The Fat Finger F#%$ Up!

Well, it wasn't truly a "fat finger" trade but I did manage to accidentally put on a trade that was 10 times the size intended..so it's pretty much the same thing.  Tuesday, I scanned for potential weekly options trades, meaning I would put the options trade on Tuesday morning and the options would expire, hopefully worthless, on Thursday.  I put on 3 trades, all of them Bull Put Spreads.  A bull put spread is where you sell an out of the money put and then buy a put that's got a lower strike than the put you sold...the idea is that the stock trades up and you keep the spread between the contracts as your profit.  Worst case, the stock tanks and you're out the spread..generally $500 or $1,000 per contract on a 5 or 10 point spread.

Well, I put on trades in AAPL, BIDU and GOOG..all good candidates at that time.  The only problem, I accidentally put an extra zero behind my AAPL contracts and that meant the position was ten times larger than it should have been.  Even worse, I didn't realize the error until Wednesday morning when I checked my account and noticed a large loss.  As it would happen, the only stock to trade down to its strike was AAPL and after fretting about it for a couple of hours, I decided to take the position off and eat the loss.  For these types of trades, I risk between 1-3% of my account value.  The AAPL f-up instantly took my account down 10%..however, the account could have gone down to 25% if I'd of left the position on and it kept going against me.

As much as this sucks, it could have been worse.  I can make up a 10% hit, it will just take time.  The take away for me is to double check my orders when entering the order and then check it again after the trade is put on.  I have had a busy week and was likely multi-tasking when this trade order was entered...that should never be the case.  Furthermore, I hesitated on getting out of the trade when I realized the mistake..not a good idea.  The loss would have been a little less had I just bailed immediately.  I haven't made a good tuition deposit to the school of hard knocks trading university in a while, but that was a good one.

Mistakes happen and we have to deal with them.  We also have to deal with the psychological effects of the mistakes.  One can easily begin to over trade in order to make up a loss and that generally turns things from bad to worse.  For me, the game plan is still the same.  Next week, I'll be scanning for weekly options trades that fit my trade criteria and slowly but surely, I'll dig out of this little draw down.  Just thought I'd share this with everyone...you might relate to it or will some day.

TLT

DT 2000 Gave a Buy Signal a Month Ago: Here's the Thinkscript Code for the Indicator

The DT 2000 is a trend following indicator that I came  up with about a year ago.  It uses linear regression and it's purpose is to determine the trend of the overall market.  It uses linear regression slope readings on 4 different symbols and its defaults are qqq, xlv, xlf, tlt.  The indicator tends to work well on the weekly time frame..which makes sense because the longer time frames smooth out the choppy price action of equities.

Here's a chart, the DT 2000 is at the bottom and it's coloring the bars on the chart as well:

This indicator is just one more tool in my collection that I look at to help gauge risk and market bias.  I don't necessarily trade this like a system in and of itself--such as buying the SPY or SSO on buy signals.  What this buy signal does for me is it gives me the confidence to put on more long positions, whether the positions are stocks or covered calls or options spreads.  As you can see from the chart, we've had 3 other buy signals in the last 4 years and the buy signals tend to last several months before petering out.  We'll see if this signal has any legs to it.

Here's the thinkscript code for you thinkorswimmers out there:

####DELETE THIS LINE WHEN PASTING INTO TOS####


declare lower;

input symbol1 = "qqq";
input symbol2 = "xlv";
input symbol3 = "xlf";
input symbol4Inverse = "tlt";
input lrlength = 20;

def data1 = close(symbol1);
def data2 = close(symbol2);
def data3 = close(symbol3);
def data4 = close(symbol4Inverse);

def trend1 = linearRegressionSlope(data1, lrlength);
def trend2 = linearRegressionSlope(data2, lrlength);
def trend3 = linearRegressionSlope(data3, lrlength);
def trend4 = linearRegressionSlope(data4, lrlength);

def score1 = if trend1 > 0 then 1 else -1;
def score2 = if trend2 > 0 then 1 else -1;
def score3 = if trend3 > 0 then 1 else -1;
def score4 = if trend4 < 0 then 1 else -1;

plot DT = score1 + score2 + score3 + score4;    

def buysignal = crosses(DT, 0, crossingDirection.ABOVE);
def sellsignal = crosses(DT, 0, crossingDirection.BELOW);  

assignPriceColor(if dt > 0 then color.green else if dt < 0 then color.red else color.blue);


####DELETE THIS LINE WHEN PASTING INTO TOS####


I hope everyone is having a great week so far.

TLT

2016..I you haven't yet, go see it.

This is a well done and very interesting moving.  I encourage everyone to go see it, regardless of which party you affiliate yourself with.

TLT

Do More of What Works...

I've been reading Jack Schwager's Hedge Fund Market Wizards, which is a phenomenal book and is just as good as his first two and I highly recommend it to anyone who trades or is interested in trading.  One of the hedge fund managers in the book gives the advice of "find out what works and do more of that" or something to that effect.  Although simplistic, there is a lot to this.  One thing that I've been doing more of lately is active currency trading.  Why?  Simply because my account records show that it works for me.

That is why I want to talk about how smooth the currency market and in particular the Eur/Usd currency pair has been lately for short-term trend and swing trading.  When trading currencies, you must have a routine and specific set ups that you look for and then trade them.  And when those set ups are working well you have to trade them more.  Right now, the opening range breakout trade has been excellent.  The past two days have provided great opportunities to make significant returns with only trading this set up.

I have addressed the opening range break out trade in several posts, but I'll quickly explain what it is for those that are unfamiliar with it.  Basically, you take the first 15 minutes of trading (or it can be 5 minutes or 30..different people use different times) and you note the high and low of the period.  That creates the range. Then you patiently wait for the price action to trade out of the range and trade in that direction.  Generally, I'll day trade with the 5 minute and 1 minute charts.  I'll first look to the hourly and daily charts to determine the bias or the primary trend and then look to for break outs in that direction to trade.  So for the past few days, the bias has been to the higher side...that tells me the path of least resistance is higher and I should look for long trades.

Then I wait for the break out and put the trade on immediately after a 5 minute bar closes outside of the range.  After that I trail a stop with the 1 minute chart and look to book partial profits into momentum and use the trailing stop on the remainder of the position.  If the currency trades back into the range or to the bottom of the range you get out..or have a stop sitting there.  With currencies, it is a little difficult to determine the open.  I will generally trade the 8:30 stock market open with the Eur/Usd since it is pretty correlated with the US stock market.  After I've exited a profitable trade, I look for pullbacks and the support to initiate a follow up trade back to the highs.  After this, I'll look for the highs to be taken out and then trade that break out.  Then I'll look for another pullback from the new high and once it finds support I'll put on another trade.  That's it..plain and simple.  If I'm seeing follow through and the trade is working, I'll keep doing it over and over and over.

Here's a 5 minute chart with today's Eur/Usd with an opening range plot on the chart and some of the trades that I made today.

The opening range is the yellow shaded region.  The bars are all green on this chart because my trendfuzz indicator was in Strong Up Trend mode all day long...not a common event.  Notice that I did not take the OR break below the opening range, as this was a low probability trade given that the trendfuzz was green and the overall bias was up...that's not to say that it always turns out this way, just that today was a perfect day not to take the short trade.  Other days I might take the short trade even with a prevailing bias to the upside, I would just trade a smaller position and book profits very quickly.  Today was a little different because yesterday was incredibly strong and my personal sentiment is very bullish.

This type of trading can be very profitable and very rewarding, you just have to maintain discipline to wait for the proper entries and cut losses quickly.  It is by no means easy and often is very frustrating which is why some people are not suited for day trading.  Over the years, I've gone through periods where I thought I was good at it and was very suited for it and other times where I questioned whether it was for me.  The thing that I've noticed is that day trading equities is a little more hit or miss with me but currencies have been profitable for several years..I just have to stick with it and trade through those incredibly difficult draw downs that have a tendency to leave traders gun shy right at the moment that the next winning trade needs to be put on.  Ok, that's enough rambling for one day.  Hope everyone had a great week and has a great weekend.

TLT