Weekly Motivation - Aiming for the Right Target in Trading 5 of 11

By Walter T. Downs

OBSERVATION # 5
Losing traders focus on winning trades and high percentages of winners. Winning traders focus on losing trades, solid returns and good risk to reward ratios.

CONCLUSION:
The observation implies that it is much more important to focus on overall risk versus overall profit, rather than "wins" or "losses". The successful trader focuses on possible money gained versus possible money lost, and cares little about the mental highs and lows associated with being "right" or "wrong".

Weekly Motivation - Aiming for the Right Target in Trading 4 of 11

By Walter T. Downs

OBSERVATION # 4

Losing traders spend a great deal of time forecasting where the market will be tomorrow. Winning traders spend most of their time thinking about how traders will react to what the market is doing now, and they plan their strategy accordingly.

CONCLUSION:

Success of a trade is much more likely to occur if a trader can predict what type of crowd reaction a particular market event will incur. Being able to respond to irrational buying or selling with a rational and well thought out plan of attack will always increase your probability of success. It can also be concluded that being a successful trader is easier than being a successful analyst since analysts must in effect forecast ultimate outcome and project ultimate profit. If one were to ask a successful trader where he thought a particular market was going to be tomorrow, the most likely response would be a shrug of the shoulders and a simple comment that he would follow the market wherever it wanted to go. By the time we have reached the end of our observations and conclusions, what may have seemed like a rather inane response may be reconsidered as a very prescient view of the market.

FKLI May 2006 – Intra-day Long Trend Confirming Trade 7 – Closed with Net loss of RM525

Market Information

Trend:
- Intra-day: Up
- Minor Trend: Down
- Intermediate: Up
- Is the trend is strong? No
- Is the price just comes out from consolidation? Yes
- There is a possible long trend confirming trade
- Entry signal: Doji or white candle with higher volume on 5 and 15 minute chart.

Entry:
On White candle with higher volume than previous bar on 5 and 15 minute chart
- Entry at 957.5
- Protective stop: 955.5, 2 point loss and 1 tick below the low of 956 on intra-day 5 and 15 minute chart low

Possible Exits:
- Exit if the protective stop is triggered.
- Exit near MOC at 5:13pm if the trade is not profitable
- Exit when there is a big profit with long white candle with blow-off volume.

Trade Management

May 11, 2006

Entry Strategy
a. Watch the intra-day chart 5 and 15 minutes to see a trend-confirming setup.
b. Enter 1 tick above the last bar, if the 5-minute chart shows a doji or white candle with higher volume than previous bar.
c. Place a protective stop at 1 tick below recent 15-munite chart low.

Adding more contracts
No

Trailing Stops
a. If the stop order is triggered, put a stop order 1 tick below 15-minute chart low. The stop should not be more than 3-point from the entry price.

Exits
a. When your initial protective stop order is triggered
b. Near MOC at 5:13pm if the trade is not profitable
c. Near MOC at 5:13pm regardless whether the trade is profitable or not
d. When the projected trend confirming target of 961.5 is hit.
e. Let the trailing buy stop follow the price until it is taken out.

Re-entry
No

Today’s Entry strategy:

My actual Entry strategy:
a. DJIA gained 2.96 points.
b. I did not plan the trade but I saw it on the line chart of Apex Online price.
c. I do not what put me on the trade.
d. I called Joanne to ask for 5 and 15 minute chart to check the setup.
e. I enter at 957.5.
f. After checking the chart again, there is not entry signal (no doji or white candle with higher volume than previous day). I made a mistake not to setup and plan for the trade. This trade actually helped me setup my trading plan for it.
g. The price did hit 958 again but failed to break the high the intra-day and previous day.
h. The price then went side way and was moving along 956.5 and 957.5 for the whole afternoon.
i. I did not know whether to exit or not as there is experience that when I exited, the price shot up.
j. I waited. I told myself if the trade is not profitable I will exit.
k. CI is strong as there is not correction as the price moved side-way even it lost 3 point on the intra-day basis but May Contrat actually gained 2 to 3 points.
l. CI closed 0.57 point lower with ID-NR7 with higher volume.
m. There is some short-covering as those who shorted covered.
n. The price did broke 958 to hit 959 but the price failed to break 960.

Trade executed according to plan? No. This trade helps me to plan for Intra-day trend confirming trade.

What are my entry options:
Exit near MOC regardless of loss or gain.
Exit when the price broke the trend-line.

May 15, 2006

Today’s Trade Management:
a. The price may open lower or gapped-down as DJIA lost 261.5 points (141.92 on Thursday and 119.58 points on Friday).
b. Call Apex at 8:42am to check the pre-quote price and OI.
c. Call Apex at 8:45am to check the opening price. If the price fails to open gapped-down, the May contract is strong.
d. Trade Management for Existing contract:
i. If the price opens gapped-down, do nothing initially. Closed the position after 10:30am.
ii. If the price opens gapped-up, put my sell stop at 953. 1 tick below previous day’s low
iii. If the price opened lower, flat or higher, put my sell stop order at 952.

e. Possible Exits
i. When my initial protective stop order is triggered
ii. When the projected Trend Confirming target of 961.5 is hit.
iii. When the price breaks a up-trend line.
iv. Exit MOC if the price forms a long white candle with blow-off volume.
v. When the trailing stop is hit.

f. Subsequent Trailing Stops for Existing contract:
i. 953, the initial stop
ii. 958.5, my breakeven point if the price breaks 962.5.

My actual trade management:
a. The price may open lower gapped-down as DJIA lost 261.5 points (141.92 on Thursday and 119.58 points on Friday).
b. I waited until the price hit 949 and rebounded to 952. I put in a stop at 948.5, 1 tick below the intra-day low.
c. The price failed to move up at 10:30am. I did not close my trade. I did not know why I did it. I am hoping the market would turn.
d. The price hit my stop at 948, 1 tick lower. I was out with a big loss of RM525 (RM50 * 9.5 points + commission)
e. The price did hit the low of 941 before closing at 947.

Trade executed according to plan? No. I was emotional attached

My actual exit options:
Exit MOC on Thursday with 1 point gain
Exit at the open at 953.
Exit at 950 if the trade is sitting on a big loss

What I have done best:

What I need to improve:
a. I need to back-test the setup with more paper-trades.
b. I then need to write down the signals and their confirmation the plan.
c. I then need to paper-trade one more trade before entering the actual trade. The paper-trade allows me to find out more parameters for the trade and how I do trade management.
d. I will let the loss more as trading is a business. Learn to cut losses fast and keep it small. The profit will take care of itself


What I have learned:
1. When I am in a trade, especially a losing one, I trend to hope the market will turn. Things like: remember the market turned around last time.
i. Keep losses small and cut it fast.
ii. Go away from the screen. Review the chart on the paper to get more details.
iii. Take deep breath 3 times and sell how LBR or Larry Williams sitting on my chair trading.

2. I will not take intra-day trade as I do not have the up-to-the-minute chart. I will use it a confirming point on whether I will keep my existing trade.

3. I got slopping after a big win and take not good trade.
i. I should walk away for 2 days to relax my mind.

FKLI May 06 – AT Trade 6 – Closed with a net gain of RM700

Setup Information

- This is the 2nd attempt on AT breakout. It has high chances of success since the 1st attemptfailed and the 2nd attempt is only 2 days after the last attempt
- CI formed a trend-confirming pattern

April 26 06
1. Long 1 contract: 941.5, 1 tick above the next month contract as April 06 contract is exipring
2. stop is 947, less4.5 point loss.

May 10 2006
a. The price opened 856.5. I immediately sold the position. I was happy with RM700 gain (15 x RM50 less RM50 commission).
b. I later checked the price. It hit high at 958. I felt regretted but I took my action as planned.
c. The price then hit the low of 952.5 before closing at 955 with lower volume.

Trade executed according to plan? Yes

My initial and planned exit options:
a. Sell at MOC when there is a long white candle with blow-off volume and CI gained a lot with volume greater than 1 billion.
b. Sell when the price opened gapped up again after the long white candle with blow-off volume.
c. Trail my stop according to chart.

My actual exit options:
- Sell when the gap is filled at 957.5
- Sell at MOC at 960
- Sell at next day open of between 958.5 and 960.
- Sell the open

What I have done best:
a. I do not predict the market. I trade what I see.
b. I sell based on chart. I sold late but I did it any way because I did not see the chart clearly because:
i. I predicted the price my come down and go up like Singapore chart.
ii. The price has not reached my target yet.
iii. I do not have a clear exit strategy in place or I has not rehearsed well.

What I need to improve:
I will not let the emotional and historical bias affect my trading decision.
I sold late because I did not see the chart clearly because:
i. I predicted the price my come down and go up like Singapore chart.
ii. The price has not reached my target yet.
iii. I do not have a clear exit strategy in place or I have not rehearsed well.
However, I have found the improved strategy after this trade.

What I have learned:
a. The power of trend-line and trend cannot be denied.
i. The breakout of consolidation can see price move up fast.
ii. Go with the gap with the direction of the trend. The gap with the trend is much bigger than the gap against the trend.
iii. The trend is always your best friend.
b. The AT or DT trade will not be closed after the price moves back to the consolidation zone even on the breakout day. Let the market take your stop out.
c. If the trend is up, the gap-up range is bigger then gap-down range. In this case the price gapped up 1.5 points from previous day’s high and 0.5 point on gap-down 2 days ago.
d. The following are the possible selling on market top if you have a long position. It is not recommended for shorting yet:
i. There is white or black evening shooting star,
1. If the volume is higher than that of prior day, it is more reliable.
2. If there is one long white candle with WR7 pattern with very high volume of more than 7000 (blow-off volume), it is more reliable.
3. The star is at the gapped-up and the gap gets filled.

ii. I do not want to predict the price may not reverse and it is quite reliable signal based on book, FKLI and FCPO. I will follow it if I have a long position. I will wait for more information to short the market.

Weekly Motivation - Aiming for the Right Target in Trading 3 of 11

By Walter T. Downs

OBSERVATION # 3
Losing traders often rely heavily on computer-generated systems and indicators. They do not take the time to study the mathematical construction of such tools nor do they consider variable usage other than the most popular interpretation. Winning traders often take advantage of the use of computers because of their speed in analyzing large amounts of data and many markets. However, they also tend to be accomplished chartists who are quite happy to sit down with a paper chart, a pencil, protractor and calculator. Very often you will find that they have taken the time to learn the actual mathematical construction of averages and oscillators and can construct them manually if need be. They have taken the time to understand the mechanics of market machinery right down to the last nut and bolt.

CONCLUSION:
If you want to be successful at anything, you need to have a strong understanding of the tools involved. Using a hammer to drive a nut in to a threaded hole might work, but it isn't pretty or practical.

Weekly Motivation - Aiming for the Right Target in Trading 2 of 11

By Walter T. Downs

OBSERVATION # 2
Losing traders often use complex systems or methodologies or rely entirely on outside recommendations from gurus or black boxes. Winning traders often use very simple techniques. Invariably they use either a highly modified version of an existing technique or else they have invented their own.

CONCLUSION:
This seems to fit in with the mistaken belief that "complex" is synonymous with "better". Such is not necessarily the case. Logically one could argue that simplistic market approaches tend to be more practical and less prone to false interpretation. In truth, even the terms "simple" or "complex" have no relevance. All that really matters is what makes money and what doesn't. From the observations, we might also conclude that maintaining a major stake in the trading process via our own thoughts and analyses is important to being successful as a trader. This may also explain why a trader who possesses no other qualities than patience and persistence often outperforms those with advanced education, superior intellect or even true genius.

FCPO July 2006 – Bearish Divergence Trade 2 – Closed with net loss of RM310

What I have done best:
a. I follow the bearish reversal and bearish divergence trade signal.
b. I executed the trade as plan with all the market information leading to the reversal.
c. I did my best to putting my stop away from the price.

What I need to improve:
a. I must less monitor the price.
b. I should not monitor the price in the 1st hour after the market starts.
c. I should paper-trade more my potential strategy before testing with real money.

What I have learned:
a. I have to wait for the trade to come. Waiting is part of trading.
b. The following findings happened again:
i. If the trend is up, there is a tendency for it to continue until something changes.
ii. Initial correction of a trend is healthy. This allows price to move higher.
iii. Initial correction to the up-trend line with low volume will see price rebound and make new high or low. If there is a gap against the trend, trade with the trend with Oops! for new position or adding new contract.
iv. I need to trade on each fractal breakout. I need to go against my emotion on this. I know that I will get it right as the price moves lower and lower or higher and higher.
v. The historical chart pattern may repeat. I will study the historical chart to find any trading opportunity.

c. If you have a short position and opened gapped-up,
i. Wait until 11:30am to check whether there is higher than prior day’s high:
1. If yes and you are not stopped out, close the position at the market. You are wrong.
2. If no and you are not stopped out, you can keep your position.
ii. Wait until 12:25pm to check whether there is higher than prior day’s high:
1. If yes and you are not stopped out, close the position at the market. You are wrong.
2. If no and you are not stopped out, you can keep your position.