Coda's Trading Journal

Trade your beliefs.

A new trader shouldn't have many beliefs. Maybe that should be "can't have many beliefs" but you can't avoid having preconceptions. One of the initial tasks for the new trader is to try out different ideas and systems. Along the way, experience increases and hopefully usable beliefs start to take shape.

Sometimes, you may have to throw out ideas - especially if they're wrong. That's called experience.

I've been trading forex live for 6 months now and I've slowly shaped my set of beliefs. I think this set is pretty solid, very simple, therefor solid. There may need to be revisions in light of experience. On reflection, I've had these beliefs from the start but in addition, I had a whole lot more - all preconceptions about how trading works.

Here are my beliefs about trading:

1. Free will.
2. Trends.

That's it.

I am going to use this journal as a tool to improve my trading.

Free will has some important consequences. An important one is that you take full responsibility for your actions. There can be no excuse when something goes wrong. "They were gunning for my stops" - nope, doesn't cut it, you placed the trade, it happened, so it was a possibility from the start and if you didn't take it into consideration, then you made a bad trade.

Every loss resulting from a trade has one of two reasons. The plan was good but price just went the other way - that's life, not a mistake in my book. But if the plan was rubbish, admit that you made a mistake and learn from it.


Madness is repeating the same action over and over with the expectation of a different result - quote from someone, probably paraphrased a bit.


My main focus will be on identifying and reducing the mistakes I make in trading.

The one and only thing in trading actively working against me is me, and that I can do something about. If my beliefs get modified along the way - well that can't be a bad thing.

Starting beginning of March, I'll be running my personal challenge 100. Every mistake I make will cost a point. Not updating the challenge for a trading day the next morning will cost a point.

Objective 1 is to improve the score from month to month.

Objective 2 is to analyse those inevitable mistakes, and in doing so, become better at avoiding them.

The challenge scores will get updated here.

Trading Challenge March 2008

Total Score : 95

Monday, 3 March -4
Tuesday, 4 March -1

EURJPY short 160.57 S/L 161.25. R = 1.5%
EURCHF short 1.6051 S/L 1.6086 R = 0.9%

EJ - took the trade after seeing the low at 160.45 and then split the pullback to 160.78 for the entry. In hindsight, the trade could have waited for a better entry, but then I never know if she's going to take off or not. Patience needs to be improved.We'll have to hold our breath for a bit.

EC - sticking with the downtrend here. If I'm wrong, it's time to go the other way.

Let's see if we can avoid mistakes with these trades.

1320 (CET)
EJ : price is back at Entry after wandering off to 160.95, move EJ S/L to 160.95 which is the high it reached. R = 0.95%, support is at 160.50.

EC is arguing with it's support at 1.6020, move S/L to break even. Either the trend is going to take off, or else I'm keeping my money.

I use a very simple Trading System. It has four elements to it.

1. The foundation of any trend is the classic 1-2-3 formation. That's my tool to guide my decisions about taking a trade. No indicators, no pivots, no fibo's. I admit to using the 4h and daily ATR to estimate volatility but in my book that's a measurement, not an indicator. Time frames used are daily for trend direction, 4h and 15 min for fine tuning

2. Position sizes based on Risk. Keep the exposure small. Ideally I'd like to limit my risk to 0.5% but that will have to wait until I'm decently capitalized. At present I will have to live with R of up to 2 - 3 % I suppose, depending on the account.

3. Select trade setups that are likely to pay off handsomely. I prefer swing trading. For me the ideal trade picks up the trade once a swing is firmly established, and stays with it, ideally for days or weeks, until the swing ends.

4. Exits. The real trick with trading seems to be how the exits are handled. If you're wrong, you need to get out fast. But it's when you're right that skill comes into play.

That's the theory. Very discretionary, but pretty basic I think.

I don't really pay enough attention to Support and Resistance. And here I think I have a problem that needs to be addressed. I hate it when I take a trade at S/R and then spend hours kicking myself while price batters a support level.

I'm a great fan of Feb's V-completion thread and there's some great information in it. There are a couple of other great threads here on FF as well.


Putting my strategy to practice:
EJ is a hot contender for me at the moment for starting a new swing. But I've been thinking that for the last two weeks. It will need to take out 159.80 and then hopefully it will be on it's way to Antarctica. I currently have a live trade running here.

Tuesday (26th) had the start of a UJ swing which currently looks to be continuing downward. I got kicked out this morning because my trailing S/L was too close, but I'm happy with a 100+ trade. I'm hoping to get back in if there's a decent pullback. But who knows, it could already by at the end of that swing and about to start on it's way up again. Price will tell.

Current Positions open:

EURJPY short 160.57 S/L 160.18 R = 1.5%
EURCHF short 1.6051 S/L 1.5985 R = 0.9%

I'm in the plus with both positions. As both swings are relatively young, I'm working in the 4h time frame with my stops. I'm using trailing stops loosely based on the 4h ATR and minor peaks. The two seem to correlate pretty well. The 4h ATR works well in locking in a part of the larger movements. I move these manually from time to time. I'll hold both until they get stopped out.

If the swings turn into a major trend I'll shift my time frame to the daily for the stops.


EJ was interesting in that it took until 2300+z to take out the previous day's Low. Doing so completed a inverted daily V. Once it dropped below that price, it dropped 100 in just over an hour, much more energy from those waiting orders compared to the somewhat erratic decline during daylight.

If we can expect a load of orders sitting at the day's low whenever price looks like it's at a potential peak then let's do the same. Why endure the root canal agony of watching price fight its way down. If it reaches the low there's a lot of momentum waiting to sweep it further in the right direction. Much simpler than trying to catch the swing from the top.



EC continued with the down trend as I expected. I like EC because it's the pair with which I caught my first long ride on a swing. It also took me masterful planning and patience to get the ideal entry at the time. I was still coming to grips with trying to perfect my technique. Well, I'm still working on it, but it seems a lot easier nowadays to get a decent entry.


Yesterday's lessons.

1. Consider re-entries when stopped out.

When stopped out, keep an eye the pair. It may just have been a bigger than expected pullback. It might be worthwhile to re-enter.

My UJ trade got stopped out to the pip by a pullback yesterday morning. Then it resumed it's downward journey for another 200. There were loads of opportunities yesterday to re-enter the trade. Until now, my idea was, once I'm stopped out, that's it, leave the pair for the rest of the day.


2. Adding to a position

I'm working on increasing my position size as the trade progresses. Whenever I've tried this live in the past, it's always turned into a disaster. I always ended up turning the trade into a loser. That, however, was before I had the aha moment. I've only been papertrading so far on this, but it seems straight forward. Add to the position the same way you would enter a trend. If you're already in, your added position can use a tighter stop to limit losses if the swing ends in the middle of this.

The Monthly 100 Challenge Rules.

1. Each month starts with 100 points.

2. For each trading mistake during the month 1 point is deducted.

3. A single mistake can compound into multiple errors, each costing a point, if action could have avoided those additional mistakes.

4. Not updating the results for a trading day that has active positions by the end of the next day will have 1 point deducted.

5. This is an educational exercise. The point here is to study the mistakes and to determine the underlying reasons if possible. Hopefully, publishing them will help to eliminate them.

6. Mistakes are defined as any trading act (or inaction) that is considered to be detrimental to successful trading. For example, a trade taking out a stop loss is not a mistake but placing a bad SL or not placing an SL is a mistake.

7. Any trade action done carelessly, without due and deliberate consideration, is a mistake, regardless of the result of that action.

8. Each month will have its own thread that will be updated for the duration of that month.

March 2008

Running Total: 100 points

Current Positions open:

EURJPY short 160.57 S/L 160.18 R = 1.5%
EURCHF short 1.6051 S/L 1.5985 R = 0.9%
GBPUSD short 1.98275 S/L 1.9920 R = (1)
USDJPY short 102.65 S/L 103.30 R= (1)

GU - This was entered on Friday, much earlier than it should have been due to finger trouble. I'm still getting confused sometimes between stop and limit orders. If this had been today, I would be logging a mistake and deducting a point. I often place a paper trade order first to make sure that I get it right, plus I like having a parallel trade running on test. Didn't do that for the GU order and that didn't help.

Some of the trading software doesn't allow placing an order incorrectly, but TW does. The great thing here is that at least you get filled at a much better price instead of the limit you placed.

I like placing an order and letting the market come to it. First, price has to move a reasonable amount in the direction you want it to go and when you're right there's usually a good bit of momentum behind it. Secondly, I hate being in a pull back that could take days to get with the program. Also, you might just be wrong and then you have a position to get out of.

UJ - I was in this from the top of the current swing and should have re-entered much sooner. I'm sticking with the current swing direction. Let's see how she does. If the direction changes, I'll try getting out before it hits my stop and it's a small price to pay to get the signal.

EJ, EC - These positions have been running since Thursday, I'll exit hopefully near the bottom of the swing.

note (1) - My Risk Calculator is in the workshop at the moment.As soon as it's up and running again I'll add these figures.

UJ short 102.60 -1. Not waiting for the pullback. Doesn't get any worse than this entry enter at the lowest point of the day. This was placed without waiting for a pullback, should have been at 102.90 at worst. (This I know for sure because I entered another position at that price also short.)

This led to a second mistake, not respecting the original stop. -1, I moved the stop of the first position to keep them together. Not a good idea.

Remedy - do not enter without a pullback when trying to catch a swing that's already established. Only exception to the pullback rule is when entering on a breakout. For the 1-2-3 formation, rather wait for the next pullback than rush in and spend the next two+ days waiting for it to get back to the entry level
-

GU short at 1.89275. -1 Not paying attention during news spikes. When it looked like the news spike yesterday might jeopardize this position, I moved the stop closer, to 1.8970 with the intention of re-entering at the same if price returned to its previous level as it so often does. By the time I got around to checking if I could re-enter, price had already returned to the previous levels effectively killing the trade because of the stop size.


Remedy - if you plan to re-renter a position under news spike conditions, watch continuously to get back as price may bounce back faster than you expect it to. I had enough time to get back in to the UJ trade after being stopped out by the same spike.


General

-1 for not having finished my Trading plan yet. Still in draft form.

Tuesday, 4 March = -1

No positions added or closed today (as yet).


Trading plan still not final -1

Wednesday, 5 March,

-1 No entry made yesterday

Need to enter details of the trades I did.


Thursday, 6 March,

Stopped out on UJ at 103.19
EC Stop hit, out at 1.5769,
Still short from wherever


When the EC stop was hit switched to short at 1.5771, exited at 1.5722 on suppot, re-entered after rebound at 1.5740, and exit at 1.57215 . Not really the kind of trading I want to do, but I saw the opportunity and took it. Managed to end with a small plus to make up for being stopped out earlier.

Also short on EJ from 157.95, a small live test on reading price action.

-1 Found that the stop I had placed on UC overnight was valid for the day only, I'd been flying without a parachute since midnight on that pair. Luck that it behaved itself.

Remedy,
1. change the default to GTC. I normally catch this but somehow missed that last night.
2. Add specific check for Time in Force to EOD check list



It's late and I'm bushed - I'll do the arithmetic in the am

20110718 0521: Eu sell 1.40602

Trend for the last 13 days has been down.Combine this with Friday's Economist cover story "On the edge - Why the euro crisis has just got a lot worse" and it looks like a sure bet that EU is going to continue trending down.Waited for a suitable retrace to enter, initially chose 1.4080, but moved that lower to 1.4060 when it looked like the retrace might not get that high.S/L - set S/L at 1.41380, just above the last weeks levelNo targets set, let's see how things go.