finding a relaxation response in my belly

• when i got sick earlier this month, i had to find a way to relax my mind and my body when the headaches and the dizziness got too intense...
• one of the things i discovered was that i could relax my mind and my body by extending my breath exhalation by about 2-3 seconds...i was able to accomplish this by noticing when the breath exhalation was about to finish, and then use my diaphragm to push more air out of my lungs...
• since last wednesday, i have been intentionally practicing this new breathing technique while i am at my desk and at random times throughout the day...
• when i do this, i notice i am able to become more aware of my thoughts and feelings, especially if i am getting stuck on a particular thought or a particular feeling...the increased awareness of getting stuck and then remembering to breathe with the extended exhalation has been helpful in getting 'unstuck'...
• this breathing technique has been extremely helpful in reducing the amount of anxiety i experience, including when i have a trade open...
• i plan on practicing this breathing technique more and more during the course of the trading day and when i am away from my desk...
• this technique has definitely helped me relax...while it's not the relaxation response per se developed by herbert benson, it has helped me reduce my level of anxiety in both my professional and personal life...

Zen Trader System's T.Y.P.S.: Tap Your Power Source

• the following are notes from this evening's free webinar given by Mike Kanuika of Zen Trader System on his T.Y.P.S. (Tap Your Power System) program/product...
• the T.Y.P.S. audio product uses alpha wave/state entrainment with customized nlp (nuero linguistic programming) to reprogram the traders subconscious paradigm such that it becomes synchronized with the traders conscious intention...
• trading success is significantly influenced by subconscious programming...
• synchronize conscious intention with subconscious paradigms...conscious intention may win a battle but the subconscious paradigm tends to win the war...
• learn how to consciously communicate with the subconscious brain...
• alpha wave/state training extremely important for shifting/changing the subconscious paradigm...
• enter into the alpha state ==> identify negative energy patterns ==> change the program via customized nlp...this will reduce/eliminate the impact/charge of the previous negative energy pattern...
• enter into the alpha state ==> identify positive energy patterns that i wish to have ==> program the new pattern via customized nlp...this will lead to relaxed precision...
• birth to age 7ish we develop our survival paradigms within the family/environmental structure...this paradigm influences everything we do, including how we trade...
• perceptual misalignment's need to be realigned...
• deep sleep wave session (alpha and theta states while sleeping: 50 minutes); morning magic session (30 minutes); neuro nap (noontime refresher)...

9/11/2009 notes to self

vcm discretionary daytrading:

• if a position is to be held through lunch, then do not open any new positions after 1115 rt...
• consider exiting open positions into the 1200 or the 130 rt...
• wait until 215 rt to open new positions for afternoon trades...
• if i am comfortable with the uncertainty of a position that is going against me, i have to train myself to be comfortable with a position that is going in my favor...when it is going in my favor, i have noticed that i tend to believe that it will reverse and then go against me...

back in sync: is fear now my friend?

• when the NQ started to retest the morning highs, i tweaked the exit and got filled at 1651.75 (+9.25 points/contract)...
• i was looking to buy this lot back at limit 1643.50...tweaked the entry and got filled at 1644.00...
• both of these tweaks were based on fear: fearful that my exit at 1653.50 wouldn't fill and then fearful that my entry at 1643.50 wouldn't get filled...as it turned out 1653.50 would not have filled, and i would have been pissed to watch the NQ fall back into the low 1640's...
• 1643.50 may have filled, but since that was the low of the swing down from 1652.75, it may have not...
• so fear definitely helped my exit and may have helped the following entry...my intention of trading with less of an influence by fear would have hurt me in these two instances...not looking to make any drastic changes regarding how fear influences my trades, just observing it...
• currently looking to sell this newly added lot at limit 1662.50 during the day session...
• currenlty looking to buy another lot during the day session at limit 1617.50...

Disclosure: Long NQU09.


***remember this is an illustration of what i am trading and my thinking...my trading plan may change without notice...this is not a recommendation for you or anyone else, to buy or sell this or any other security...***

8/25/2009 11 am update

• ego, ego, ego!! so invested in the trades outcome...so pissed when i am out of sync!!
• afraid of not having a position in the NQ for the discretionary swing trade...afraid that i am going to miss the move...afraid, afraid, afraid...
• tired of the day and night sesssion chop in the NQ since mid morning friday...when the NQ gapped up this am into the low 1640's, my limit order which was moved down from 1656.50* to the mid 1640's, but i kept on missing the exit by a few ticks...so i moved the limit order down and down and down and the got filled at 1641.25 (for +5.75 NQ points/contract)...
• what did the NQ do then?? why it went on to rally to recent resistance at 1647ish, break that resistance and rally up to 1655.50...
• i decided that i did want to get back into the NQ, but at a level that takes the following into consideration: multiple time frame analysis (15M, 60M, Daily), pivots, moving averages and expected ATR high/low areas (http://stbsmb.blogspot.com/2009/08/atr-average-true-range-volality-bands.html)...this analysis led me to place a re-entry order at limit 1642.50...
• the 1655.50 high of the day was hit at 1004 am, and then 14 minutes later i was filled at 1642.50...i didn't expect/want to get filled that quickly, as that quick reversal suggest potential weakness....however the market internals were either neutral (TRINQ) or bullish (AD LINE), so i still took the trade...
• exit order at limit 1653.50...
• in my vcm daytrading account, i shorted the COCO gap up...the entry was good, however i messed up the exit just like i did yesterday with VRX...
• when R base trading, i need to decide if i am going to scalp a small portion of the position when the trading vehicle moves to predefined pivots and moving averages (for both exits and entries), or if i am going to use an AON (all or none) tactic with a hard stop and a hard target...i need to think more about this...

* i tend to place an entry and an exit order in the overnight session that is somewhat far away from the closing price, but within 1 ATR of the that closing price...i don't expect the order to be filled, but i want to take advantage of the possibility of a volatile overnight session and have an order sitting there just in case we have a big move in either/both direction(s)....the more heavily i am currently positioned the more inclined i am to exit than enter, and the more lightly i am positioned, the more inclined i am to enter than exit...

Disclosure: Long NQU09.


***remember this is an illustration of what i am trading and my thinking...my trading plan may change without notice...this is not a recommendation for you or anyone else, to buy or sell this or any other security...***

8/20/2009 post open update

NQU09 discretionary swing trade/'BTD Index' systemic swing model:

• NQU09 traded down to 1591 after the 830 economic data releases, and if that is the low for the session, and with an expected range of 2.00-2.60% today, then the NQU09 projects up to 1623-1632 for today's session...
• 1632 has been the high of this month long base...
• sell limit 1612.50 has been filled...
• sell limit 1617.50 is still open...
• though the 'BTD Index' systemic swing trading plan calls for exiting at the close if the NDX closes about 1603.50, i am going to call an audible and sell that NQU09 lot at limit 1622.50...this is against that model's trading plan...
• added a buy limit 1603.50...if it fills, then i will sell it at limit 1622.50 and move the 'BTD Index' related lot from limit 1622.50 to 1627.50....
• NQ started to show some RS compared to the other major equity indices (YM, ES, EMD, TF)...

VCM daytrading account:

• shorted the LANC gap up into resistance and booked a quick + $0.70/share on the post gap up drop...
• HURN gapped up, i bought some on a pullback, it didn't show much strength after the pullback, so i exited with + $0.06/share...
• GENZ trading above its daily and hourly base, bought some on a pullback, exited on a return to the morning high for + $0.27/share...able to enter and exit a second position in GENZ for + $0.15/share...

Other:

• really impressed with Dr. Brett Steenbarger's TraderFeed blog...i am finding it to be a great resource for statistical analysis of market behavior as well as for insights into the psychological (EQ) part of trading...
• i am having a lot of fun trading today!

Disclosure: Long NQU09, Long GENZ.


***remember this is an illustration of what i am trading and my thinking...my trading plan may change without notice...this is not a recommendation for you or anyone else, to buy or sell this or any other security...***

7/24/2009 noon update

NQ discretionary swing trade:

• NQ ran back up to the top of the base that formed from the overnight session and the morning high...got nervous when it started to sell off from this high, and exited the long position at 1587.50 for a net gain of 12 points (27 for the day)...
• nervous is the operative word here...perhaps fearful is a better word...i didn't want to give back my nice gain...i initially placed my target at 1597.50, thinking that the morning low was greater than the overnight low, so we had a slight uptrend in place...if the NQ could rally back to the top of the base (forming an ascending triangle), then there was a good chance it could break above the base and then rally to the 1600 whole number and i would exit at 1597.50...this was the thought process and the plan...
• however, my emotions started to get amped up after we hit the top of the base, and then started to head lower...i didn't want to give back my gains, so i hit the sell button...
• this exit was not part of the trading plan that i described this am...though i did book a nice gain, i did not execute the plan...i will give this trade a C+
• my plan could have had another contingency, such that i could take my profit at the top of the base....since i believed that the NQ could test 1600 today, i could re-enter on a break above the top of the base with a tight stop a few points below the break, or i could re-enter on a move back down to the low 1580's - high 1570's....
• right now i have an order to get back in at 1577.50...
• i am feeling somewhat jumpy as i watch the NQ move back up toward the top of the base again...maybe it will break above it, maybe it wont...i am hesitant to buy a break above the base as i feel like i am acting on the frustration of not trading the plan according to specs or not having a better plan laid out this am...i do not want to trade from a place of frustration, so i will not enter a long position today above the top of the base...
• i still want some longside exposure for a longer term move up, so if the NQ breaks above the base, then i will raise my limit order (which is currently below the market), from 1577.50 to 1582.50...

***remember this is an illustration of what i am trading and my thinking...it is not a recommendation for you or anyone else to buy or sell this or any other security***

Catching up; checking in with 'fear'

its been a few days:

• the 'SHOE July Pre OE' long model was closed on Monday at 4pm, and generated a loss of about 1.7%...
• still stressed about the systemic swing trading models being out of sync with the market...i know there is nothing i can do about it and that is helping a bit...still its been nice not having any open systemic positions the past few days...i needed a break from the 'uncertainty associated with an open position'...
• doing some joint development work with JE on an ES intraday trading model (http://myestradingjournal.blogspot.com/) ...some concepts appear robust and limited testing bears that out...continued refinement of additional concepts and then more involved testing...working with JE has been a great experience in and of itself...
• discretionary daytrading at vcm (http://www.vcmtrading.com/#) has been going pretty well since the beginning of last week...i have been focusing on trading opening gappers...so far the results have been good...the things i am most proud of are cutting my losers short and taking the small loss, as well as exiting a trade that wasn't moving in the direction i was anticipating after a reasonable period of time...i still need to work on letting my winners run some more...over the past 8 trading days, the dollar value of the biggest winner has been greater than the dollar value of the biggest loser, so this is step in the right direction...but perhaps the bigger thing is to decide if i am going to R base the opening gap plays or scalp them....so far its been a blend of both: start a small position with a known profit target, add to that position when certain setups occur, and then calculate the R based stop...even had a good back and forth chat room exchange this am with the chat room moderator (trading/teaching master to the nth degree), who helped clarify my thinking about certain concepts...
• from this weekend's quiz (http://stbsmb.blogspot.com/2009/07/quiz.html) : when the average trader makes a decision to enter or exit a position, one of two emotions is probably dominant in the traders decision making process...what are the two emotions that the average trader might be keying off of? JE had a funny response...the insight i had this weekend is the two emotions are not the usual fear and greed pairing, but rather 'fear of losing' and 'fear of missing'...'fear of losing' leads to them selling into a down market, 'fear of missing' lead to them buying into an up market...when these traders act on either of these emotions, it tends to drive the market further in the direction of the current trend...i believe this is what is playing out now...the shorts have been madly covering over the past week on the failed head shoulders pattern in the S&P 500...under invested longs are scrambling to get more upside exposure and continue to drive the NASDAQ 100 to new swing highs...'fear of losing' and 'fear of missing'...
• can it be that 'fear' is the driving force in the market?? leading to under performance for the trading novice and to out performance for the trading master?? i am aware that fear plays a role in my trading performance, but perhaps i have underestimated its influence...
• is mastering fear one of the requirements to achieving trading mastery?

can surrendering to the trade lead to mastery?

'Trading Systems that Work'

'Trading Systems that Work' is the title of a great book by Thomas Stridsman. He outlines how to 'Build and Evaluate Effective Trading Systems'. I have used his concepts extensively when building, testing and optimizing my 35+ Systemic Trading Models.

TradeStation, the platform I use to model and autotrade my Systems, offers online tutorials (for subscribers) on the following:

• Introduction to Strategy Trading
• Strategy Testing and Optimization
• Strategy Automation
• Introduction to EasyLanguage

Learning how to build robust trading models and then learning how to technically execute them takes a lot of time. And this is just the cognitive part. Learning how to emotionally trade them takes time as well. It doesn't matter if we are discretionary traders or system traders, pressing the buy or the sell button when we are supposed to is a skill set in and of itself.
For anyone interested in using TradeStation, Wealth-Lab or any other platform to build Systemic Trading Models, or even to just build an Indicator, please understand that these platforms are like rocket ships in their capabilities. Let us learn how to effectively use their functions before we take off. We don't need to crash and burn to learn a lesson!
Do your research and testing before putting your hard earned capital on the line. In my view, 'Trading Systems that Work' and the TradeStation online Tutorials are a good place to start.
http://www.amazon.com/s/ref=nb_ss_gw?url=search-alias%3Daps&field-keywords=stridsman
http://www.tradestation.com/default_2.shtm

The Holy Grail of Trading

What is the Holy Grail of Trading?

Is it that one strategy that never loses?

Is it that one Indicator that never fails?

OK, OK, we know (hopefully) these don't exist.

Maybe its the way Warren Buffet invests in companies? He is one of the most successful investors in world, so he obviously knows what he doing.

Maybe its the way George Soros fearlessly trades the FOREX market?

Maybe its the way Bill Ackman of Pershing Capital astutely navigated this historic bear market?

Maybe its the way Jim Simmons works with his team of 50+ PhD's at Renaissance Technologies to scientifically model and trade the global capital markets?

At least we know its not the disgraceful and treacherous way Bernie Madoff went about his business, to the ruin of all those that trusted him.

So if its the way Buffet or Soros or Ackman or Simmons trade, then why don't we just hire them to manage our money?

Well, if you are reading this, then perhaps it never occurred to you to have someone else manage your money. Or maybe we let some hedge fund guy or mutual fun gal do it for us, and they didn't perform up to their benchmark or our expectations?

But ultimately, I say its because we want to trade the market ourselves and have a crazy notion that we can do it as well if not better than these trading masters.

So if we are going to do it ourselves, we better have an edge, a plan so to speak. And we have to be able to execute this plan. If we don't then the capital markets of this world will eat us, eat us alive.

I suggest the key, the Holy Grail of trading, is to have a trading plan that fits our personality. In the end, if we are the ones that are going to push the buy and the sell buttons, then these actions must be derived from our own cognitive analysis of market behavior and then supported by our emotional intelligence of our internal process.

Yesterday, JE wrote in a very personal manner, about the struggle to find a trading strategy that fits his personality (http://myestradingjournal.blogspot.com/2009/06/off-hours-two-year-anniversary.html). In my view, developing a trading plan that fits our personality is the key to trading survival, success and ultimately mastery. For me, 13 years into this game, it continues to be a work in progress.

Here is a copy of my response to him:

*******************************************************************************

JE, great post and follow up comments...

i strongly agree that the key to trading the markets, the holy grail so to speak, is to have a trading plan that fits the trader's personality...

there are hundreds of trading strategies available fully detailed in books, magazines, online, etc...if all we had to do was pick one and trade it, we would all be millionaires in due time...however nearly all of us fellow traders are not...

why?

i think the key is whether or not we can psychologically/emotionally trade the plan....

can we take the trade when the signal is given?

can we exit at the defined profit target?

can we take the stop loss?

can we withstand the periodic drawdown?

can we sleep at night?

can we recognize our fear, our anxiety, our greed when the position is on, and still trade the plan, even if it means continuing to feel these emotions?

can we deal with the uncertainty of an unknown outcome?

i pose these questions because i believe they are essential emotional/psychological markers of our ability to be truly successful traders...

to achieve trading mastery, we have to answer 'YES' to each question...

currently, this is the center of my work as a trader, and it's a bitch...

adam

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'NB #2 SPY' Generated an Exit Signal for Wednesday's Close

'NB #2 SPY' Generated an Exit Signal for Wednesday's Close. The position was held for 1 Day as is directed by the model. The Money Managment Stop was not hit. The position generated a profit of about 0.8%, very close to the average trade return of 0.7%.

The position had been up nearly 2% by late morning but then pulled back prior to the FOMC announcement at 215pm. Market participants found things to dislike about the announcement and the SPY continued to drop and just about filled its opening gap up. A rally during the last 45 minutes brought the SPY back up to close about 0.8% higher than yesterday.

A bit of a roller coaster but with System Trading this is par for the course. Once the model has been built, the 'plan the trade' portion is complete and I can put my IQ on the shelf. Once an entry signal is generated and the position is put on, I have to pull my EQ off the shelf and 'trade the plan'. Now, no matter what kind of ride the market goes on and no matter what my emotions may go through, I have to follow the rules of the plan.

I was not happy to give back the near 2% intraday gain, but there was nothing I could do about it except to 'trade the plan'. Needless to say, I was happy to see the EOD bounce back to decent profitability. Interesting how my 'happiness' was strongly corelated to how this position played out. I bet my 'happiness curve' would have been higher and steeper if I was not monitoring this position minute by minute today, but rather playing with my son and/or hanging out with my wife. I think one of the skills I need to continue to develop is to emotionally detach myself more and more from the outcome of any individual trade, knowing that if my overall System Trading Portfolio is full of robust trading models, then the profitability will come over following 12 months. Currently, I would give my System Trading Portfolio a B+ for robustness. Emotionally digesting the Portfolio's robustness and profitablity is a work in progress.

However, I did greatly enjoy the telephone conversation I had with my trading friend JE (over at http://myestradingjournal.blogspot.com/). He found a unique way of using the ATR Volatility Bands that I developed and have written about. It just goes to show that the creative process knows no bounds, and what one has not concieved of, another has already put into motion. Nice job JE!

When my Portfolio is both Long and Short, what direction do I root for?

Right now, my System Trading portfolio is about 10% long the NQU09 (via 'BTD Index': http://stbsmb.blogspot.com/2009/06/btd-index-generates-entry-signal_16.html) and about 60% short the ESU09 (via 'SHOE SPY': http://stbsmb.blogspot.com/2009/06/shoe-spy-generates-short-entry-signal_18.html). I find myself rooting for the long and then rooting for the short and then rooting for the long and then.... Since the ES and NQ are highly correlated, I should expect them to pretty much move in tandem with each other. If I keep on rooting for both, then I will surely make myself crazy, yet I find that I am doing it anyway.

So if I am going to root, then which direction should I root for? On balance I am net short so I should root for the downside.

By why root at all? This is not professional baseball that has me rooting for the home team (Go Red Sox!). However, the very notion of rooting suggests I am too close to the trade emotionally, too involved in its outcome.

If my models are robust, then the winning trades and their profits will come over the next 12 months whether I root for them or not. While the rooting can be fun, perhaps it is a sign of being too tied up in the trades outcome, of too much ego involvement.

Perhaps this dynamic is also related to my tendency to exit winning trades too soon, specifically if they have not reached the price target or the time stop. Going back to the baseball analogy, if my team is winning, and I can call the game early, then I get to book the win and thus improve my record! But somehow I don't think the opposing team, the umpires and MLB would allow such a thing. Since I trade on my own, I am also my own coach, manager and umpire. Whenever I am inclined to exit a trade early, I should consult my coach, manager and umpire to see if it is an acceptable thing to do. Somehow I don't think they will!

This has been an informative post for me to write. I hadn't previously made the connection between rooting and exiting a wining trade early. Perhaps there really isn't a connection and I just went off on a tangent. But perhaps there is. Since it is a pretty human thing to do, I don't know if I can stop rooting for a particular direction (long/short) or a particular sports outcome (go Sox!), but at least I have brought this dynamic to my attention. This in itself is a win.

**********************************************************************************
Confession: As a boy growing up in New York during the 1970's, I was a New York Yankee's fan. I have been living in Massachusetts since 1986, and became a Red Sox fan in 2003. My wife is a huge Sox fan, and we have watched or listened to nearly every Sox game since 2004. It has been great fun being on both sides of one of the greatest rivalry in professional team sports. I have tremendous respect for the Yankees and their organization, but when it comes to rooting I am all about the Sox. Periodically, I like to remind my wife that I was a Yankee fan. She responds with the usual grimace when I express such blasphemy.

**********************************************************************************

Disclosure: Short the ESU09, Long the NQU09.

***remember this is an illustration of what i am trading and my thinking...it is not a recommendation for you or anyone else to buy or sell this or any other security***

IQ and EQ

i see successful trading as a combination of two skillsets: the intellectual (IQ) and the emotional (EQ)...the intellectual will plan the trade and then the emotional will trade the plan...the greater
these two skillsets and the more in balance with each other they are, the greater the chances for not just profitable trading, but trading mastery...

i have been trading for 10+ years, have had a fair amount of success, and am still finding big holes in my game...most of my success has been swing trading stocks, options, and stock index futures, with holding periods of 1-5 daily bars, though sometimes more depending on the model that i am using for that particular trade...

i am discovering that i am a horrible day trader!! i think the reason is that as i don't have a firm understading of the technical setups, thus my day trading plan is not good...

my primary income stream comes from swing trading my 25+ models of US stock index behavior...my swing trading plan is very good, but could always use some improvement...

the biggest thing that i have learned since becoming a prop daytrader this past summer, is the importance of emotional intelligence (EQ)...with the great moderators at the prop daytrading firm constantly in my ear about planing the trade and trading the plan, i have become a significantly better swing trader...their message isn't entirely new either...i was just more ready to hear it and change my behavior...

my personality has always tended to be on the introspecive side...this has helped me see my own behavior...losing a lot of mony from the summer of 2007 through the summer of 2008 because i didnt follow my swing trading plan (too scared), significantly helped motivate me to change my behavior...since the summer of 2008, i have done an increasingly better job at following my trading plan, stemming the losses, and now generateing consistent gains...my capital accounts are turning back up and i believe that my emotional intelligence is increasing...today, i am trading the plan 95% of the time...what about the other 5%? well, i am working on it...my goal is to trade the plan 100% of the time, no matter how i feel...i am almost there...

we all want to succeed at this incredibly difficult endeavor...not everyone will...if we really want to though, we have to look at ourselves as clearly as possible and identify our intellectual and
emotional strengths and weakness...if we dont, then the market will do this for us, and the results will be ugly...

if we do and are then capable of making the cognitive changes when planing the trade, and the behavioral changes to correctly trade the plan, then we just might have a chance at not only making some money, but also achieving trading mastery...