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.
