Nuff Said!
Thursday, 2 February 2012
Saturday, 7 January 2012
Trading Goal & Past Performance Trading Record
The First Graph is an aggressive Trading Goal. Obviously not a trading plan, as I have put no details of money management or entry and exits. Primarily it's for patient play, to sit in front of your computer until you see a trade that is so obvious. Because it is only looking for a few ticks it's time range is one day. But with decent trading platform and size it could be every two hours !
The second Graph is from an actual trading period, one of my better one's despite two very large drawdowns. My starting capital was actually £2,600 then topped up to £3,350.00. Midway through after my second big draw down I put £8,000 back in. Ones focus should be on the P&L per day and the number of trades carried out. I find it interesting to go over these and figure, what short of market was I trading in! What have been my natural highs or low's what barriers are existing in my mind. An obvious one is reaching £100,000. What you should notice is how my actual trading follows the first Graph, in terms of doubling my account size, up and till my huge drawdown, I managed to double my account on average every seven days. This was done through increasing my size as my account grew. At sum point ( mine was £200,000) one should reduce their size substantially and this is what preserves your account. at my peak I was trading £750.00 a tick, if I had of switched to £100 or even better £50.00 per tick this would have preserved my capital. Like a rocket, the most difficult part is the lifting of the account into the major positive zone before coasting towards the stars.
Past Performance Trading Stat
Sunday, 4 December 2011
In search of Elderado
Drama with Obama
Having waited for around four months of raising my grubstake once more I managed to amass £8500.00 a princely sum to trade.
Also changed brokers for a direct market access one. They provided level II trading and a squawk box, all in all a good package. The broker is combination of futures trading and spread betting. Trading is done in proper lot sizes so when trading the DAX the lowest trade is a one lot at 12.50 euros a tick or 25 euros a full point. The amount I was able to trade up to was around 3 – 4 lot’s but I only traded mainly 1 – 2 or three in exceptional circumstances.
While I was waiting on the funds I day traded on the brokers’ simulator for over a 6 week period and was doing quite well. When funds arrived was when the fun began.
I think because I was kept waiting for the funds I was far too eager to get stuck in. Peter Clein and Kevin Thomas both ex floor traders on Liffe Exchange taught me and my peers that a trader should be able to get in at any level of the market and trade out if it. The importance was less about the entry and more about the money management.
The first week and a few day’s went well, I averaged around £1,000 per day. So pleased with myself I even went to Jermyn Street and brought myself a nice New & Lingwood Shirt and a big fat cigar! I stood at Piccadilly trying to work out the best way and method of trading to an optimum of 100 euros a tick! Then I extrapolated this at ten ticks a day giving a monthly income of 20,000 euros. My Lord what was I going to do with all these riches.
In the background the noise on the CNBC , Bloomberg and Aljazzera was talking constantly about how the Senate in Washington could not agree on Obama’s health care plan. The markets were becoming a little sick, no wonder considering the amount of volatility. The next few days in the market I was losing big time, massive falls in a account, one day I lost 5,000 euros alone, the next 1500. I started to regain my composure by observing that the German Government Bund was going in synch with the markets and going the opposite way to equity indices. In short if like many traders you have a “Long” bias then switching to the Bund from the DAX would allow you to trade the upside in Equity down sliding market.
It worked and I was gaining some ground, until the rating agency decided after Obama managed to get the healthcare bill passed, to downgrade the USA, a first in Americas history. The rating agency wanted to show the world it could make independent decisions…………hmmm-great stuff and bloody bad timing as far as I was concerned. The German Bund dropped 300 ticks on the day, and I was catching a falling knife the whole day. I could not understand why the Bund would drop when the USA future looked so bad; I mean the Bund is the next thing to Gold. But as John Maynard Keynes so right said:
“The Markets can remain irrational longer than one can remain solvent.”
That day wiped me out and I was left with crumbs. The money I had waited for so long withered into dust and my tail was firmly between my legs.
I started looking at a weekly graph over the last five years. On that graph I noticed that all the times I entered the market some major down turn had occurred. Excluding my initial entry into the markets way back in 2005.
I did carry out the idea of trying to fund a reserve account which went well at first. However I was too quick to fund my active account when the trading went bad. In retrospect, when your active account plummets it’s better to take a few days off and think about what the market is actually doing and how you are actually trading, before jumping in with the reserves.
These are hard lessons. Which eventually will be overcome and learned from.
Another lesson which I observed about myself was what and how I felt when a big loss comes my way.
“The feeling is that of a disbelief, then existentialist disassociation, from the market, from your account with the anxiety of hoping your losing position comes back into the black. You can feel a sense of being paralysed a rabbit caught in the headlights.
“
The best way to counter this is of course predetermining your stop on each trade. Having and sticking to your daily stop. It would also be a great benefit to have a neutral person to shut your losing position down, and turn your trading platform off. They could then ban you from trading for the rest of the day. I.e you both agree a daily stop an if this person sees that you have hit it. They shut you out.
Also changed brokers for a direct market access one. They provided level II trading and a squawk box, all in all a good package. The broker is combination of futures trading and spread betting. Trading is done in proper lot sizes so when trading the DAX the lowest trade is a one lot at 12.50 euros a tick or 25 euros a full point. The amount I was able to trade up to was around 3 – 4 lot’s but I only traded mainly 1 – 2 or three in exceptional circumstances.
While I was waiting on the funds I day traded on the brokers’ simulator for over a 6 week period and was doing quite well. When funds arrived was when the fun began.
I think because I was kept waiting for the funds I was far too eager to get stuck in. Peter Clein and Kevin Thomas both ex floor traders on Liffe Exchange taught me and my peers that a trader should be able to get in at any level of the market and trade out if it. The importance was less about the entry and more about the money management.
The first week and a few day’s went well, I averaged around £1,000 per day. So pleased with myself I even went to Jermyn Street and brought myself a nice New & Lingwood Shirt and a big fat cigar! I stood at Piccadilly trying to work out the best way and method of trading to an optimum of 100 euros a tick! Then I extrapolated this at ten ticks a day giving a monthly income of 20,000 euros. My Lord what was I going to do with all these riches.
In the background the noise on the CNBC , Bloomberg and Aljazzera was talking constantly about how the Senate in Washington could not agree on Obama’s health care plan. The markets were becoming a little sick, no wonder considering the amount of volatility. The next few days in the market I was losing big time, massive falls in a account, one day I lost 5,000 euros alone, the next 1500. I started to regain my composure by observing that the German Government Bund was going in synch with the markets and going the opposite way to equity indices. In short if like many traders you have a “Long” bias then switching to the Bund from the DAX would allow you to trade the upside in Equity down sliding market.
It worked and I was gaining some ground, until the rating agency decided after Obama managed to get the healthcare bill passed, to downgrade the USA, a first in Americas history. The rating agency wanted to show the world it could make independent decisions…………hmmm-great stuff and bloody bad timing as far as I was concerned. The German Bund dropped 300 ticks on the day, and I was catching a falling knife the whole day. I could not understand why the Bund would drop when the USA future looked so bad; I mean the Bund is the next thing to Gold. But as John Maynard Keynes so right said:
“The Markets can remain irrational longer than one can remain solvent.”
That day wiped me out and I was left with crumbs. The money I had waited for so long withered into dust and my tail was firmly between my legs.
I started looking at a weekly graph over the last five years. On that graph I noticed that all the times I entered the market some major down turn had occurred. Excluding my initial entry into the markets way back in 2005.
I did carry out the idea of trying to fund a reserve account which went well at first. However I was too quick to fund my active account when the trading went bad. In retrospect, when your active account plummets it’s better to take a few days off and think about what the market is actually doing and how you are actually trading, before jumping in with the reserves.
These are hard lessons. Which eventually will be overcome and learned from.
Another lesson which I observed about myself was what and how I felt when a big loss comes my way.
“The feeling is that of a disbelief, then existentialist disassociation, from the market, from your account with the anxiety of hoping your losing position comes back into the black. You can feel a sense of being paralysed a rabbit caught in the headlights.
“
The best way to counter this is of course predetermining your stop on each trade. Having and sticking to your daily stop. It would also be a great benefit to have a neutral person to shut your losing position down, and turn your trading platform off. They could then ban you from trading for the rest of the day. I.e you both agree a daily stop an if this person sees that you have hit it. They shut you out.
Monday, 18 July 2011
Starting All Over Again
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This year has started terribly.
Last year I managed to transform £2600.00 into £25,000 within 8 weeks. The peak in paper profits was £118,000. Back then I traded fearlessly. Using previous day’s high’s and lows as support and resistance. After the birth of my babies I dabbled once more in trading but with a small account. I blew it. In the first quarter this year, I started again with a small account I blew that too.
Well trading in such turbulent times with the Arab uprising and Japanese tragedy meant that the volatility was too much for such small accounts to trade. These account sizes were £3,000 and £2,000 respectively. Things had changed. My main business went into freefall after a major client double-crossed me. So no longer did I have a cushion to rely on. Then my daughter was terribly ill which meant my wife and I was rushing back and forth to hospital.
Then my broker changed the rules. No longer was I to have a £40 - £1.00 margins it was to be increased to £70 - £1.00. Also the maximum allowed trading size was reduced to £100.00 a tick. This was a big reduction considering the maximum I was trading last year was £750.00 a tick.
My main business was flattering, a major client was doing everything to squeeze me out of business so when I did one more deal with them it enabled me to fund my trading account to a decent size.
My ambition to create a trading arcade in West Africa took a step back.
Looking at the options available, I have decided to tough it out and try and trade remotely from home. Of course having small babies will be a major distraction. And the restrictions from my broker meant that I have decided to switch for one that allows direct market access. It’s not perfect but the bid\ask spread is tighter.
I don’t’ believe that I will replicate what I did before, but I am looking more for a gradual slope upwards. This really is a make or break situation I have been practicing on the new brokers simulator for the last six week. And in the last two weeks have been averaging between 500 – 1,000 euros per day on a maximum 2 lot. We all know that simulator trading is much much different to live markets. But "train hard fight easy"
is a good mantra.
I have decided to divide profits into the following:
1. 30% Remains in the Trading Account
2. 40% Is placed into a reserve trading account (Back UP) up to
a hopeful £25,000.
3. 30% Goes into the Household purse.
Money Management is going to be the key to success now. I want to keep an eye on the risk element of a bad trades. The size I am trading relative to my account. To this end I shall have some tables regarding the risk ratio graph for "Ruin" and another table that shows me what the daily profit means in terms of annual income. Sometimes we forget that making a mere £150.00 in a day is the pro rata amount for £40,000 a year!
I shall keep readers posted.
This year has started terribly.
Last year I managed to transform £2600.00 into £25,000 within 8 weeks. The peak in paper profits was £118,000. Back then I traded fearlessly. Using previous day’s high’s and lows as support and resistance. After the birth of my babies I dabbled once more in trading but with a small account. I blew it. In the first quarter this year, I started again with a small account I blew that too.
Well trading in such turbulent times with the Arab uprising and Japanese tragedy meant that the volatility was too much for such small accounts to trade. These account sizes were £3,000 and £2,000 respectively. Things had changed. My main business went into freefall after a major client double-crossed me. So no longer did I have a cushion to rely on. Then my daughter was terribly ill which meant my wife and I was rushing back and forth to hospital.
Then my broker changed the rules. No longer was I to have a £40 - £1.00 margins it was to be increased to £70 - £1.00. Also the maximum allowed trading size was reduced to £100.00 a tick. This was a big reduction considering the maximum I was trading last year was £750.00 a tick.
My main business was flattering, a major client was doing everything to squeeze me out of business so when I did one more deal with them it enabled me to fund my trading account to a decent size.
My ambition to create a trading arcade in West Africa took a step back.
Looking at the options available, I have decided to tough it out and try and trade remotely from home. Of course having small babies will be a major distraction. And the restrictions from my broker meant that I have decided to switch for one that allows direct market access. It’s not perfect but the bid\ask spread is tighter.
I don’t’ believe that I will replicate what I did before, but I am looking more for a gradual slope upwards. This really is a make or break situation I have been practicing on the new brokers simulator for the last six week. And in the last two weeks have been averaging between 500 – 1,000 euros per day on a maximum 2 lot. We all know that simulator trading is much much different to live markets. But "train hard fight easy"
is a good mantra.
I have decided to divide profits into the following:
1. 30% Remains in the Trading Account
2. 40% Is placed into a reserve trading account (Back UP) up to
a hopeful £25,000.
3. 30% Goes into the Household purse.
Money Management is going to be the key to success now. I want to keep an eye on the risk element of a bad trades. The size I am trading relative to my account. To this end I shall have some tables regarding the risk ratio graph for "Ruin" and another table that shows me what the daily profit means in terms of annual income. Sometimes we forget that making a mere £150.00 in a day is the pro rata amount for £40,000 a year!
I shall keep readers posted.
Monday, 27 December 2010
Trading Track Record & Lessons Learned
4th Quarter Trading Record
The Trading Record Reflections
I started trading with £2,600.00. I had previously placed around £5,000 that evaporated within days. I had not really had a plan, and was trading in the moment.
What differed in my approach on the 1st of October was that I decided to stick with the basic tenants of my trading plan, which were namely:
· Trade what you see
· Trade on probabilities
· Accept the risk
Rule No1 - Trade what you see:
Trading what you see is more about one’s subjective interpretations of what the market is showing rather than any absolute science. For this to be effective one requires some sort of method to evaluate what one thinks the market is saying. To this end, I use traditional Technical Analysis methods, below are some of the following:
· Candlesticks
· Pivot Points
· High\Low\Open & Close – the previous day
· Volume
· Point & Figure – For Support and Resistance
I have a few Candlestick patterns that I use for entry and exit, when they come into play I trade them. Often I will anticipate the pattern, which is dangerous.
Rule No2 - Trade on Probabilities;
For me this is more important than the first rule. Because we don’t know what the outcome of any trade will be we need to apply a degree of probability as to the success of a particular trade. By doing this in advance we are accepting that there is a risk to this trade. It challenges your logical mind to be converted to instinctive flow. Even if the probability is high, one will still be unsure of the time such a trade will come to pass. Evaluating the probability of a trade should determine the amount of risk one will undertake on the trade, or whether it is worth taking the trade at all.
Many traders underestimate the importance of probability in trading. Probability is what makes trading as interesting as it is.
John Haigh’s book “ Taking Chances, winning with probability” .
And for reading on your commute
Frederick Mosteller’s book “ Fifty Challenging Problems in Probability, with Solutions”.
These books, inform the trader about probabilities and how best to encounter them.
Rule No3 - Accept the Risk
This is the hard part for most traders. Basically it is the part that one determines that they were wrong on the first rule. If a trader can learn to accept the risk, it should guide them towards better money management! Easier said than done. But if one can accept the risk then the trade will be one of curiosity than having to stake your “reputation” on the line. Accepting the risk means that being wrong is a big part of trading, and a part that all traders should get used to. . Mark Douglas’s “The Disciplined Trader” is a brilliant book to read in this regard for Rules 2 & 3.
Finally another brilliant book for the trader is:
“The Futures Game, Who wins, Who loses and Why?” by Richard Teweles and Frank, Jones (Nov 30, 1998)the chapter on money management in particular is value.
The Trading.
I started out with the intention of achieving 10 ticks aday at full size. The market was in a bullish phase and so my bullish bias worked in my favour. Generally I was day trading but would stay in a position over night if I thought that the momentum would carry me the next day. I quickly found that 10 ticks a day was too limited a target so continued trading after I had achieved my 10 ticks.
For my charting I use E-signal. I used the previous day’s Open High Low and Close, which is a very strong indicator for support and resistance along with Point & Figure levels. Also using Pivot Points aided my exit of positions. The previous OHLC helped me no end when I placed a trade and the market went against me, it allowed me to coolly wait and see whether or not the market was trading within these ranges. I could then use these levels for my Stop’s.
Another very important lesson came from my wife! She told me I should pay myself. This has always been one of my weaknesses. I enjoy trading for trading’s sake rather than all the riches it may bring me. Budd Fox asked Gordon Gecko “How much is enough, Gordon?” in which he replies:
“it’s not a question of how much is enough, it’s a Zero Sum game, somebody wins and somebody loses.”
I disagree with that statement, but agree more with Fagon’s ditto in Charles Dickson’s Oliver Twist: “In this world only one thing counts, money in the bank and in large amounts”.
By regularly paying myself I was turning paper profits into real profits. Crystallising my winnings. This act saved me in the end. The problem was for me is I am not very materialistic, so after a while I had run out of things to buy.
When trading, you should have one eye on paying yourself and another on increasing your capital base in which to increase your trading size.
One of the most important lessons I learned with the idea of breaking my capital base into one Unit of a 1,000. i.e. if I had £1,000 I traded to a size which was relevant to £1,000. If I was trading £10,000 I traded in the same percentages, as I would have if it were a £1,000. the effect of this allowed me not to be spooked out about the size of my positions which at one point I was trading £750.00 a tick, by my trading mantra it was only 7.5 units per tick.
This meant that each time I hit a level, I was back where I started.
£1,000 = 1000 units
£10,000 = 1000 units
£40,000 = 400 units
£50,000 = 500 units
This was a big deception on my part, but allowed me to trade more fearlessly than if I had of simply thought about it in pure monetary terms. This is because previously I had no difficulty whatsoever of turning £200.00 into £1,000 in one day. But psychologically turning £2,000 into £10,000 seemed way too much of an accomplishment! This simple deception enabled me to trade more fearless and focus on the trade more than the monetary outcome or risk.
Problems in Trading
The problems of my trading were three fold. And classic No NO NO’s
I was trading the DAX. It was around 6750.00 watching CNBC news the German lady, predicted that “Investment Bankers believe the DAX should hit the 7,000 mark”. This tip and prediction was fatal for me. It had me thinking beyond the Day trade and more in the future, in short it started to make me violate my rule No 1.
The second problem was that I had run out of things to pay myself, my wife was expecting twins, and so I felt that the one think we really did need was house. Doing my sums I worked out that trading at £750 per tick with an existing capital base of £100,000 would mean if the DAX did indeed reach 7,0000 I would be in for over £280,000 that would enable me to buy a house almost outright or place a sizable deposit and still give me a decent Trading account size. = Greed was not good. Deep deep down I knew this approach was risky, but as things were going too well for me I had that little devil say to me :
“Go on, go for it. 7,000 is only 250 ticks away”.
Now the Twins came along, which was the best experience a man can have and I was over the Moon. They came early, so were in an incubator for over a month. This meant having to travel to hospital daily to visit them and check on them. This also meant trying to impose time restrictions on my trading positions based on my visiting times to the hospital rather than what the market was actually doing.
This new arrangement started on day one of their birth, and by day two I encountered my largest loss on one day. £62,500! The sad part was I broke rule No 3 that day. First I tried to impose my will on the market, in terms of time. At that time I had a deep stop but the market “looked” like it was going to stop me out, so I did not accept my risk and reversed my position. The net effect was this.
One, the market did not actually reach my stop position, instead it rose back up to my original position on the start of the day i.e 6750. Only I had taken my loss around 6690 and reversed adding to my losses back up to 6745 where it closed for the day!
Overall from the chart patterns I accepted that I was right to have traded what I traded, but big question marks over the size of my position. Around the same time I had a car accident on my way to hospital which I suppose was nature’s way of telling me to slow down.
The DAX did travel up to 7090 before Christmas, but I was out after a few more bad day’s down to my loss of focus and the events in Ireland. I was trading a huge gap, but did not have a defence against a GAP trade going against you! This a loss of £21,000 for me was the worst trade as I had made a good come back from my £60,000+ loss day. It was the same time around my car accident.
Still despite the hectic Market and home life. I believe the formula is there for trading success. In essence I started with £2,600 and finished in 7 weeks with £21,000. No bad return. Although my highest paper profit was £119,000!
MONEY BEGETS MONEY!!!
I do keep a record of my trading day’s P&L hence the graph. What I noticed was astounding.
1. It took me 16 days to turn my £2,600 into £25,000
2. And only 8 days to turn £25,000 into £50,000
3. 5 days to turn £50,000 into £100,000.
Of course it took me only 1 day to turn £81,000 into £35,000 !
The thing that struck me is that provided that one has a trading plan in place and sufficient Capital Account to cover their living expenses. Trading is a viable occupation for the committed enthusiast.
One of the issues traders have is that starting with a small capital account, they become bored of the monetary returns forgetting about the actual nominal returns. I.e, if one’s target is 10 ticks a day, and you start with £1.00 per tick.
· Gaining £10.00 per day may cover ones lunch break but not one’s general lifestyle.
· The temptation is to go for more ticks say 50 ticks to have £50.00 but now we are getting far too risky. Setting oneself up to fail.
· By being patient and gaining constantly 10 ticks a day – over say a 60 – 90 day period trading a minimum of x 5 trades a day, one would accumulate the confidence to trade £100.00 per tick.
Now £1,000 per day is not too bad.
Remember though
“Only one thing in this world (Trading) count’s, and that’s money in the Bank in Large amounts” which excludes paper profits.
4th Quarter Trading Record
The Trading Record Reflections
I started trading with £2,600.00. I had previously placed around £5,000 that evaporated within days. I had not really had a plan, and was trading in the moment.
What differed in my approach on the 1st of October was that I decided to stick with the basic tenants of my trading plan, which were namely:
· Trade what you see
· Trade on probabilities
· Accept the risk
Rule No1 - Trade what you see:
Trading what you see is more about one’s subjective interpretations of what the market is showing rather than any absolute science. For this to be effective one requires some sort of method to evaluate what one thinks the market is saying. To this end, I use traditional Technical Analysis methods, below are some of the following:
· Candlesticks
· Pivot Points
· High\Low\Open & Close – the previous day
· Volume
· Point & Figure – For Support and Resistance
I have a few Candlestick patterns that I use for entry and exit, when they come into play I trade them. Often I will anticipate the pattern, which is dangerous.
Rule No2 - Trade on Probabilities;
For me this is more important than the first rule. Because we don’t know what the outcome of any trade will be we need to apply a degree of probability as to the success of a particular trade. By doing this in advance we are accepting that there is a risk to this trade. It challenges your logical mind to be converted to instinctive flow. Even if the probability is high, one will still be unsure of the time such a trade will come to pass. Evaluating the probability of a trade should determine the amount of risk one will undertake on the trade, or whether it is worth taking the trade at all.
Many traders underestimate the importance of probability in trading. Probability is what makes trading as interesting as it is.
John Haigh’s book “ Taking Chances, winning with probability” .
And for reading on your commute
Frederick Mosteller’s book “ Fifty Challenging Problems in Probability, with Solutions”.
These books, inform the trader about probabilities and how best to encounter them.
Rule No3 - Accept the Risk
This is the hard part for most traders. Basically it is the part that one determines that they were wrong on the first rule. If a trader can learn to accept the risk, it should guide them towards better money management! Easier said than done. But if one can accept the risk then the trade will be one of curiosity than having to stake your “reputation” on the line. Accepting the risk means that being wrong is a big part of trading, and a part that all traders should get used to. . Mark Douglas’s “The Disciplined Trader” is a brilliant book to read in this regard for Rules 2 & 3.
Finally another brilliant book for the trader is:
“The Futures Game, Who wins, Who loses and Why?” by Richard Teweles and Frank, Jones (Nov 30, 1998)the chapter on money management in particular is value.
The Trading.
I started out with the intention of achieving 10 ticks aday at full size. The market was in a bullish phase and so my bullish bias worked in my favour. Generally I was day trading but would stay in a position over night if I thought that the momentum would carry me the next day. I quickly found that 10 ticks a day was too limited a target so continued trading after I had achieved my 10 ticks.
For my charting I use E-signal. I used the previous day’s Open High Low and Close, which is a very strong indicator for support and resistance along with Point & Figure levels. Also using Pivot Points aided my exit of positions. The previous OHLC helped me no end when I placed a trade and the market went against me, it allowed me to coolly wait and see whether or not the market was trading within these ranges. I could then use these levels for my Stop’s.
Another very important lesson came from my wife! She told me I should pay myself. This has always been one of my weaknesses. I enjoy trading for trading’s sake rather than all the riches it may bring me. Budd Fox asked Gordon Gecko “How much is enough, Gordon?” in which he replies:
“it’s not a question of how much is enough, it’s a Zero Sum game, somebody wins and somebody loses.”
I disagree with that statement, but agree more with Fagon’s ditto in Charles Dickson’s Oliver Twist: “In this world only one thing counts, money in the bank and in large amounts”.
By regularly paying myself I was turning paper profits into real profits. Crystallising my winnings. This act saved me in the end. The problem was for me is I am not very materialistic, so after a while I had run out of things to buy.
When trading, you should have one eye on paying yourself and another on increasing your capital base in which to increase your trading size.
One of the most important lessons I learned with the idea of breaking my capital base into one Unit of a 1,000. i.e. if I had £1,000 I traded to a size which was relevant to £1,000. If I was trading £10,000 I traded in the same percentages, as I would have if it were a £1,000. the effect of this allowed me not to be spooked out about the size of my positions which at one point I was trading £750.00 a tick, by my trading mantra it was only 7.5 units per tick.
This meant that each time I hit a level, I was back where I started.
£1,000 = 1000 units
£10,000 = 1000 units
£40,000 = 400 units
£50,000 = 500 units
This was a big deception on my part, but allowed me to trade more fearlessly than if I had of simply thought about it in pure monetary terms. This is because previously I had no difficulty whatsoever of turning £200.00 into £1,000 in one day. But psychologically turning £2,000 into £10,000 seemed way too much of an accomplishment! This simple deception enabled me to trade more fearless and focus on the trade more than the monetary outcome or risk.
Problems in Trading
The problems of my trading were three fold. And classic No NO NO’s
I was trading the DAX. It was around 6750.00 watching CNBC news the German lady, predicted that “Investment Bankers believe the DAX should hit the 7,000 mark”. This tip and prediction was fatal for me. It had me thinking beyond the Day trade and more in the future, in short it started to make me violate my rule No 1.
The second problem was that I had run out of things to pay myself, my wife was expecting twins, and so I felt that the one think we really did need was house. Doing my sums I worked out that trading at £750 per tick with an existing capital base of £100,000 would mean if the DAX did indeed reach 7,0000 I would be in for over £280,000 that would enable me to buy a house almost outright or place a sizable deposit and still give me a decent Trading account size. = Greed was not good. Deep deep down I knew this approach was risky, but as things were going too well for me I had that little devil say to me :
“Go on, go for it. 7,000 is only 250 ticks away”.
Now the Twins came along, which was the best experience a man can have and I was over the Moon. They came early, so were in an incubator for over a month. This meant having to travel to hospital daily to visit them and check on them. This also meant trying to impose time restrictions on my trading positions based on my visiting times to the hospital rather than what the market was actually doing.
This new arrangement started on day one of their birth, and by day two I encountered my largest loss on one day. £62,500! The sad part was I broke rule No 3 that day. First I tried to impose my will on the market, in terms of time. At that time I had a deep stop but the market “looked” like it was going to stop me out, so I did not accept my risk and reversed my position. The net effect was this.
One, the market did not actually reach my stop position, instead it rose back up to my original position on the start of the day i.e 6750. Only I had taken my loss around 6690 and reversed adding to my losses back up to 6745 where it closed for the day!
Overall from the chart patterns I accepted that I was right to have traded what I traded, but big question marks over the size of my position. Around the same time I had a car accident on my way to hospital which I suppose was nature’s way of telling me to slow down.
The DAX did travel up to 7090 before Christmas, but I was out after a few more bad day’s down to my loss of focus and the events in Ireland. I was trading a huge gap, but did not have a defence against a GAP trade going against you! This a loss of £21,000 for me was the worst trade as I had made a good come back from my £60,000+ loss day. It was the same time around my car accident.
Still despite the hectic Market and home life. I believe the formula is there for trading success. In essence I started with £2,600 and finished in 7 weeks with £21,000. No bad return. Although my highest paper profit was £119,000!
MONEY BEGETS MONEY!!!
I do keep a record of my trading day’s P&L hence the graph. What I noticed was astounding.
1. It took me 16 days to turn my £2,600 into £25,000
2. And only 8 days to turn £25,000 into £50,000
3. 5 days to turn £50,000 into £100,000.
Of course it took me only 1 day to turn £81,000 into £35,000 !
The thing that struck me is that provided that one has a trading plan in place and sufficient Capital Account to cover their living expenses. Trading is a viable occupation for the committed enthusiast.
One of the issues traders have is that starting with a small capital account, they become bored of the monetary returns forgetting about the actual nominal returns. I.e, if one’s target is 10 ticks a day, and you start with £1.00 per tick.
· Gaining £10.00 per day may cover ones lunch break but not one’s general lifestyle.
· The temptation is to go for more ticks say 50 ticks to have £50.00 but now we are getting far too risky. Setting oneself up to fail.
· By being patient and gaining constantly 10 ticks a day – over say a 60 – 90 day period trading a minimum of x 5 trades a day, one would accumulate the confidence to trade £100.00 per tick.
Now £1,000 per day is not too bad.
Remember though
“Only one thing in this world (Trading) count’s, and that’s money in the Bank in Large amounts” which excludes paper profits.
Wednesday, 9 December 2009
The Trading Plan
The Rationale of the Market Enviroment
&
A Road Map for a Trading Edge
The Trading Plan
The Day Traders Daily Preparation:
- Grade how alert you feel between 1 - 10
- Any Distractions ?
- Complete the Prep Sheet
- Trade Log
- Research the Daily Brief
Phase I 08:00 - 11:30 Phase II 13:30 - 16:30 (Spot Market Close) Phase III > 21:00 hr (Futures Market Close)
"TRADE WHAT YOU SEE
TRADE ON PROBABILITIES
DEFINE & ACCEPT YOUR RISK"
Trading Objectives:
Morning Trading = 5 Ticks Afternoon Trading = 5 ticks NB* Tick Per Lot size i.e 1 lot = 10 euros 5 lots = 50 euros
5 Ticks on a 1 Lot = 50 euros 5 lots= 250 euros
Money Management Principles
- Divide the Trading Account into 20 Units (or 40)
- Daily loss limit the size of 1 Unit of the Trading Account
- Have a Nett 5 - 10 tick per day objective (after Commissions)
- Trade for 5 ticks AM
- Trade for 5 ticks PM
- Focus on Probabilites on each trade
- Diversify one's trading
- i.e Trade Butterfly Spreads
- Or Spread Trades (Not to be confused with Spread Betting)
- Outrights to be traded with extreme caution
- Zero Tolerance on the Daily Stop
- Stick to the Butterfly Spread as much as possible
- Trade the Anti Martindale Strategy
- Scale IN to Trades
- Take a Pause. Change one's state of Mind (Stand Up, Tea Break or take a Short Walk)
- Wind Down - And Consider what is going wrong!
- Reduce one's Lot Size
- Review Objectives defined
- Compile a Daily Record
- Record if how much one allowed a position to be off side
- Number of Trades
- P\L
Jesse Livermore
Reminiscences of a Stock Operator
by Edwin Lefevre
Tuesday, 27 October 2009
Memories of Black October 2008
On matters concerning The Week that Was:
October 2008
“Honesty is the recognition of the fact that the unreal is unreal and can have no value, that neither love nor fame nor cash is a value if obtained by fraud.” Ayn Rand (Atlas Shrugged) Some would see the irony that last year was the 35th anniversary of Ayn Rand’s masterpiece. Ayn Rand was one of the modern prophets of Capitalism. Her followers, of which I am one, are in the highest echelons in Business, of which I am not. Significantly Alan Greenspan, ex Chairman of the Federal Reserve and Architect of this current fallout was a keen disciple.
After the events of last week, the cry is for bring Government intervention back into Capitalism. That the period of a Laissez-Faire economic model are over. It’s time to wake up and smell the coffee, which is what Rand’s quotation is all about. So what was unreal? This was unreal: In the 1980’s to buy a house one needed x3 or x3.5 ones income or 2.5 joint income. The average earnings at that time were about £15,000 so a house would in the region of £45,000 – 65,000 pounds. The interest rate being around 11%. Fast forward to 2007 and once more the income multiple of buying a house was x3 – x3.5 of income with the average earnings being £25,000 p.a therefore house prices should be about £75,000 – 95,000. Indeed back in the late nineties this was still the case. But now house prices are averaging £250,000. This means in order to buy a house ones income would have to be around £64,000 if a 10% deposit was put down. Put it another way, the short fall between the income multiple and current house prices shows a deficit of £155,000! That means that most mortgages are over extended, especially for 1st time buyers, by £155,000 of imaginary income.
So what happened? Two things: First’ Interests rates fell to around 5.5% which mean that money was cheap and so more spending which pushed house prices up. So the doubling of house prices only meant that while the value of the house had increased over 100% the cost of repayments were the same as when people were paying 11% on say £100,000. Secondly; People lied about how much they earned, and thus over extended themselves.
“Money is neither lost nor made, it’s simply transferred from one illusion to another” Gordon Gecko
“Wall Street”
And what an illusion, I shall spare you the description of how the banks deluded themselves for so long about whether or not “the King has got no Clothes” namely sub-prime loans. But why? Well for one Osma Bin Laden must be rolling about in his Cave right now. Rewind to the late 90’s early 00’s and we had the Dot.com Boom/Bust that challenged traditional valuation models and unhinged our fragile economies just about recovering from the last recession of the early 90’s. Just when we thought it could get no worse what happened?
BAM ! BAM!
And in 2001 the Twin Towers along with the Pentagon and airline passengers of four Planes shook not only the media audience but also the financial community. With the world economy already shaken by the Dot.com bubble drastic measures were required to stabilise the financial system. Alan Greenspan achieved this by reducing interest rates to such a level that money was dirty cheap and Banks and financial institutions began giving out Credit for anything secured or unsecured.
For us in the U.K we were Bombarded with television programmes such as: “The Property Ladder” showing us how we all can become property millionaires, then “A Place in the Sun” followed by “Location, Location” now we have “Dislocation, Dislocation”. Over the last 5-7 years the U.S Dollar has been suffering from depreciation against all the major currencies and Public funds have been financing one illegal war and another costly foreign policy that creates enemies rather than destroys them. The financial cost and human cost almost incalculable.
But the establishment have sighted the new bogeymen, not Al Quada, but the “Short Sellers” which is utter rubbish. While inflation is riding up and the cost of everything is hitting the ceiling, our Salaries and wages remain steadfastly stagnant. Pay rises of 3.7% are given when inflation is running up at 4.7% i.e a 1% pay cut. Property prices are taking a tumble and those remortgages to fund our desire to mimic the “Lifestyles of the Rich and Famous” are getting ever more expensive. If that isn’t bad enough the Government are using our money through taxes to Bail out companies that contributed to this mess.
We have been here before in the 1970’s and a retro advert of “Labour is’nt Working” is well and truly over due. Trading over the week was interesting, I did very well out the financial mess upon till Thursday then I gave back to the market Monday, Tuesday and Wednesdays profits in the space of 45 minutes! Such is the life of professional speculators. By Friday things were so crazy that our Floor manager told all traders to cut their positions at Market (The market price, to realise any profits or losses) it’s the financial equal to cease firing, or rain stops play. Of course the Stock Market rallied because all the short sellers had to cover their positions and you can only do that buy buying to close your position.
October 2008
“Honesty is the recognition of the fact that the unreal is unreal and can have no value, that neither love nor fame nor cash is a value if obtained by fraud.” Ayn Rand (Atlas Shrugged) Some would see the irony that last year was the 35th anniversary of Ayn Rand’s masterpiece. Ayn Rand was one of the modern prophets of Capitalism. Her followers, of which I am one, are in the highest echelons in Business, of which I am not. Significantly Alan Greenspan, ex Chairman of the Federal Reserve and Architect of this current fallout was a keen disciple.
After the events of last week, the cry is for bring Government intervention back into Capitalism. That the period of a Laissez-Faire economic model are over. It’s time to wake up and smell the coffee, which is what Rand’s quotation is all about. So what was unreal? This was unreal: In the 1980’s to buy a house one needed x3 or x3.5 ones income or 2.5 joint income. The average earnings at that time were about £15,000 so a house would in the region of £45,000 – 65,000 pounds. The interest rate being around 11%. Fast forward to 2007 and once more the income multiple of buying a house was x3 – x3.5 of income with the average earnings being £25,000 p.a therefore house prices should be about £75,000 – 95,000. Indeed back in the late nineties this was still the case. But now house prices are averaging £250,000. This means in order to buy a house ones income would have to be around £64,000 if a 10% deposit was put down. Put it another way, the short fall between the income multiple and current house prices shows a deficit of £155,000! That means that most mortgages are over extended, especially for 1st time buyers, by £155,000 of imaginary income.
So what happened? Two things: First’ Interests rates fell to around 5.5% which mean that money was cheap and so more spending which pushed house prices up. So the doubling of house prices only meant that while the value of the house had increased over 100% the cost of repayments were the same as when people were paying 11% on say £100,000. Secondly; People lied about how much they earned, and thus over extended themselves.
“Money is neither lost nor made, it’s simply transferred from one illusion to another” Gordon Gecko
“Wall Street”
And what an illusion, I shall spare you the description of how the banks deluded themselves for so long about whether or not “the King has got no Clothes” namely sub-prime loans. But why? Well for one Osma Bin Laden must be rolling about in his Cave right now. Rewind to the late 90’s early 00’s and we had the Dot.com Boom/Bust that challenged traditional valuation models and unhinged our fragile economies just about recovering from the last recession of the early 90’s. Just when we thought it could get no worse what happened?
BAM ! BAM!
And in 2001 the Twin Towers along with the Pentagon and airline passengers of four Planes shook not only the media audience but also the financial community. With the world economy already shaken by the Dot.com bubble drastic measures were required to stabilise the financial system. Alan Greenspan achieved this by reducing interest rates to such a level that money was dirty cheap and Banks and financial institutions began giving out Credit for anything secured or unsecured.
For us in the U.K we were Bombarded with television programmes such as: “The Property Ladder” showing us how we all can become property millionaires, then “A Place in the Sun” followed by “Location, Location” now we have “Dislocation, Dislocation”. Over the last 5-7 years the U.S Dollar has been suffering from depreciation against all the major currencies and Public funds have been financing one illegal war and another costly foreign policy that creates enemies rather than destroys them. The financial cost and human cost almost incalculable.
But the establishment have sighted the new bogeymen, not Al Quada, but the “Short Sellers” which is utter rubbish. While inflation is riding up and the cost of everything is hitting the ceiling, our Salaries and wages remain steadfastly stagnant. Pay rises of 3.7% are given when inflation is running up at 4.7% i.e a 1% pay cut. Property prices are taking a tumble and those remortgages to fund our desire to mimic the “Lifestyles of the Rich and Famous” are getting ever more expensive. If that isn’t bad enough the Government are using our money through taxes to Bail out companies that contributed to this mess.
We have been here before in the 1970’s and a retro advert of “Labour is’nt Working” is well and truly over due. Trading over the week was interesting, I did very well out the financial mess upon till Thursday then I gave back to the market Monday, Tuesday and Wednesdays profits in the space of 45 minutes! Such is the life of professional speculators. By Friday things were so crazy that our Floor manager told all traders to cut their positions at Market (The market price, to realise any profits or losses) it’s the financial equal to cease firing, or rain stops play. Of course the Stock Market rallied because all the short sellers had to cover their positions and you can only do that buy buying to close your position.
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