sd's -Adapting in 2011

[sd]

The Disciplined Trader:
I'm going to start some more journal aspects as time permits-Key factor there-Time and discipline to follow through.
This will include trying to post more charts, and post mortem trade analysis of what went right and what went wrong.
Norman Hallett has a series of 4 minute trader clips on UTUBE.
These 4 minute videos are worthwhile as he touches upon many of the psychological aspects of becoming The Disciplined Trader.
Go to youtube and type in "norman Hallett"-
When watching these videos, ask yourself 'Why' these subjects aren't necessary to help you succeed in your trading. Ask "Why" they don't apply to you.
Hallett points out many of the things talked about in trading books- The biggest focus is the psychological aspect of trading being the key to trading success and why most of us will fail over the long term. I'll comment on some of these in this post.
He speaks about journaling as essential to study the trading and the personal mindset of taking the trade, taking the profit, taking the loss- I'm taking that step-
While I've been trading for some time, (12 years) and have read a number of trading books, my trading is not essential to my livelihood- Or retirement.
I trade with monies in a separate Roth account from my "real" retirement account.
I trade real $$$, but because the account is relatively small, in my mind it is mostly a recreational challenge- It is not the critical path to my upcoming days of retirement- It is what I indulge in the evenings after work. At one time , back in 2000, I thought my newly started trading account was to be our family's path to ultimate financial success and security.
The market taught me then that what goes up can also come down- and usually faster. Over the following years I dabbled at trading, and saw moments of success and profits, and then periods of giving it all back- sometimes with interest.
The only thing that saved my arse was using IB for the inexpensive commissions, and a position sizing/money management approach that Bankedout initially shared with me years ago on Clear station. That approach kept me from blowing out my account in spite of myself. Thanks always for sharing that concept with me btw!
That allowed me to take many trades over the years- where my account would fluctuate up and down with the market.
I had at one point considered to quit trading or to make money several years back- and had an outstanding turn around that included daytrading momentum moves - The problem is that it took time from my day job and responsibilities- and it was just a lucky application of real time charts- at the right time- It was like the roller coaster at the county Fair, where I caught an $800 dollar one day long and reversed and caught the downside sell the next day- Not to be repeated btw! I kept the day job as my focus. Good thing- Momentary success in trading makes us feel like we've got it figured out, and that it will be easier going forward. The Market is here to teach us that what we presume is often flawed thinking.

(Meanwhile my IRA retirement account continued to gain)
And perhaps this is trading issue #1 for me- On the one hand, I can emotionally remove myself from the trade (a good thing) because the losses are usually small. On the other hand, I often would take discretionary trades without a real reason -
Chart might look good, That was good enough-
In the last year, I realized i will do much better of going with sector strength and trend- I had several great trades using the 60 minute chart approach capturing momentum moves that lasted for weeks- and It was at this time I became focused on applying an approach to the markets focusing on a 60 minute chart for potential entry and exit signals.
My momentum trading approach is getting trashed in this undecided market- down 600, up 500, down 400, up again-
The disciplined trader likely identifies the market trends that are likely to fill the expectations of the style of trading one approaches the market with.
With the volatile up and down swings, an approach on a 60 minute chart should be very tightly controlled-
In several videos he brings the subject of keeping a journal for one's trading. A journal is different than a log, in that a journal should include the reasons for the trade entry, why the stop is being set at the level it is at, how the exit (s) are taken on winning and losing trades- and I think it would be helpful to revisit the trade a week or so after iut is closed to see if the exit was timely or not. Doing a post mortem on the trade
Norman Hallett's first question would be- Has your trading approach been backtested to see if it is profitable for the item you intend to trade.?
Once you have a successfull backtested approach, you can apply a disciplined trading strategy to that approach and take every trade that comes your way- knowing that eventually you will be profitable. Is that True? What if the approach encounters a new market condition of extreme volatility? That the volatility of today was not represented?
d**n, that kicks me into the dirt- because I don't have a robust defined trading plan, nor a trading platform that allows me to backtest said approach.
After the first emotional reaction though, I have to ask myself "What is my trading plan".
I can define that on a chart on a 60 minute time frame, but what do I have that is supporting that type of trade entry on a different time frame?
I will continue this journaling introspection another day!
Reminded me of my last colonoscopy! LOL!
Sd

[sd]

Getting into the basics:
Questions to ask myself:
Defining my plan- Why haven't I done this ?
Outline the basic plan-
I have not written down a Trading plan outline in years.
WHY IS THAT? Fear of getting tied down?
Not knowing the plan will work?
My methodology has changed over time (now focused on a
60 minute chart) and it feels
to me that this is now "A plan" but it is very
prone to change as I "wing it" often.

RULES: I think I follow some rules well, but I have never
written them all
My thinking and approach changes over time-
What about discretionary trading? If I have a written
plan, what about taking trades outside the plan?
What about The Friday's I get online during market hours?
I just renewed my stockcharts membership, and included
real-time charting to enable me to take real-time trades.

TIME: Since time is a limiting factor for me (evenings only)
I should narrow my trading universe- ETF's will be the
vehicle, with both long and short etf's available. What
about stock trades ?

Position sizing and money management- define it

Trade management- Entry, exit ,stops, split stops
partial profit taking, : This up and down market has
whipsawed me - and my account- I will revise my
position sizing approach to a more defensive one.

Journaling and trade follow-up-
I will try to list trades here as they occur- and take time
for trade review on the weekend. Hunting season opens
in a few weeks, so I'll be up in the trees with a bow-
I will post charts as time permits.
SD

[sd]

POSITION SIZING is the single most important aspect of one's trading, and is usually ignored by most. Professional Traders use position sizing -They know that When one is on the right side of a trending market, that works, but that things change....
However,
As we get into more volatile markets, the opportunity for larger gains on entering oversold stocks is on everyone's mind.
It seems that the market should rally from here, but the wide swings -up 500, down 600, up 400 of the last week would likely chop up most traders betting on a market direction- Either the continuation of the downtrend or the expected oversold bounce as stocks are seeing a significant discount in price.
To survive such swings, one would need to have had wide stops in place- whether long or short. Or trade without stops -Not recommended for traders- maybe investors.

I have been taken to the wood shed of late by Mr. Market-
A number of factors have caused this, which I hope to correct by following a more disciplined approach.

I,m starting with a more conservative position sizing approach.
I will adjust this approach once I see I am seeing more consistant positive trades.

I'm going back to an entry position size of 10% of the account with a 1% Risk max. I will add into the position only once the position is net profitable- and the stop is above Break even.
I will add 5% if the trade continues, with a maximum add of another 5% (Total 20% ) with stops in place. This last add would occur once the trade has exceeded a 10% gain.-or perhaps more. In a fast moving market- or oversold bounce,
I may also opt to take partial profits and lock-in some gains on any price weakness .
Setting the stops- While position sizing tells me the maximum amount I can use for a stop, I am taking an approach using the 60 minute chart and price action where the stop will be significantly less than 1% of the account.
Parabolic Sar is a favored volatility indicator for me, and can be used as a stop method as well.
I find the initial Sar readings to be wide on a 60 minute chart,
and I may elect to use the tighter Sar levels found on a 30 or 15 minute chart.

I may also use split stops on the entry- Say one just below price action on a swing low on the chart, and the other at Sar which will be wider. Over a number of trades in the following month , I should get a sense of what has worked and what doesn't . A wider stop would keep one in the position longer giving price the opportunity to be volatile and then to push higher. Conversely, a wider stop loses more should price not go as anticipated.

This approach will see me getting stopped out more frequently, but the lesser loss of the initial stop being hit also allows me to reenter the position for a second or third time .

Since I trade with Interactive Brokers, commission costs are not a large factor- and this allows me to experiment with partial stops and fills.

No matter how large or small one's trading account is, position sizing is smart trading! It doesn't have to be the method I'm using, one could use different parameters. Once one's approach is seen as consistantly net profitable, the levels can be adjusted- higher- Or more conservatively- as the conditions warrant.

[sd]

ACTIVE TRADES

[sd]

EEM gained, DZZ lost 2/3 on a tight stop $57.85
For some reason, my remaining stop on DZZ was not shown in after hours- Reapplied that stop- Likely hits tomorrow.
FAZ - 3x inverse trade- hit my stop for a net loss for the larger trade- I wasn't comfortable holding this over the weekend, and it essentially wiped out my friday gain for a small net loss. It was exactly the bear flag I expected. with a gap lower at the open.
I am glad I sold 1/2 at the close Friday.

I had an order for long FXI 37.20 with 37.30 limit- Price gapped above my order and the low was $37.35. Oddly enough, this price low is not reflected on the charts.
I will actually chase this gap up with a limit of $37.82
I also think the vix is going down. Buying xxv @ $33.85 limit
XLE long $69.50- $69.60 stop/limit

[sd]

Dzz stopped out & EEM-
A 3 day rally caught a big pause here-
Went long XLE,PXE, and XXV, and Gold gained, so I'm back in long with an order limit of 108, stop 104.

[sd]

This has been a busy week getting chopped up in the market reveresal mid week- What started off as good trades quickly went South and all stopped out- I truly thought we had reached a point of equilibrium after the prior week's selling- but the market decided to swallow the fear pill and go .
I had reentered Gold using UGL -First entry was @ 108- I failed to have my buy-stop waiting following the declining Sar- It would have filled at $105. At the beginning of the week I thought Gold would be selling off- (my Dzz short stopped out 8-17 @$4.70)
I bought some SLV as well, as it finally gapped up above the range- Didn't have the gumption to go long AGQ -the leveraged play-
By reducing my position size to defensive- in the other trades this week, I reduced the net loss- but still suffered another net loss week due to the volatility-

I will reassess how I can better try to approach this market- or do I simply focus on a narrower field with tighter stops?
More later-

[sd]

Thinking that the market was basing, and that volatility had peaked, I took a volatility short trade-
Should have paid attention to the upcoming calendar and the miserable jobs report!

[sd]

Was stopped out on Gold today - 8-23-2011, as well as SLV, and TMF- SKF position is still on but in the red as the market rallied today- UGL had a decent profit, but the other trades all took a loss -wiping out the larger net gain- The kicker is I had gains in the others and expected that to continue for more than a 1 day upside- Getting hard to take these knife wounds -
Market rallied several hundred points today and hope was renewed- at least until Friday when Bernake gives his talk-

Gold has been a winning trade, and I will continue to follow it with the Parabolic Sar - Took me out for a gain @ 116.96. closed at 112.65.
Like a moth to a candle, I'll go short Gold tomorrow with DZZ-because of the overextended trade- I'll follow this trade tight
with stops- and expect only a 2 day move-

I'm attaching a weekly chart of Gold, and as one can see, the past month the Fear factor had Gold break out higher from the channel it has been trading within- There has been a lot of Fear- The US Debt, Europe melting down, A US and maybe world wide recession looming- And a declining stock market- All contributed to Gold moving upwards out of the channel and sharply more vertical- As one can see in a weekly chart, this type of price action is not the "Normal"- Gold uptrends , and fluctuates with occaisional pullbacks below the fast weekly ema- We are definitely well away from the trailing fast ema, and it is a rubber band being stretched-
Let's assume that there is a lot of Big Money invested, and many leveraged hedge funds- These guys sell at tops and buy at bottoms- And what of the machine trading that goes on automatically?
Will Gold go to $2500.00/oz- or higher? No one really knows, but it's likely the direction won't continue as vertical as has been the case-
Note the volume has been declining on the weekly chart- it's 1/2 of what it was 2 weeks ago-
If Fear is the market driver for Gold- and most would agree that is indeed a prime ingredient- If the perception of the market changes, that a fall into recession is not predetermined, that some catalyst is put forth by Ben this Friday that reassures the fearful-
The Europeans take charge of their financial malaise-
Any of these could take the fear factor- that sense of immediacy- Is that a word?-The need to be protected right now- Sky is falling- or not- Could reassure the market.
Profit takers step in first.Highly leveraged Funds lock in profits- Margin calls and raised margin requirements cause more selling-
Consider the chart, and where we're at- It doesn't tell you what happens tomorrow-
but to me it suggests we definitely should go lower- to at least 165- the upper trend line- If we close below that, consider a reaction lower would not be out of line- perhaps 155.Or 150. I could well be wrong- but there isn't any price support base for where we are up here. A profit taking run could easily take GLD down sharply-
All of this is only my opinion, and is a guesstimate of the possible short term movement of GLD- I will take a short term short position- the last one didn't work out very well though!

Chart:

[sd]

I was filled on the leveraged short Gold play - DZZ $4.39
closed up higher, and I'm raising stops to lock in gains, hope for another upside day -
In Recent weeks, my trading has been cut short by reversing markets-in both directions- hard to catch a trend .
I also put on 2 financial trades- long UYG and Long C- and I experimented around with trailing stops- Both trades stopped out for small 2% gains, but closed higher- i will look at trailing stops more in the future- obviously, one has to judge the intraday volatility to effectively use these- and not get stopped out by being too tight .......

[sd]

The DZZ trade netted 7.7%, hitting my Wed pm raised stop-
Gold was well overbought, but along with a market rally attempt, the DZZ trade worked as a quick trade.
The market sold off Thursday, and Gold gained-
This Friday am, I'm not working; Ben speaks at 10 am and the market's assessment of that speech will affect the market-
Europe is down again, the "depression" word is being tossed around there.
US Financials caught a rally on Warren's jump into BAC-

I'll be taking a day trade or two -on things that should react today- Gold, Silver, Financials.

The last 3 weeks have been a roller coaster- up and down- and I believe the likelihood is we go back lower again and maybe
confirm the technical base-
Market is ultra sensitive, with big % swings - I could not withstand the trading range swings by holding a position in either direction- I'll continue to use the 60 minute chart and try to stay nimble-
Note- Had I been online with the DZZ trade yesterday, I would have raised my stop yesterday- or sold some to lock in a higher gain as price pulled back and sold off.

[sd]

Friday I was home all day and decided I would make a few trades- The financials have been beaten up for some time,
Buffett bought into BAC this week, but the consensus is out-
FAZ rallied the prior day, and I decided i would take an entry if price exceeded the prior day's move-
While knowing that the first 1/2 hour of the market is often reversed, FAZ started off in the right direction and I got in after 15 minutes as it continued to climb- It looked strong until 10 am when Ben's statement was released-
I could have raised a stop tighter- but I wanted to give it some room to go higher and a small pullback was to be expected. I was taken out on the first bar that closed below the fast ema on the 10 min chart.
I went long Gold with UGL as it moved higher- Think this is just a bounce here and will continue down soon.

I flipped and looked at UYG -Financial long around 12:00
1/2 the trade stopped out , holding the remainder over the weekend.

I also went long AGQ as it moved higher- this is also a 3x leverage play, and it can reward or punish- holding over the weekend may be a large gamble
-Had a power loss for an hour or so due to IRENE, and the winds are still quite high in the Raleigh NC area, We're west of the main thrust of the storm- Fortunately it is only a Category 1 storm, but it can still present substantial power loss and flooding and storm surge- and it's traveling up the coast towards NYC and beyond- Those areas are unused to this type of event- and hopefully the residents will listen and evacuate low lying areas.

[sd]

I'm recapping my Gold trades using UGL , a 60 minute chart, and parabolic sar to determine entry and stops-
I did not follow the chart everyday and take each available trade.
the first chart are the july trades- i would have potentially gained an additional 5% on the july trades had i used a buy-stop on the declining sar value from the eod .
I will also include a chart of Augest-
after doing this recap/review, i believe the sar approach has been very useful- both in setting buy-stop entries and also getting out of the turns in the price at a good level- Particularly for my approach as an EOD trader not monitoring the trades in real time. i will continue to try to apply this approach, and will also consider going short more if price starts to retrace from an extended level- with tight stops- sd

tHE AUGEST CHART-
I am long again but do not have any confidence that Gold will move back above it's prior high- I think this is a rally, and there should be additional downside moves back into to the prior weekly channel

[sd]

Quick catch up here mid week-
My Gold trade with UGL sold- on my raised stop- @ 107 .AGQ stopped out- both turned down for a day, hit the stop and then went higher
I need to note that the Sar value on UGL that day for the stop was 104 ish at EOD- and I 'believed' Gold would be going lower-and so I raised the stop and it was hit- The stock went lower further the next day, into the 104 range, but had I used the Sar EOD for a stop the position would have held- Hmmmm.

I still have that belief- as the volume is declining. but Gold rallied higher the past 2 days.

I did buy the financials UYG and had 1/2 the position stop out and then jump higher- I added to that entry today @ $46.18.
I also bought XLU with a buy-stop $33.70. I'm starting with a wider stop below the recent lows on this one- but will tighten come Thursday-
I had anticipated that a gold short would be strategically sound here, but fortunately put in a buy-stop limit @4.70-4.75
that was $.05 above the range, and that was never touched.

In my IRA account the past weeks I have swung a large % to some bond funds that are uptrending- particularly a "world bond fund", and a long term tax exempt fund and transferred monies from some wider target date funds to 2015 -funds with a higher bond complement.
The Fed meets Sept 21 and there is some dissention within.
The Jobs #'s come out Friday, and poor #'s will be taken as we're heading for a double dip recession.
What will move the market until then? Bated breath held-
One could position themselves with buy-stops long/short if the jobs report comes out after the market open- If it's released premarket- you would need to be standing on one side of the line -or the other- Maybe just go to the sidelines.
I think a defensive position - less exposure is the way to go here- Sd

[sd]

My UYG long play- sold 1/2 at a gain, the other 1/2 stopped out by gapping below my stop today for a loss- XLU was a small loss.

Today's premarket job report n had 0 new jobs, and that caused the market to gap down at the open. Without being positioned yesterday to catch that gap, I waited this am and watched price action - and about 11 am started taking positions for the weekend-
I am basically going short the market with SKF, EUO,TWM, and GLD.
This gives the various gov'ts time for the talking heads to try to calm the markets for next week- We'll see- SD