24-Oct-24 Journal Entry

 Yesterday was a trend day down as the market broke the downside a longer term range. You had a High ADX as the EMA's were clearly flashing red. I had even planned to SOH if the prior day's lows were breached, but I still bought inventory and took some pretty ugly losses. My usual strategy of using this 3LB as a turn indicator whipsawed as the day was a down trend. Important lesson here on the odds of that strategy working when you not only don't have support to lean on but you are actually spitting in the wind of a down trend. Any buying in these instances are contra-trend scalps only. HOWEVER, there is good odds that at some point during the day there will be a short term reversal and the air will fill on the 5 minute because eventually the down trend will reach a higher time frame support. Yesterday it was signaled by a change in the TICK - but you run a very high risk of getting destroyed as you try to pick when it may happen. Another important factor is that it occurred after the symmetry of the down trend broke. This is because people follow crowds and crowds follow patterns. When that pattern breaks uncertainty afflicts the market and emotion sets in. This sets up the great buying opportunities where that reversal can finally play out as you now have pent up demand of stuck shorts and puking longs selling at the lows. 

But my big losses were not because I didn't properly time the market, which is impossible, it was because I failed in my risk management. I put on way too much size in especially inappropriate scenarios, basically scenarios where I was fading a 5 min. downtrend. I don't have a risk management plan in place yet. My sizing is random and I was adding in low probability settings - settings where I was fading a downtrend. So there needs to be a system built for trading down trend days, up trend days and range days. 

I will use the 2%/6% rule. No more than 2% loss per trade and once 6% drawdown on the day, trigger a shot off of trading for rest of day. Pretend my account balance is 50,000 and I am trading E-minis so that means no greater loss than 20 points per trade and no greater loss than 60 points per day. 

So far my strategy for range day: buy when 5 min. stochastic is oversold and the market, use supports to guide good prices, use 1min. 3lb as a turn signal. Essentially the strategy is to buy below value and sell when it returns to value, maybe leave one on for retail sale. Risk on these trades is you make a bad buy, in which case you have some bad inventory and you want to just let it go - this is where stochastic and support are used. 3LB is used for adding to the trades. Other major risk is that something shakes up the market and it triggers into a trend day down, this is where your 2% stop is put into play. But know the market. Know where you want to be a buyer and know where you don't.

I flesh out the other strategies at a later day.  

 

Yesterday the market trended lower. Perhaps filled air on a higher time frame up trend and is continuing higher as overnight saw the market trade up and hold higher prices. There is support near the low of yesterday's range and resistance near the highs. Run system 1 today. beware of bad buys at too high prices though and getting stuck with bad inventory that could flush you out and hit 2%. Know where you are in the day's range, don't get caught on the wring side of the 1 min trend and don't get caught long with 5 min Overbought stochastics.