UPDATE: I pulled the buy limit down to $15.75 for 1/31/2012. Just got filled at that price. Stop level is $13.25, target is to sell any pop from Facebook IPO news, the retest of $19.9x all time high if we get there. Here’s the current chart:

UPDATE: I just closed it out at $17.45 as I trailed up behind the late day price rise. I saw all the potential resistance around $17.50 at the left and didn’t want to wait out the retrace, so that’s +1.7 on the trade, or just about +0.85R on the trade.

As I promised, I was going to blog any further trades and document my thoughts. This isn’t a trade yet, but it may be by the end of the day.

GSVC is going bananas on the Facebook IPO news. They are going to file for their IPO next week. GSVC holds a position in private Facebook shares. I want to buy the rumor and sell the news so to speak. I think this is a good trade because it’s one step ahead of the pack. GSVC is just obscure enough that Joey Retail probably hasn’t heard of it.

I didn’t chase the breakout today. Instead I put a limit buy order out for $15.78. I chose that level because it’s a healthy pullback of today’s move and is just inside some other volume traded back to the left on the daily. If I get filled, then great, if not, there is no position. Here’s some charts showing what I was looking at:

If filled, my stop level would be $13.78, underneath all of today’s activity. I would hold until the IPO is filed, and I would take at least a partial on the first move to the all-time high at $19.97 if we get there first.

The strategy is based on these market attributes:
1. The index futures (NQ Nasdaq emini in my case) tend to back and fill a lot. One way trends are (relatively) rare. Important price levels are revisited over and over again.
2. Market prices tend to move. Price doesn’t hold still for long.

Two points and then quit for the day should be achievable almost all the time. I just want to make chip shots. Just be consistent and do it over and over.

On a 5 min NQ chart, around half of all the bars are wider than 2 points:

The average daily range for NQ lately is near 40:

A two point target is in the noise. But that’s the point: Instead of trying to drink every last drop of a passing river, I want to dip my cup in and just catch a little of what is flowing by. I don’t need to catch an entire wave. Just a little portion of it.

All this time as a loser, I have been trading in hopes of catching a big move. I might have a 5 point target and a 2 point stop. I was constantly setting myself up for failure. I would enter at the market and hope for a big move, ready to take the small loss if need be. That risk:reward might look attractive, but my stop was being hit nearly every time.

So I literally faded my strategy. I looked at the current market, and placed limit orders to fade moves roughly 3 points away from the current price. That put my entry at pretty much exactly where my stop loss would have been if I traded my old way. Once one of them hit and was filled, I set a disaster stop of 5 points (basically an arbitrary number at this point), and a profit limit order just two points away from my entry. Then I sat and waited. My profit target would be hit more than 80% of the time. If the market kept going against me, I waited for it to come back. I honored the disaster stop, but in the first 18 paper trades it was never hit. Most of the time, I could get out for break-even or just a small loss close to 2 points. That exit for a small occasional loss is exactly where my trailing stop for a profit usually was under my old strategy.

To avoid fading a strongly trending market and getting my disaster stop hit, I didn’t use this method near the open or market close. I avoided fading near the highs/lows of the day. I waited for the afternoon doldrums and tried when the market was listless, choppy and noisy, putting conditions in my favor.

Another positive element in this strategy is the very short time that I am exposed to the market. In some of the engineering applications I encounter in my work, a trade-off is made between accepting risk vs. having reduced performance. A probabilistic design method is employed. Instead of designing for the worst case failure mode at the worst possible time in all conditions, we look at the probabilities that these conditions may overlap. If the worst case failure only happens at very extreme conditions, and a vehicle only spends a tiny fraction of a percent of its service life at that condition, designing for this condition puts a large burden of weight and performance reduction for the entire class of vehicle across the whole service life. We can slim down the vehicle by only designing to a probabilistically acceptable failure condition. We still have to avoid a disaster, so we make sure any failure is not catastrophic by keeping enough margin in the system. We just allow a failure to cause an aborted mission or acceptable amounts of damage. Back to my trading: most of these trades last only a few minutes or so. While big adverse moves happen in the market, the odds that one of these moves come during the few short minutes that I am exposed to the market are very small. If I’m always in the market and holding positions, then the odds are high. But the shorter my exposure time, the smaller the probability of a big event becomes. Since the probability is not zero, I still have the disaster stop, just like in the vehicle design. LTCM didn’t have a disaster stop. They KNEW that it was statistically “impossible” that they would see the conditions that would blow them up. I am not naive like that. A non-zero probability is still possible. You have to prepare against it even though you will probably rarely see it.

The biggest weakness I see is if I end up fading a persistent trend. I’ve paper traded this strategy a bit, and on a strong trend day it’s easy to rack up two 10 point losses in a hurry. That wipes out a lot of winning trades. This strategy would be best used during choppy sideways markets. How to rigorously define that is not clear to me. I guess that’s where I often get hung up. I can’t know exactly if a move will turn out to be an adverse trend every time. I have to define a way that works much of the time an accept the few times it when it doesn’t. I want to take discretionary elements out for now. The book “Trading in the Zone” is helping me to think more probabilistically rather than in “right or wrong” terms.

So the idea is literally fading my old self to have a winning strategy. I’ll be doing some back testing with it soon. If you have any comments about this
approach, I’d love to hear them.

As you may know, I tried to put up a little discussion board, but there wasn’t enough interest. I know that there are sporadic groups of folks on the yahoo boards, or communities at sites like Thinkscripter’s. Hopefully having a centrally located area will gather more people together. I think it will also be a good place to make requests for new features in the Thinkscript language and report any bugs that we see.

I see any attention given to Thinkscript from inside ToS as a big positive, since the management types don’t necessarily see it as a big profit center. The more we as customers show up and support the work of the ToS dev team, the more firepower they have to get resources to bring us more capability.

So look for this in your Think Desktop platform soon!

I’m going to make another try at trading. It will probably be another few months of preparation, but I will be back sometime in 2012. In the meantime, I will also work new tools and scripts for you readers. I had my moment of existential crisis, and now I’m back on solid footing, thanks to you.

Thank you, sincerely, to all of my friends out there.

So as I near the close of another losing year of trading, I see that yet again it is time to stop trading. The discretionary setups I have been playing just are not working, as evidenced by my win/loss rate and my PnL. While this is a psychological blow to me, it’s not a big monetary blow. Nothing in my life changes because of the lost money. I make plenty of money as an engineer to cover our family’s lifestyle and save for retirement. Basically, the middle class dream. But there is nowhere else to go. No more upside, and very little personal freedom. That’s what trading represents to me: being in control of my own life. So far, I have not succeeded. While I have a lot of success in many areas, especially the ones that count (health, family, career), this one is where my heart is set. Either I need to give it up or try a different approach. Since I don’t have the approach right now, I’m stopping until I do.

So this is not an emotional breakdown, I didn’t go tilt, no real damage done. But I am sad that I still can’t win at trading. I will likely study some more, watch the markets, maybe make another try next year.

Now, the dilemma: what do I do with my programming/blogging? I feel like I have no business writing about trading, making indicators and software for other traders if I can’t even do it myself. It just doesn’t feel right. If I’m trying myself, and having success, then I feel like sharing and working is honestly good. What I worry about is this: if I’m not a good trader, then people come looking to me for something that will help them find success. I’m no snake oil salesman. I don’t want to prey on people and their desperation to find something that works. I won’t do it. So that leaves me with the question: is it ethical to do the programming work when I can’t make money myself using the same tools? Say the answer is yes. Then is it enough business to replace my income and do it full time? So far, the answer is far from yes. So where should I invest my skills to have the greatest chance at my end goal: financial freedom, while I am still “young”? Again, I don’t know.

So that’s where I’m at. I believe it is possible to make money at trading, but it is far harder than even I thought. If I can’t do it, how can I help anyone else do it? And if I don’t trade or help others to, then what should I do to meet my goals? Welcome to the inside of my head.

On the ToS side, my concerns from the prior “Crossroads” post have been largely corrected by the Think or Swim folks. So I’m sticking around with ToS. I have some hints of some great features to come, and I need to implement the recent thinkscript changes from the last release. I also need to update the CAT tool. I really wish I could do this full time, but I have bills to pay, and so I must do SCIENCE at the day job to pay for all these kids.

Thanks for your patience!

Then the account merging disaster. TD was absolutely unprepared for this event, which was obviously pushed through by some management decree rather than technical readiness. (Before I go any further, I want to completely make clear that I hold no hard feelings nor disparaging judgement of the original crew from Think or Swim or the employees that now find themselves, lamentably, to be part of TD. They have been responsive and engaged, and have done the best that they could with the atrocity of the situation that they have been thrust into. Any further criticism is directed directly at TD alone.)

Since the merge, I have faced these maddening problems:

1. iPhone app not working. It stopped accepting orders from me. The app would crash and lose connection to the servers. But all of this was back end stuff; the app still worked great. When TD “updated” it to include multi-tasking, they broke the charts if you had any futures symbols in your lists. It’s now unusable. They took the best mobile trading system in the business and turned it into utter garbage.

2. Account segregation. Futures were (and still are) in a separate account from stocks/options. This was a problem because I managed my futures intraday margin (which is high, but hey, it’s a retail broker) in combination with my swing trades and options positions. Spitting them out was a non-starter for me. So I sat by and waited for the integration that the ToS team was trying to implement, missing the best month in years for futures daytrading.

3. Spotty connections and platform glitches in thinkDesktop. The data stream is intermittent and keeps dropping out. I have to really fight with the platform just to keep working. Lots of restarts.

4. For much of the morning yesterday, TD was just down. No quotes, no positions or orders, nothing. The streams were full of people experiencing these issues. It was a major outage right when things were dicey in the markets and traders needed to hedge and position for the volatility. This is bad enough if the systems were working fine during the uptime, but in light of the other problems its just about the final straw.

The infuriating thing is that the entire system worked fine under ToS. If TD had just bought ToS and operated it as a separate division none of this would have happened. But integration was going to happen, and they pushed it through. And just like that, TD has become the Yahoo of brokers–buying up great companies and capability and slowly killing them off through mismanagement and incompetence. “We’re doing the best we can, be patient” only goes so far. Maybe intentions are enough inside a big company (or the government), but for traders who eat what they kill, they can’t make it by on promises, excuses and hope. In that regard, I’m lucky to have full-time employment. I don’t depend on trading for an income. But I know people that do who have been hit hard by this situation. Were I in their shoes, I’d have been long gone long ago from this mess. But patience was something I could afford to have. As I struggled to get quotes and to close a position Friday morning, I finally accepted to myself that ToS is dead as a viable broker for me, and it’s time for me to move on as a trader. I felt sick looking at my year-to-date commissions. For the amount of money I paid ToS/TD this year, I could have bought a lifetime license to Ninja Trader. Instead, I bought sub-par service at a premium price, along with the aggravation and stress of the system problems. I bought broken software and a back office nightmare.

I used to be happy to say I was a ToS customer and would recommend them to people at every opportunity. I built this blog and a lot of my custom work and development around them. I even held out public optimism that TD would just let ToS keep doing it’s thing back when they bought them out. But so far, that was all misguided. And here I am at the crossroads.

I’m looking for another all-in-one broker to replace Think or Swim as my trading outfit. I’m seriously considering ending my code development and support for the ToS platform. If I can’t find a good stocks/options/futures broker that fits my needs, I may switch to Mirus, Amp or another futures introducing broker with low intraday margins and commissions and support for Ninja Trader. If I have to segregate my accounts, there are cheaper and more capable solutions out there. I have neglected Ninja development in place of ToS work, and it’s becoming clear going forward that this is a mistake.

Anyway, that’s where I’m at. Just sad and disgusted that our incredible top-tier outfit has been rendered impotent and will languish until its demise. So far, MB Trading is looking like a good bet for a replacement. They even have an SDK for developers to work with their accounts. A lot of potential there. If anyone has experience using MB as a broker, please leave a comment and give me your opinion of their brokerage service.

I’m not burning down all the bridges with ToS yet. I guess some part of me still holds out some hope for a good outcome. It’s just looking less and less likely to arrive.

Alas poor ToS, I knew thee well.

So it looks like TD is having all kinds of problems with this merging of accounts with ToS. I had new username problems yesterday. That’s an annoyance, but a one time pain.

I am still getting used to my username as well. I believe e-mails were sent to the address on file on Thursday but unfortunately there were cases where we received some bounces and/or were caught in SPAM folders. In cases where we were unable to deliver an e-mail a letter was mailed. Please note that you can change your username if you do not particularly like the characters that were added. That’s what I did.

Then I find they haven’t unified futures and equities into one account, so you have to manually segregate funds between two accounts. That is unacceptable. But their FAQ says they are working on the integration of the two and expect it to get worked out. When? Who knows.

I completely agree. The plan is to deliver this functionality using our new clearing firm inside of a month. We need to thoroughly test the functionality given we are using a new clearing firm but we are getting close.

Now as of this morning my account shows zero cash, but a single position in an FDIC insured account. I assume that this is the overnight sweep into an interest-bearing (LOL) deposit account. ToS did this as well, but still credited you with cash and buying power. So basically now you can’t trade pre-market. I have no idea if this is permanent or just a temporary glitch. If permanent then you’ll have to tell them you don’t want cash sweeping overnight.

This was a temporary glitch. We feel we have addressed it today and will be monitoring very closely overnight and tomorrow.

So these are pretty heinous issues. Before I get out the torches and pitchforks, I’m going to give them a bit of time to see if they can sort it out. After all, this is only trading day #2 post-integration. However, they need to resolve this very soon or a lot of traders are going to bail on them as they miss opportunities in the markets.

You are 100% right. I assure you we are working tirelessly to iron out the issues you have mentioned. I personally only left the office for 3 hours yesterday and 4 hours the day before. Not looking for points here – just want you to know that we are on it.

So a little patience is in order here. It seems that the same people who gave us great support under the old management are still working the issues now. Here’s hoping the wrinkles get worked out soon. Until then, as The Fly says, go eat a sandwich.

Now as of this morning my account shows zero cash, but a single position in an FDIC insured account. I assume that this is the overnight sweep into an interest-bearing (LOL) deposit account. ToS did this as well, but still credited you with cash and buying power. So basically now you can’t trade pre-market. I have no idea if this is permanent or just a temporary glitch. If permanent then you’ll have to tell them you don’t want cash sweeping overnight.

So these are pretty heinous issues. Before I get out the torches and pitchforks, I’m going to give them a bit of time to see if they can sort it out. After all, this is only trading day #2 post-integration. However, they need to resolve this very soon or a lot of traders are going to bail on them as they miss opportunities in the markets.