wonder if we have seen the worst of the credit problems. Personally I have no idea. There is commentary going around that many loans have not yet matured to their "stupidity" interest rates so there may still be banking institutions producing poor results for quite some time.

What I find most interesting about the current situation and the impact it could have in 2009 is the chain reaction effect. In the early 90's with the housing decline, banks found themselves in poor position and for memory were bailed out then just as they are being bailed out now. Funny how the banking industry can take on massive rewards but when the risk hits the fan, the government kisses their ass. It does make you wonder if the theories behind banks holding more control than governments has much more merit than suggested.

So banks have contracted and well it is has been in enough headlines to make you bored of it. Interesting part is that the contraction of the banks officially stooges many other industries and causes a chain reaction of poor business conditions. I guess one could picture the current economic structure as a pyramid with banks at the top. If banks topple, everything underneath has no chance of survival. Obviously the governments know this and is why they bail them out so hastily.

I know of quite a few people who are being laid of in positions that were directly related to banking. That is understandable that they would be laid off. However then there a few people in the construction industry in Australia that have seen job cuts. Apparently industrial constructions are being put on hold because the bank won't lend them the money they had planned on to build the buildings.

Banks have reduced the loans they have been giving out and I even notice myself the reduced number of letters coming from banks wanting me to bank with them. Less people are being accepted for loans so less people are purchasing vehicles. This impacts the dealerships as we have already seen which in turn effects the manufacturers as we have also seen.

So we have seen the demise of housing and construction as well as manufacturing and auto dealership. So many jobs have already been lost and that is where I think we are heading into 2009. There is talk going round about the retailers being in trouble now and that is only logical. As there are so many jobs hit thus far and everyone is aware of the current problems they are spending less.

To me it will seem to create the same problems as it did in the auto industry. Less items purchased in retail stores is likely to result in less goods being manufactured for those stores. Not to mention now that many retail stores probably have debt built up from the "good ol days" when they looked to expand. "Starbucks" comes to mind. So as a result of the stores contracting in sales and likely contracting the number of employees, we then see even more people unable to spend.

Of course there comes a time when we realize we can't contract anymore than we already have as the demand for goods is finally met by the contraction of supply of those goods. In fact I am more inclined to say that demand could eventually surpass the supply as it continues to decline in the face of bad conditions. I guess that is the point at which people begin paying more for goods and the economy can start building again. Will that happen in 2009? It could, and I won't count it out but I am highly skeptical of conditions improving any time soon.

Depression? Who knows. There are plenty saying it's not possible, we are smarter than we were in the 30's. The same people said we were too smart to get into recessions in 2007.

Where do I see the markets going in 2009? No idea. Longer term charts still suggest we are moving down. Shorter term charts suggest signs of life on the buying side. I guess something I have learnt this year is that markets first turn on their shorter term time frames when looking at them from a fractal point of view. Though whether or not this shorter term buying is nothing more than a pullback in a longer term downtrend still is yet to be seen. Just something to keep an eye on.

Where to from here with my own trading? 2008 was an interesting journey where I traded mainly from a price action standpoint. I hit some bumps in the road after we hit August and it was then I realized I wasn't defining everything I did in my plan. I took some time to learn about the most important elements of trading which were risk and money management. I thought I knew all there was to know about these areas but I was surely mistaken.

I came back with a method of trading which was based upon momentum. I hit a rough patch in the market which made me realize that although a great method of trading, it didn't suit the conditions. I was then directed towards a method of being able to define price action in a way that suited my previous PA methods of trading. This I believe has been a massive help in my trading and I feel as though things are coming easier to me. This game will never be easy but knowing what I am doing, when and why, I at least can have confidence in my consistency.

I owe a massive thank you to a guy who has helped me immensely in the latter part of 2008. Someone who didn't owe me anything and didn't know me from a bar of soap but has been kind enough to give his valuable insights into the markets and trading in general on a regular basis. I'm not sure if he reads this journal but if he does he knows who he is and my hat goes off to him in a huge way.

So 2009 marks the "Nike" era. The foundations have been laid and tested. For the year ahead my focus is "Just Do It" which implies following the plan as consistently as a human can. There are going to be rough times and good times. I will do my best to make sure the good times outweigh the bad and that I don't let the rough times get to me. It's all part of the game.

[keepitreal]

Hi Jason, i'm 28 australian and have been "end of day" trading for about 5 years.. i use intraday stratagies like opening range breakouts and gap fades ect to enter trades and hold for a few days or longer. as you know as another aussie our stocks are crap for intra day trading.. you say in your journal (which i find very interesting and informative.. still reading) that you trade s&p minis.. i want to start day trading as i have very good knowledge of TA, risk and a good feel of the market but i hate waiting over night when suprises come out from o/s markets.. this is why i want to day trade. what markets do you recommend and what time frame do you trade? i live in sydney (although late nights are a given).

thanks in advance