CLG13 - Update for the week of December 31st through January 4th, 2013

Welcome back to CRI's ongoing Crude Oil Day Trading Blog.
Price analysis you see (first chart & commentary) is CLG13, for the week of Dec. 24th - 28th, 2012.
Each trading day a 15 minute chart is added and trades for that day are analyzed:

Market Overview: Through the holiday season (especial around the end of the calander year) volumes become very light and price action is very choppy. That pretty much described the past week's price action expect for a brief two hour period (on the open of trade Wednesday, the 26th) where price jumped over $1.50. Now that the better part of the Santa Clause rally is behind us, one must now start to prepare for the pending 'fiscal cliff' and its implications. Interestingly, unlike most other markets, Crude prices have remained relatively strong in the face of pending uncertainly. Is this a clue for us traders going forward, or will CL play catch-up first thing Monday morning and join the rest of the market (heading down).

Weekly highlight: Other than a brief two hour period right after the Christmas break, this past week saw mostly drifting price action as both major institutions and a good many retail participants were simply not at their post's. Considering the seasonal presures (Santa and US Presidential elections), it is not surprising to see prices drift higher. Conversly, as we head into January in earnest, one ought not to be too surprised if we (along with the broader market) have to take a few weeks to pause.

Trading Strategy (1 week): As we get back to 'normal' market conditions I am hoping my regularly established trading plan (ORT's) can be executed. I plan to take all NYPit ORTs this coming week. Because I have one day left on my current combine and it needs to be done by the end of business January 3rd, I plan to practice account trade Monday (Tuesday is a holiday) and trade the combine on Wednesday (January 2nd). Once that combine is completed I will being a new one shortly thereafter and will be trading once again full time in the combine.

Mental State Review: Taking too many loses (regardless of real or practice) is very hard on mental capital. Even though I did all my trades over the past week in my practice account (refer to previous week's comments about holiday trading) I found myself incredibly discouraged as one ORT attempt after another failed. Frankly, I was stunned to see two days in a row go 0/4 on the range trades. I knew before hand that trading was going to be difficult, but 0/4 day after day was debilitating. Having said that, loses are a part of all traders life. I have to learn to accept that sometimes you just are not going to win. This is why the '3 strikes' rule is so important. Daily loss limit must not exceed $465 (3 losing trades at 15 ticks each plus $5 commissions per trade = - $465).

That's all for this post,
Brian Beamish FCSI
The Canadian Rational Investor
the_rational_investor@yahoo.com
http://www.therationalinvestor.ca
http://crisdaytrading.blogspot.ca/ 

$50,000 combine finished today 10 of 10 days +$1,710)
Wednesday's Trade: (2-2 +$200)

Review: After a long pause it was nice to get back to regular trading today. Because of the recent concerns I have had regarding the opening range trade (NYPit ORT) and the 7AM PST trade (7RT) I approached today very cautiously. While my regular rule of moving my stop once +20 has been hit works well during 'normal' market conditions, I have moved that to +10 until I see a consistence to the trade once again. So today (as I have made it a habit) I traded both the NYPit ORT and the 7RT when their respective signals were given. I was able to take 9 ticks on the first trade and 12 ticks on the second. After commissions, that left me with a nice +$200 day. Since this was the last day of my $50k combine (day 10 of 10) I was happy to finish the day on a positive note and two additional profitable trades to add to my performance. Since I met the 'roll over' requirements, I will be continuing on into a new 10 day combine starting tomorrow (Thursday January 3rd.). I finished the combine with a profit of $1710 in 10 trading days. I find this really interesting for two reasons. 
1. I switched from the $30k combine to the $50k combine to be able to handle more risk not to be able to trade more/larger. While the larger $50k combine has a profit objective of $3500, the $30k combine has a profit objective of $1,500 - That literally means if I hadn't made the switch (and done everything exactly the same in the $30k combine as I did in the $50k combine) I would be a 'Live' trader today.....WOW.... So why did I make the switch? The number one reason was that the $50k combine has a maximum daily risk of $1,000 whereas the $30k combine has a maximum risk of $500. This is important because I have found it is the perceived 'risk' that effects one's trading. Whether real or not, the fear of getting figuratively 'killed' makes one both really uncomfortable and rather risk-averse (if you exceed the loss limit you instantly disqualify your combine with no possibility of either going 'Live' or even getting a refund/rollover). I found that with the $50k combine (and the $1000 risk level) I didn't even think about hitting my loss limit (because there was no way I could lose 100 ticks in one day) and it didn't effect my trade decisions in the least. I am concerned that with me enrolling back in the $30k combine ($500 max risk) that my focus will be pulled away from making good trade decisions due to risk aversion. I went through this very thing for several months and it should be interesting to see if it happens again. Interestingly, my maximum draw-down through this past combine was $150 on any given day so if I do exactly the same thing through this next 10 day trading period there is no reason why I can't hit the $30k combine performance requirements to be able to go 'LIVE'. 
Just do it Brian!
2. The second thing that jumps out at me is really more from a broader perspective. As a long time registered broker (of which I am not currently) I would have commended any client of mine with a 10 day track record like my past combines'. Frankly, $1710 in profits trading a 1 lot Crude Oil contract (margin of $7,500) with a stated maximum daily draw-down of $465 [3 strikes (15 tick stop) and you are out] and an actual maximum drawdown of $150 is fantastic! These performance numbers are startling to say the least (it boggles the mind when one anualizes these kinds of compounded returns!). If I can acquire a skill set (through this one year plus TsT experience) that enables me to trade my personal account to only half this kind of profitability, I will be better off for it - funded through TsT or not. For the record, I am not really quite sure where TsT comes up with their $30,000, $50,000,$150,000 etc combine numbers because they do not jib with either exchange stated margin requirements (at worst $10,000 margin on a single CL contract) or what I would personally consider acceptable risk per trade. Based on the simple 1/20th or 5% risk principle, if I were indeed working with $30,000 in capital, I would be more than happy risking $1,500 if I knew there was a better than 66% chance of turning that into $3,000.  Here is where I have a fundamental difference with TsT. It shall be interesting to see if running my '3 strikes and you are out' ($465 max daily risk) model can work within the confines of the $30,000 account TsT model (and more importantly the death line - max daily risk of $500.00).

Thursday's Trade (2-2 +$160)

Review: Today was the first day in my new $30k combine. The major concern of mine through this combine is the daily $500 max risk loss limit (as mentioned at length previously). With the above in mind, and my resolve to take each and every time frame range trade, I approached today's trade with a bit more caution than usual. Indeed, I did take both the NYPit ORT 1st leg and the 7RT 1st leg. As per my recent posts regarding the illiquid nature of the RTs lately, I moved my stop up once +10 was hit on both trades. Indeed, neither of the time frame trades moved fluidly - so I got out on the first sign of weakness. The NYPit ORT gave me 9 ticks of profit and the 7RT gave me 8. Net production for the two trades came to +$160. Since I need to average $150/day in production to meet the $30k combine profit objectives I was happy to basically call it a day after the 7RT. I took the attitude that I would do another trade IF an incrediblly juicy setup came along. I didn't really see anything that jumped out at me through the rest of the day so finished with 2 trades on the books and a net production of $160 on the day. All in all, I felt very good about today and the direction my 'hot-dog stance' business is headed.