Introduction
Week 09 gave the System a decent workout with four trades being added to the sample and, for the first time in two weeks, finishing with positive R.
The biggest lesson came from a winning Mean Reversion trade, which once again exposed a weakness in the System that would eventually have needed addressing.
While this (frustratingly) cost me at least +1.2R, I was happy.
I was happy not because it was ‘still a winner’, but because a valid setup led to a trade I could learn from, and ultimately, a new patch for the System. Patches are good!
Trades → Numbers → Analysis → Refinement
Aside from working towards positive trade expectancy, it also means a good update for the TRADING#NUMBERS Journal.
The Numbers
Last Week → This Week
Recap of actions from last week:
System 1.1 took shape with the addition of the Breakout trade take profit decision tree. However there were no Breakout trades to apply this. But that is fine and the rule is in place.
I also continued observing setups around New York open. A Breakout setup formed almost exactly at the open on Friday which, had I taken it, would have seen a loss. The price action was indeed violent, with several high-volume candles following.
I still need to formalise this experiment, but it is coming soon on the brand new home page for The System.
The market
Ranges and a breakout.
This week, volume remained present throughout which was good and a couple of ranges were formed (though not all tradable). For me, a range is typically non-tradable because volume is too low, the chop is too messy, or the range is simply too tight for the potential reward to justify the risk.
I took four trades and won three, with all three Mean Reversion setup trades being shorts and winning. Sounds good right, but again, small sample.
I’d like to point out that I am not a permabear always shorting, I trade the market and what I see. If I couldn’t take a long on a mean reversion trade, it is either because:
- It didn’t meet the System setup
- I wasn’t there
- I couldn’t get a fill (need to figure this one out, but no, I am not trading huge size…yet)
Weekly Trade Summary
| No. | Direction | Setup | Result | Note |
|---|---|---|---|---|
| 26 | Long | Breakout | -0.67R | Breakout play that failed. No issues with System but flipped to trade 27. |
| 27 | Short | Mean Reversion | +0.55R | Immediately flipped from trade 26 to target +1.9R. Got to +1.8R before market reversed and closed. |
| 28 | Short | Mean Reversion | +1.38R | Great setup, followed my rules and closed before New York Open. |
| 29 | Short | Mean Reversion | +0.10R | Good setup. Closed due to low volume chop. To think about. |
Trade 29, is an interesting one which while uneventful, is something I need to pay attention to and think about more: low volume after a trade takes place. More on this eventually.
The Trade (Trade 27 aka. "The Flip")
The setup
I had just exited trade 26 for a -0.7R loss. It was a breakout long setup that had failed. The reason I exited the trade was because I was presented with opposing order flow data that occurred at a key level, which was essentially presenting a good Mean Reversion setup.
Price refused to breakout and closed inside the range with lots of longs now trapped (which included my previous position) and shorts building up.
Looking at the chart, I, the setup met the System criteria to a tee. I flipped, punched in a short order and got filled.
I had a clear target: the opposite end of the range. I was originally looking to target $63,200, however I noticed a bit of a liquidity zone at $63,350 and decided to move it here to be a bit more conservative.
A quick note: before deciding to enter, I had a to genuinely question myself: is this a revenge trade? It wasn’t. Maybe a year or two ago, it might have been, but this aligned with the System, and is precisely the reason why I’ve deliberately built this around two opposing setups.
The Trading Number
This week’s trading number is 0.1R.
Okay, it’s not a metric I use to evaluate a trade, however it has directly led to a new rule being added as part to the System as part of patch 1.2.
For Mean Reversion trades, once price moves within 0.1R of my target, I’m treating the target as effectively hit and that means closing the trade.
In practice, I won’t be deliberately shaving 0.1R off my targets and they will still remain. However I will be monitoring for any mini chop zones in the area and then closing off.
I came about this conclusion because liquidity needs to be thought of as a zone. Not a rigid and exact price, but an area. Holding out for a few extra bucks isn’t worth it and probably more of an ego thing to say “full take-profit hit” (but it would feel amazing).
This thought also tied into last week’s System update perfectly (which focused on take profit rules on breakout setups).
The Outcome
After flipping My trade move in the right direction. It was slow and one of the longer holds, however there was no reason for me to exit. BTC was just trickling down on very low volume and therefore my hypothesis was the other end of the range was simply a price magnet.
Price came within 0.1R of my target.
And guess what happened.
BTC ripped back up.
Okay, not that dramatic but price ran right back up to near my entry just like that. I watched it bounce around a little, but price held on volume and I cut the trade for…+0.55R.
Just like last week, the lessons came from the winning trade.
And I actually think that’s a good thing.
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