Good Finish to the Week

I started the day like I do every day, I read my fundementals and looked for my technical areas. I was patient this morning as well, and I did not make my first trade until the GDP release. The equity market never really made any clear directional moves today, despite Oil breaking over $66 and the Euro rallying to 1.41. There were a few decent opportunities in the morning, but without much market movement, the day dragged on. I made a few good trades in the morning and I was on my way to having a positive day. (My only goal, after yesterdays complete lack of discipline, was to walk away positive.) Once again I lacked patience, and blindly clicked into the market without having a good trade scenario. I sold the bottom of a consolidation, and the market quickly moved against me. When I should have exited, I froze and tried to rationalize that the market would sell off, but it did not, and it rallied further against me. I lost more than what I wanted, and puked my sell about 12 ticks higher.

Puking that euro trade for 12 ticks was actually a great step for me. Normally, or as I have done this past week, I would have held it once it was past where my out should have been. Today, I got out, and even though I was very angry and frustrated, I sat back and watched as the market moved up another 40 ticks. I would have lost so much, and I saved myself from losing so much by just getting out. Not only did I get out, but I waited and sold at a price that I had severak reasons to get short. This trade was the best trade of the day for me, I held it for a very large winner, riding 30% of it over 50 ticks. This put me back on track.

After that successful trade, I found a few entry points in oil where I was just a little early in my execution, and did not make or lose anything. However, I knew I was seeing the market well, so when I finally waited and found a spot I really liked, I was able to hold on and add another 50% to my profits for the day. Before I knew it, I had made back more than I lost yesterday, and I was able to scratch the week.

The big lessons for the week are 1) holding massive losers takes me out of trading for the day and takes away multiple profitable trading days 2) when I am calm and patient and have reasons, I can identify multiple trading opportunites in multiple markets 3) when following my rules, I can make good money, and 4) when I keep my trading losses small, and let me winners run, it is amazing how fast and how much money I can make on tiny size.

For next week, I need to remember these big lessons and try to adhere to my own rules.

Obey your rules

Today was very rough trading day for me. I was trying to carry over some momentum from yesterday. Every morning when I come in, I have a sheet that I try to follow that helps me prepare for the day. I identify key levels, old hi's and lows, pivots, resistance and support. In addition, I like to read as much as possible, and look at overnight news events. Once I have done all my preparation , I feel I can keep an open mind and wait for trades with good risk reward.

I was patiently waiting for the opening of the SP market, when some news wires announced that GM bond holders had agreed to swap their debt for equity, in hopes of avoiding bankruptcy. I bought eurostoxx and sp futures, without looking where I bought or identifying where I would be wrong. I just sat there, like a deer in headlights, and watching as the market moved against me. When the pain was too much, I puked my positions. I clearly did not understand the headline, and I was hoping on this trade. In addition, I bought too big of size, and with too much size invested in the trade, I reacted emotionally by thinking about the money. If I had kept to my trading size, I feel I could have exited the trade quicker once I realized my logic was wrong. Just to reiterate, I traded with too much size and without a clear plan for the trade. I put myself behind the 8 ball way too early in the day.

I told myself this was a set back I could overcome, and I could still make it a successful day by coming back and focusing and finding good trades. I was patient after that GM trade, and waited for my spots. I was trading on edge, and knew my spots would have to be perfect. I put on my first trade, and the market didn't move much, so I scratched it. I realized I sold near the low of a consolidation, but my ancillary markets told me it was the right time to sell. Once I exited the trade, the market sold off. I waited again, bought oil, and instantly realized I was wrong, so I quickly scratched. I tried fading the big down move in the eurostoxx, and realized that I didn't have any good reason to trade there, so I scratched very quickly, and thankfully watched the market fall immediately after. Finally, I saw some decent order flow in the ES, and managed to get a 2 handle pop on small size to give me some confidence.

I was jumping markets, and after looking at my trades, I was trading on emotion, and not with clear thought. I went from equities, to oil, to eurostoxx, to ES. I was just looking for a quick scalp. Once I was aware of that, I waited until Natural Gas stats came out @ 9:30 central. Natural Gas inventories were down, and Natural Gas rallied off the release. I was bullish energy after this release, and looked for places to get long. Oil moved back into the consolidation 8:30 - 9:00, and once in this range, I felt strongly the market would make a run at new highs. I waited for the consolidation to set up, but mistakenly bought near the high of the range, and not near the bottom, and was stopped out very quickly, only to watch my idea play out. The market popped 30 cents as soon as I got out. In this trade, I was impatient and my entry was horribly planned. If I had waited and bought near the low, with a much better defined risk reward, I may have been able to capitalize on the trade.

I made several trades in oil before and after the release. Upon reviewing them, I would enter at decent spots, but I was so afraid of losing money, that I would scratch them and watch the market move the way I had predicted. This happened 5 times, and it started to wear on me mentally. I finally said to myself, I need to give it a little more room to breathe, and see how it plays out. With that logic, I lost my edge. I wasn't doing what I had planned, and this made my trading sloppy. I kept trading on emotion, and became more and more agitated with every scratch and quick loser. I started making very quick decisions and lost all my discipline. I would find good ideas, but execute them so poorly that I wasn't able to capitalize, and then watch my idea would work. The writing was on the wall.

My best trading days are when I am trading patiently, waiting for setups, and executing with reason, and good risk reward. However, by mid day, I was trading without any reason, with poor execution, and changing my thoughts very quickly. I was forcing my trading, looking to make a quick buck, and I was trading the money, not the idea. In a span of 3 minutes, I was short oil, then reversed, only to get out of my long where I had initially sold it, so I sold again (another reverse) only to watch the market pop 50 cents in my face. I sat there and just watched to market move against me, until the pain became too much to take. I lost more than I allowed myself, two times more. If trading successfully is all about capital preservation, then I did the opposite, I just gave money. I took myself out of the day, and gave back too much of profits from the day before. I had no thought process and lost all discipline. Whats the point of making rules for the day if I cant even follow them?!?!? Its like an alcoholic who says he will go to the party and not drink, only to have one drink and then lose total control and get completely hammered, and wake up feeling like shit . . . My goal is to follow my own rules and obey them, when I do, I can make great trades, great money, and go on great streaks of success. What is missing?

10 yr yields soar

Upon opening up my trading screens, the market had not made any clear directional move, and consolidated into a tight range. Early on, there were very few opportunities, and most traders were sitting on their hands until the open. Once the market officially opened, the market remained in a tight range. It seems like someone got the 9 am number (Existing Home Sales) early. Home builder stocks rallied appreciably before the release, as did XHB (home builder etf). This was eerily reminiscent of yesterday's Consumer Confidence. On the release, ES and Oil rallied, but since it was apparent a bullish number was expected and the release was fairly close to expectations, the move after the release retraced very quickly, and presented a great opportunity to fade the knee-jerk pop. I found it easier to fade oil than es, and the market never looked back. The ES market consolidated after the release, and remained in a tight 5 handle range for the next 3.5 hours, which presented very few trading opportunities. It seemed to me that there were no clear signals, and it was more of a mean reversion trade. I try to stay out of these tight ranges and wait for a trade to set up. During that time, Reuters released an ECB source story about buying more covered bonds. The trade was to sell the euro, but I mistakenly bought Euribor instead, and scratched the trade. This ECB story did little to move US markets, and the real news and move of the day came later when the 10 yr price tanked and yields rallied like crazy. No one was sure if it was from convexity hedging (http://www.investinginbonds.com/learnmore.asp?catid=7&subcatid=72&id=366) or a continuation of fear of US debt eventually being downgraded. There were many opportunities to sell and fade with very tight stops. This fixed income move pulled most markets down with it. However, recently, oil has taken on a life of its own. Everyone says fundamentally that prices shouldn't be here, so it was no surprise that oil eventually rallied while the equity and fixed income markets sold off. ES moved lower, consolidated and made another leg down to finish near the lows of the day, all while oil made a run for the highs and squeezed out more shorts.

After a very rough day yesterday, (I held a loser way past my exit and blew through my personal limit) I kept very tight stops today. My only goal was to prove that I can make money and remain disciplined. Yesterday, I re-learned, again, that I need to have my exit planned before I put on my trade. This has proven to be a very expensive lesson that I just refuse to learn. This is my achilles heel, the one problem I seem to run into time and time again. I would attribute most of my losing days and big losing trades to this one problem. Today I obeyed my stops, and kept my losers very small, while allowing my winners to run. I slowly peeled out of my winners once certain targets were hit. When my reasons for putting on the trade stopped working, I exited and looked for the next opportunity. I made most of money from fading big moves, just waiting and watching order flow, and finding pull backs. I failed to capitalize on selling equities with the massive sell off in fixed income. I figured that if US yield sky-rocketed, then the dollar would become more attractive. The euro has rallied strongly the past few weeks, so I figured it might sell off with ES and 10yr. The initial reaction helped me believe that (the euro sold off initially) however, once the move kept extending, and the euro started to rally, it became clear that my logic was wrong. There are many problems lingering here in the US, so it made sense (after the fact), that people were buying / moving to a safer currency as they punished US equity and fixed income markets. Oil was and is doing its own thing, and I am done trying to rationalize that market. I haven't been trading well in the past few weeks, so I am happy that I was able to capitalize on a few opportunities and make back most of what I lost yesterday. Tomorrow is a new day, and I hope to continue the discipline from today, and wait for my entry points. 7:30 am numbers tomorrow, so I will see how and if they set the tone for the day. DOE energy stats are at 10:30 am est, so I will wait to see how oil reacts to that. Patience patience patience. Wait for setups and trade defensively, its still capital preservation right now.