Posts Tagged ‘daily loss limit’

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Trading Discipline, Part 4

Friday, April 17th, 2009

Today is Thursday April 16th, and I have a valuable trading lesson below.

I started my day on the wrong foot, that was for sure. I know the potential always exists to mess up a bit, but I also know that I have enough discipline to stop trading if I am having a bad day. We all need to know at what point you will stop trading for the day if you hit your daily loss limit.

This is a discipline question that needs to be known before you start the trading session. I always know what that point is and I feel other traders in the business should also, but everyone trades differently and there are almost no two styles alike. You may mirror yourself after a successful trader and that can work well, but you will eventually need to OWN IT for long term success to take hold.

This would be whatever you learn that seems to work and slowly adopt it as your own, because everyone will see things at least a little differently. The bottom line is, did you follow the “base method setups” to get your points. If you did, then your results are duplicatable for future profits and that is what we want – daily positive results.

Today, I came up to my daily loss limit, which for me is always two times my minimum daily goal. My daily goal has been one thousand dollars, so my maximum loss for the day can be no larger than two thousand dollars. My first couple of trades were small, then went to double positions. If I click 5 contracts twice, that is a double position, but it shows up as two separate orders when taking losses and gains.

I was using double positions and not hitting my targets – not a good thing. I usually lighten up until I get a better footing for the day, but I did not, which pushed me down right above my limit. Funny thing is, when the chips were really down, I know I had to hit the next trade or I was going to have my first losing day in months.

I finally got it together and waited for a very good runner and followed it up with another one almost just like it. I put one last trade on to top off those two large gains for a total profit for the day of $ 2,600 dollars – over double daily goal. WOW, that was close.

I was not feeling well this whole week and it finally showed up. I noticed I did not have any focus and patience to wait and look for my basic trade setups and it showed. I almost was not going to trade this morning, but I reasoned with myself and went ahead.  I did not like the feeling of having a string of losses like I did (remember I took several double positions, which makes it look worst), but how I handled the emotions is what I am going to talk about today. This is the exact topic I had planned to discuss, no kidding. Is that not ironic?

Trading Discipline: Part 4

Trading Discipline has many aspects to it and I could write many more articles on the subject, but the one I will discuss today is how to handle your emotions after having multiple losses in a row. The easy answer is to just tell yourself not to get anxious and wait the move out for a directional change.

Easier said than done. We have all been there and will likely be there again at some point, but you really need to rehearse this scenario in your mind to pre-plan how you are going to deal with it when it happens. If you don’t do the work now, you will certainly do it later, but under different circumstances, which could cost you big dollars.

This is a very serious matter, more than you may realize, because it is at this point that many traders can just LOSE IT.  What I mean is, you get to a point where you can no longer handle the pain of loss and if you don’t pull it together quickly, you will self destruct. No kidding. Everything you do will be wrong, not matter what. Your trading plan will get tossed right out the window and you will go into survival mode, which is better classified as SELF DESTRUCT MODE and you really don’t want that.  So the very first thing is:

* Take a deep breath, get some oxygen in your body, so you can think clearly and take at least 30 minutes off.

* Go back over your contingency plans you thought of before this whole thing started.

* Imagine what you did when you rehearsed this scenario in your mind, see yourself confidently putting on a positive trade, while imagining hitting your target or your expected outcome.

* Be sure you do not trade past your daily loss limit.

* If you still have room to trade, plan it out, just like a sniper would pick his target. You may only have 1 or 2 bullets. Make it count.

* Have next to your computer a script of positive self talk, that will help you change your negative state of mind, this should be something you read often for this scenario.

If after doing the above, you still have a loss or even hit your daily loss limit, don’t beat yourself up. One of the reasons for a daily loss limit is it takes the pressure off. If you already know ahead of time that this is the very worst that can happen today and you accept that, how much easier can it be in relieving the stress and pressure.

One double daily goal loss is not bad, when you consider that there will eventually be days that you hit double daily goals. I do it all the time. In fact, most days are at least double daily goal. That gives me plenty of room to come back the very next day and still stay on target of at least hitting a daily goal average for the week.

Never let your trading account losses get away from you. As “Day Traders”, we need to stay alive and our life blood is trading capital. Keep the trading capital in your account, so you can trade again. If we lose our blood, we die. Don’t let this happen to you!

http://www.screencast.com/t/qortOnHL Today’s equity chart

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Market hits resistance today

Friday, April 3rd, 2009

Today is Thursday, April 2nd and the overall market ran into some resistance today.

I have not talked much about daily market direction lately, because I had not seen anything that was worth pointing out. I wish I had posted what I saw yesterday, but today is still OK. I will give you a 5 minute overview on what I see and how it could be played out over the days to come. But before I do that I want to give a quick recap of today’s trading.

It turned out good. That is always music to my ears, but as I mentioned before, if you are not in focus and have distractions going on, your performance is going to suffer. That is how I started out. I was giving a trading lesson to one of my students and I had not yet gotten my points. My mind was not on the current price action and when I got around to taking a few trades, they were good for gain, loss, gain, loss.

I did that three times, back and forth, until I settled down. Part of the problem is trying to trade in the slow patch of the day. I needed to take my own advice from yesterday’s trading tip.

I thought about that today as I found myself in the red. On my way into negative equity territory, I had to pause, take a deep breath and relax. The market has a natural flow to it and you need to find that rhythm or flow. I cleared everything out of my mind and just waited for the trade to come to me. I did not have to go after it.  After that point, I had 10 gains, one loss and one even, to go from -600 to + $2,000, much better.

My daily loss limit is two times my minimum daily goal, (between 2 & 3 point) and I have yet to stop trading because of my loss limit. It has not happened yet with my daily gains now stretching into the start of my third month in a row. The actual trading totals have been on average about 3 times my daily goal. For a long time, I was struck on trading 5 contracts and I must have been averaging 3 times that on a daily basis. I have currently wanted to trade less and increase size, so I have been doing an OK job with that.

You need to be emotionally ready, as well as financially, to increase your size. But, if you are able to see the trades each day and know why and where it is you are taking those trades, then it is just a matter of doing what you know. Leave the fear behind. In a market with volume, you will not be in the trade for very long and this will cut your anxiety or fear down to manageable levels.

Again, for the trader who is just getting started, you need to be able to put those winning days together, one after another. That is why, I feel, you should not be in the market all day. It is too much for most to handle. The market has a way of wearing you down, until you get sloppy or let your guard down. Then you may find yourself in the fight of your life. Don’t put yourself into that position. Get your points and get out.

I have seen just about everything the market can throw at me, but I need to respect it, or I too will be humbled. There are times when you should not trade at all. Erratic movement without periods of consolidation and choppy direction-less formations are all telling you to take a break.

It is amazing what that decision can do for you. When you come back after an hour or so, it can look like a whole new market, with predictable swings and volume.  That is the environment you want to be in.

Tomorrow I will record a few of my live trades with commentary as I was doing before, for those who are looking for that.

 As I promised, below is a short overview of how I see things in the daily’s. I hope it helps, but remember, you need to think for yourself and see it for yourself to be able to trade it for yourself. 

http://www.screencast.com/t/qCTlcKhG         Today’s equity chart

http://www.screencast.com/t/bljwZXzuz9e   Market overview on the Daily – video 5 minutes

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Controlling Fear and Emotions while day trading !

Thursday, March 19th, 2009

Today is Thursday, March 19th and the markets back off on light volume.

The Market, in general, slowly backed off its highs from yesterday. The night trading saw a move back up to yesterday’s high and when the general market opened at 6:30, the Dow shot up 50 points and the S&P about 7 points. There was a gap in the S&P and when you get an extended move, like what we have had the last couple of weeks, with the market trading near its high at 800, it was likely the gap would be filled rather quickly.

I missed the initial move down by a second and found myself a little frustrated, not a good emotion when trading. I was looking for a low risk short entry and took a trade a little early and got high tick stopped. I was in a little heavy, I think 7 contracts. I was sure we were going down but was just a little too anxious. So I started to back off on size a little. I had to wait the market out, but I was still a little anxious. I prefer to see a choppy market early on, because there are usually a lot of small trade set ups, but when it is trending right off the bat, it can be hard to find a low risk place to get in.

All in all, I did OK, making 15 trades with 9 gains and 6 losses. I scaled out of all the trades with 2 targets. Posted about $800 dollars in profit. I made a few mistakes today, but it happens. The market did just what it always does, so I definitely can say that I was to blame on a few of the losses that I could have avoided. The other losses were no one’s fault – just probabilities that show up.

After yesterday’s big gains, I decided to back off a bit. I am trading a lot more than I usually do and I can’t complain. I have been posting very solid profit every day for about 7 weeks of trading. I need to do some assessments and go over my trading plan. I do not want to lose sight of my goals. I had wanted to increase my contract size and make less trades, but I have been making more trades with small contract size. Again, I can’t complain. I have been getting the increased gains that I had planned on, but I have been having to work a lot harder to get it.

One interesting thing I recently saw, there is a TV show in England that took 100 people and interviewed them for a trading career. Out of the 100, only 8 were chosen, with a mixed level of education. To make a long story short, within 2-3 weeks of being properly trained, 4 were making money and 4 were losing money.

The person who did the best was a mother of two children who had an entrepreneurial background. The person who did the worst was a I.T. engineer. The I.T. guy said this was the hardest thing he has had to do in his life. When a program is not working right, he just reprograms it with the right settings and the problem is solved. He tried to apply the same principles to trading and could not do it. The next best trader was an ex-soldier. He said he was used to making quick decisions and was flexible to the current task at hand. He was not boxed in, with seemingly an absolute frame of mind.

The moral of the story is, that being successful at trading has more to do with your personality than intelligence or I.Q.  We follow principals and not so much rules. There are definitely guidelines to follow and you have to know what you are looking for, but having the right personality for the job is essential. The Mother of two was cool under pressure and applied what she learned. She was not overly scared, but placed the trades as they came up and she got the expected results.

We all can learn from this story, including myself. There is no place for FEAR when trading. If you are afraid, then you are not ready. You may be trading with too small of an account or you may not really be able to take on the risk. The best way to approach this is to allocate an amount in your account that you can comfortably risk. If you draw down to that amount you will stop trading and give yourself a month off to assess the whole situation.

So if you are OK with risking, say $500, that would be 10 S&P points with only one contract. You could give yourself a daily loss limit of say just 2 trades or 2 points. If you are not on it, with gains out of the gate, then you wait until tomorrow and try again.

But do not trade with fear at your side. The worst thing that can happen is already predefined, so accept that fact and go forward. You have 5 days of losses, assuming you lose every day, before you get to your total limit for the month. That is really not too much damage to take on, when you look at the big picture of hitting your daily goal of 2-3 points per day.

http://www.screencast.com/t/RVRfEqSe19Y             Some of today’s trades - Still shot

 http://www.screencast.com/t/vGOqsxDEII               Today’s equity chart

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At last, an up day

Thursday, March 5th, 2009

Today is February 4th, and we finally got a move up.

It has been a long time since we have had a move up and it sure is welcomed. I had gotten that feeling that we would rally today, when I heard Obama say that Americana’s with the means should consider to buy stocks. It is not very often that you will hear a sitting president, to buy stock in the market. I think he got tipped off by Goldman Sacks. If we do get a rally, everyone will be saying, “see, Obama told us the bottom is in and we should buy stock”.  Knowing how people think, heard mentality, people went out like good little citizens and did what they were told, buy stocks. I am being a little sarcastic and maybe I should not be, but I can not help myself right now. I do not ever remember a president making a market call like this today and I have been following the markets for 25 years. Oh well, there is a first for everything.

The rally was welcomed, I am sure by all. I thought yesterday, that as the market closed close to the low of the day and Tuesday is the day that the sentiment numbers come out by the news letter writers, that the numbers must have dropped again, which is good news for the bulls. I will post those numbers tomorrow, because I get them two days late. I am not a subscriber so the best I can do is a little delay, I will take it. My guess is that it dropped 3-4 % to 23 or 24, with a reading under 35 as a traditionally a bullish signal. You need to remember, that all of the times we were in more or less, normal market conditions, these readings were very very accurate. But as we find ourselves in this massive sell off, which has happened before, like in 2000, sometimes the readings get stretched to extreme levels before the market reacts. This is such an environment currently. When the numbers got to the mid 20’s, we had a big market bounce off the bottom in November of last year. Since then the numbers started to rise and are now getting back to what they were before, pending Thursday’s reading. So, I am thinking that we may be in for a bounce up for a few day’s. In addition, I heard a lot of people starting to say that much lower levels are coming, like now. When you hear people on TV and Newsweek, Time, etc. saying the same thing, look for a move in the opposite direction. Those people are rarely right and it usually can pay to bet against them. With all that being said, the current trend of everything is still down. Let hope we get some follow through this week.

The market did sell off just at the close, by 100 Dow point and 10 S&P points, in just a few minutes. That sure was not good, so for tomorrow, look for a continuation of the pull back initially and watch for a rally back up. It is possible that we could get a few days of consolidation at these levels to give us a better footing for an up move, but we will just have to wait and see.

Yesterday, I made a comment about the Pension Funds being underfunded and I found a chart of just such a story, explaining the facts. Below I will post a chart of some of the underfunded companies that are having the most problems. Over all, I hear there is a $ 409 billion dollar shortfall in the pension funds right now. Last year there was surplus and now, a big underfunded liability. These companies have some time to make up the difference but if things do not improve soon, it is really going to hurt. They are regulated by the government to make these pension contributions to cover future retirement obligations. They are currently only funded to 60%, which leaves them 40% short. They are going to have to take more of there earned income and kick in a bunch of money to make up the difference and that is going to hurt earnings potential. On Wall Street, its all about the earnings. “What have you done for me lately”. That is an old saying in my family and is appropriate for the current situation hear. Oh, the reason for the big shortfall, is that a lot of these companies invest that money in the stock market and with valuations going down so much, it is putting a big strain on there balance sheet. This can turn into the old snow ball effect, if things do not turn around soon, lets hope. Just reporting the facts here.

In my day-trading effort, I only had a limited amount of time to trade and did so for only 15 minutes in the morning. I did get my daily goal with all gains. I placed 5 trades with 8 exits in the morning and as I said all were gains, nice. I found a few minutes in the afternoon session around 11 am and traded for about 25 minutes and added nicely to my gains. I posted around $1,300 for the day with 22 pieces of profit and 3 losses, 88% . I started out with a 1 point gain on 5 contracts for $250 profit, then started to reduce my size, played it safe, because I had a limited amount of time. If I had draw downs it would be harder to come back, not having the time. It worked out just like I wanted and so, I chalked up another days worth of gains. I think I am now about 30 days in row of posting solid profit every day, no loosing days. I had many days of profit before that, but in the last week of January, I started to post every day, no exceptions and it has been going great. I have had struggles and came close to my daily loss limit, where it is, that I will have to stop for the day, but my streak is alive and I plane to keep it that way, by trading smart and following my rules as best I can. Below is an equity chart of the days gains and a chart of some of my trades in the 233 tick. I am taking these trades in the 100 tick, but I am looking at other time frames to give myself a larger view and perspective.

 http://www.screencast.com/t/E8oNvlEsc6r         Today’s equity chart

http://www.screencast.com/t/KTX51dkd               Some of today’s trades in 233 tick

http://www.screencast.com/t/dOBUnSMx              Chart of, some company pension shortfalls

http://www.screencast.com/t/MAWnN1pts7b     Day trade chart of IBM, my promise from yesterday

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Tough start, strong finish

Thursday, February 26th, 2009

Today is February 25th and today’s trading ended great. But boy I had a hard time getting started.

I should have known better and taken some of my own advice from the day before. If you let your guard down, you can get smacked around pretty easy from the markets.

I was sick last night and could not sleep, up all night and feeling crummy. That was my cue to take it easy, but I did not and payed for it in the early going. I was not focused, did not have patience and thought I could take the trades anyway. Well, that goes to show you, if you are not 100%, it is better to wait until you are or just don’t trade. I did neither but wished I had. It was a struggle. What made it even worse was I increased my size and so, consequently, my losses. I had been stuck on trading 5 contracts or less for a while and said to myself that today I was going to increase it.

After saying all of that, I turned things around after getting settled, but I hit my daily loss limit right in the face. I was down to my last trade for the day and needed it to be right. Fortunately, it was and I did not look back after that. I had something like 16 out of 17 winning trades after that and my equity went straight up.

As I was getting into the green, I at times started to pull back in trade size and especially at the end of the day (see chart below). When you are on a streak you want to remain careful. The reason being, I know that it is again very easy to let your guard down and get sloppy. I had done enough of that in the morning and was extra careful not to take a big draw down after doing well.

That is what happens so many times to traders, they have some nice trades and get ahead, let their guard down and then get slammed. Your biggest losses usually come after you have had your biggest gains, so be careful. Before you begin the trading day, you need to go over all the trends and different time frames to see where you are in the overall picture. Pre-market preparation is imperative.  More to come later. Have a great day !

 

http://www.screencast.com/t/pjRP3XdUAM5   Live Segment from today

http://www.screencast.com/t/IlD9XkG2              Screen Shot of a few trades

http://www.screencast.com/t/aR5EpglS               The days equity chart

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Market continues sell off & Nice smooth day of gains

Tuesday, February 24th, 2009

It is Monday February 23rd and the markets continue their sell off.

We did not get a bounce, but a sell off today. I checked the exact number on the S&P bottom of November and  I see that the market went right down to it, at 742, and stopped. The Dow continued it’s slide falling 250 point to 7,114. I may have been a day early, but I still think we are in for a bounce.

The whole economic picture is pretty bleak. It has been said that the more the government does, the worse things get. I would agree with that, but that is just my opinion. Actually, I take that back. The facts would say that this is true – so far.

I do not want to be a downer to my readers, but I have been ”Bearish” on the market for some time, as many of you know. I have been hoping the slide takes a break and gives us all a little more time to get things together. But again, the market does not listen me.

A while back I had posted on the daily chart of the S&P that this market needed to stay above the 800 level – or else. Well, it is looking like the or else is happening. The daily chart has been in a solid downtrend since the purple line of support was broken on a daily basis. It has been confirmed by the indicator as well and nothing at this time has changed. The Monthly is down, the Weekly is down, the Daily is down and even the Hourly is down. It has been that way for the last 5 days now.  That is what I had to tell myself in looking at the slide today. Everything is down, don’t fight the trend.

Below is a chart of the S&P cash and my equity chart for the day. This is the start of week #4 and I have been posting my equity gains and losses every day.  I have not posted a losing day as of yet, and I don’t plan on it, but it could happen. My daily loss limit is two times my daily goal of 2 pts per day, so that would be a total of -4 points. If I am trading 5 contracts, then that would be 1,000 before commission. As I said yesterday, I came up to that point only one time and was able to turn it around for several times positive daily goal. Most of the trading days have been met with 2, 3, 4 times daily goal and up, so overall, I am pleased with my performance.

http://www.screencast.com/t/B7sIbT9SjS7                          Some of today’s trades

http://www.screencast.com/t/mQP1X38U7s                        Today’s equity chart

http://www.screencast.com/t/tOxsYylTb                               S&P Daily chart

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