Fixing Problems

Im currently on a pretty bad losing streak. It could be a lot worse but the last 2 days have got to me, I keep making dumb mistakes. Finding them, giving myself rules to prevent doing them, then going on and making a different mistake. Im starting to lose touch with my process here and feels like theres a hole that im not seeing clearly.

So back in March I was doing great. Getting back in the swing of things, taking good trades. Not a ton everyday but clear opportunity and was killing it. 

Then since April hit I have been completely sideways unable to get out of this funk. Early in the month it was missing the good trades. In the middle it was poor risk management and sizing. And now towards the end its over trading and settling for lesser quality setups with same size. 

Theres a lot to go over but its always important to go problem to problem fixing one before moving onto the other so Ill start this post again by going over my problems with

Missing trades is an obvious one. Dont miss them. If its your setup you need to be in it. I had several moments where id be distracted by another stock/trade I would be in, and I would miss the good one. Cant happen. Started leaving stop limit orders to get me in even if I wasnt looking. Simple fix hadnt had much problems since. 

Mid April - Size/Risk Management.

I noticed a very big discrepancy in my winners vs losers.  My last blog post talks about it a lot more but essentially I was not risking enough in my winning trades causing a giant skew in my P/L relative to R. 

I noticed that all of my best trades never go negative. There are a few ways to show this. 

This tradervue chart shows all my trades in April. X axis is p/l and y axis is how far the trade went against relative to my risk or R = 1R.

If I change one thing on this chart it makes it more clear. 

Now you see that just about every loss I had was below -.4R. That tells me that if I decided to cut every single one of my trades when it was -.4R against me, I would have

1. Lost 10 of 33 wins.

2. Eliminated all losses past -.4R (Avg of ~30$ a trade)

Even further I still have my own spreadsheet where I keep track of some things Tradervue cant. 

This shows on all my trades winners and losers my average R return, average max favorable R, and max adverse R.

On my winning trades, they, on average, only go a MAX of -.16R against me. Which is clearly in line with what my tradervue chart shows me. Majority of my wins are above that -.2R line. 

So what should I take from this.

1. My winning trades work immediately with very little MAE if any at all.

2. My losing trades on average go .5R in my favor and turn back.

Since I enter trades at levels that it either should break from, or stop and never return to, it makes sense for me to expect the stats to play out like this. So why should I continue to let trades go past -.5R against me?

I needed new rules. 

The rule I decided to make was to start adding to my winners right away after they proved to be a breakaway move and had good tape action. That went well for a while I had some real good experiences with that and I will continue doing that for as long as I think I should. Adding to winners and playing off your strengths is a must.

I spent my first 3 years focusing on defense and finally this was my chance to work on my offense without "Just double your size." It made sense, stats showed I should, it plays of my tape reading abilities all good. I planned on adding after entry based on tape if it was good. 

So far its been ok. 5050. When it goes right it really goes right. other times I just step in my own way adding on no cues other than price ticking my direction without any real tape/volume cues. Its still a work in progress but when I see it I see it.  

The problem is I completely ignored the risk aspect of this and how I can even further reduce my risk in trades. My data tells me I need to reduce my risk even more. Its undeniable. For my entire career ive been told hold on to it longer and give it some space. Its a mental stop not a physical stop. You have to cut your losers faster. Youre getting out too early. I think its time I finally do this the way my stats tell me to do it. 

I need to adjust rules again. 

With any trade we have a certain expectation on what we think will happen next. Furthermore I know with my trading what I should expect if the trade is going to be a winner. With my scalps they are taken at levels price should go from and never return. So if I enter. It doesnt go and stalls I need to be concerned. How do I manage this concern. We know why I should be concerned. I will continue to base my size on a worst case scenario. Used to be a flat 1 minute candle hi or lo. Now im going to make it a few ticks accounting for spread, volatility. There isnt much difference. But its still a difference. Will be very interested to see what avg MAE looks like after this change on scalps. It feels weird to say it should be close to -1R.

Examples are always helpful so Ill describe a good trade step by step what I did do and what I hope to see in every scalp I take and how I should manage my risk in them.

1. Looking at MRNA, an in play stock that had just had a huge run up, and lost all of it towards the end of the day. Making a baseline under vwap and a previous pivot point from earlier in the day. I expect that if we lose this level we will have a nice drop as VoP on the right says that we would lose the point of control and the value area of the day. And to add more the OBV is telling us that on the last pop up it had, it saw no real significant strength or volume that went along with that price spike higher. I anticipate that if the level is broken there will be plenty of longs looking to sell to get out. 

2. It is near the end of the day so as volume picks up into vwap, we see it is rising, but we are still stuck under vwap not getting and holding above. 

3. 1st tape cue is large seller sitting at 52.10 just above vwap.

4. 2nd is we see other decent sized sellers stepping into the game as price is moving lower. They want in/or out while they still have price above this pivot, or an early entry short anticipating the break. 

-I am filled at 51.59 and my risk is above prev candle high at 51.73 (Also another decent sized seller on offer) BUT I also have to take into account spread slippage and volatility so my stop is more likely going to get filled around .80/.85

-with 200 shares to start I am risking a max of 25 cents so a 50$ risk on the scalp which is right where I want to be. 

5. On the initial break, I get in my position and immediately look for signs to either add, or get out.

6. The tape coming into the move was weak, but not aggressively weak. If you look at T&S you can see theres no major red coming in to indicate sellers are hitting the market.

7. Price does inch lower and not immediately reverse on me so no cause for concern yet. 

8. I spot on tape at 51.50 a large buyer. This is an excellent spot for me to look to add if this stock is truly that weak when I think it is. If we bust him, I want that add.

9. We do break him and im quick enough to get a decent fill without too much slippage on my market order so back to square one. Wheres my risk and what am I expecting

-Price broke lower relatively easy and now weve seen some good red indicating good selling pressure, we should go lower relatively quickly. 

-My risk is tied to my original stop loss but at this point since we have dropped about as much as I am risking, I am not expecting price to return anywhere near it.

10. The bids and offers seem to evaporate off of no transactions and retrace all the way back up to .70

-Cant be worried have to respect the tape and my risk. Price moved lower and broke support and a good sized buyer I still think I am right.

11. We come back up to .70 and stall. This is my stop here. If we break above it there is an unusual lack of offers up here which we have not seen before. 

-After seeing how easily price came back up past the breakdown level, and considering I added, and considering my best trades never go against me, im already thinking time to get out. Finger is on the cover button and if .70 goes, so do I. 

-I am not concerned with winning this 1 trade. I am concerned about the next 20 trades being an overall win and I have to play to my strengths and what my stats tell me is a strength or weakness.

12. We dont find anymore buying and decent sized sellers come in again stepping lower with each tick lower.

-In hindsight this may have been ANOTHER reason to add more. 

13. The spread starts getting crazy wide like we havent seen before. What does this mean?

-Honestly not 100% sure but heres some guesses

-The bid side has been thick the whole trade. Just about a bid for every price/ every other price the whole time. The sell side is where we start seeing the 'vacuum;

-Players that were involved at the breakdown are already involved. Meaning there are less participants looking to trade this after the fact. Mainly sellers. 

-The sellers that didnt take it, are waiting for more information. They are watching the same thing I am. Will it reverse here? Will we get vwap again? Do we sell off into the close? If I want in/out, where?

-As time passes and no buying really occurs to move price higher again, we slowly see the sellers start putting offers up again one behind the other. Traders saw the break, they missed/skipped it, they waited, they watched retest, now they want in or out.

14. Price starts cascading real fast after we get down to the whole number 51.

-Places like these / Price action like this, is where I look to take off my super short term tape adds I previously had.

-This covers my risk for a 'free' trade. 

15. I wait until we break above the most significant/recently held offer. In this case a seller was pretty close to the bid and once he was taken out, I took off my add. The core position remains and follows my scalp rules. Waiting on a 1min candle hi/lo to take a partial. 

16. We get another flush lower, then another one. Majority of the time I hold. But since it was 5 minutes til the close I wasnt giving anything back. After that 2nd flush into 50.60 I covered half my position and let the rest go for the candle breaks.

The max that trade went against me was -.5R so thats below average compared to the rest but It still went. If I enter by the tape, I should exit by the tape and if I did hit out above that .70 then so be it. If it was one of my better trades it wouldve never seen a retest. 

Risk management is king. Not making money, not reading any indicators, not reading the tape, but managing risk is how we make the most of our trading. And I think this new step in my scalping will help me further minimize losses, reduce expectations and overall get more bang for my buck from my winners. 

Now with my longer term trades the same holds true. Im looking to enter at points that price should never return to. Sometimes on a break, others on a catch to a TL of some other level. Either way stats tell me the exact same thing, they dont go negative much at all or for very long. There is a better way for me to manage risk around this I think. I dont go in with the same size as I do for scalps. I base it off of a recent pivot level or held level that I noticed. I think I can apply the -.4R data to a rule here. If it doesnt go right away, im already concerned its not a winner. If im ever down halfway to my risk level, I should REALLY be concerned and look to cut the trade if it doesnt quickly prove itself. 

I think im coming closer to a solution here.

When I type these out, I dont have an outline or an idea of where im going with it. I just know I have an issue, and I need to do some work into finding it. Majority of the time lightbulbs start flashing and things start clicking as I type it all out. 

I usually take a scalp and an LT trade right alongside each other same entry. If the scalp doesnt work, do I really want to leave the LT on for another 50$ of risk? When I know that my winners on avg never go more than -.5R against me? Why do I want to hold that LT trade all the way to a full -1R stop, when I already know less than a minute after initial entry that its not the best. That doesnt make sense and I need to start trading like it.

This is the change. Im going to continue to take a scalp and an LT position right alongside each other. But I am going to cut half of the LT position off alongisde the whole scalp position if the scalp doesnt work. And if the LT reaches -.5R then I look for reasons to exit if it does not prove itself quickly. This ensures a few things.

1. I am leaving most of my risk on for my best performing trades.

2. I am cutting risk off if the trade does not act like a usual winner.

3. I still leave the option to add back to the LT trade if the trade can reprove itself. 

My risk on the LT is still based on a previous pivot level for worst case scenario. If I take an LT on a break of a significant level and it doesnt go, it only makes sense for it to retest that previous pivot level after a failed breakdown. I dont need to hold a losing trade all the way to the point of max pain if I already know it should get there because of failed continuation. I will cut the trade and look to get in at that pullback level if the stock should prove itself worthy. After all the stock did make a new low or high, but had no follow through which tells the trend could be ending, but at the same time we still have a trend so I have at least some favorable action my direction. Im on the same side as the overall direction, but my entry does me no good. 

I still feel some cognitive dissonance around this so theres more to investigate. I think I need to go back to why I am looking at taking these trades in the first place. And just this last week over trading was my biggest issue so it makes sense to go over it again and solidify why I take trades where I do.

I need to go over when I am looking to just scalp, when im looking for just an LT, or when im looking for both in one. 

Late April - Over trading

I took 144 trades this last week. Double my average for this year and twice as many as my 2nd most this week. No surprise it was a losing week. I was shooting at anything that looked good. I was seeing a ton of breakouts and I was scalping everything. I think a big reason for this is

1. I sat at my desk from open til close everyday this week looking for opportunity. If I look hard enough Ill find it.

2. The quarantine is making me bored as hell. Gym is closed, everything else closed. I got nothing to do so I think I make up for my boredom by trading whenever and all day.

I have solid rules in what I am looking for but have completely gotten away from them lately. Every morning I either chart the morning of or night before of all the stocks Im interested in trading. I am looking for stocks that are right on the edge of a major technical break. News is an added bonus, but not necessary. 

An example is BA I was looking at for a short on friday. Obviously a nice triangle forming and its an in play stock. Previously that Top trendline was part of another triangle that failed breaking out higher so another point to the downside. Daily candle shows a stuff move that an attempted break higher got stuffed to form a nice shooting star. Above average volume on the way back down. Volume Profile indicates a breakdown means we would lose the value area indicating all longs are underwater. Anchored vwap from the lows on March 18th is just above price at ~139/140. 

My grading system for each trade is based half on before market opens data, and the other half on intraday data. This BA trade started off with 5stars which is above average for trades im looking for, so it is definitely one I dont want to miss. Intraday data includes things such as price action, more intraday failure, tape, market correlation. 

So obviously this is a good looking trade I want a piece of. What happened intraday. How did I trade it, how well did I follow my rules. What would it look like it I followed my new rules. 

I am looking at 134.52 for main breakdown entry. 134 for more,and last 132.90 for 3rd major level. 

To START this day we lose all 3 immediately. Ive been burned a lot chasing moves to the downside at the open so I wait for a level im watching to come into play and hold, and then go for the breakdown. I could go for the 5min breakdown into that level, but SPY gap up and premarket uptrend made me hesitant to be 1st to the party. 

Shortly after were 45minutes into the day and BA has seen 0 strength at all. Sellers not even letting it get up to a vwap test so with this weak price action and SPY being weak alongside it also under vwap we have the previous 5 premarket points, now we have price action for 6, market correlation for 7, relative weakness for 8, and tape cues which I count as 2 points for a 10star trade the best I can get. I want this breakdown from here. 

In on the break with 150 shares. 100 on scalp risking the high of the 1min candle on entry, and 50 on LT trade risking 133.15 which is above the 9/20sma and the last held minor pivot level. It is pretty tight but im ok with that instead of further up by vwap. The volume on the break was great we see a huge increase in volume but it does get bid up and close back in the range so already on the lookout for reasons to get out. 

At this point several minutes after my trade

1. SPY is rising towards and above vwap no longer showing weakness for the moment

2. BA has not hit PT nor my entry yet

3. While market is pulling back BA is still relatively weak so I give it its chance to make a bigger move for me.

4. I recognize there are too few things in my favor at this point, we should have made a move by now and rarely do I hold onto scalps this long without seeing a move one way or the other. 

I decide to get all out on  pullback up just above 132 and the recent range hi. Too many reasons to not let this turn into a loser so I take the small win. 

Now I exit my LT here. The scalp makes sense to leave alone we dont have clean structure anymore to play off of, but we do still have weakness and relative weakness with SPY. I could hold onto it still expecting it lower at some point. But thats at some point, the market proved strong for the moment I dont need to be long a stock thats already been over extended lower. Its due for a pullback. I will try and find that LT re entry at a significant level higher.

At this point weve seen some pretty extreme relative weakness. SPY at this time had just lost vwap and was looking like it wanted to revisit the lows which it did. BA after seeing all this weakness, a new value area on the profile, and a slight bump up in volume as it looks to break lower again, I absolutely want that trade here again. However I do not go for an LT here only a scalp. It bothers me seeing stocks behave like this because I feel since it hasnt gotten to vwap, or really pulled back at all, who is really left to sell here at this price.

Another excellent start to a trade and this one sticks.

PT under 131 is hit and I notice an excellent tape battle here for this level so it provides a perfect spot for me to exit this trade if it is broken which it is and I am all out for a nice .40 cent gain from ~.15 cents of risk. 

Now I completely forgot about my longer term plans on this trade though.  

Had I left a small runner on like I should have according to my plans I would have been able to capture an extra point and a half on it. 

Now this BA trade was great. Very clean obvious action on HTF and intraday. 

Then I have trades like BABA

BABA had a nice run up into a major downtrendline from ATH and before the Feb sell off. We got to it, failed and rolled over a little bit. I thought with the uptrend line being broke and the previous daily pivot LOD, we could see more of a sell off. Well that all happened, but on Thursday. Its not a High probability trade. It already happened. The trendline break was Thrusday. The Daily pivot take out was Thursday. Why am I focusing my efforts and risk here.  

This is BERY. I scalped and lost a total of 100$ on it. Not bad considering I risked 200$ total but im trying to scalp this stock that no one is watching, has minutes go by with no trades, and im over here trying to bet on a blow up out of nowhere. These trades I should stick to longer term holds. Volume and tape cues are my biggest factors when scalping and this trade has neither of those. Dont risk the money. 

This is ILMN. One of the hottest biotech stocks out there right now in a hot sector and I was looking for short reversals on it. I Know what my best reversal trades look like on a daily chart. 

They look like this ^ 

Not like this ^

And certainly not in the strongest sector. 

I need to be realistic with my trades and planning here. I am settling for lesser trades. Some trades I am ok with taking a lesser quality setup. If I see a triangle I want it. If I see a reversal or a scalp I want it. Not even talking about risk yet and how much I put down on any given trade, just me looking to see if a trade there is alone bad enough. There are much better places to spend my mental and physical capital. BABA ILMN BERY.

I need to do a better job at eliminating trades I find before the bell. I usually have ~10 everyday. Maybe 3/4 trigger. Maybe 2/3 are winners. Maybe 1/2 are actually worth trading. Lately ive been taking just about anything I see that looks good. 

I have my star checklist in place and a solution for this is to figure out what rating it would be before I take the trade. Sometimes I wont have a minute to figure it out and I need to put the order in now or ill miss it. Thats fine, put the order in but NOT on full risk. For 10/9 star trades I will use full 50$ risk for each, looking to add to winners quickly. For 7/8 star trades I will start with 30$ risk and look to add to bring it back to 50$ if it proves itself. 

These are my WR on #star trades I take. Anything below a 8 we have a problem. 

This is an LT trade on ZM I took a while back.

It was an in play stock that had just lost its uptrend channel and I was looking for a nice short as longs may be exiting and taking profits. 

It is only an LT and not a scalp because intraday price action is still a good point away from the HTF level im looking for that breakdown. Also while we did fail higher, we were not coming lower with any significant volume telling me, that we are failing to hold higher and look like we want the lows, we arent doing it with a lot of aggression. But you cant argue it does look good for continued downside especially after such a  nice fail at vwap. So I take the LT trade into the HTF level. It was a loss but that is fine. Id take it again the next day.

Here is a trade on SAGE. 

SAGE was a heavily beaten down stock making a very nice triangle with huge short float. I wanted to see the squeeze. 

The previous day we got above 31 on good vol, held sideways all day, and into close saw another rip. The next day we had a strong open candle testing below it and ripping back above it, retesting pmkt high at whole number 32, above yest HOD, pulled in, held vwap and looking like we were coiling back up for another move higher. And we had a volume bump with tape cues before the breakout. This is a good scalp because we are at the HTF significant level (pmkt high), we have relative strength holding vwap, we have volume and tape cues. And it was correlated with SPY rising at the time. 

I took that trade both LT and scalped and got a solid win out of it. These are the 10 star trades that deserve the most risk.

MRNA was a scalp only example because of the context of the situation. Late in day, all longs about to be underwater. Over extended in play news stock. It had good reasons to drop at that time.

An LT trade is taken only if

     -Market conditions are on same side as my LT idea

     -Stocks price action is clearly showing one side is winning overall

     -Trade location on break would be at, very near, or into HTF significant level.

     -The star rating is at least a 7.

     -The trade was planned before the day started.

     -Price is not over extended (Some sort of pullback and consolidation before break)

A scalp trade is taken only if

     -Volume is growing into the breakout

     -The break level is at or very near a HTF level

     -The star rating is at least a 7.

     -I expect a large number of participants to either be exiting, or entering alongside me if that level is broken. 

     -Price is not over extended into level.

Both are taken alongside each other if

     -Volume into move is growing

     -Price is not overextended and has seen some kind of consolidation or pullback before significant level break.

     -Star rating is at least a 7.

     -The break is at/very near a HTF level. (Scalp NOT into/further away from HTF level)

     -Market conditions are on same side as trade

     -Price action clearly showing one side is in control.

Going over these rules is going to help me prevent what im talking about next. If I have these rules ingrained in me, I should have no issues over trading because I know exactly what im looking for. And if I know exactly what im looking for, then I have no reason to over trade since I shouldnt be taking the trade. 

Final Thoughts

Went over a lot in this post so I need a recap and set goals to work on here.

1. Before every trade taken, determine the Star rating of it

      -If 10/9 use 50$ risk for scalp and LT

      -If 8/7 use 30$ risk to start for scalp and LT, look to add and bring it to 50$ if given the opportunity

      -If 6 or less, do not take until the move is confirmed and we get a pullback that holds.

2. New risk management rules

      -Scalps new Stop loss is within 2/3 ticks after entry. 

      -LT trades stop loss is the same as last pivot level

           -But if trade reaches -.5R look to exit if it does not improve very quickly.

      -Trades taken with both scalp and LT

           -On a loss on scalp, exit all scalp, and half LT

           -Other half LT, look to exit all at -.5R

           -Look to add back LT exit 

      -on 8 or less star trades, risk starts at 30$ for scalp and LT.

           -Risk to 50$ may be added back if stock proves itself (pullbacks, tape confirmation)

3. Deciding between just scalp, just LT, or both

      -Scalp

           -Increased/Increasing volume is the make or break for a scalp.

           -At or very near a HTF level

           -Price not over extended

           -I expect a large number of short term/ long term/ or both participants to be exiting/entering

     -LT

           -Market conditions same side as trade idea

           -Clear tell on whose winning, buyers or sellers

           -Price not overextended.

           -Trade taken at, near or into HTF level. 

           -Trade planned before the bell.

      -Both

           -Volume increased or growing into break

           -Market conditions same side as trade idea

           -Price not over extended

           -Taken at or very near HTF level. 

           -Price action clearly showing who is in control.

So we covered everything that I have been having problems with the past few weeks. Got missing trades covered, risk management and cutting losers faster covered. And over trading is now covered. Rules are in place to protect us from ourselves. 

A couple other rules I need to start following is walking away from the desk. I have a rule that if I take 3 losses in a row it means I take a short break away from the desk and I need to start following through with this. I ended up taking a lot of revenge trades lately too. Getting frustrated from the loss and trying to make it back and then some on lesser quality setups. Another new rule im giving myself is if I hit 6 losses on the day. I will take a half hour break and do something else with my time. What I ended up doing was I would not trade for a little while, but I would still sit at my desk and work on stats. I dont think thats good enough I need to physically be away from the desk to reset myself. Go do a chore, make some lunch. Something else to get my mind off of trading so that I can regroup and come back and find better opportunities. Thanks for reading.