Twenty-Fifteen Trading Journal

2014 started out great but the markets eventually spooked me to the sidelines.

I received a new position at work at the end of Q1 2014 and so excelling in that arena has taken up a portion of the time that I would usually dedicate to trading. Even now in 2015, I still feel that I have a lot of professional development to do before I can relax at my job. As a result, I won't have as much time for DD/actively managing positions. With that said: I live below my means, I believe that I can outperform the interest in my savings account, and I like the idea of risk:reward of getting good at trading too much to completely exit the markets. So for 2015, I will be re-entering the stock market with the following changes from 2014:
Shifting my trading goals towards a longer timeframe to avoid having to actively manage my positions (This is up for debate because I am unsure how long the bullish ascent will continue)
Utilizing spreads more in my portfolio to effectively mitigate risk and the need for active management of positions
Making less speculative bets overall (within reason of course hehe)
Look for chances to learn from my mistakes instead of simply the next opportunity to make a profit. I stopped reflecting on my trades after a while in 2014 and so I likely was making the same mistakes repeatedly without knowing it.

Before I place one trade in 2015, I need to sit down, update my billing info on Tradervue and go through the painful analysis of trades that lost money in 2014. That will remind me how precious my capital is and how sloppy I became towards the 2nd half of the year. I will be posting that analysis in my old journal. Until that has taken place, I will not place a trade in 2015. The longer I procrastinate, the longer my money just sits there doing nothing.

I am about 70% through reviewing my 2014 trades and suffice to say, I am looking forward to trading again.... It is to the point that I almost bought a lottery ticket the other day because I just 'wanted to have some skin in the game' , but I am glad that I saw the John Oliver Last Week Tonight review on Lotteries and I will be sitting back and speculating on options instead of gambling on lottery tickets laughing.gif

Here is the clip if you're interested. Don't gamble people!

Quote:
Originally Posted by Bermudan Option View Post

I am about 70% through reviewing my 2014 trades and suffice to say, I am looking forward to trading again.... It is to the point that I almost bought a lottery ticket the other day because I just 'wanted to have some skin in the game' , but I am glad that I saw the John Oliver Last Week Tonight review on Lotteries and I will be sitting back and speculating on options instead of gambling on lottery tickets laughing.gif

Here is the clip if you're interested. Don't gamble people!

I need to start watching him again. That was an a great bit.

Quote:
Originally Posted by Solution TX View Post

I need to start watching him again. That was an a great bit.

Yeah I know. I am glad that they put the clips on Youtube since I don't have cable.


On an unrelated note, I should be finishing my 2014 review over the weekend. I have a bucket list of things to do before I start trading live so I may have to cram this weekend. I am planning on cutting back on the clubbing for the next month or so anyhow. Chicago weather is too cold and the nightlife kills my productivity. Happy February everyone.

2014 Review

Trends
One thing to note is that a lot of these statistics are from a small dataset (less than 30 data-points). I think that the data is still relevant but it is worth keeping that in mind:
I believe I started the year by overtrading and my numbers reflected this. After March, my trading frequency went down while my statistics went up.

Below is a list of trades that I made in 2014 by tag (Most trades have multiple tags so there will be overlap)

As you can see, there is a lot more things that did not work for me than those that did work for me. On the plus side, it identifies where I need to work on things or remove ideas from my trading strategy. For example, trading trendlines was consistently among the worst performing trades in 2014. Without this analysis I'd have never realized that, The technique is being retired and that is one less mistake for me to make in 2015

Ascending Triangle
18% of ascending triangles were winners (deceptively bad when I take everything into consideration)
43% of entries that happened after waiting for a pullback to the support level were profitable
21% of entries that happened on a test of the trendline before the breakout happened were profitable
37% of entries that were based off an Ascending Triangle formed on the Daily triangle worked

Stock Trades
Mix of Penny Stocks and stocks about $5
27% winners

Short Trades
All consisted of put options
25% winners

Takeaways
A measly 16% success rate total. That is well below what I'd expected. I'd need an average Risk:Reward Ratio of over 1:6 in order to break-even based on those metrics. Needless to say, I didn't achieve those results:

Thoughts
Not having a winning record sucks but this is an opportunity for me to double down and really get better at trading.
Today I reread my entire 2014 journal and there were +3 occasions where I said I was going to review a trade but never did. I was under the assumption that I was getting better just because I was trading but it is not that easy. Yes I had some big winner, but even moreso I had a lot of losers which is why I have a losing record. I stopped trying to learn from my mistakes and I repeated the same mistakes until I burned out.
One of the major takeaways I had in review that isn't present in the statistics is the effect of trading TA Patterns prior to the pattern completing and attempting a breakout. I convinced myself that I was 'figuring out' whether the market was in my favor before anyone else and posited that that was a good thing. I was under the assumption that I was saving money by not paying a premium for my options as prices are usually hiked at the point of a potential technical breakout I find.I don't want to use the word 'blame' but the main reason for this mindset was reading Justin Mamis' "The Nature of RIsk" and either misinterpreting the message or the message not gelling with my trading strategy. It made sense at the time, but in retrospect, from a probability standpoint, it makes sense why I was stopped out of so many trades. Let’s look at it this way: If I took a snapshot of 10 set-up that formed a 90% complete TA pattern (where the pattern is almost complete save for the actual breakout):
1.)Maybe five of those set-ups break down before they have a chance to attempt a breakout
2.)Of the five remaining set-ups, three breakout but reverse soon after the attempted breakout
3.)Two set-ups might go on to be winners
I was entering at Step 1 which gave me a 20% chance of winners. Shifting to only entries at Step 2 means that I have 40% chance of winners. That is hypothetically twice the probability of being right and my Risk:Reward ratio doesn't have to be as high for me to be profitable. I need to be content with catching the meat of the trade.
I got away from the fundamentals of trendline trading. There was a lot of unintentional counter-trend trades on my entry chart (It was an afterthought to label them all in TraderVue so the stats above are not a full representation.
Early on in my 2014, I had an emphasis on timeframes that meant very little with regards to my long term trading strategy. For the first month or two, I based some entries off of the 1 minute chart and the 3 minute chart.
I over-traded in Q1 2014
I gave a lot more lip service to my winners than my losers throughout my journal. As I read through my reviews, there were plenty of entries about winning trades, but I'd at times give a short sentence when I experience 3 stop outs at the same time.
I unconsciously kept finding new ways to try and get into the market early. This is a subtle sign of greed because it is an attempt to get a greater profit (as I unwittingly decreased the probability of being profitable)

Changes to Make
Processes to continue
Short interest trades
Pullback to S/R on ascending triangle
Consolidation trades with easy to define line in the sand
Focus on triangle patterns on 2hr/Daily for Entry. Weekly is too open-endchi
Set my targets on TradingView via the targets feature to spell out when it is time to exit the trade or at the least take some risk off of the table.
Ensure that your entry is during a time where there is limited overhead resistance. You don’t need to enter if there is nearby resistance on the Daily chart, let alone the 2hr chart

Processes to eliminate
Getting into the trade prior to the breakout looking legit
Monthly charts give a good overall picture, but the downside is it gives a sense of immediacy for my entry which leads to me getting into positions prematurely.
Regarding illiquid option chains or stocks, it is not worth it unless I am doing a spread which spells my risk up front
Shortening the timeframe usually results in a stop out in my experiences. I need to stick to options with a time premium >= 2 months
Pullback to trendline trades
Slippage accounted for -8R in total. If I accounted for all of the slippage, I'd remove 66% of my total losses. Wow.



Making my takeaways actionable for 2015
I will use a checklist for my active positions instead of just setting a stop and forgetting. For example at least twice a week I want to ask myself things like: Is the volume drying up? Has there been an ominous candlestick on the daily? Is the stock making lower highs/lower lows? Is the market as a whole more susceptible to a pullback? Etc
I need to account for slippage better. One way I will do this is by eliminating illiquid instruments from my portfolio. I will do this at the screener level so that they are never given the opportunity to pop into my trading world. Another way that I will limit slippage is to make sure the total anticipated loss is less than $200 in total. There were a lot of times that I toed the line and put like $215 on the line after commission and these 'minor' digressions are a slippery slope.
The two-hour chart (and occasionally the Daily) will be where I define my entries and exits. The Daily will be used primarily to gauge Risk:Rewards while the Weekly chart is simply to get a high level view of the sentiment. I will no longer give excess power to the trends on the Weekly outside of my IRA.
I will spell out the criteria for my entries and ensure that they are present prior to every trade. I have created a checklist and will use it prior to every trade entry. My criteria are:
For the Weekly Chart
Uptrending MAs preferably aligned
For the Daily Chart
Clear area where the stock can run uninterrupted.
For the Entry Chart
Higher highs and higher lows on the 2-hour chart
Increasing volume on the bullish candlesticks
Increased tests of support/resistance
Some type of technical pattern that puts the odds in my favor
I will trade less in 2015… I am thinking between 2-6 trades per month. This should hopefully cut down on me being overextended when the markets sell-off as I was in 2014.
I think that there are plenty of benefits to focusing on the positive aspects of my trading, but I have to also be aware not to neglect trades that lose money
I took a hiatus towards the end of 2013 and again in 2014. For 2014, the first few months of trading were the most costly to me and so in 2015, I plan on reducing my size at times to until I am fully confident in my edge and its ability for consistently profitability.

Looking at the SPY, there is open air for the index to keep heading higher into uncharted territory. A part of me thinks that the market is overextended, but there is nothing long term to suggest that the trend will cease. I do not want to build up too many bullish positions in my portfolio in 2015 because I am concerned about a potential pullback.

I don't necessarily think that the bottom is going to fall out of the market either. I think that that is the least probable scenario. Of course my opinion may change as the markets progress, but based on the charts today, I think that the market is more likely to become range-bound. If this scenario happens, I want to be ready. So for now, I am neutral-to-bullish regarding the stock market in 2015.

Ideas
I have been watching and reading up on options in the past month and I am bouncing around with the idea of paying more attention to the probability of options expiring in the money in 2015. Previously, I disregarded this metric because I believed that patterns gave me the edge. To elaborate, let's say that the stats would dictate a 35% chance of an option $5 OTM would expiring ITM. That definitely sound like the odds are not in my favor, but my reasoning was always that the technical pattern I am trading occurs much less than 35% of the year on the Daily chart, so while on any random day there is a 35% chance of betting right, but in times where the Technical Pattern is also alluding to a $5 move higher, the probability of expiring ITM is no longer contextually relevant. This was my belief in 2014, but statistically, my numbers were not amazing. I can't blame it all on ignoring the option statistics, but it couldn't hurt to give them more attention in 2015 to see if that is fruitful. For example if the probability of expiring ITM is 20%, then perhaps, my risk rewards needs +5R to offset the low probability move?
One of my issues in 2014 was getting in before an actual breakout happened. One potential workaround for this is to set limit orders on purchasing options that are contingent on price being above a key resistance area. I don't plan on day trading or watching the markets for hours on end as I did in 2013, so this could be a viable alternative. I can also set a OTO order that enables a sell stop below the last higher high and call it a day.
OTM options make for high risk/high reward. If I revert back to DITM options, what are the positives/drawbacks for that strategy?
I need to be content with not trying to be the first person into a trade. Winning less trades but making my entries better sounds like the plan for me. If I have to decrease my position sizing, then so be it. If I have to miss the first part of the trade, then I am OK with that. My goal is to have more winners than losers, not to call bottoms which I unconsciously was doing when I bought at trendlines on pullbacks with no end in sight.
Perhaps I am trying to win too big which results in my setting very tight stops. Back in the day where there was talk of stops being placed in positions where everything has to go wrong in order for it to be hit. Can I confidently say that my trades did that in 2014? Or is it that my trades are just right below the nearest higher low? Am I guilty of picking the nearest thing that looks like support instead of decreasing my position size and going for something that is more relevant?

Rules for 2015
I think that my Risk:Reward should always be higher than my probability of expiring in the money where possible.
The quicker the expected move, the more closer your strike price should be to cancel out time decay
Keep an eye out for lingering resistance overhead. Even the slightest amount of price action overhead increases the probability that traders will look to take profit at those price points.

Current Tasks
Create a screener that finds stocks that are likely to move sideways and do nothing
Remember the three steps to successful goals:
1.) Figure out a reason for achieving your goals that is unique to you? why do you want to achieve success? Also envision how your life will be different once success is achieved: I want to achieve success to reinforce that I can do anything that I put my mind to. I am not in it for the money, but rather the freedom that the money brings. Once I become successful at trading, I can do and be anything that I desire in my life. I will have more time for reading, videogames, blogging, exercise? basically living life to the fullest.
2.) Set smaller goals that lead up to the main goals. If you just set the large goal without smaller goals that lead to it, it will never feel like you?re progressing towards the overarching goal and you are more likely to be discouraged. Realize how hard it is and plan ahead to be better prepared. Every month, I can set a task that I am looking to excel at. From there, I can see my progress in a more efficient manner. Last year, I was trading for the sake of trading and did not have any goals that I was working towards other than making profits. That clearly did not work and so now is the time to double down and figure this sh*t out once and for all. If this was easy, everyone would be a millionaire already. Of course it is not easy and of course it will take time, but in the long run, I can and WILL excel in this like I have done in other facets of my life.
3.) Think in advance of potential shortfalls to your goal. What are some ways you can foresee being distracted or offput? Write these down and then visualize ways to work around it so that you are mentally prepared if/when these scenarios arise. Some potential shortfalls that I am aware of is that I will stop doing the extra work and simply trade to trade again. Another potential issue is that I may be deterred or lose faith in my ability after a string of losers. That happened in 2013 and 2014. This year, I will constantly work towards becoming a better trader, and one of the main differences is that I will set myself up to have my confidence built along the way to ensure that I stay motivated to trade as well as motivated to stay better. The additional notes and topics that I am forcing myself to do in my journal are going to be time-consuming and frustrating at times, but eternal vigilance is the price of liberty. I have strayed away from the mindset (and skillset) that is needed to be a winner by being stuck on autopilot in a way that is not advantageous as a trader. That shit is over and now it is time to get back into mad scientist territory.
Reread my current books on entries and trend recognition on the entry chart
Brush up on candlestick recognition. (Just the basics like dojis and bearish engulfing patterns)
Weigh the pros and cons of DITM options and come to a conclusion

Goals for 2015
(Focus on ONLY one Goal at a time. Once the goal has been completed, you can move onto the next task)
Work on directionless spreads and credit spreads to increase probability
Look into Credit Spreads as an alternative method of participating in the market passively.
I will speed-read 'Zen and The Art of Poker' to remind myself about the benefits of patience and accepting the smaller more consistent victories instead of swinging for the fences on every trade.
Get a better understanding about auctions and the flow of the markets
There was a point where I could view a chart and look at 4-5 things at once and reach a conclusion quickly. Currently, it takes a lot longer for me to mentally process what a chart says about the future but I'd like to return to that type of familiarity with charts. These are the skills that I'd prefer to come naturally:
Identifying when probability has increased/decreased
Volume/conviction of market shows this
Refresher course on candlesticks so that I can be more cautious when I see a doji or a bearish engulfing pattern on a longer term timeframe
Identifying if the stock is:
Rangebound/consolidating
indecisive (steer clear): This happens when there are conflicting accounts of the market based on the metrics that I look at
Accumulating or Distributing at key points
Realizing when a pattern looks cleaner and more likely to succeed as a result
Define and memorize my entry criteria
Aim to never lose more than 1.25R per trade (including commission
Become vigilant in my positions to keep an eye out for ways to cut my losses short.
Find a support system of people who are interested in trading and seeing you trade well. It will go a long way to prevent burning out during a drawdown
Plan ahead of time and create a routine so that everything becomes automatic.