What gets in the Way of CP

After having mentored/trained a lot of people in the last year plus, I have a reasonable idea of what slows or prevents people getting to CP. I'll talk about a few of them today and some more in other posts.


Most of these CP blockers are inter-related and are rooted in the fear of losing money as their common denominator.


The problem manifests itself as the trader not being able to identify a good trading picture in real time and/or either can't pull the trigger, or worse, pulls it too late when the trade is "sure". Lots of reasons for this including:

• not enough specifics in the trading plan or no written trading plan
• not enough back testing, so there is no confidence in the trading picture
• not enough SIM trading to develop muscle memory resulting in not recognising the trading picture in real time as it unfolds.
• not enough trading capital. The solution is to trade small - even mini FX lots so that any loss has no real financial impact
• has to make trading profits to pay daily bills. The solution to this is to trade part time and keep your day job, trading markets that are active during your non job time zone.

Solving these issues will speed up CP at a surprising rate of knots. (That's Brit speak for speedy)


Today's ES RTH was a trade that has to be done, but is often difficult to do. If I take away the knife catching components of the trade and rely on my tested TP I can buy these types of trades. The second trade was very predictable and was more the bread and butter that I rely on every day.

GPS progress....

I built a GPS front end using a MAX2769... alas it does not work and I do not know why. I have it connected to an FPGA (PK70 FPGA blade board) . I spent all day Saturday and Sunday trying to find sats in the data record. So this evening after work I took a working GPS, An old Novatel Superstar II, and wired on some jumpers between the front end and the correlator. When I record that data stream and change my constants for a different Fsample and Fcenter I get Sats! I can ! even compute a positionSo all my basic hardware chain is working, just not the front end that is an exact implementation of a commercial IC reference design. Not the part of the design I expected to be bad. Progress.... now to decide if I want to just shell out 2K for a small
Non COCOM GPS that can do what I want or if I should spend a month or so finishing what I started, and have something to offer the community.

Go Flo

I bought the Gap trade at 1324.25, but only a 50% position, as I was buying against a Profile support blindly.


Then Flo gave a BUY and I was able to go to 150% position. Having Flo signal the trade one bar after my Gap entry gave me the confidence to add size. I have a couple of these types of trades in my TP. I ignored yesterday's low volume Presidents' Day activity and used 1334.00 as my target - the distribution just before the single prints.


I had scaled out of half by the time we got to 1329.00, the buying tail of last Thursday and finished off just under 1334.00.


This was a very text book trade in terms of what I have been teaching in the seminars and DVDs. Taking this high percentage trade is a must for me and is a large contributor to my annual P and L. The Gap trade is an easy trade to test and document in my TP and I make it into a well over 80% win rate the way I document it.


Creating a small set of pictures that you can trade, each with a high win rate, and trading them over and over again, is the way to achieve CP.

Groundhog Day

While today may be Presidents' Day in America, for me its Groundhog Day. These holiday days are always the same for me, at least most of them are. I use them for back testing.


The one thing that throws me, and most other people, off is the unknown. Fear of the unknown. The thing that makes me able to pull the trigger on a trade is the sure knowledge of my Trader's profile: my win rate, my drawdown, my maximum loss per trade, all my trading stats. I trade within my expectations.


I have a bunch of traders that I am mentoring and the answer to many of their questions is a one word solution: BACKTESTING.


Backtesting tells me what works and what doesn't. Backtesting tells me whether I should enter aggressively or not. Backtesting tells me how far out of the action my drop dead stop should be and backtesting tells me how large my average trade needs to be.


Backtesting and SIM trading are part of the roadmap to CP. 

Taking it easy today, so no chart.

Going Google across the 50 States: Tennessee media firm fights back on spam

[Cross-posted from the Google Enterprise Blog]

Editor's note: Over 3 million businesses have adopted Google Apps. Today we’ll hear from Rex Hammock, Founder and CEO of Hammock, a content and custom media firm in Nashville, Tennessee. To learn more about other organizations that have gone Google and share your story, visit our community map or test drive life in the cloud with the Go Google cloud calculator.

At Hammock, we develop and manage a wide array of content, helping our clients engage with customers to increase loyalty and extend the length of the relationship. Since I founded the company 20 years ago, our work has expanded from print newsletters and magazines to include a range of digital media, such as websites, blogs, event media, and more. We’ve grown to 20 full-time employees and have developed a network of over 1,000 freelancers across the country. Technology has played an important role in what we offer our clients and how we work together as a team.

A couple of years ago, when our Technology Director left the company, we decided to experiment with using an outsourced solution for networking and systems so our internal technology staff could focus on development and creative duties. The experience gave us confidence to outsource other parts of IT so when the email server became unreliable and couldn't filter spam as well as our personal Gmail accounts, we started researching alternative solutions. With the help of an external IT service, we unplugged the email server and switched to Google Apps.

Fixing our spam problem – which Gmail has done amazingly well – would have been enough to make the switch to Google Apps worth it. We did a cost analysis per employee, however, and keeping servers in-house for just email would have been more expensive than the entire suite of Google Apps. Plus, adding calendars, contacts and documents, all of which sync nicely to our smart phones, tablets, and home computers has changed the way we work for the better.

Collaborating across our expansive network of contributors is critical and most of us use Google Docs for sharing and updating documents. Spreadsheets have also helped us manage our own newsletter subscriptions – a Google form is embedded on our website to collect information from individuals who want to receive our newsletter. Information from the form is imported directly into a Google spreadsheet that we access internally.

The ecosystem around Google Apps is helping us further meet our unique needs. We use Manymoon, a 3rd party application from the Google Apps Marketplace, to help with project management and it has resolved a number of workflow issues. Manymoon is a little like an in-house social network where, instead of setting up pages related to your favorite club or cause, you set up project pages where you can consolidate information and track progress. Because Manymoon integrates directly with Google Apps, it’s easy to add Google documents, calendar entries and emails related to a project.

For some people in the company, there was a reluctance to give up traditional desktop applications. However, it has been easy for me to evangelize Google Apps internally and I think we'd all agree now that the switch has had a positive impact on how we work.

Posted by Rex Hammock, Founder and CEO, Hammock

The Turn

There are some similarities between trading and poker, although there are important differences too. As a trader, I decide which hands I want to play without putting up an ante and I have a stop loss. What may be a commonality between Hold'Em and trading is The Turn.


If I can identify change in the trend - and I'm talking about the only trend that matters, the trend in the chart I am trading - then I can often get a long ride. The question then becomes one of style: trying to catch the whole move until another trend change or just trading the peak to trough or trough to peak of the moves along the trend. There may be more than one attempt to catch the Turn but positioning myself is important because I can start scaling out in case there is no follow through, and I can capitalise on it if I have indeed caught the Turn.


In the Euro futures chart below, you can see the Turn that I have marked. After that there are arrows where Flo and I have identified entry pictures. She's gotten pretty good on the entries and our exit algos are not bad, but my trade management is better manually. Catching that last move up on the Turn was awesome, pure Flo.

In one way trading the way I do, catching peaks and troughs, is more difficult as I have to be right more often than if I can identify the Turns. But for me, it's a matter of what suits me or is in my trader's DNA. I was always very short term and my experience on the floor reinforced that preference. However, it's not the same for everyone. There is a choice and the TP should reflect that.

How Much Capital Does This Biz Need?

The starting point is what you need to live, to pay the bills, and to provide a life.

Unless you have a buffer of funds that you can live from, apart from your trading account, a new trader is better off perfecting his craft while he has an income from another source. Having the pressure of "needing to make money" makes it tough. I have a student who is doing it without the buffer funds, but he has exceptional mental control.

I wrote a piece in our EL group in response to a question. The piece goes over the maths, and I'll reproduce it here:

Return on capital is not how I think about this business. I am trading not investing.

If your starting point is that you want to earn, say, at least $70,000 a year and you are working 5 days a week for 46 weeks  a year then that means you need to average $70,000 divided by (46 x 5) = $305/day

If you are trading, say, the ES, that is 7 points a day profit.

If you trade just this one market and only trade the first sling after the zero line cross by the 45CCI and it occurs 2 times a day or 10 times a week and your back testing shows a 70% win rate with a 1 point target, then you should make 7 points/week/contract and lose 3 points/week/contract leaving a net of 4 points a week/contract.

Now your 4 points is $200 but your weekly requirement is 35 points. Therefore, to achieve an average of $305/day using the above single limited strategy you need to trade 35/4 contracts or, say 9 contracts per trade. To trade 9 contracts, I need at least $45,000.

Now, if your capital or other criteria does not allow this, then you have a lot of other adjustments you can make:

Look for more than 2 setups a day by either making more than just 1 point per contract per trade, adding different pictures (eg NAT), or shortening your 5 tick range bar to 3 or even 1 (I'm trading 1 tick range bars on the ES and 3 on the Euro at times) or trading longer hours or trading another market such as the euro where there may be more opportunities or a combination of all of the above.

These are just some of the ideas that you can look at. In the end, trading is about your being able to follow a tested plan as Michael said AND getting the maths right for the plan.

The first step is to use the computer and program it with a basic trading plan. The result should provide a 70% plus win rate and be profitable. This will show that you have the required edge. Now to a certain extent, the test will curve fit, usually with stops and targets that change over time as the dynamics of the market changes. Your tested stops and targets were the average for the period under test, but tomorrow those stops and targets may not be appropriate - hence discretionary or hybrid trading. But you have a proof of concept.

This testing will provide statistics that you can use for the above calculations. You will know how many points a day you are likely to make if all goes according to plan and can then have the answers you need.

The next step is to get to CP on the minimum size and then slowly add size until the earning requirements are met.

The variation in results come about not from the entries but from the exits. The pictures to enter can be fairly written in stone. How the context unfolds will be what determines how much, if anything, you make out of the trade. This is one of the reasons why I am using Hybrid Trading, as the computer can repetitively find my entries and trigger them more quickly and efficiently than I can but I can manage the trades better than the algo.

Summarizing, you need to start with what you need to earn and then reverse engineer to how much capital you need to provide that earning based on the trader's profile you create in SIM.

In this context, I always remember the story of Tom Baldwin who became the biggest local on the T-Bonds on the Board of Trade in the mid 1980s. He went down on the floor and couldn't make it happen. He tried everything and just kept losing money. He was down to his last $25,000 and had a baby on the way, when suddenly it clicked. He went on to make millions of dollars trading size of over 1,000 contracts.

So how much capital do you need for this business? Not a lot once you learn how to trade. The secret is to survive until you do and with today's technology and 24 hour markets, you can get to CP in SIM without risking a penny and without giving up your day job. Yes, it takes hard work, long hours and sacrifice but if you have the passion and the hunger you may think it's worth it.

BTW, I've got a link on the top right hand side of the blog to an interview Tim  Bourquin of traderinterviews.com did with me last week.

It was the Euro again today. The 3 tick range bar chart is pretty quick. I only traded in the afternoon. The first and third trades were small losers but most of the trades worked out OK. Lots of work, mostly 5 and 7 tick trades but sometimes it's good to get back to micro trading.