Diary of a Professional Commodity Trader: Lessons from 21 Weeks of Real Trading_11

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Diary of a Professional Commodity Trader: Lessons from 21 Weeks of Real Trading_11significant. The upside completion of the channel onFebruary 25 also climbed back above thesupport/resistance line. The pattern target of the channelwas 9002, quickly reached on March 1. SummaryFebruary was a nonevent. Sixteen signals were enteredduring the month in 11 different markets. Of the 16 tradesentered, seven were closed at a profit and 10 at a loss(although not all in February)—a profit ratio of 43 percent.The distribution of trades by category was close to theamended benchmarks. The trades entered in Februarywere closed at a gain of 0.9 percent. On a marked-to-the-market Value Added Monthly Index (VAMI) basis, Februaryexperienced an actual loss of 1.23 percent. The differencereflects the fact that the VAMI calculation marks allpositions to the market at the end of a month whether thetrades were carried in from previous months or not closeduntil later months. Table 10.1 shows the distribution oftrades entered in February by signal category.TABLE 10.1 February Trading Signals by Category Amended February Trade EntriesSignal Category Benchmarks (# and %of total)Major patternsCompletions 4.0 (29%) 4.0 (25%)Anticipatory 1.5 (11%) 2.0 (13%)Pyramid 1.5 (11%) 0 (0%)Minor patterns 4.0 (28%) 6.0 (38%)Instinct trades 2.0 (14%) 1.0 (6%)Miscellaneous trades 1.0 (7%) 3.0 (19%)Total 14.0 (100%) 16.0 (100%) February and several previous months lacked the“bottom liners” discussed in Chapter 5. About 10 percent ofmy trades historically have produced my net bottom line.These are the really profitable trades, each returning atleast 2 percent return on capital. The remaining 90 percentof trades historically have been washes. Without the bottomliners my trading is reduced to just trades that wash eachother out. Each month, the Factor Trading Plan needs acouple of really profitable trades, properly leveraged, toproduce the desired results. Chapter 11 Month Four March 2010The market is a great teacher! It also delivers chastisementin large doses. I have always known that there were flaws inthe Factor Trading Plan; trading is a process of uncoveringflaws and attempting to fix them . . . only to find more flaws.The Factor Trading Plan is no different than any otherapproach. Every consistently successful trader spends timediagnosing and applying fixes to flaws. Two steps forward,one step back! On and on it goes! The interesting thing about the markets is that the flawsare never visible during the good months and good years.Good times provide cover for the deficiencies of a tradingplan. During tough times (i.e., drawdown periods), marketshave a way of exploiting flaws in a trading plan. I knowmany traders who become very introspective during thedrawdown periods as they attempt to figure out ways toimprove their approach. The first step to improve anapproach is to identify the flaws. The challenge is to find the fundamental flaws, not just tomake changes that would have optimized trading during thedrawdown phase. Simulation and optimization ofcombinations of technical indicators is something anybodycan perform with any number of trading and analysisplatforms. I contend that this type of optimization producesvery little lasting fruit. Trade identification, at the end of theday, is less important than risk management and the humanelement. I am in a drawdown period at this point in my tradingjournal. Not severe, but definitely a hindrance. I don’t likelosing. I also don’t like not winning. My trading plan hasalways emerged from prolonged periods of treading waterwith changes, sometimes subtle, sometimes moresignificant. Almost always the changes have dealt withtrade and risk management, not with trade identification. I am on the scent of some fundamental flaws in mytrading approach, which will be discussed in more detail inthe concluding chapters of this book. Trading RecordI entered 16 trading events in 12 different markets duringMarch. Three of these trades were discussed in previouschapters (two gold trades in Chapter 9 and a GBP/USDtrade in Chapter 10). These trades discussed earlier willnot be covered in Chapter 11. USD/CAD: Remaining Persistent with a Pattern Signal Types: Major Anticipatory Signal, Major Breakout Signal, Major Breakout Signal (Secondary Completion) I entered three trades in March in the U.S.dollar/Canadian dollar (USD/ CAD). While each trade hadits own specific rules and risk management strategy, Iconsidered all three to be part of the same tradingcampaign. Figure 11.1 displays what I saw as the dominant chartde ...