Process

If you have read the About section of this blog you know that the first belief I said I approach markets with is that trading is not an intellectual pursuit but instead it is a performance endeavor.  As a result of this belief I draw considerable inspiration from athletes when it comes to what I do ahead of game-time, which in my case means trading.

My favorite athlete is Michael Jordan.  As a quick aside, if you want to see what it truly means to be a champion in a performance endeavor I would highly suggest reading the book Playing For Keeps by David Halberstam, which is all about Jordan.  Jordan always had the same pre-game routine which you can get a glimpse at here.  There are even details of this routine that aren’t discussed in that short clip but you can see some of them, such as the UNC shorts you see him shooting in, which he wore under his Bulls uniform in every game.  I have adopted a routine which has turned into constant habit for me Sunday – Friday every week. This post outlines the routine.

Homework

The first part of the routine starts on Sunday night where I perform my first session of homework for the week.  I typically start my homework about the same time every night, between 6:30 and 7:30 pm and this is done Sunday through Thursday each week.  Monday – Thursday night homework takes about 2 hours tops.  On Sunday night, homework typically takes 4-5 hours.  Here is what I’m doing during each evening’s homework session:

  • I analyze 4 time frames for each of the 8 markets I trade.  See the about section for a list of those markets.  Since the vast majority of my chart analysis is automated this is why I’m able to look at all of these markets in a rather short period of time.  I am not spending 10-12 hours a day drawing lines on charts…in fact, I don’t draw any lines.
  • Markets are observed in roughly 1/5 increments based on the total hours they trade each day.  There are two constant time frames for all markets which are Weekly and Daily.  From there, I look at two lower time frames based on the times the markets trade.  As an example, for the $ES I look at weekly, daily, 288 minute and 58 minute charts.  In grains, those two lower time frames are 210 minutes and 42 minutes.
  • The bulk of this analysis, which you’ll see many charts of on this blog, is price and price channel analysis, specific review of the auction process on an intraday basis using volume profiling and then secondary review of RSI data for each market and the filter I use to tell me when the RSI levels being displayed are incorrect due to the way RSI is calculated.  I do not use orthodox channels.  There is a specific process for how the channels you will see are developed but that’s not something I’m going to discuss on the blog.  What I’m looking for first in these markets is directional agreement on the daily and 1/5 of a day time frames.  As an example, on the $ES I’m looking to see if the price and the channels are moving in concert on both the daily chart and the 288 minute chart.  If they are not, the vast majority of the time that is where the analysis ends because that market is not a candidate for the coming day’s trading session.  Most days I have anywhere from 4-5 markets that are candidates for trading out of the 8 I track.  I do not trade all 8 markets at once as a hand trader.  Most of the time its 2-3 markets on any given day.  I’ll discuss this further in the next section.
  • Once I identify the markets that are trading candidates the next step is to identify all the areas where I’d be interested in doing business.  I do this by leaning on volume profile analysis to pin point specific auction levels where I wish to execute.  You are also going to notice my charts are one of three colors.  Each color indicates a dominant trading style and the prices I’m looking to do business at are based on these different trading styles.  This means my trading style will adjust as market conditions change.  Though the majority of my trades are executed via trend trading methodology I will also bargain hunt or top and bottom pick depending on the environment I’m observing.  Again, if you reference back to the About page you’ll see the stated belief that “various trading methodology are needed for different market conditions” and that is why I do not lock into one form of execution.  This price identification process involves the establishment of anywhere from 1-4 hypo’s for each market on the trading list which I will write out into my journal.  If you’ve followed me on Twitter for a while you have likely seen this process over and over again in my comments there.  Please note what I’m not doing is trying to forecast where prices will go and I’m not trying to figure out what “should” or “will” happen based on the chart analysis.

This is the normal process and its repeated each night from Monday – Thursday.  There are a few other events during homework time that are unique to Sunday evenings, as follows:

  • On top of regular homework on Sunday night I will also review secondary inputs during this extended homework session.  This is where I’m going into Sentimentrader.com to observe sentiment on each of the markets I follow as well as the positioning of Commercial Hedgers in relation to price.  Once a month I’ll also check the seasonal tendencies of the markets I trade in during the first homework session of the month.
  • I also spend a lot of time journaling on Sunday’s.  The Journals will be updated to document the prior weeks results, entries and exits, and rationale behind them.  If I have recorded  a specific trade sequence while it was live then I’ll also review that Sunday night.  Goals for the week are also established on Sunday’s through a process I adopted back in my old job called a Weekly WDY WFY (What Do You Want For Yourself).  I do not set weekly profit targets.  Most of the goals revolve around execution and discipline, family, business goals, health and food intake goals, and how I will work to further my education for the week.
  • I will also run stats on all of the markets I trade usually one time per quarter and typically during the Sunday homework session.  I look at wide array of stats and continue to add and subtract certain studies over time.  I’m sure I’ll end up discussing many of these studies over time here on the blog.  Some examples of studies I’ll run are things like:  How often is an intraday double (triple, quadruple) top broken in grains markets?  How often is the overnight high or low broken during day session trading hours and how often are both of them broken?  What is the most common price rotation in each market?  What are the average daily ranges over X period(s) of time in each market?  How often does the IB high break, the IB low, or both?  These are only a few examples.

At this point the primary homework session is complete.

Preparation to Execute

I spend the first hour or so of my morning doing review and getting mentally prepared for the day ahead.  Here is what the review process involves:

  • Review notes from last night’s homework and all hypo’s for trading candidates.
  • Review what happened while I was asleep during the globex trade relative to my previous night’s homework and game plans.  Examples include:  What was the most traded price overnight, what is the o/n high and the o/n low?  Are there any overnight gaps to note in the chart?  Have any or all of my hypo’s been completely eliminated based on action in the overnight session?  What news is ahead for the day if any that could impact the markets I’m looking to operate in?  Was there any major news overnight that had an impact on markets?
  • Sometimes I will make minor changes to the previous nights trading hypo’s given the action I’m observing that has taken place overnight.  Sometimes the overnight action has completely eliminated one of my plans because its already played out.
  • I then spend 10 minutes or so once all of this is done in complete silence.  It’s now game-time.

Execution

At this point there isn’t really much to talk about.  The one thing I want to point out to readers is that I try to do exactly zero analysis during the day.  When you are trading with the flow of the markets, or “trading in the zone” its something like an “unthought thought”.  The closest way I can think to describe this outside of trading would be to compare it to playing an instrument.  I play drums and guitar.  When you first start playing an instrument you suck.  Part of the reason you suck is because you haven’t practiced enough yet but another reason, or at least this was true for me, is because you often have to think about what it is you are doing.  When I first learned how to put my fingers on the frets of the guitar to form chords I had to think about where to move my hand.  Over time you get to the point where you play through an entire song without thinking:  Ok, now my hand goes here for the A and during the chorus I’m going to put it here to form a D chord….you just do it.  In the same way Michael Jordan wasn’t thinking through his every move before he made them during the game…he was just doing it.  Do you really think when he made this move he planned it out exactly like this right before he did it?  As he mentioned in the video above, he already put in the practice, he warmed up properly, and he visualized what he was going to do during the game.  When the game got underway he was executing.  He was in the zone.  Trading is not different in my opinion, the trading day is for executing, it is time to perform and homework is the time to do analysis and to use your intellect.

Most of my trading takes place in the morning.  As I’m on the east coast the vast majority of my trades are taking place between 7:30 am and 12 pm.  I’ll hold a trade as long as the market allows but it’s rather rare based on how homework is constructed for me to be taking a lot of trades in the middle of the day.  Most of the time that is when I’ll break for lunch or even take a nap or close my eyes for a bit or watch some sort of TV that involves uncertainty (little tips I learned from Denise Shull’s book Market Mind Games….while some of you are gasping now I’m sure.  You do what!?! ).  This is not to say I never trade after 12…it depends on what the market is doing, but normally from roughly the London close to about 1 pm or so I am not very active.  After that activity typically picks up again as the grains close flows into the crude close and then the final hour of equity trading starts.

Once execution is over I walk away from the screens for a few hours.  I come back again later in the evening to repeat this process all over again, starting with a new homework session and following the outline through to the next day’s trading session as described here.  This is the process.

I hope you enjoyed this post.  Moving forward on the blog now you are going to see how this process is put into action as I publish my thoughts on markets from time to time.  I plan to split the posts up into either Evening Observations or Morning Observations to be written during homework or the morning prep.  There is a comment section below if you have any questions or you can ask me on Twitter @FatF1nger.

Enjoy the long weekend!

 

– Fat Finger

 

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About Fat F1nger

Full time futures trader.
This entry was posted in Homework, Process and tagged . Bookmark the permalink.

12 Responses to Process

  1. mrblond5311 says:

    May I ask a couple of questions? Forgive me if you plan on answering them in future posts. 🙂
    1. How do you structure your journal? i.e. Just by date? Electronic or hand written?
    2. Can you post an example of WDYWFY?

    Thanks for sharing on this blog, I’m looking forward to further posts!

  2. Fat F1nger says:

    Hi Mrblond, thanks for reading. To answer your questions:

    1. Bulk of the journal focuses on expectancy. Expectancy = (Average Win x % Winners) – (Average Loss x % Losers). I track average win’s in terms of ticks in each market I trade, not in terms of dollars. This needs to be done over legit sample size so ideally you want at least 30 and over time you’ll have 100’s/1,000’s. Once I know expectancy I structure weekly goals around that figure rather than a P&L. Second part of the journal will focus on the trade itself: So: what was I looking at in terms of areas to do business, where did I execute if at all, how did I campaign in that trade once execution took place, did I make any mental errors before or during execution. I don’t spend a ton of time going over each days results, that’s typically done at the end of week during Sunday’s homework session. Normally during the day I’m making notes on a handwritten sheet of paper then on my big Sunday session I transfer all of this information into an electronic journal (word document and excel, nothing fancy) The final piece of the journal tracks P&L on a per trade and per market basis and I also run a basic overall monthly summary on P&L.

    2. The Weekly WDY WFY is really simple. I keep these hand written in a grid paper notebook that I buy at the grocery store/Staples, etc. I find there is habit reinforcement in being able to cross these goals off as they are accomplished during the week. There’s nothing special about it. I simply write out the dates at the top, so this weeks header is: 9/1/14 – 9/6/14 WDY WFY. Below this is a series of bullet points down the page with things I want to accomplish. Here are some of this weeks entries as examples

    : Finish reading The Club that Rules the World
    : Finalize TradeStation formatting for v9.5 on Laptop
    : Test Perry Kaufman Point & Figure trading strategy in v9.5 for grains markets
    : Pay September estimated taxes
    : Go the Gym 3x this week, Perform 2x cardio on off days
    : Maintain bro diet 6 days this week, 2x cheat meals allowed during week, 65g fat daily intake limit
    : Run analysis on alt trading sizes for 10 year notes and Corn
    : Reach 3.75 pts of expectancy in Wheat trades for the week

    This list is 38 points long this week, its usually anywhere from 20-50 and as you can see it will include all kinds of things in addition to those that are trading related. Hope that helps better explain the WDY WFY…its not so much the format that matters but getting your goals written down…you are much more likely to achieve something that you write down. Usually if I don’t hit the goal for this week it will go on to next week’s WDY WFY…some of the stuff is on there every week, like going to the Gym 3x.

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  5. Anonymous says:

    FF…just reading through your stuff…may i suggest ‘A Sense of Where You Are’ by John Mcfee, his non fiction profile of Bill Bradley…one needs to find that sense …. fw

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  9. TW says:

    Interesting post – thanks for sharing. Lots of good advice in there, e.g. on process vs. outcome orientation.

    One question: you wrote, “Markets are observed in roughly 1/5 increments based on the total hours they trade each day”. Why 1/5?

    • Fat F1nger says:

      Hey TW…thanks.

      Good question on the 1/5 thing…answer not that exciting though: it was simply an easy way to break up the day consistently for the channeling process. Nothing special though about that particular breakdown (I think if someone wanted to use 1/4 for example that’s fine). The general idea is start with a weekly chart, 5 days in a week so daily chart is 1/5 of a week and so on…bigger thing is that its consistent across all markets….the channels in my black background charts are all automated and come from higher time frame mapping….for example, the channel on my 288 minute ES chart comes from inputs on the daily chart….so the 1/5 creates consistency in that process.

  10. Marco says:

    Can you contact me for an info?

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