Saturday, May 09, 2015

An Experiment in Becoming Your Own Trading Coach

I'm starting a trading experiment and will be recording the results on the blog periodically.

The experiment has involved going back to my research and identifying robust, replicable patterns in the ES futures contract and SPY ETF.  I specifically selected patterns that play out over a multiday period, with average holding times of several days.  The patterns demonstrated a distinct edge in 2012 and 2013 trading and then were tested independently on 2014 data as an out-of-sample test and then were further tested independently on 2015 data to date.

Now it's time for live trading.

There are three general patterns:

1)  Failure Pattern - A market advance loses breadth and momentum and reverses.  

2)  Reversal Pattern - A market decline leads to broad weakness and expanded volatility, resulting in a reversal bounce higher.

3)  Momentum Pattern - A market rise occurs with solid breadth and momentum and continues higher in the short run.

In the experiment, I will only trade those patterns.  That means plenty of days of not trading and sizing up days when patterns occur.  Each pattern is defined by a scorecard of criteria; if all criteria are not met, no trade is taken.

A first unit of risk is entered when the signal fires; further units are added on evidence that the signal is playing out as expected.  Entries and exits for those further units are discretionary, based on intraday trading patterns.

A journal will track all signals and trades and how I traded them, with observations translated into goals for continuous improvement.  The experiment is thus also an experiment in self-coaching.  I hope to share lessons learned via the blog.

At the craft beer networking event a week from Thursday (May 21st), I will discuss the project further with interested traders.  A notice about that event will go out this coming week.

Imagine if a group of likeminded, dedicated traders conducted their own experiments and shared results.  That would generate quite an accelerated learning curve.  There's a big difference between years of market experience and a single year's experience repeated many times over.  That difference is deliberate practice and a structured learning from experience. 

Further Reading:  Identifying Trend Days