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Dom's notes

Despite having been hammered for posting my sincere feedback re. ATW in the appropriate thread (or may-be, because of ...) I am starting this thread for the benefit of all waanabee traders.

I have no intent of sharing my exact trade setups, however I will share as much as I can - the good, the bad & the ugly, and if someone learn something from this then it won't have been a waste of my time.

I have been a student of the market for over 4 years now. I actually started my education with Investools PhD program (which was a lot of money for not much outcome in my case), trading stocks then options, then started to focus on the SPX (directional Calls/Puts then credit spreads), at some point I discovered the futures / ES in particular and that was a "revelation" ... 1/4pt spread vs 2pt spread for the SPX options, I was sold in no-time.

I purchased Todd Mitchell's system (TradingConcepts), which was a lot less money than Investools but no more outcome in my case, at least it triggered my interest in Fibs (back then, retracements only) and I did a lot of research / backtesting using Fibs - but at the end of the day, the real challenge resides in figuring out which fib level will "hold", and to this day I have to admit I have not solved it.

Anyway, I then spent a lot of time in a couple of "free" trading rooms
learning pure price action, the person that was offering his time teaching PA free for several months later offered a paying program, which I took, but I still couldn't make money live. I took another mentor, recommended on a free forum, and despite he being a nice guy (and why wouldn't he be when students are paying), this also was a failure.

I was about to throw the towel when I found ATW, started with the 101A education, added 3 weeks later the mentorship education, and have been studying / backtesting a lot for now a full year. I reached a point where I can "consistently" make fake-money on sim, however the transition to live trading is a real challenge for me, because of fear I pass on many trade setups and I deviate from my trade management rules.

So, that's the background. I trade CL (Crude Oil "big" contract) which is very liquid, has 1 tick spread throughout the European & US session, and is nicely volatile (day range is on average 250-350 ticks, some days even more - like today : 450 ticks). I find CL to have a lot of momentum, it shows very repetitive "patterns" (at least, for the fib user that I am).

I don't use any indicator, I trade price action using a lot of price projection techniques (best book IMO on this topic is Robert C. Miner "Dynamic Trading").

If I have one advice for new traders, it is look for another way of making a living ... but if you are truly in love with the markets, then I believe it is a must to 1) find an excellent education (this is way more than just reading books, and frankly, there is probably no one-stop education shop) and 2) find a mentor to accelerate your learning curve.

Now that this is out of the way, a brief summary of my week :

Tuesday - tried 1 trade early morning, entry hit no fill, that made me mentally sick for the rest of the day, I passed on 2 setups (both wins), the last setup I tried but my entry wasn't even close to be hit.

Wednesday - 2 setups no-fill, then 1 small winner (got out at 1/2 of my target for pseudo-good reasons - really, lack of discipline), and I passed on the last one (another wouldabe winner :( )

Thursday - passed on 5 setups (4 wins / 1 loss), took 1 small winner (1/2 target again, same lack of discipline), and missed the best setup of the day by being away for 5min

Friday - passed on 1 setup (win), no fill on next 2 setups, then I couldn't focus & called it a day.

Bottom-line - only 2 trades this week, I made ~10% of what I should have made if I had the discipline to follow my plan.
Day's summary

CL live : no trade today

I had data issues in the beginning of the session, so couldn't trade until resolving these, which took until after 10:30 EST. The rest of the day was a lot of chop and moving inverse to the ES, I passed on a 5th wave short for that reason (would be win), then the only "short-term momentum" appeared right on hitting 1st completion target of down move, I also passed on it (would be win, but no regret, seeing how CL traded after the retest). I also refrained from a CT long, waiting for the extended W5 target & DB @ Friday low ... Too bad So sad, as my kids would say :(
Day's summary

No trading today - I was kept busy by my kids and a few others things, and it looks like it's going to be more of the same until end of next week.
Yesterday summary

CL live : 1 entry error / 1 win (16-t)

Entry error was to ignore the system 5th wave entry signal.

Then I took a long in the 1st pullback after W5 broke above W3, CL was still far away from the W5 1st completion target, which gave me hope that it would keep pushing. I did trail my stop too aggressively, luckily CL didn't look back and went straight to my target.

Today's summary

CL live : 1 entry error

The day was essentially pure chop, I hesitated taking a 5th wave short setup inside the trading range, the logical stop needed to be too far from the entry, so I passed, but it was really an error, considering how strong the setup was.
Yesterday's summary

CL live : 1 BE (trade management error) / 1 entry-error

After working most of the week-end on a new setup (partially backtested as of Monday morning, but looking somewhat promising), I took the 1st long it gave me ... but got immediately scared by the 1-min entry bar, and bailed out w/ 2-t ... then I passed on a re-entry at a great confluence level, and finally missed a full target (44-ticks) :(

That made me sick for the rest of the day, I passed on a "short-term momentum" short setup at 10:40 - would be win / entry error.

Today's summary

CL live : 1 small win (5-t, trade management error) / 4 entry errors

The "new setup" had 2 wins today for a total of 67-t, but I am in the process of backtesting it, and I will wait for that to be completed before turning it live (it is fully automated).

I took the 1st "short-term momentum" short setup at 9:19, but bailed out stupidly w/ 5-t (trade management error, would be full win), then I pretty much froze and couldn't take a trade, totalizing 4 entry-errors, all wins :( :( :( :(
Thursday's summary

CL live : 2 BE+ (both trade management errors) / 2 entry errors

That says it all ... my "only" enemy at this point is me !

No trading on Friday ... psychologically, I wasn't prepared to finish the month in red, which would have been pretty much the outcome of any single losing trade.

Month summary - my trade management errors did cost me this month 85% of what my trade management rules would have yielded on the trades that I took. I am not even trying to figure out how much I missed on my entry errors (passing on trades part of my trading plan), that would be too depressing... I had a lot going on this month, in addition of trading, at least some of this is over now, so I should be able to focus more on trading moving forward.

Working on a new automated setup for CL for 1 week now ... making good progress, backtesting since Oct.2009 gives about 400 trades with an expectancy of ~5-ticks per trade per contract (after comms but before stop slippage, so more realistically ~4-ticks per contract). Probably need another couple weeks of work before it is ready to go live, will try to shorten that as much as possible !
I finished yesterday the testing of my new trading system for CL (1st version, there are a few more things I am planning to do on it), and turned it live today : 1 win, stopped with 19-t. I am sincerely glad it didn't start with a loser :)

With this development and testing, I realize that successfully trading this system requires taking all trades and letting the system manage them. This system has an "efficiency factor" of about 20%, meaning the long-term outcome is generated by only 20% of the trades ... the other 80% are just "trading water". Which means that if I only mess-up 1 trade every 5 trades, I could end-up barely break-even. So I am committed to letting it run alone.

A few stats for this v1 : backtested from 10-19-2009 to 08-06-2010, 417 trades, win% : 46%, P/F : 1.8, R-factor : 0.44, Average/trade : +67, average loss : -153, average win +325.

Max drawdown on the backtesting period : -2165, 34 trading days (02-08-2010 to 03-26-2010).

Entries & initial stop are calculated, max initial stop is 50-t, target is 50-t.

With the caveat that it is not backtested on as long a period as my 5th wave system (which I originally backtested against 16 months data, vs only 10 month here), this new system out-performs the 5th wave system from a P/F and R-factor point of view, also it generates more trades / month. I just have to learn trading a system with 46% win rate !
I'm impressed with your back testing and results however I think that you need to run it over a "longer" period. I quote "longer" because the length of time that you run a back test over is not as important as running it over all market conditions.

So, for example, it should have been run against a long bear market, a long sideways market and a long bull market. You should then be comfortable in accepting the fact that any one of these types of markets can appear tomorrow and run for years and your system will still be profitable under this type of condition.

I agree with you - but 10 month of reliable tick-data is all that I have for CL. The new system uses a couple of bar-based indicators to identify the setup (entries are calculated from price action, although for this I use N-ringed pivots which again rely on tick-data), and as a result it needs "true" historical tick-data to be tested.

Day's summary

No manual trading today, I was working on a couple bug fixes & improvements on the new system.

New system trading : 1 max loss. I resisted all kind of temptations to intervene in this trade (wanted to move the entry then to move the stop), so I get an A on behavior for the 2nd day in a row (must be A every-day moving forward !).

A bit disapointed by getting a max loss on the 2nd trade (as it is a 2.5% probability, based on backtesting results), but ... that's life !
Day's summary

CL new system : no system trade today.

I spent the day trying various ideas to improve further the system, but didn't find any more gems. The latest version (call it 3rd version) results are ~same P&L, with 25% less trades, boosting P/F up to ~ 2.4 (R:R 1.95, win% 55%, expectancy 0.6R).

For the fun, I calculated the SQN number of the system (per Van Tharp, SuperTrader, p.180) - that comes in at 0.36, at the low-end of the "excellent" category - but Holy Grail starts at 0.70, so there is room for improvement (if not on this system, at least for future systems).
Day's summary

CL new system : 1 short setup / no-fill this afternoon. Arguably, the calculated entry should have been lower, but the particular situation is one of several gray areas I still need to work on.

I finished the review of detailed backtesting results of "version 3" (although it is really #21 from a development point of view) & also finished the development documentation. All of this generated 13 new work-items, I started with the easy ones this afternoon, and found another gem tonight (not in terms of P&L, as this is a filter that cost ~10% of P&L, but in terms of expectancy +25% vs existing, P/F now reaching ~3.0)
Dom that equity curve looks too good to be true so I'd be scared but hope it trades like that in real time....what became of your trading contest...? how did Chuck Huges do ? He wants me to spend almost 4 k on options recomendations