Final Trading Plan

Alright guys, for those of you who have the guts to follow a trading plan, here it is. I don't care if you follow it or not, because it does not carry the risk of losing value over time. Granted it is difficult to stay disciplined enough to follow a plan like this. It is important also to note that once your stop distance is calculated then determine based on the risk you feel like taking how many contracts you should trade. NEVER just pick a number of contracts willy-nilly.

Alright...Good luck and Namaste


Trading Plan
Initially Trading the Russell 2000 Index Futures at the CME and MiNY Natural Gas at the NYMEX. This trading plan is created to be applicable to any futures contract. The idea eventually would be to diversify in order to pick up large trends in any market.


Rules:

1
Never break the risk management or position sizing rules. All other rules are subject to change by the trader at any time if he feels that it will increase the possible reward or decrease the possible risk

2
Only trade in markets that are liquid enough to allow for complete execution of a trade with no slippage. I.E. if trading 100 lots miNY natural gas would not be a good option but e-mini S&P might.

3
Never let your emotions change a trade and always have confidence in the system.

4
At most risk 1% per trade and 3% per day.

5
Use position and risk management to always be in multiple contracts at a time so that if the question of taking profits or letting winners run arises then some of the position can be taken off as a precaution


Strategy 1
MACD entry for trend following.


Setup:
During intraday trading, the 5 minute MACD crosses the centerline (MACD goes positive or negative)

The ADX is greater than 20

The 1 minute MACD Histogram is the same sign as the MACD


Risk Management:
Determine the 10 period moving average of the Average True Range of the contract on the 5 minute chart. Use this as your stop position. Then using this determine the number of contracts to use that would allow a worst case scenario between 0.6% and 1.0% of the total capital. Given this information and assuming that this strategy picks trends approximately 33% of the time, use your daily goal profit, as determined by your yearly goal profit, to establish a goal profit on the trade. Only after this value has been reached can the possibility of taking profits be considered.

Execution:
If the setup and risk management have been determined and the trade feels like there is no reason to defer the trade, execute immediately at the market the number of contracts predetermined and place the stop loss physically in the market. The trade should be long if the MACD is positive short if the MACD is negative.

Exit:
If the MACD on the 5 minute crosses the centerline again, thus beginning the setup for the opposite position the trade should be exited. In addition, if the end of the trading day is imminint the trade should again me exited. Othewise, the stop placed in the market should be trailed (trailing only on positive moves**) and kept within a distance of the market determined by three times the 10 period Average True Range.

Strategy 2
Stochastic entry for consolidating markets


Setup:
Strategy 1 must not be currently in a trade and the setup for Strategy 1 must not be ready

The ADX is less than 20

The 3 period moving average of the 14 period stochastic indicator on the 1 minute chart must be crossing from above 80 to below or below 20 to above.

Risk Management:
Determine the 10 period moving average of the Average True Range of the contract on the 1 minute chart. Use this as your stop position. Then using this determine the number of contracts to use that would allow a worst case scenario between 0.25% and 0.33% of the total capital. Given this information and assuming that this strategy picks trends approximately 50% of the time, use your daily goal profit, as determined by your yearly goal profit, to establish a goal profit on the trade. Only after this value has been reached can the possibility of taking profits be considered.

Execution:
If the setup and risk management have been determined and the trade feels like there is no reason to defer the trade, execute immediately at the market the number of contracts predetermined and place the stop loss physically in the market. The trade should be long if the Stochastic line crosses from below 20 to above, and short if the Stochastic line crosses from above 80 to below.

Exit:
If the 3 period moving average of the 14 period stochastic indicator on the 1 minute chart now is indicating the opposite trade exit the position. Also any trade should be exited by the end of the trading day. Otherwise exit the trade using a trailing stop kept a distance of 3 times the 10 period moving average of the Average True Range that moves only on postive moves*

**Positive Move
The move in the market must be one that increases the value of the position. I.E. The market goes up if the trade is long, down if short.

Range Bound's a Killer

QG/ER2

Background:

Today was really a pretty boring day over all. Both the Russell and Nat Gas stayed range bound. The frustrating thing was the Russell's range was pretty big so each move looked like a good trend beginning. I'd follow it and inevitably get stopped out. No real news to report on any front background wise.

Trades:

I began for the first time the bringing together of two strategies. Instead of simply trying to pick up trends which can be the root cause for getting stopped out a lot, I am not, in the consolidation periods using the stochastic indicator as a tool to essentially sclap 4-8 ticks in each market. Risk wise I'll risk 2-4 ticks. Overall the system seemed to work a majority of the time, and sustained my P&L a little bit longer. I ended up with a pretty good winner in natural gas, but the russell due to it's massive swings ended in my demise. I need to think of a way to take advantage of swinging markets as well as trending markets.

Positives:

I went limit down but I still feel confident going into tommorow. The strategies are looking good and I feel confident enough to increase size on my stochastic strategy. I am currently reading Trade Your Way To Financial Freedom by Van Tharp and I seem to be doing everything necessary to allow for long term gains in the future. In addition I have been working hard backtesting these strategies in Excel.

Negatives:

Aside from the P&L, I see the weekness in my current strategy. A big swinging market that looks like it's going to form a trend then changes direction quickly will lose a great deal of money. It's possible that playing some combination of the MACD Histogram and the MACD crossing is the answer but I am going to continue for the rest of this week with this current strategy. I believe abondoning it would be foolish.

Conclusion:

Increase size on scalping technique. Adjust technicals to only account for day trades (they previously have been showing me all trades night and day). Watch for a break in natty gas as the longs in the market have taken off 16% of the their position, and watch for a rally in the Russell as it is lagging the Nasdaq.

Good luck and Namaste.

EIA DAY!!!

QN/ER2

Background:

Today was a big day due to the EIA natural gas report that came out at 9:30. As you can see by the chart above, the larger than expected draw in natural gas caused a 30 cent price spike. The rest of the day pretty much sold off slowly back to pre-eia levels however, the initial caused a staggering move above the 8.00 level. The russell went down pretty consistently over the day. The first 30 minutes were very choppy and then it continued to fall for the rest of the day. Note that yesterday Democrats took control of both the house and the senate.

Trades:

There's really only one trade I want to mention and I believe it was a bad trade yet it was my largest risk/reward winner ever. I broke my rules which is why I believe it was a bad trade and I was lucky to walk away a winner but what I saw made me realize that had the EIA gone the other direction I could be down a great deal. I went into the eia with a 1 lot long. The MACD showed a buy signal and I thought, I'll put it on and place my stop 5 cents back. At most I was risking 125 bucks. When the EIA hit the market literally jumped about 15 ticks up immediately without trading. There was gaps in the market so big you could drive a truck through them. It continued it's run up and I am proud to say I captured 24 cents out of the possible 28. What I didn't like about this trade and the reason I will not do that again is the gapping and jumping that occured to the upside could've easily happened to the downside causing me to lose more than the 125 I had planned. There's a lot of risk involved in holding a trade into something like that and if I ever deside that it would be an okay proposition to do that again, I would say to do it the same as I did with an actual stop loss placed in the market so that you get out asap if it goes against you. In the mean time, I'm not going to be doing that again.

Positives:

I am currently reading a book called Trade Your Way To Financial Freedom, and it is explaining how goal setting and objective setting is extremely important. I am currently working on those goals and will make a report of them once they are complete.

Negatives:

It wasn't smart to break the rules like that, and it's too bad that it worked out in my favor but I know now that it's not worth the risk it could've produced.

Conclusion:

Decent job today, up .5%. The MACD showed all kinds of good trades today and I'm currently working on building a backtester to analyze my trading strategy and determine if it is viable.

Good Luck and Namaste

Dems Take It and Rumsfield Gives It Up to an Aggie

QN/ER2

Background:

Today was the day after the midterm elections. Last night the Democrats took over the house and around 3 o'clock it was confirmed that the Democrats were no longer the minority in the Senate. In addition around lunch time, Donald Rumsfield (who was blamed for much of the Iraq war dibocal) resigned as Secretary of Defense. In his place will be Bob Gates former CIA Director and President of Texas A&M! Whhaaaaa? Yes folks an aggie. All those years growing up making fun of the aggies and well, lets just hope silent black helocopters start following me around. In any case, Nat gase sold off after the EIA, showed increased crude and decreased distillates. Around 11 the volume and volatility dried up due to anticipation of tommorow's nat gas EIA number. We hit the high point for the day at 8 dollars and finished around 7.86, trading was pretty light.

In the russell the market gapped down and pretty much ran up all day closing up around 2 dollars at 773.2. The initial 30 minutes were whipsaw-tastic, the MACD stayed positive all day which would've been a great trade early. I have found that the MACD histogram is not very reliable in the russell yet the MACD itself is very reliable. Ryan seems to believe that the russel is on it's way to 800 by Friday due to the immense buying on the down candlesticks.

Trades:

I didn't make too many trades today. I just didn't see a lot of good opportunities. I did manage to hop in on the down move in Nat Gas. Turned out to be a 1.5% winner (with only a 2 lot!!). Trouble was there were many trades that ended up getting stopped out so I ended the day only up around .25%. Not a good day by any standards, but certainly a far cry better than Mondays pit o' destruction. Something to note in the future for Nat Gas on Wednesdays, volatility really dries up after 11 o'clock. Avoid trading during this time, most moves will be fake outs.

Negatives:

I had one trade today I really wish I hadn't of done and that was just alluded to. The MACD crossed the centerline down on nat gas around 12:00 and I shorted only to get stopped out for a .75% loser. I should have noticed the decreasing volume and stayed out but hindsight is 20/20. I'll know in the future.

Positives:

Great job with risk reward today. That 2 lot trade that made around 1.5% was awesome. I let it run and at one point the trade was up around 2.5%, I was going to let it run as long as it wanted to but I was down .5% going into the trade so I put a stop where I would be up around 1%. It was good I stopped out because the market completely flipped around and I would've given it all back. Excellent job of letting the winner run and way to catch the beginning of the decline. In addition I did a little analysis and found that on average using the MACD puts us in the risk of around 10 ticks in the natty gas contract (5 cents) and 14 ticks in the russell. It is appropriate risk reward wise to use 3 or 4 contracts at the very most. My instincts on that were great.

Conclusion:

Hopefully tommorow shows a little more volatility. Use 3 lots instead of 2 lots tommorow with full confidence and continue to show great risk reward and discipline. Watch for the natty eia at 9:30 and look for rallys in the russell to Ryan's mystical 800. Great job today, the pnl didn't show the discipline involved today.

Good luck and Namaste

Election Day

QN/ER2

Background:

Today is the day of the midterm elections. There shouldn't be much affecting the market until tommorow, but it had the potential for increased volatility in the equity markets. Natty gas started out real slow today with VERY little volume. About mid morning it made a 50 cent up move without looking back. It was marked by HUGE buying volume. After that hour or so it pretty much settle up for the rest of the day though. The ER2, started with a tiny whipsaw and then shot for the moon going up almost 12 points during the morning. There was some slow pull back and then a market break before the close giving up all but 1 point of the rally. Volatility was much higher in both contracts today compared to yesterday.

Trades:

Trades before 6:30 have not been winners so I'm going to stop trading before then and simply trade when there is more volume. As the market started to open I was down in the qn's because of morning trades. I let the Russell figure out what it was going to do (about 30 minutes after the open it picks a direction). It was going up and I got long just one contract. Every 15 ticks positive I'd add one more contract and move my stop up 5 ticks behind the market. I eventually stopped out up just under 2% bucks (not bad for a one lot trade). I stopped out on a few more 2 lot trades during the consolidation period and it came back to 1%. I got in long at the bottom of the natty gas move with a 4 lot I believe, I took of 1 contract at a time as it found levels of resistance and added some back on when it showed renewed signs of life. I eventually went up about 2.5% for a winning day over 3%.

Negatives: Due to yesterday's whipsaw I used VERY small contract sizes because my confidence had been affected and I wanted to trade comfortably. If I had been using my previous contract sizes i would have seriously raked in. I missed out on the last break in the ER2, because I didn't trust the MACD in that contract. However had I followed it and stuck with the trade it would have proved to be a big winner. I also became very tired at the end of the day because of how early I started and wasn't able to trade through the close because my concentration was falling.

Positives: This made up for the loss yesterday and put me sligthly positive for the week. I am still down since starting but I am certainly showing signs of improvement. Asside from the good pnl, I had AWESOME risk reward today. I was catching 25 r winners (which means for every 1 dollar of risk I make 25). That's amazing and a great sign for the future. I was able to let my winners run so long the low contract size didn't seem to matter as my pnl went up handedly despite. I used the MACD but not rigidly, and employed the use of stop losses in the russell to prevent the whipsaws (however if i hadn't stopped out of some of those trades they would have proved to be BIG winners as well.)

Conclusion:

Good recovery from yesterday and certainly a boost to the confidence. Tommorow feel confident with the larger lot size but watch out and remember the problems from Monday. Pay attention to the 5 minute MACD line not the histogram and trade confidently off that. Watch natty gas for the EIA at 9:30 and pay particular attention to the election which should have an affect on the Russell.

Good Luck and Namaste!

Whipsawed in the ER2

QN/ER2

Background:

This was the first day trading ER2. Note trading was on Monday November 6th, after the jobs report on Friday and the midterm elections on Tuesday. The main point to note is the whipsaw that took place at the open of the market in the ER2. Initially MACD showed a buy signal and almost immediately flipped around gave a sell signal. The rest of the day was fairly one directional.

Trades:

Unfortunately I only really made 2 trades of any signficance. I was excited about the ER2 and bought when the MACD said to buy, stopping out using the 1 minute chart, and sold when the MACD said to sell, stopping out again on the 1 mintue chart. Because of this I was limit down 3% in the first 30 minutes and had to stop trading for the day.

Negatives:

Well aside from the fact that I went limit down, the risk involved in using the MACD became apparent. However it is interesting to note that the MACD line always said buy and had been indicating buy all night long and into the previous day. The MACD line above or below the center has MUCH more significance than the histogram.

Positives:

This was my first time, all alone I had to stop myself out. It's a difficult task telling yourself that you can no longer trade for the day but I did it successfully and not only that felt really good that I did. Even though the rest of the day could have shown signs of success, it felt good to see I had the discipline necessary to be my own risk manager. In addition to the good discipline I saw the downside to the strategy I was running and will be much more wary on buying or selling based on the MACD histogram.

Conclusion:

Tommorow continue to trade confidently, but lower the contract size in the Russell. Stick mainly to Natural Gas and try not to trade the russell until after it has picked a directional move. Typically 30 minutes is probably the amount of time necessary to slow down the initial volatility, thus drastically reducing the risk of a whipsaw.

Kind of interesting after I posted a quote about how one should not stick to blindly to structure and rigid rules, I saw the reason why.

Good luck and namaste

Ole MACD had a farm E-I-E-I...A?

Background:

Today was a slow day coming off of the EIA yesterday. Technicals are pointing to a top in the Nat Gas market and looks like next week will certainly yield some interesting scenarios. The market was really range bound today, staying solidly in a 20 cent rang between 780 and 800. Volume really dropped out by 10 am and there were some signs of life occasionally but all in all there was no real trading today. Everything seemed really well mean reverting around 790.

Trades:

I came into today feeling very confident. I had worked up a good strategy using the 5 minute and 1 minute MACD (Moving Average Convergence/Divergence). I decided that today, even if it killed me I was only going to enter the market when any of 3 specific indicators told me to enter.

1) 5 minute MACD histogram goes from negative to positive or vice versa. (pos buy, neg sell)
2) 5 minute MACD crosses the center line (up buy, down sell)
3) Either 1 minute or 5 minute show signs of a divergent pattern.

I would exit trades 1 and 2 when the 1 minute MACD histogram crossed the reverse direction and the number 3 trade I would hold onto until opposite trades for 1 and 2 appeared.

I followed these to a t, only adjusting whether or not I exited the full amount of the trade or left a small amount on to let the winner run. In any case the market was very slow today so I only made about 1% on my capital, still negative after yesterday, but the strategy made money on a day when my previous SUPER momentum strategy would've gone limit down FOR SURE. The strategy ignores wiggles and after running some tests in Excel would've made around 5% yesterday if I had implemented it.

Positives:

I stuck to the plan. I was relaxed and calm and believed in my plan and executed it almost perfectly. I stayed in the market and doubled my winnings even though volume had already dried up early (New rule: always stay till the close, unless you want to get lunch). Finally, I'm proud that I really worked out the risk reward last night for this strategy. After yesterday's close I had a misconception about the MACD. After some studying of how the MACD works, I found that my previous beliefs left me open to some serious risk. With the new strategy I was seeing results in the 33 reward to risk ratio levels. That's a pretty spectacular number.

Negatives:

It was a slow day overall in the market and there were a couple times I entered the market like I was supposed to but was stopped for a loss because of the lack of liquidity. Now I'm not going to say that this was a mistake because later on the same scenario made back more money that the previous losses; however it would be good to analyze whether or not there were indications NOT to enter the trades.

Conclusion:

I really hope the daily chart is correct in calling for a top to this market. That would produce some excellent moves next week that I believe will come due to a possible injection in supply and above normal temperatures as we approach the winter months.

For the die hard fans I think i'll end the week with a good Bruce Lee quote:

"Learn the principle, abide by the principle, and dissolve the principle. In short, enter a mold without being caged in it. Obey the principle without being bound by it. LEARN, MASTER AND ACHIEVE!!!"

"Knowledge in martial arts actually means self-knowledge. A martial artist has to take responsibility for himself and accept the consequences of his own doing. The understanding of JKD [Jeet Kun Do] is through personal feeling from movement to movement in the mirror of the relationship and not through a process of isolation. To be is to be related. To isolate is death. To me, ultimately, martial arts means honestly expressing yourself. Now, it is very difficult to do. It has always been very easy for me to put on a show and be cocky, and be flooded with a cocky feeling and feel pretty cool and all that. I can make all kinds of phoney things. Blinded by it. Or I can show some really fancy movement. But to experience oneself honestly, not lying to oneself, and to express myself honestly, now that is very hard to do."

Certainly something for "Caged" me to think about over the weekend.

Good Trading and Namaste

Wiggles and his other furry friends of distruction

Well, as Ryan so elequantly put. "Does this count as a 'good luck to lose money your first day' day again?" Unfortunately no, but in some ways yes. After a week off due to changes in software, clearing and actual location, this was my first day back in the market. Went down a little less than 2% today which isn't too bad, but the opportunity to make a great deal more 5% was there. Some of my trades today were good winners but there were a couple major mistakes I made today that I know now I shouldn't make again.

Background:

Today the market was coming into Nat Gas EIA. I woke up and observed the market from about 5 am until the close at 1:30. Nat Gas had a draw slightly larger than expected which as we all know from supply and demand class means that prices should go up. However the last time economics worked in the fast paced world of minute to minute (second to second even) trading I don't know. The market broke down about 20 cents from 5 am till around 10 am, when a huge rally up to the 8.00 psych mark ensued. The market finally came off its highs settle around 7.84. In total the market went up about 14 cents but really had a lot more going on other than that.

Trades:

Initially this morning the market was very thin and I knew that often, premarket, nat gas picked a direction and ran with it. Things were looking bearish so I put in a couple orders to sell pretty far outside the market, more as a referance point than anything...HOWEVER...the market in the morning makes HUGE 4 cent to 8 CENT jumps as big institutions (or whoever feels like buying 100 or more contracts) comes into the market. These orders got picked up on one of these jumps and I had to get out of them for about a 200 dollar loss. It was certainly a mistake to sit around during that craziness. My plan today was to use the MACD technical analysis tool on the 5 minute chart as a way of picking entry points. This paid off to put me up around 1% dollars going into the market open. I closed out my positions going into the EIA (by the way NEVER hold a position into EIA, that's so retarded risk wise I don't even no where to begin). The market tanked after the EIA and bottomed. The MACD went positive and I bought unfortunately this is where I made my mistake. I got a little greedy and tried to add onto my position as the market rallied. In doing so I increased my average price and failed to adequately adjust my stop loss. Due to this mistake i quickly went down about 1% dollars. I realized the error but not wanting to lose more than 2% felt I had very little risk left to put on. I decreased contract size and made a couple more losing trades to go down to 1.8%. I told myself that I should stop here and evaluate the market. I noticed that the MACD perfectly called the top of the rally and told myself just to watch. The market started to break and I gave into temptation and sold 1 contract only to find I pretty much picked the bottom of the break and stopped out at 2% down.

Negatives:

Placing orders in the early market is very risk with the HUGE jumps. Avoid this at all costs unless there is an indicator saying you should. Adding onto my position (getting greedy) was the worst of all ideas. It would've worked if I had trailed my stop loss tighter but I failed to adequately get myself out of the losing trade fast enough and got taken for a big loss, WAY above where I initially bought. Finally trading after I told myself to stop was a serious lack of discipline which cost about .25%. Avoid this foolishness at all costs. If you feel like you need to stop psychologically, stop, otherwise you face serious emotional risk (far greater than the financial risk you place yourself in).

Positives:

The 5 minute MACD is an awesome indicator. Someone playing just that could've nabbed about 30 cents of today's action if not more. This is a great way to find entry and exit points. Continue to use this wonderful tool. Good job also on not losing more than the amount I felt I could lose. Although it is difficult to take a loss the lessons learned will reap multiples upon what I lost, and I look forward to tommorows market to implement these improved strategies with full confidence.

Conclusion/Market Prediction:

Stay confident into tommorow. Look for the breakout above the 8.00 psych level, but this range bound market right now is perfect for not feeling bearish or bullish but feeling whatever everyone else at time is feeling.

Good luck and Namaste