Tuesday, November 30, 2010

Things that screw your trading day :-)

There are some things that happen in our daily lives that really get on our nerves!

In our business, if you are not calm enough, no doubt your trading will be poor, your state of mind is really important at the beginning of a trading day, you have to fill your mind with good, positive thoughts, so that your action will lead you way up.

You have to  make sure there isn't anything at all bothering you, your mind has to be crystal clear so that you'll be able to use it to its fullest potential because in the trading game if you don't focus on your trades 100% you will lose.

It's paramount that you have a positive attitude and you do want to win, so that you'll be ready to follow your plan and will take only those setups that you know that have good probabilities to work.

So, make sure you are ready to face another trading day,  but beware of the: Things that might screw your trading day:

1 - You woke up really early to see if there is anything going on in the markets, so you start looking at your charts and when you look at the clock you see that more than an hour has passed and you just remembered that last night you promised your wife/husband that you would take some time off so that you could have breakfast together, but what happens is that exactly now a "superb setup" appears and you don't want to miss that opportunity... so you'll be late for breakfast, your day is screwed...

2 - You went to a party last night and you met a friend you hadn't seen for years, it was such a good time and you ended up drinking much more than you had planned to...

3 - Bad hair day...

4 - You left an order to buy working o/n and when you wake up in the morning, after having a terrible night with a recurring nightmare that you were losing a lot money in that position, you realize that actually market went up more than 10 points but your order didn't get filled by 1 tick...

5 - You thought market had fallen enough for the day and you decide to buy a double sized position, when suddenly you realize market is actually plunging 80 points in a couple of minutes! Oh no! Flash crash again!!?? When you look at the DOM you see your position has been liquidated by your broker and you blew up the account...

6 - You think the trading system you have been using for 2 weeks only does not work, but when you ask others that are using the very same system you realize everyone else is making money with it...

7 - You insert an order to go long, market is dead slow and you think your order will never get filled, you wait and wait... up to a certain moment when you have to step out for some reason. You're pissed off and decide to cancel that order... only for when you come back after one hour you see that market went one tick below your price and exploded up...

8 - You just woke up to cover the order you left working from last night and when you turn your computer on you realize there's some kind of issue with your internet connection... you remember your broker is sleeping at this time so you decide to call the night help desk, after they ask you those 10 questions about: who you are, account number, why did you marry your wife... they finally tell you: "OK, what can I do for you?" Too late, your position is in the red...

9 - You are ready to buy at that price you've been waiting for a long time when you decide to have a look at the Twitter stream just to make sure that the guy who makes the best calls is also on the same side of the market but you see he's actually short and says he expects price to plunge another 10 handles, so, as you get in doubt, you cancel your buy order, and of course, market quickly goes up 5 handles, but not before testing your price with precision...

10 - The above things only happen to traders, of course. This one I'll leave for you to add in the comments area below  :-)

Trading is fun! Have a great week.

Monday, November 22, 2010

Thank you, Mr. Market

This week, as everyone is preparing to celebrate Thanksgiving day, let's take a look at the importance of being a grateful trader.

In every religion, no matter whether you're Jewish, Christian, Muslim or whatever, the basic principle is being thankful for what you have in your life: your family, abundance, health and peace, to name a few...

But why is it important to have a thankful attitude towards the market?

Approaching the market with a grateful state of mind is really important so that you can see it more clearly, if you feel no anger but on the contrary you feel gratitude, it'll give you an inner joy making your mind available to the opportunities market presents every single day.

No doubt we have many many reasons to be thankful to Mr. Market. Just imagine if:
  • ...you were not allowed to participate in the markets
  • ...they banned short selling
  • ...you didn't have any money to trade
  • ...you didn't have the possibility of trading through your computer
  • ...market didn't have enough liquidity for you to day trade
  • ...you couldn't be in or out of the market whenever you wanted
Even if you are going through a difficult time in the market, think of this: difficulties are opportunities to better things; they are stepping stones to greater experience. Perhaps someday you will be thankful for some temporary failure in a particular direction.

Happy Thanksgiving all!

Successful trading.

Let us be grateful to people who make us happy; they are the charming gardeners who make our souls blossom.
-- Marcel Proust 

Monday, November 15, 2010

10 sins to avoid in trading

Know the 10 deadly sins people commit in trading and avoid them at all costs:

1 - Anxiety

A new week is beginning, you have to make money no matter what, you have bills due and you want to take it from the market - Avoid this kind of thinking! You have to make "friendship" with the market, if you try to force it to give you money, you will probably lose instead. You need to have a relaxed state of mind and just try to surf the waves...

2 - Prepotence

Some people will start in this business, make some "easy" money and then think they are smarter than everyone else, be careful, this is the right path for a big loss, don't fall in that trap.

3 - Impatience

You have been waiting for that setup to happen, market is doing its course and is taking a "long time" to reach your levels where you want to buy/sell, so you decide your level is not going to be tested anymore and cancel your order and jump into the market just to, after 10 minutes, see the market come to your price and your order would have been filled for a much better price or you might even get stopped out and then market reverses from there... Be patient.

4 - Indiscipline

When you enter a trade have your STOP in place and don't play overleveraged you'll end up making a mistake that will give you the opposite from your desired result. Have your limits established before you enter a trade, usually you will regret you didn't do it.

5 - Instability

Don't keep changing your strategy every week, find a system that works most of the time and stick to it.

6 - Indecision

If you look too much for news you might get in doubt about when to get in or out of the market, concentrate only on major news and trust your technical analysis (once you know how to do it), trash most of the news and you will do much better.

7 - Insecurity

Sometimes you are so hungry for tips from other traders that you end up going against your own analysis and guts. Always have a plan and trade your plan.

8 - Greed

This is also about position sizing, don't risk much more than you would be comfortable to lose, otherwise you will not be able to trade correctly. Make an experiment and trade with only one car for instance... Do you see how you do much better? Now try with 100 cars... True or not?

9 - Jumping the gun

Patience is one of the keys for successful trading, wait until you see a setup you really like, you know the market offers great opportunities every single day, why risk when you are not seeing anything important going on?

10 - Negligence

Trading is a business, have well defined weekly, monthly and yearly targets and have a strategy to reach those targets. If you don't establish clear targets you will not get anywhere.

Best of luck!

Friday, November 5, 2010

Have you found your edge yet?

Does it constantly happen to you that by the moment you enter a position the market almost immediately goes against you? You wait and wait and wait, all the trades you do mentally work to the tick, but when you pull the trigger... it doesn't work!

Have you ever entered a trade just to take a lot of heat and by the time you decide to leave it, market goes a good couple of points in your favor?

That drives you really mad, you want to "kill" the market, smash the keyboard to pieces, you can even hear an evil big "laugh" from the market at you...

You CAN change that, and you'll be laughing at the market! You need to have an edge that works most of the time to give you the confidence to pull the trigger each and every time that edge is presented to you. You do nothing until you have that kind of condition that "you know" it's your chance to make a profit, even if it's only a small one, a 2,3 or 4 points profit.

If you still haven't found your edge for profitable trading, try to find it out somehow, it's the only way to stay in this game, you need some tool that will allow you to confidently pull the trigger, when you find your edge, you will be able to think in advance and have a plan: - "if the market does that I'll do this", "if it closes here I'll jump in" and so on. Once you find an edge that works "most of the time" stick to it and only change it if you find another way that has proved to be better, that works more frequently.

Now, you need an edge that fits your personality, in my own case for instance, I need an edge that gives me a good earning ratio... I lost too much in the past, so to fit my personality I need something that "I'm sure" will give me at least 70% of winning trades. Last month, from more than 50 trades that I did, I was stopped out only 3 times, an amazing good rate indeed.

So, when you find a system that will allow you to sit and wait for the best setups you will start doing well, but ONLY TRADE when one of those setups are triggered, you have to be patient, otherwise you will take unplanned trades just to regret you did it. Remember: you trade to make money, to get a living from it, right?

A system that fits your personality is a system that you feel comfortable with, you know you will be stopped out sometimes and that MUST not bother you. Some people will not have any problem being stopped out on 90% of their trades, as far as the other 10% of the trades will cover all the losses and make them money, this system without any doubt is not for me, a prefer to take trades that will give me from 1 to 3 points but they will frequently happen, that's my way to trade, and you must find yours too.

Successful trading!

Friday, October 29, 2010

8 to 10 new highs pattern in play on ES, SPX and SPY

On this special post I'll talk about a pattern that is in play on ES, SPX and SPY which might indicate a reversal on markets.

This is a very powerful pattern and is about to be completed either this week or next, the name "8 to 10 new highs" means exactly that, when market makes the 8th new high it might make a big correction, as it did not happen on the 8th (which was last week) might happen now in the 9th week or at the most at the 10th week which is the next one, first week of November.

So, now we just have to watch and play accordingly, IMO, we will still see a new high by the beginning of next week (or who knows, at the end? could be by Thursday) and I expect that high to be at 1207-210 on SP500 - which is equivalent to ESZ0 at 1204-207 (where I intend to short double - half for a day trade and half for a swing trade, *IF* these levels will be really tested).

It's not my style but this time as asked on Twitter, I'll post a SPX chart showing the evolution of this pattern:

(if you want to see a larger chart just click on it)

Good luck and happy trading!

Monday, October 25, 2010

Choosing to be profitable

 - This week we have a special guest post by Scott Cisco aka @TraderCisco:

Often when trying to train my son I talk to him about how much of life is about making choices, and that with the choices we make there are consequences. We all understand that as we go through life we make choices that we live with. For my son, the choices might be as simple as whether to have one sweet or the other after dinner but not both.

We have to deal with the same challenges too. Where to vacation or holiday, what type of automobile to purchase? When we make a decision, we have to live with it.

I have been thinking lately though whether or not we have to choose to be either profitable or a trader. We can be profitable without being a trader, (e.g. savings account or an annuity) and we know that it is very easy be a trader and NOT be profitable. I think we have to make a conscience effort to be a profitable trader, and I think the key is very simple:

You must decide to be profitable first.

Recently, I received a disclosure from a forex broker ago and the percentage of traders who were NOT profitable was very high. Only 33% of traders were profitable in a given quarter and that was the HIGHEST percentage of any quarter that they disclosed for a full 12 month period.

I think many traders lose their profitable edge by being overly active. I have visited with many traders (and I have been guilty of this more times then I care to admit) who feel the need to be actively involved in the market at all times. If they are looking at their charts they have this belief that to be a “trader” they must be an active participant. If they have a position open, they feel compelled to be making active decisions about that position at all times. A trader stares at the chart waiting to make any needed adjustment to the position at a moment’s notice. However, this “trader” mentality is the bane of many a trader. You lose sight as to why you really are trading. We trade to be profitable, not to trade.

Jesse Livermore said: “After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It always was my sitting.”

It is time to make the decision to be profitable, and Jesse Livermore realized that allowing a position to work or not getting into a position when the market has not established a clear direction is critical to being profitable. He didn’t want to “think” himself out of a good position. Do you want to be profitable or a trader? I have chosen profitability, and with that decision, I can now use trading to accomplish that goal.

I’m sure some feel that this is just a word game, or nonsense, but I do not believe that to be the case. It takes a conscience effort to allow your positions to work, or to stay away when the market is not conducive to profitable trading.

So you have a choice to make: What do I want to be profitable, or a trader?

I want to be profitable.

Now what? Well the answer to being profitable involves research and study. You have to go back and look at what you have done in the past to make a good determination as to what are your weaknesses. Study and figure out what is keeping you from being profitable. Are you taking profits too soon? Is it possible that you are allowing greed to keep you in positions too long? It may mean that you need to hone your skills as to what is an appropriate target to trade to. I’ve seen many traders who spend hours and hours studying new setups for entries, but no time at all on learning how or when to close a trade. Do you trade with a negative ratio, meaning do you have a stop that is larger than your take profit? I have never met a profitable trader who trades that style. If you are trading with a 1 to 1 ratio you have to have a 50% success rate to be solvent. ½ to 1 and you have to have a 66% success rate for solvency. I personally want a 2 to 1 return, because I only have to be 33% to be solvent, and my setups are better than that.

As I tell my son, the choice is yours. What do you want to be? Never stop working on improving your profitability, by doing so you will find that your trading is much more enjoyable and fulfilling.

Scott Cisco aka @TraderCisco is one of the owners of EuodooTrading.com and regularly interviews successful traders who share what has helped them succeed as profitable traders.

Friday, October 15, 2010

Trading for a living: do you know how much you want from the market?

It's interesting to remember that while I was trying to make a killing in the markets I could almost never make good trades, with rare exceptions like in the fall of 2008, for instance, actually most of the time I was losing money, but once I realized I don't need to make 100 ES points a month to get a decent living from trading, I started doing much better, today all I want is 10 ES points a week.

As an Israeli friend of mine says: "You don't eat with two forks." :-)

Think about it for a moment: how much do you want to make per week to steadily grow your account and be able to live from trading?

I think that by fixing an achievable target (neither too small, nor too big) makes it "easier" for us to try and go get it.

So let's have a look below to see how much we need to invest x how much we can make weekly with a "small" 10 ES points target, after fixing the weekly target that you think you are able to achieve you just have to know how much capital you'll need to put at stake so that you will respect some risk management rules not to get wiped out when you are wrong, because no matter what you do, you'll lose in some of your trades.

If you've read my previous posts you know that the maximum risk my system allows me to have is 3% from my whole trading capital per trade, so based on that figure, let's get to the numbers:

So, if you want per week:                       Your minimum investment will have to be:
                                                                  (1st (#) setups for max 6 pt STOP, 2nd 3 pt max)

       US$ 500                                            US$ 10,000 (may trade with 1~2  lots)
       US$ 1,000                                         US$ 20,000 (may trade with 2~4 lots)
       US$ 2,000                                         US$ 50,000 (may trade with  5~10 lots)
       US$ 5,000                                         US$ 100,000  (may trade with  10~20 lots)
       US$ 10,000                                       US$ 200,000  (may trade with  20~40 lots)
       US$ 50,000                                       US$ 1,000,000 (may trade with  100~200 lots)
       US$ 100,000                                     US$ 2,000,000 (may trade with  200~400 lots)
       US$ 500,000                                     US$ 10,000,000 (may trade with  1,000~2,000 lots)

So, as you can see, with 10 ES points you may make an average of 5% profit per week, much more than any imaginable investment! And still very possible to make.

Even if you make only half of it, it's already very good, or even 1/3 of that target! Think about it.

For instance, if I had invested US$ 10,000,000 this week I would have made US$ 372,500! As I've made 7.45 points, wow! Really impressive. :-)

The beauty of having a small target is that it will help you work like a bricklayer, week in and week out, always repeating the very same process, and little by little taking bites from the market that will add up every day, and if you're able to reach that weekly target you'll be able to double your account every 4 to 6 months, isn't that awesome?

So, make sure you have an edge that works most of the time and play the game to win.

Best of luck in the markets!

Monday, October 11, 2010

Journaling: track your way to success

There are many ways to track your trading, you can do it even with a notebook by taking notes on how you trade, the important thing is that you do it, either with a simple notebook or with a good spreadsheet where you'll have the whole information you need to improve your trading at a glance, you might want to track things like:

1- Instrument traded

If you trade more than one instrument, of course you'll want to track which of them is making you more money or the opposite, is losing more, keep track of them.

2 - Time

I like to put a time stamp on my trades to see on which times of day my success rate is higher, I don't know about you, but I avoid at all costs trading around lunch time (EST).

3 - Day of week

This is also really interesting, if you are like me you've noticed you tend to get better results on some days of the week, so why not track them and see what are the best days for you?

4 - Position size (how many cars (or contracts) you trade)

On the last post I mentioned that I tend to trade smaller when I'm going through a losing streak (that does not happen for a long time now), you better have that under tight control.

5- Entry setup

This is also really important IMO: why did you took the trade? Was it a planned trade? Write it down and avoid repeating the same mistakes over and over again.

6 - PnL (Profit and Loss)

Well, if you don't have control over your PnL...

7 - Type of Trade

Was it a scalp? day trade? Swing? Position? Have you ever seen a day trade that "for some reason" became a swing trade, be alert!

8 - Mistakes/ Errors

By writing down exactly what you have made wrong on your last trade will help you avoid to keep falling in the very same pitfalls.

I'm working on a very well prepared spreadsheet including all the information you'll need to successfully track your trades, I'll let you know when it's ready.

Happy trading! Trade well.

Friday, October 8, 2010

10 steps to becoming a better trader

In my home office I have several notes on a bulletin board so that I never forget important trading rules and  thoughts on why I trade, below I share 10 of the most important of them IMO:

1- When you see a trade setup you like, pull the trigger without hesitation

It looks so simple but it isn't! If your mind is not 100% ready to take the trades when they present themselves to you, you'll miss them, you'll be just watching and will let them go without any apparent reason why, and then when you realize what you just did, your reaction is to get angry! Just to make you jump into an unplanned trade and lose... Prepare in advance, market is like playing chess, you have to look ahead for the next move.

2 - Always use STOPs

In case you don't like to use physical stops, make sure you'll be able to stop in case it breaks the limits you've set for that trade, remember May 6, 2010 Flash Crash? Many accounts were blown up on that day.

3 - Anything can happen

Try to start the morning with a free state of mind so that you'll be able "to listen" to the market.

4 - Always lower your trade size when you're losing

If you make two losing trades in a row, lower trade size until you get in tune with the market again.

5 - Never turn a winning trade into a loser

That's the reason why I like to take small portions of profit when market makes it available to me, I hate to see a winner turn into a loser, manage your trades well.

6 - Earn the right to trade bigger

One of the reasons why I have a target of 10 ES weekly points as a strategy is because I can grow my bets as my account grows, so no matter if I trade 10, 50, 200 or 1,000 cars, my trading system is always the same, and I'll grow the size of the trade according to my risk management rules. Don't trade with 10 cars if your risk control allows you to trade with 4 cars only, that will make you trade poorly because you're overleveraged and that'll make you play fearfully and do the wrong thing.

7 - Buy or develop a system and stick to it, don't change it from day to day

Find a trading system that fits your personality and once you have it, if it gives you an edge, stick to it, don't change it because it didn't work on one or two days, otherwise you'll keep changing systems forever and that means: losing money.

8 - Get out of losers

One of the most known market adages is: "Cut your losses and let your profits run." Much easier said than done, but it's very important that you do it, usually it's much easier to do exactly the opposite... make sure you bear that in mind.

9 - Don't worry about news

This one I like very much, the only thing news will do is to accelerate the targets, nothing else, most of the time, I completely trash the news and just follow what I see on my map.

10 - Monitor your progress, create your own trading journal

It is very important that you have a trading journal to track your success, so that you'll be able to stop what you're doing wrong and keep your strong strategies. I'll talk about this in detail on my next post.

Hope this helps, happy trading!

Monday, October 4, 2010

How I manage my trades

In a previous post I wrote about risk management, today I'll let you know how I manage my trades from entry to exit.

When I enter a trade it means the setup is one I like very much, I only take what I call: "Diamond Setups", those are 10 setups from my arsenal that work most of the time. If I look at my stats for this year, I can see they've worked over 70% of the time, it has taken me a long time studying all my setups to see which of them work better, I noticed that from the plus 20 setups I was using to make the decision to pull the trigger, many of them were working "only"  40 to 50% of the time (there are traders whose setups work 10% of the time and they still make money!), so by observing them I decided to cut more than half of them to come to that +70% number. The setups I cut do work during "certain times" of the year though, so I keep them at hand.

Another thing I noticed is that when I enter a trade it's usually profitable for 1 to 3 points just to come back to my entry level and then stop me out, so a profitable trade turns into a loss, that used to drive me crazy! So, to solve that problem, I decided to take half when in profit from +1 to +3 points, depending on market conditions and leave the remainder running and trailing them with a stop to lock in some profits.

If you have been following my twits for some time you know I usually cover my trades way too early (I know my weak points, working on them), you don't have to make the same mistake so try to develop a good trailing strategy.

Since I decided to have those 10 ES points as a weekly target all that matters to me is that I achieve it no matter what, sometimes I leave trades way too early, but most of the time it has been working, so that last week I completed a 10 week winning streak. As an example, last Thursday when I was short from 1152.50 there was no need for me to get out of the trade as I did at 1145, I could have trailed it as the price never challenged to go back up again, anyway, there's always room to make it better in trading, and we are always learning, there is no stop for that, once you stop learning you might start losing, market is very dynamic, it's always changing the way it behaves.

Keep what has been working consistently, trade well and good luck!

Friday, October 1, 2010

Beware of dream stealers!

Achieving (some degree of) success in trading is one of the most difficult tasks one can try to accomplish, there are so many different variables to deal with that sometimes it looks to be impossible to master it!

And yet, believe it or not, some of the biggest barriers you'll have to overcome during the so-called learning curve are not within the trading itself, or the moment when you are there at the heat of the battle trying to bank some coins, but afterwards when you are with your wife/husband, and/or when you go to social gatherings such as family parties or any other event when people who know nothing about the markets will test your patience.

Most people like to have all the possible safety in life but they don't want to risk anything, so they will not move out of their comfort zone and try to go for their wildest dreams, if they have any, but still they will try to convince other people that their dreams are not possible to be fulfilled...

So when you hear things like: - "I don't understand why you don't give it up, you have been trying it for so long without any success."

or something like this: - "A friend of mine said only the insiders know when to buy/sell a stock..."

or even: - "I remember last week you said Euro would go up, but actually it went strongly downwards, did you lose money on it?"

...and many other bullshit you'll hear over and over again that will block you psychologically, making you postpone being successful in the markets, only if you let them!

The closer that person is related to you the more you have to be careful with what he/she will say to you because that will stay somewhere inside your mind (psychologists will be able to explain that much better than me) and it will block you out exactly on that moment when you are watching the markets looking for an opportunity to jump in and when you see it, you WILL NOT be able to pull the trigger!! ...so you just watch it and let it go, making you very angry and then you take any trade just to do something as a revenge and end up losing again... Have you ever seen this picture?

So, be aware of those things next time one of your friends say something that you don't like and just trash it, or try to replace it in your mind with good thoughts, like: "...next time I see my edge I'll jump in, no matter what!" Don't let an innocent phrase ruin your plans.

What this people probably don't know (or maybe they'd not be willing to pay their dues) is that if you want to shine in any field you have to put in 10,000 hours of practice in that field before you can totally master it, as Malcolm Gladwell says in his book "Outliers". Anyone will be able to achieve success in any field if he/she is ready to dedicate that kind of time to it.

Remember this: "You are only truly limited by the limitations that you put on yourself"

One of the big secrets of successful traders is being optimistic and keeping a positive mindset when trading the markets.

Keep up what you're doing right long enough, protect your account from big drawdowns (take small losses) and fight until the last drop of blood! Don't let ANYONE steal your dreams! You can do it, if you REALLY want to!

Happy trading!

Monday, September 27, 2010

Position Sizing X STOPs

I think one of the most important and still most overlooked aspects of trading is risk management.

If you don't have a system to control your risk you can be sure of one thing: you're on the right track to blow your account up (or "optionblast", like we jokingly say on Stocktwits' stream). Trust me on that one, I did blow my account many times before I understood it is a MUST to have a risk control system, at least a simple one as the one I describe here.

Below I explain how I use risk management in my trades on ES (I give ES as an example but it can be used in any market, you just have to do the math).

Before entering a new trade, once I know the area where I'll pull the trigger based on my edge, the first thing I check is where I'll have my STOP in case the trade does not work the way I expect, if the STOP is say 10 points away from my entry point, then this trade is not for me and I will pass it and wait for a better setup, the maximum loss my risk management rules will allow me to have is 3%  of my entire trading account (many people would feel more comfortable with 1 or 2% loss only).

Read this phrase carefully: you gotta love taking small losses, because if you keep the max loss to 3%, you would have to be wrong more than 30 times in a row to blow your account, by using that simple rule you will be able to live for another day, let's see an example:

Let's say your account size is US$ 20,000, the maximum you may lose is US$ 600 in a single trade, so if you have a setup that allows you to have a 3 point STOP, you may play with 4 cars for instance. You have to adapt your limits to the setups that are presented to you, not the other way round, like for example, playing with 8 cars and placing the STOP at 1.5 points, you might easily get stopped out.

And yes! Sometimes you will be stopped out and market will go in your favor, even when the stop is at the "correct" level, it kills you psychologically, but you will be happy that you used the STOP once you go through a fierce movement against you that would have wiped your account out if without a STOP...

Again, the STOP should not be based on a dollar amount but rather in a technical breach, meaning your trade might not work as expected, on the other hand, risk management will take care of the dollar amount to protect you.

This is a basic lesson on how you may determine the size you're going to trade, there's much more you can learn on this topic, but by using this simple system already keeps you protected from a catastrophy.

All you got to do now is objectively identify your edge and control your risk, good luck!

In the book below the author has great ideas about position sizing, I think it is worth reading it, enjoy:

Trade Your Way to Financial Freedom by Van Tharp

Friday, September 24, 2010

Trading from different parts of the world

One of the beauties of this business is being able to travel all around the world and still be at work...

I really like the idea of trading from different parts of the world for some time during the year, it clears my mind and helps me seeing the world from a new perspective and understand the different cultures.

I think one of the best parts of the world for the trader to spend a couple of months away from home is Europe due to the time zone there and good structure with fast Internet connections either by 3G or DSL and  they have such beautiful condos to rent in amazingly pleasant places for reasonable prices. If I had to choose one country to stay there I would choose either Spain, Italy, Greece or Portugal, and stay there from May to October, why?

Because besides having very beautiful beaches with wonderful sceneries, the temperatures are really pleasant, not to mention that the food in these countries are healthy and delicious IMO.

Once I spent 3 months in Spain, at the Canary Islands, Lanzarote, and it was just one of the best times of my life, I rented a beautiful villa with a breathtaking ocean view... The house was very comfortable with everything one needs to have a decent life, including cutlery, all the necessary appliances and nice modern furniture, all this for only 1,500 Euros per month. During those 3 months I traded so well, my account grew steadily each and every month, I felt like a million dollars!

If I wanted to trade London open I would start to work around 8 AM, but if I preferred to wait and only trade the NY open, then my day would start only after lunch, having a lazy relaxing morning and lunch... oh what a good life!

The small villages had so many different restaurants and most of them even offered a delivery service for those days when I didn't feel like stepping out, with a wide selection of good (and cheap) wine and fish, certainly a place to be...

Above, one of the many nice restaurants on the island, isn't it charming?

Already thinking about where to go next... suggestions anyone?

Monday, September 20, 2010

Emini: Why 10 ES points as a weekly target?

Many people ask me why I have decided to have a 10 point weekly target, well, the number by itself is already a very good target because if one can make 10 points a week that's 40 points a month, if played with only 2 cars for instance, that would give an annual return of almost US$ 50,000.00 and may be scaled up according to the account size, not bad at all!

I have my risk management set to a max drawdown in any trade of 6 ES points, which is equivalent to 3% on my entire account, so by knowing this I know how many cars I can play on any trade, I like to play with multiples of 5 cars so that according to the type of day, I may play from 1/4 to full position.

I have more or less around 20 good setups that I use to enter trades, but I actually use only 10 of them, I use the ones that have the highest odds of success, I mean I look for a 65-75% rate of success, I have lost quite a bit to understand this business, although I have to confess I was more like a gambler in the beginning years, so I know that if I want to be consistently successful in the markets I have to follow the rules day in and day out, otherwise it's just a waste of time and money.

Below I try to show how I use risk management and how I came to the 10 point weekly target:

These 10 setups that I take without hesitation when they show up, allow me to make around 10 trades a week, but "only" 70% of them will work, so, in a typical week, the trades go more or less like this:

70% of the trades are winners and I make an average of 3 points in each of them.

15% of the trades are half losers or b/e (break even) - I usually scale out and take 2 or 3 points profit depending on what market is willing to give me, I'm not greedy at all, I'll take whatever it gives me, so I'll lose only half, we'll put 6 points loss on half, then I have an average loss of say 3 points on entire position.

The rest 15% of the trades I make are losers, my losers range from 2.5 to a 6 points loss, so let's put an average of 4 points loss and let's see how these numbers work on those 10 trades:

7 x (+3) = 21 points
1.5x(-3)= -4.5 points
1.5x(-4)= -6 points

You don't have to be very good in math to know that the total here will give me 10.5 ES points for the week, got it? So now you know why 10 points a week.

Now it's just a matter of choosing how many cars to play according to the size of the account, I'll talk more about this in the next post.

Be well and happy trading!

Friday, September 17, 2010

Starting a new blog

Hi folks!
Anyone who knows me for a longer period of time from Twitter as @RenaTrader knows that I also have a passion for diamonds (you can read how I started in that business and also in trading by clicking “About me” on the right side of the screen) and I also write a blog about diamonds in Portuguese, so I thought: why not write another blog on my passion for trading?
So that’s what I decided to do, my aim is to try to help people by writing about the difficult task of becoming a trader and how to overcome most problems traders face when in the initial phase of the learning curve, I really think the 3 first years are the toughest, although many traders are able to make it in less time, but it was not my case. I myself thought several times it was just impossible to be consistently profitable and thought about giving up many many times… So I hope I’ll be able to help not only the beginners but also the ones who have been struggling for some time already on this tough path to to go in order to become successful in the markets.
Just a quick note: If you’re looking for charts you will not find any here, I'm writing this blog in order to share market knowledge on  risk management, trader’s psychology, strategies  and also some funny stories.
Feel free to send me emails or leave comments, I’m looking forward to hearing from you.
Good luck and happy trading!