Trading Journal for: 07/29

Today was a great day in the market for me. It was actually a “perfect day” for a number of reasons. One, for the first time in a very long time I felt emotionally balanced. I didn’t feel reckless or forced to make any unnecessary decisions at any point in time with the positions I was holding. I feel this was largely due to a number of reasons. First, I knew well in advance what my plan was (where my stop was going to be if I was wrong) for each trade I took. Second, my risk on each trade was an amount I felt completely comfortable with if I lost. Mentally it did not affect me one bit or cloud my judgment to prevent me from following my trading plan. This is a very important factor, because once you completely and willing to accept the risk, you are no longer trading from a state of fear or emotion, but from a state of opportunity. What this means is you are able and willing to take every set-up that meets your plan without hesitation, which will only then further your advancement towards trading mastery.

Two, my DISCIPLINE was right on target with where it should be at all times. The last several weeks have been a true testament on how important and vital having discipline is to trading. I now believe a trader’s progress can be limited or even immobilized from advancement by the illusion that progress is being made. Let me explain…

Isn’t it true that we can become more knowledgeable about the markets with respect to technically analysis, or learning a specific trading strategy or method, or how HFT’s can effect certain trading characteristics of specific stocks, or, or, or…I can go on and on with these sorts of examples, but I think you get the picture. So, isn’t it fair to say that you are becoming more educated about the nature of the trading business? In essence making progress…What if you are actively trading and making some nice profits along the way. What if you have 5 or 10 days straight of profits? Would you say you are making progress? At that particular moment probably yes, right? You are learning a lot about trading, reading some good books, maybe even taking some trading courses, learning some trading lingo – Feeling pretty good about your decision to become a trader. But, what if you have a loss that wipes out days, if not weeks of your profits? How would you feel then? At that moment probably pretty disgusted with yourself, right? So, you forgive yourself and re-set and continue on your mission to become a profitable trader. You continue to learn as much as you can, read more and more books and so on so forth. You continue to trade and you get on another winning streak and finally begin accepting this is it. This time I have finally made it, you say to yourself! You have a number of days of consistent gains and then WACK! You get crushed on one day giving everything back. Are you making progress? Well, It depends in what cycle you are in as a trader. If you are fairly new trader, this is all part of the process. It’s common to go through several trials of success only to get beaten with failure. But, what if you’re a seasoned trader with years of experience and continue to go through this same cycle? Are you making progress now? The answer is NO!

There comes a point when the information becomes receptive. It’s just expressed in a different way. The plays, the terminology, the methods maybe very similar with most successful traders out there on the street. This is when you know “You” have more than enough knowledge to trade the markets successfully. It now becomes up to you to focus on the things that matter. The end result that will take you to the next level will boil down to three things. A sold Trading plan, Discipline and Consistency.

If you find yourself in a similar position to what I just mentioned, try these two things:

1. If you have a trading plan, but have a hard time following it – Simplify it. Focus on one or two things of what you like most and create a sub-set of that plan. You have to make it a point to focus on following your plan and having a set of rules you can follow consistently. If you don’t have a plan – Make one!
2. Reduce your risk amount. If you normally risk 100.00 per trade – drop down to 75.00 and monitor you’re emotions in the heat of battle. If that doesn’t change much, drop down to 50.00 per trade. If you suddenly feel much more at ease with your trades, than the truth to the matter is you were trading with to much size and / or your risk was to large.

Trading successfully is much more about self discovery than anything else. Sure you need to have some fundamental knowledge of trading the markets, including screen time. But believe me you don’t need a lot. The sooner you can begin to work on yourself and get out of the illusionary stage that halts your progress, the closer you will be to a level referred to as “Trading Mastery”.

Good Trading

David Guerrero

Trading Journal for June 29

I went into the trading day with a neutral to slightly bearish bias for various reasons. My neutral point-of-view was based on an extended move down — Followed by a Gap down today — Into Demand (Support). If you look at the daily chart of the Q’s below, we were gapping down in price after 6 consecutive down days. The last thing I wanted to do was short now, after most of the shorting had been done at higher prices. However, I also felt after evaluating the 44.00 demand level from a macro stand point – The validity of the 44.00 demand level became much more of a questionable level of “True Demand”, partly because of the shallow bounces off the 44.00 level.

How I quantified this Demand level

If you look to the left of the chart at Point A, you’ll notice the rally that took place off that level. It was a strong move that was fueled by strong Demand pushing prices higher. Point B was the day the market tumbled 1000 pts. You’ll notice the market quickly recovered from that area, but put in a lower low at C. We then again drifted lower to re-test the Demand level now in question. As you can see from the circled area, more time was spent which only leads me to conclude that Demand was weakening. The market eventually bounced off the level one more time, but formed another Lower Low at D. We drifted lower again almost like the market was sucking prices into this area in question. We eventually took out the Pivot area at D and the possibility of higher prices seemed possible at that point. However, we needed to form a higher low to give us some confidence of this transition. But, as you can see the higher low was not “put in” and we don’t have anything to go by to lead us to believe the market has put in a bottom yet.

The market(s) did some major damage today and it’s much more obvious on the S&P 500. We are at a critical juncture here and I suggest you exercise extreme caution trading this market. We are technically sitting at Support and the VIX is at Supply (Resistance). So if we are going to get any sort of relief in the market, it’s going to be in this general area.

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My plan this morning was to pick on the weakest stocks on my watch-list and attempt some shorts at the first sign of weakness. As you can see from my Trade manager below and the charts below, I initiated some shorts in RIMM, X and TEVA. TEVA was a bit of a question mark because it was actually one of the only stocks gapping up from my allotted basket of stocks. But with the “Hard” 2-min Bearish WRB that formed, I was shorting the retracement at the declining 20 ma, which was a “good enough” reason for me try a short. However, I noticed little pockets of stabilization on the tape (Bid), so I held back adding aggressively to my position. My target for this trade was the low of the day, but ended up covering a lot sooner for a small little gain.

I wish I would have loaded up on RIMM in the 52.30’s, but felt more compelled to short X aggressively. Nonetheless, I was carrying decent enough size in both trades to make 1.25 times my daily goal.

Good Trading

-David Guerrero

Trading Journal for June 24

Today was my first “Stop out” after 10 consecutive days of profitability. I set my daily stop loss to half the amount I normally risk on a daily basis, but the more important reason was because I was only willing to give back half of my profits from Mondays trading. As I stated in Monday’s journal, I made 1/3 of my weekly target and that’s a pretty good day for me since I historically don’t trade well on Monday’s. I didn’t trade Tues and Wed due to other scheduling conflicts with trading. So in essence, it felt like a Mon for me after two straight days off, so I was a bit rusty as I normally am on Monday morning.

I must confess though, it was very challenging to cut myself off when I saw myself down the amount I had allotted myself. To shut down my platform and walk away was a very difficult thing for me to do, even after I established what I was willing to risk. It’s much easier for me to sit on my hands the entire day and watch Set-ups trigger left and right, than it is to walk away when I am down a certain amount of money. I think its human nature to not accept a negative outcome and never give up. Especially if you are competitive by nature, which if you are reading this article you probably are, since most trader’s posses this trait. But the worst characteristic IMO is if you come from a competitive athletic background, which I do. As an athlete (cycling for me) you are trained to work through pain, ride through very challenging conditions and etc. Basically, if your *breathing and heart* are feeling good, you keep pushing as hard as you can regardless of the discomfort/soreness in your muscles, mind, body temperature, etc.

Well, in trading the opposite is true. Your mind is the ruler of your trading domain — not your heart — and requires daily conditioning for Peak performance. By Peak performance I mean discipline! Because without discipline YOU ARE doomed, no questions asked! I have isolated my number ONE problem (trading demon) to not stopping when I am hit my Daily Stop loss limit. I find myself taking one more trade and 90% of the time I make up my deficit and come back to close positive on the day. Therefore, you can see the psychological conflict this can create. Furthermore, it reinforces bad habits and does nothing to work on my discipline. In addition, I am here to tell you; the 10% of the times I continued to trade once my stop loss was hit are responsible for my largest draw-downs in my overall PnL. These are the days that clear out days if not weeks of profits. This has been the culprit for rejecting me further development and advancement as a trader. Even if I stopped trading the 90% of the time I hit my daily stop loss amount, it would still not total the losses I have accumulated with the 10% I did not stop.

You can see the impact this can have on one’s progress. So, how do we fix this problem and formulate the habits to reinforce the right behaviors. Baby Steps!

If you’re main problem is the same as mine, then hopefully this can help. I heard an audio book of Tony Robbins the other day which entailed how to make and strengthen new habits. He basically said the usual 16 – 21 consecutive times of doing something consistently helps to form a habit. But he also said to start small. Make many small decisions and / or goals and progressively increase them as you accomplish each one.

Therefore, what I am going to do to nip my number one trading demon in the bud is to give back some profits. Realized profits, that is. I am going to go into the day as I always do; to take high quality set-ups and achieve my daily goal. If I achieve my daily goal then I will risk a certain amount for the remainder of the day. I will build upon my goals till I get to the point where I can stop without hesitation and accept a losing day as just part of trading. And, having a losing day has no reflection on me as a person.

Good Trading

David Guerrero

Trading Journal for June 21

Today’s morning Gap made for a “Tricky” morning — if you’re a Gap player — or a “First hour of the open” type trader, like me. The primary reason in my opinion was the location of the Gap. We were Gapping into longer-term Resistance, but over intra-day Resistance levels. Therefore, if you’re the type of trader who only looks at intra-day Supply and Demand levels, you might want to start widening your scope of the time frames you choose to identify KEY levels in the market.

My plan this morning was going to be a “Hit and Run” approach. With the nature of the morning’s gap, I was expecting some early morning choppiness and therefore, had to trade quickly — “In and Out”. One thing remained constant, though. Accumulate stock at / or near LONGER term Supply and Demand levels, or Play Inflection levels per my trading plan.

The first play out of the gate for me was a long on AMGN. It was a very quick scalp that failed to satisfy my appetite for what I was expecting to see on the Tape to justify a longer hold. I bought one lot at 58.03, after I saw some nice buying on the Bid at 58.00. AMGN quickly traded higher up to 58.32 (HOD) and then got hit hard with some pretty heavy selling. So I exited at 58.10 for a small gain. My plan was to hold AMGN to the “whole number” (59.00). But when the pullback occurred after hitting 58.32; the lack of support (Buying on the Bid) gave me a reason to exit.

My next play was on X. This trade chopped me up a bit as I was betting on 45.35 (inflection level) to hold as Resistance. I initially shorted pretty aggressively at that level (45.35) and had my stop above 45.50. However, I was willing to give a little bit of time if it got to 45.50. When 45.50 began to hold the Bid, I flipped my position to cover my short and got long at 45.47. I began to Buy aggressively as this is what I like to refer to as an “Inflection Play”. The bulk of my position was accumulated at 45.46, 45.50 and 45.54 and added small lots at 45.55 to increase my size. I took two Lots off at 45.58 when I noticed 45.59 was holding the Offer. Once 45.59 cleared I held most of my position and took profits accordingly.

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My next and final play was on RIMM. I was keeping a close eye on 61.00 as a potential Demand level. My view of that level was two fold. One, it was the area of the Gap fill, which is one of the stronger forms of a Supply and Demand imbalance. Two, note the drop of over 1-pt to arrive at that level. After that big of a drop into a Gap fill, I am interested in taking the other side of the trade most of the time. So I began testing the water in RIMM in that area and picked up the bulk of my size at 60.96. This brought my Avg cost down close to 60.96 and had a very nice size position in this trade. I took profits on the way up.

My first target initially was at 61.50, which was the 50% retracement mark of the prior down move (see 1 min chart). But, the amount of Selling on the Tape made me a bit doubtful and I did not want to see a lower high put in. Therefore, I had to adjust my profit expectation quickly, and take profits accordingly.

By the time I was done with these two trades I was up a little more than 1/3 of my weekly target and it wasn’t even 10:00 am EST. So I decided to call it a day and take my profits.

Good Trading

David Guerrero

Trading Journal for: June 15

Today was one of those “positive days” (green P&L) that I don’t consider being positive, but a negative one instead. Let me explain…

A positive day for me is a day where I have done everything according to my plan, irrespective of the outcome. I have prepared diligently in Pre-market, I’ve taken my trades at/or near the levels I have identified in pre-market; I have shared sized properly and managed my trades objectively, according to my plan. These are some of the more important elements that are part of my trading plan, which I try to follow consistently. However, I’ve learned over time that I tend to lose focus of these facts when I get on a winning streak. I like to call it overconfidence….

This is a vital weakness of not only for me, but also for most traders. In one of my recent posts, I wrote about “Not letting overconfidence get the best of me and making sure I keep it in check”. Therefore, I will take tomorrow off and go out for an early morning run. This will allow me to focus my mind on other things (nature) when the market is open and re-focus on the rules and steps outlined in my trading plan.

One step to grow as a trader is your ability to go within yourself and observe yourself from a far. I’ve put together a list of items I observe to keep me on track with my plan. I realize it will vary amongst traders, because we all trade differently to some degree, but some of the questions should be rather similar if not the same.

Observations

• Did I put the same amount of Pre-market preparation today, as I did yesterday or the day’s prior that led to good days?
• Did I enter my trade’s at/or near the levels I identified in Pre-market?
• Did I enter my trades in alignment with my bias? Meaning, did I short at Supply on a longer time frame, or did I buy at a longer term Supply level because the shorter-term time frame was bullish?
• Did I share size my trades according to my risk? Or, was I to aggressive scaling in?
• Did I manage my trades objectively or emotionally because I was caring to much size and / or chased the entry resulting in a bad average cost?
• Did I violate my daily stop loss?

These are all important questions to ask routinely. If you can honestly answer with the appropriate “Yes” or “No” response that will lead to a positive outcome, than keep trading. If not, take a day or two off to re-focus and re-charge your mind.

Good Trading

David Guerrero