Interesting month July. There were lots of really good setups that work great, but also many of them failed. And with failed moves come fast moves. I got stopped out of a lot of trades when breakouts failed. But I also was able to capture some great moves. Like IDT, ENTR and PWER. Positions were smaller than usual because I wasn’t sure if the market was going to move higher. I began to look at the S&P 500 E-mini futures for some clues and found that the 60 min chart with the 60 MA provided some insight for market direction. I still have 8 positions open which are working great. Currently, I still have 1/3 of a full position in ENTR which is up by 42% and a full position in BJGP that is currently up 10%. With so many failures I wouldn’t be surprised if those gains were halved, but the market continues to show a desire to move higher.
As usual, the stats are below for July and cumulative for June-July as well as for all trades since Dec 09 when I began to twitter my trades. From the Setups analysis I can see that breakouts are not really working that well and next month I am going to try to buy the dips on momentum names. Since I continue to make substantially less trades than a few months ago, I am going to increase the risk per trade to $100 starting August.
I also posted a User Gude for the Stock Trade Journal software to explain in a bit more detail how it works. Check it out.
-
-
Dec 2009 to July 2010 Performance
-
-
July 2010 Performance
-
-
June – July 2010 Performanc
-
-
June-July 2010 Setups
Trading is simple and yet it is difficult to do it well. To trade well one must have a good understanding of the market as well as self discipline. And there is nothing better than objective observation to achieve that. The problem is that it is also very difficult to observe objectively as not only do we have expectations, opinions and biases, but we are also constantly bombarded by the opinions of others through the media. However, a trader can objectively analyze their performance through a formal documentation and analysis framework.
The analysis framework that I use has three main components:
- A thought journal.
- A market journal
- A detail trade statistics tool
In the thought journal I document all emotions, situations or biases that have no connection with market conditions. This is where the I write in detail what I experience when I have a large loss or win, especially if it was a traumatic experience.
The market journal is where I write all I observe in the market that might give me an edge like failed patterns or indicators that are “working well.” I also enter all trade transactions. This is very important to be able to generate statistics about my own trading. For each trade I write:
- Date of each transaction (open, close, scale in or out)
- Symbol
- Quantity
- Price per share
- Long or Short
- Buy or Sell (Open or Close positions as well as scaling in and out of trades)
- Commissions and other costs
- Setup type (Trades are tagged by setup pattern like “Head and Shoulders”, or “Cup and Handle”)
- Stop price
- Target price
- Overall market direction
- If I was stopped out of the trade.
- Any relevant comments to that particular trade (both thoughts and market observations )
Every week I add and average all trade data as well as classify and group trades by their setup tags. For all trades I then calculate expectancy and rank each trade to see what trade produced the highest gain and loss and calculate their ratios. Then I do the same for trades that fall within each setup tag to see which are working or not. I also do the same with data gathered year to date, monrhly, quarterly and semi annually to see longer term trends in my own trading.
Every couple of weeks I go through all the information I gathered. I read all entries in the journal and expand on those thoughts and observations by looking at the charts with up to date data. I look at my trading stats and see if any patterns are emerging like setups that have been working well or if I had a large number of setups failing. The setup success rate is in itself a great market indicator. For example, if breakout patterns are failing I take a step back and look for other signs that the market is slowing down and possibly changing direction.
It is a lot of work, but it does pay off. For years I used Excel spread sheets that I set up with macros to generate graphs and stats, but it was difficult to search and manage. I now use the Stock Trade Journal which automates all those tasks and makes it much easier search and sort.
Boy, May was a very though month. It was a good time to short if you had the stomach for wide stops. I traded very little in May which is an improvement over previous months.
I only made 6 trades on the long side this month where 4 lost money. The Winner / Loser ratios where less than 1 which is dismal and the Expectancy was negative. Looking at both April and May cumulatively since I initiated a couple of positions in April that closed in May) I continue to see the negative pattern. I only attempted three shorts, but managed to lose on 2 of them.
The only positive I see in my trading analysis is that I traded only a fraction of what I usually do and was able to step aside for the most part. Since I didn’t see many good setups I was able to spend more time fine tuning a new feature I plan to release in a couple of weeks. I am now adding the ability to track performance by “Setups” to the Journal. The Idea is to create a custom list of setups like “Breakout”, or “Cup and Handle” that will let traders associate with a trade. In the screen captures below you can see the best and worst setup items in the stats window. The best setup I traded in May was the “Dead cat Bounce” where I spotted a quick bounce off very oversold conditions for a short term profit. The worst setup was a play on “Oversold” stocks that where showing signs of what I perceived as good bases.
There are more stats I am adding to the setup analysis like average profit, total profit, and expectancy among others. The idea is to gather enough information about how I play each setup and initially concentrate on trading the ones I find easier. But then I plan to train myself to play my weakest well.
I also included a screen capture of the cumulative performance since Dec. 09 when I began to twitter all my trades. It clearly shows that the largest draw down I’ve had took place in the last two months. That tells me that I really have to change they way I’ve been trading to adapt to market changes. I have been doing that this month and hopefully will be able to come up with strategies that work for the current market. Tracking how well different setups perform is already giving me eye openning insight.
-
-
April to May 2010 Performance
-
-
Dec 09 to May 10 Performance
-
-
May 2010 Performance
When markets turn fast and furious, as they did last week, they cause extreme emotional responses from traders. These are often very traumatic experiences and knowing how to handle these emotions is key to profit and to minimize losses.
The good Dr Brett Steenbarger explains in his blog how journaling can help getting over traumatic experiences. If you had large losses last week, step aside and take some time to write as much as you can about the experience in your journal. Write down your thoughts with as much detail as possible describing your feelings as events unfolded. Write about any relationships you find between your thoughts and feelings and the trades you placed and their outcome.
Read your entries out loud and identify negative behavior that might have lead to bad trading and losses. Did you over trade? Did you revenge trade? Did you respect your stops? Did you even have any stops in place? Did your risk management system work? Once identified, outline a plan to take corrective action and begin training to become a better trader. In the StockTradeJournal site I have placed a number of very good resources on the Internet that can help you become a better trader. Take a look at them here.
ACF Chart
I spent some time analyzing a trade that was stopped out last week for ticker ACF.
I had been stalking $ACF after it showed up in TheKirkReport’s awesome Stock Screen Machine and set up an alert to let me know that the stock was beginning to move out of its multi-week trading range. When the alert triggered I bought at $19.19 and placed my stop just below $18 with initial target at $21.38 which was reached in January 11th. The stock gave back some gains the next few days and I began to think that it wouldn’t run up any more and sold some more close to the first price target.
I kept 1/3 of the position as I usually do and set up a Vervoort ATR trailing stop (purple line.) ACF continued to climb slowly, but steadily for two months and offered two opportunities to re-enter in March. I bought some more on March 22nd when the intraday chart showed that the buyers were stepping in at the 20 DMA (red line.) In usual fashion I swing traded it and sold 2/3 of it while keeping the remaining with the ATR stop.
The sell signal triggered on April 28 and sold the remaining shares I had. The total return for that trade was about 30%.
This stock is getting oversold and might offer a good entry soon. I will be keeping an eye out on it.
Another month has gone by and it’s time to look at how I traded.
The first P&L graph shows a net loss for trades that where both initiated and closed in April. The bar graphs on the right show that there were more losing trades. I had a winner / loser ratio below 1 and to make things worse I also had a negative Expectancy. All those show a poor trading pattern.
But taking a look at the cumulative performance between March and April, because there were trades initiated in March that I closed in April, I see a different picture. The picture here is more complete and shows a positive P&L with a much better Expectancy. And for the first time I was able to increase to 3 the ratio between the largest winner and loser. That is a much encouraging report.
Also, it is particularly important that I look at my performance since December 09, when I began to twitter all trades, because I closed a position in $ACF that was initiated that month. That trade represents the largest profit to date. The P&L graph for this multi-month period continues its upward trend and the number of winners – for long trades - is now a bit greater than the losers. On the short side, however, winning trades are less than half of their losing counterpart, but the Expectancy improved considerably.
-
-
April P&L
-
-
April Trading Stats
-
-
Dec to Apr 2010 Performance
-
-
March To April Analysis
On the thought journaling side I found several entries where fear and euphoria took hold. I am noticing that these mixed emotions begin to show at short-term market turning points. I tried to concentrate on finding companies that beat expectations this earnings season, but sometimes is best to step aside.
I also noticed the urge to place trades to recover loses this past week and had to really fight those feelings and stick to the 5 trades per week plan. That training strategy is working, but I feel I need to take it one step further and try to limit to at most one trade per day. This way I really have to be selective and work harder at finding and entering only the best setups.
That is the path I am going to take next month.
