Over the Christmas holidays I read Enhancing Trader Performance by Brett Steenbarger. This is definitely one of the better trading books I’ve read over the years. One of the key concepts of the book is that reviewing your trading performance is a vital steps in becoming a better trader.

During the years that I have been writing this blog I’ve often done daily, weekly and monthly performance reviews. It can be difficult to go back and review these types of trading critiques as they were written with full knowledge of what unfolded after trades were opened and closed. What is missing is a clear snapshot of only the information that was available when a decision to enter or exit a trade was made. The thoughts and rationales that are only ever found at the hard right hand edge of the chart are lost. Only certain pieces of the puzzle are remembered and recorded at a later date.

To get a better insight into my thought processes and trading behaviour I have started to record my trading sessions as I’m trading. I have been using Camstudio, a free video recording application, to tape my trading as it happens. It records my chart and trading platform and I use a microphone to provide a running commentary of what I am thinking. I try to spell it all out: what I’m seeing on the charts, how I’m feeling, where I see potential trade entries, am I bored, focused, distracted.

On the weekends I then try to find the time to review at least one trading session from during the week. It certainly is an enlightening experience peeking over your own shoulder as you trade. You get to take a step back and look at what you did both right and wrong.

I have been able to keep to the trading schedule that I started last year. I’m not sure if getting up before 6am is a habit yet, even after doing it for almost two months, but I’m getting there.

Up until the end of January I was trading the 6-7 EST hour, to try and see how well trading a slightly quieter time suited me. This hour was a European session only time and led into the lunchtimes of Frankfurt and London traders. It was often rangebound. It was also noticeably quite in the lead up to important news events such as NFP data or ECB rate announcements.

Since the start of this month I have switched to trading the start of the NY session. I don’t want to be trading during any of the big news announcements so I’m looking to be trading from about 8:45 til 10 EST. I want to see if I have a preference for more volatile and active markets.

It certainly helps that I am only trading in a concentrated one hour block when it comes to recording my performance. On the other hand, I don’t see any reason why a trader couldn’t record their thoughts and market actions any time they’re looking to enter or exit the market while trading a higher time frame. A video editing application such as Sony Vegas Movie Studio 9 can be used to edit together various clips so that a single video documents a single trade or a whole weeks worth of trading.

I’ve certainly found it to be of great benefit in only the short time I’ve been doing it and I don’t think I’ll be able to trade without recording my every thought and action going forward.

Another benefit is that having to speak my mind has helped me cut down on taking impulsive trades. They’re not gone completely but their frequency has been severely reduced in just a few short weeks. When you have to verbally describe setups it becomes glaringly obvious when you jump into a trade with price tearing away without you having had a plan in place beforehand. Another push in trying to get rid of impulsive trades has seen me looking to understand price action more. I’ll go into what I’m studying here in my next post.

I had always thought highly of Richard McCall after reading his Way of the Warrior-Trader book and watching his educational videos. He always struck me as more of a teacher or coach than a straight up trader and that is the vein in which I took his work.

The full complaint, preliminary injunction order and final injuction order can be found on the CFTC website.

Seems like he overstepped his comfort zone and ended up straying form those universal laws he holds in such high regard, as detailed in the March 2006 CFTC press release:

Specifically, between March and June 2004, as alleged in the complaint, McCall made the following claims on his web site: 1) he was an experienced futures trader; with his trading results consistently ranked among “the top 5% of traders worldwide”; and 2) students following his Sabaki-Micro Trading for Futures would have “a better than 90% chance of being profitable.”

The complaint also alleges that, although McCall touted the profit potential that could be achieved by following his trading advice, he failed to disclose that he actually had traded commodity futures for only one year beginning in 2003, and that the account in which he traded experienced consistent trading losses, rather than profits.

The complaint also details that no proof could be found for any degrees held by Dr. Richard McCall. The mythical nature of his doctorate only had me chuckling as I couldn’t help think of Derek Smart (where a similar sort of doctorate debate raged for months in the gaming sphere way back in the 90s).

I still think his book contains a lot of great insight and useful information, especially on the mindset needed for trading, but it is sort of tainted now by knowing he’s been busted by the CFTC.

Thus, instead of seeing that your position is two pips in profit or three pips under water you should be looking at how much profit you are currently sitting on; you watch the dollar amount (if your account is dollar denominated) pulse up and down.

At the end of the day we are trading to make money so it seems perfectly reasonable to focus your attention on nothing but the money.

There is just one huge advantage to focusing on pips instead that I think trumps uP&L in all but one case. As your trading account grows in size (or shrinks) the pips remain constant. The monetary value of each pip changes, hopefully in line with ever increasing account equity. But what constitutes a big or small trade is going to remain the same if measured in pips. If you focus on the uP&L then you have to constant readjust your perception of where your stop loss and take profit levels lie. If instead you just focus on pips then you don’t need to readjust or relearn at all.

The only exception I can think of where you would not have this problem when focusing on uP&L is if you did not use profits to grow your account. Instead all profits are withdrawn or your equity is topped up by deposits in the case of losses. Thus your account equity is constant and is a fixed reference point which allows you to have unchanging stop loss and profit goals.

If trading multiple currency pairs enters the frame then it becomes slightly trickier, as the monetary value of a pip in each pair could be different. Happily I don’t have that to deal with that as I only trade one currency pair, as do most scalpers. So that’s a weak argument in favour of uP&L.

The final consideration is if your broker charges you a commission. If they do then you need to make enough profit on the trade to cover both the spread cost as well as the commission cost. The commission cost is normally shown as a dollar amount on the trading platform as positions are entered and exited. Wouldn’t watching uP&L be useful in this instance to see if your trade has gone far enough into profit to cover the commission cost?

I would counter that it is pretty trivial to calculate how many pips that commission cost is equivalent to. Even if you trade currency pairs beyond what your account is valued in, which results in the commission cost fluctuating based on exchange rates, the variations are going to be pretty minor.

Of course, the easy work around is to not have to deal with commission costs at all. I know that Oanda aren’t an ECN, but their low spread on EUR/USD and lack of commission is enough to keep with them for the moment.

I’m going to finish off with a quick trading update. Today saw my first positive session of the week. I consider a positive return (of any sort) to be an excellent outcome for the day. If I end up in the red but lose less than 1% then I consider that an average day and perfectly acceptable for this early stage of my scalping focus. Anything beyond that 1% loss is poor and needs to be corrected.

Here are this weeks returns so far:
Monday: (2.06%)
Tuesday: (2.03%)
Wednesday: (0.68%)
Thursday: 0.53%

Today’s trades:

I got whipsawed on trades 2, 4 and 5 as price was entwined around 1.4635. I’m happy with taking the loss on trade 2 and breaking even on trade 3. I got back into the market far too quickly with trades 4 and 5. I should be taking a breather to see what unfolds.

I redeemed things slightly on trade 6 when price broke out of the 1.4631-6 ranging zone.

After that I crumbled, jumping in and out of trades on a whim. After price spiked back up slightly to 1.4625 just before I entered trade 7 I thought that waiting till it reached 1.4635 to play that resistance level would be a good trade. Unfortunately, it was a fleeting thought, soon followed by poorly planned out trades. If I had just stuck to that original thought, and held out till price reached back up to 1.4635 and played it short I would have been much better off.

Trade 10 shows where I attempted to play the resistance level at 1.4635 but I was in too quickly and got spiked out by a pop and drop. I would have gone short again after trade 11 once I’d seen the false breakout unfold, but trade 11’s loss resulted in a break of my daily uncle point so I called it a day. I have set a daily risk limit of 2%. If I lose more than 2% during a scalping session then I walk away for the rest of the day. When I have a good bit more screen time under my belt I will also enforce a rule where if I have reached my daily risk limit twice in a week I will take the remainder of the week off.

11 trades today was too many. I need to cut this number in half. That means being stricter with my entries. I seem too eager to enter during the second half of the hour. Maybe I feel I’ve only just gotten warmed up by then and want to really get going.

Too many entries just doesn’t cut it. I need to be more cognisant on the probability of a trade working out and bail on those that don’t make the grade. I think that more and more screen time is going to be needed to refine the intuition needed to make these split second calls.

It’s a technique that seems so simple. And it is. Unfortunately, that doesn’t make it easy.

The effort is most definitely worthwhile. If you’re a beginner trade then adding mindfulness to your psychological toolkit will leapfrog your trading skills forward. There’s even the off chance that it might help you in other areas of your life. Stress and fear, meet your nemesis.

Live and breathe in the present. It’s all you’ve got.