December 12, 2011

First week back ...

The immediate MF Global impact is winding down. Got my custom trading platform working with a new broker the week prior, and finally got my '60%' with that broker. I'm restarting at 'half' strength wrt number of contracts traded, with a program for working back to my plan, say by the end of January at the latest.

Looking back I see I made 12 trades which is probably fewer than I should have. I played very cautiously, more to avoid losing and just get back into the swing of things. I feel like I really underperformed. Looking back versus the 'optimal' trade execution, i.e. once a trade is entered, what is the optimal way to finish it, I see I under performed by about 50%. My analogy is a hitter in baseball coming back to spring training trying to get their swing back. But then I look back at my goals in March, and I see I am actually on track in the sense that I made a 2%+ return on my diminished margin. It's actually pretty exciting how much my own expectations have changed the last few months. If I was at full strength, like I fully intend, that would have been 4% of the diminished margin, or 2% of the new 'virtual margin' I will be working off of going forward. Which is to say, I will not be keeping myself so over margined with cash at the broker in the future.

The most disappointing thing last week was the 'perfect' closing trade on the eighth. I was on the phone and entered the trade in simulator mode without realizing it. That would have been good for another 4%. Just have to get back into the groove.

 December 6, 2011

November to Remember

October 31, 2011, a day of infamy for me. Got up full of enthusiasm, ready to go to work. Make my first trade, rejected. Call up, "Didn't you know, MF Global has been barred from trading ..." If only that were the worst of it. Than, MF Global declares bankruptcy. Than, customer funds are missing. Customer funds as in most of my life savings! You can Google "MF Global" for the details, but the bottom line is, Jon Corzine, former Governor and Senator from New Jersey took over MF Global when he lost his reelection bid. He decided to bet the firm on European debt. When MF Global ran out of money, he proceeded to steal customer money to place his bets. This is a guy who's probably worth over $500 million. And he's stealing money from me! It is hard to describe my indignation.

I really never got my head back into trading the rest of November. I tried opening a small account, but really had no enthusiasm and only traded a few days. The only good thing about that is it made me refocus on good trading practices while limiting my losses.

Finally in early December I got back 60% of my funds. The MF Global brokerage is not in bankruptcy, just the parent company. The brokerage is in government mandated receivership. A trustee was appointed and is whittling away time at $890 / hr. Nice job if you can get it. You can Google the details, but suffice to say he does not seem to have the best interest of the customers in mind. (Note that by law, futures accounts are 'segregated', unlike, e.g., a bank where you essentially loan the bank your deposit. This is a major pillar of the futures industry and this is the first time that pillar has been breached. Thus customers who had their money stolen should be first in line to recover from the parent, but the Trustee up to now has not advocated that position!)

Now it's back to work, but I'm still being a little 'stupid'. I can see things pretty well, but my trading is jittery - let your losses run and cut your profits short. Fortunately, it has just been the later and I have not had to deal with the former. That's probably a good thing, but I need to get back to my trading best practices. Finding good trades has always been easy for me. Trading with best practices and solid money management have been my problems. I had that under better and better control since starting my blog in March. I have a message in the middle of my trading platform 'Get Your HEAD on Straight - Don't be Stupid!' I should listen to that.

 November 10, 2011

Trading resumes ...

Finally got my account reopened. I can't believe it took this long. My IB switched to one of the clearing firms involved in the first wave MF Global transfers. The clearing firm got swamped and it took them almost a week to get my new account application processed. Than there was a paperwork problem that needed straightening out (my IB had very old records that needed updating.) Anyways, I'm back online, but no trades yet.

I think I missed some big easy trades. Now you have to deal with the big gap up following the big gap down. Coupled with the underlying good economic numbers and bad eurozone, very tough to trade until the market makes a statement, possibly not until the close.

I feel a need to be a bit cautious in any case as I don't want to get over anxious to finally start trading again. Plus my account is not at the level I would like it to be pending the return of my MF Global funds.

 November 1, 2011

MF Global attempted robbery - (I hope attempted)

The reason you haven't seen any trades posted the last couple of days is that I am a victim of MF Globals possible robbery of customer segregated funds. The CFTC has frozen all of MF Global's assets, including my small account. So now I am going through the paperwork to set up a new account, but that may take a few days yet.

 October 22, 2011

100% Profit Target Reached.

When I started this blog in March, my target was 100% annual return. This week I achieved that return in less than 7.75 months. Of course that feels good, but it also offers a chance to reflect.

First I should note that over 95% of the gains came after June 3. Why is that important? That is when I finally gave up on my attempt to develop a completely computerized trading system. Those first three months I had results not much different from the last few years when I was more a hobbyist than a professional trader. When you make that kind of commitment it is really hard to say "I was wrong for the last five year. My grand project was a failure." So I really had to go back 20 years to when I was really good at that, and recapture my inner trader.

The first and biggest obstacle was psychological. One of the main reasons for the 'grand project' was to remove or at least reduce the emotion from trading. Back in the day I had great financial swings coupled with great emotional swings, which is certainly one of the reasons I stopped. The 'grand project' certainly reduced the grand draw downs, but it never really had the grand gains either. Looking back on it I feel I was in an grand emotional grey area for all those years.

While I eventually scrapped the system trading techniques, I did salvage the trading execution platform. One of the biggest problems back in the day was the need to call every time you made a trade or closed a trade. The whole act of analyses and mustering the emotional wherewithal to pick up the phone was actually quite emotionally strenuous for me. Having a good automated execution platform really takes a lot of that out of the equation thus keeping the emotional energy more on the trading where it should be.

 June 1, 2011

Three Month Wrap

My initial three month trial has come and gone. I see the markets much better than I have been playing them. While there is always a certain amount of randomness, there have been plenty of opportunities to execute strong positive plays that I have either missed or underperformed on. I find I have gotten into the pattern of playing the best after losses. Don Miller talks about that too. He has a results spread sheet that he always marks the previous day as red.

I must add that at least this month I have been pretty tied up in my consulting. That's good in the sense I have been able to save some cash and not be forced to make a decision on continuing trading at this time. The downside of course is the trades I missed, and not knowing if I would have taken them had I not been busy.

I like where my trading plan is now compared to where it was three months ago. (See my May 7th entry). I look at fewer charts and have a better sense of the effect of intraday momentum. I need to look at more trades just to keep my head in the market, even if they end up being break even. I will try to get on track for another three months.

 April 17, 2011

Week 6 wrap Money Management (5) Psychology (4) System (2)

The systems continues to flounder waiting to pick up some big gains. I know I have to overlay my own experience with the system, but have not been able to do so with conviction. The systems are there to help remove the emotional roller coaster, but maybe that is the price of successful trading.

 April 10, 2011

Week 5 wrap Money Management (10) Psychology (5) System (2)

As I get comfortable in my trade management my systems are eroding in this range contraction for the last 8 days. I've also probably been over trading and not waiting enough for the best values. This is half way through my 'trial by blog' and I still have not got the three components of successful trading on the right track.

 April 3, 2011

One month down - results unsatisfying ...

but not unexpected. Transitioning from a trading 'hobbyist' to a 'serious' trader makes you see the natural pitfalls inherent in making trading a hobby. I think it starts with the process. As a hobbyist, I was more focused on system development and trading environment. I probably did a pretty good job of that, but that does not necessarily translate into results. And it is the results that the 'serious' trader needs to focus on.

Looking at the primary systems themselves, they went from two strong months to a mediocre month. In and of itself that is nothing to be concerned about, but you always worry about over optimization. I try to base the systems on just a few factors, but than have many ways to describe those factors, e.g. how do you describe sufficient value? One symptom of possible over optimization is the systems generated 50% more trades this month than average. This is partially due to not picking up the trading trends as well as I would like. A good value in a down trend is likely a terrible value in an up trend. Here is an example that shows what I am looking at for the primary trend.

March 15 Min Trend

You can see that little mini sell off on March 28 led to a sell signal on the 29th. That is all the pink on the indicators at the bottom of the chart. This is the weakest of trend indicators because there is no confirmation after the initial sell off. Most of the indicators turn blue pretty quickly on the 30th. Unfortunately, those are the 'confirming' indicators. The primary trend indicator does not turn up until April 1. That leads to a sequence of chasing shorts on the way up and missing the nice retracement trades on the 31st and 1st. (FWIW, the actual trend changes are channel breakouts with confirming volume using various channel lengths and volume measures. This months trading trends went long -27; short +9; long +14; short -22; long 0) With such poor trend tracking it's not a surprise to have mediocre results - basically flat on -26 trend points. In a way, that shows how strong the system entries themselves are to keep me out of worst trouble in such a poor trading environment. Even at that, a couple of tick changes at the end of bars could have changed some no trades into decent winners.

This goes to the root of what I started to say ... hobbyists can be too enamored with their systems. As a trader I could see the low risk buying opportunity on the 29th, but I was unwilling to go outside the system box. When I finally went outside the system on the obvious trading double bottom on the 31st, I had some success. The thing to like about systems is they help take the emotion out of trading. But I don't think they can react as fast as a good trader, and most importantly, they don't provide a good risk analysis of trades that are outside of the system box. All I need to do is look back to my first go at trading and see that my success came from evaluating risk and hitting those high risk/reward points hard as much as picking the right direction.

Developing systems for me is about taking the emotional roller coaster out of trading. For optimal results, I may need to find a balance that puts a little of that back in.

 March 27, 2011

Week 4 wrap Money Management (10) Psychology (2) System (6)

This was the week I was waiting for that could have made the month. I've pretty much said it already, but to recap, while the system was getting back in sync with the market, I was trading like it was yesterday.

While taking the losing outliers week one, I failed to capitalize on the winning outliers this week. So I end up with a sub par +3.75 for the week (par is 1 point per day).

That did motivate me to investigate some other system patterns. Since moving into my 'trader' mode, I've been looking to add a 'third' leg to my trading systems. If that works out, all will be well. For one thing, it will allow for more 100% and even 150% leverage trades.