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When You Get To A Fork In The Road…
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When You Get To A Fork In The Road…

by Robert LowmanMay 21, 2019

… Take It! Yogi Berra played, managed and coached the New York Yankees from 1946 through 1985. Yogi is known for not only his baseball career but also for his countless expressions that were memorable because most of them didn’t make any sense. However, every one of them has some truth to it and some of his quotes even relate to trading. Does “It ain’t over till it’s over” ring any bells?

There have been 5 Major Forks in my trading road.   For some background, here is a condensed version of my 20 year journey.

I began trading in late 1998 and acquired over $100,000 of gains between 1998 and 2000.  I achieved these gains by watching what was hot on CNBC and reading noise in Yahoo Chatrooms.  I became a trading legend in my own mind even though I really had no idea what I was doing.

When the tech bubble burst I stood by and watched like a deer in the headlights while most of my gains went up to money heaven.  I became very disillusioned and changed from being a perma bull to being a perma bear.  I also became divorced from financial news media.

I made a comeback and made it to the Big Bear Dance after the Housing Bubble burst in 2008, although I could have done much better if I wasn’t so damned early.  Although I didn’t fully realize it at the time, this learning experience was to become my first Fork in the road that being right on macro issues is not as important as being in sync with the market.

Even then, my main problem was having too much emotion while not knowing what I was doing.  I had mixed results while straying from bear camp to bear camp and eventually stumbled upon the Evil Speculator sometime in 2009.  It was sometime around 2009 that I experienced the bearish excitement and glee that came from the illusion of Prechter’s Primary 3 Wave Down on the horizon.

I bought thousands of dollars of put option premium that had plenty of time left so I could make a killing when the market cratered.  Not only did the market not crater, it began the biggest bull market in history.  Once again, I had a terrible sickening feeling as thousands of dollars of option premium puts expired worthless.  I still didn’t know what I was  doing overall but, this became came my second fork in the road because I fully realized that I had to reduce my position size or I was going to blow up my account for good.  At least something decent came from this second debacle.

My third fork in the road was attitudinal.   Sometime around 2010 or 2011, I was bitching up a storm on Evil Speculator about how unfair the markets were and Mole told me in so many words to STFU.  (He wasn’t as gentle back then as he is now)  LOL.   Although I eventually became grateful for what he said, I was angry at the time and went into a self- imposed exile.

During my time out, I realized that it doesn’t matter if the market is rigged or not because I made the choice to be involved with it.  Come on man!  If I choose to play this game and lose, I have no one to blame but myself.  Taking responsibility for my own actions led me to accept how this game is played. It also led me to decide that if I’m going to play this game, I must learn how to play it better.

I survived trading the markets as my skills gradually improved but as I became older, the thought occurred to me that I was running out of time.  About 3 years ago I took my fourth fork in the road which is building a system.   The term trading system sounds more sophisticated than it really is. I would rather call it a trading plan.  My trading plans have helped me to not only survive further but have allowed me to achieve a consistent performance, a newly found source of discipline and have helped me to eliminate emotional trading decisions. My trading plans are variations of a base system of trend following.

My definition of a trend is any sustained directional movement that is able to make me money in whatever time frame I’m trading.   The trading plan I use for Oil is different from BIO and they both have different characteristics than my E-Mini Day Trader.  The methods I use might not work on other forms of trading but there are so many ways that a system can be built that every person should be able to find an edge that works.

Mole and Scott created a series of posts on system building a few years ago that were of enormous help to me.  I think Mole is going to do another series of posts on this issue sometime this year. If you don’t have a system that works well for you this might be an opportunity to build one that does.  Your system can be contrarian in nature, going with the flow, or anything you want it to be.

The most important realization to come out of building my systems/trading plans was finding out that I don’t have to trade like Mole or Scott or anyone else for that matter.  I found that I can design a system to fit my personality and my risk tolerance.  I can define anything in my own terms because the only person I have to answer to is me.  The two most important rules of my systems are my entries and exits must have a proven statistical edge and that my initial maximum stop loss must be established prior to entry.

The most important and most time consuming work of building a system is testing to prove what kind of a statistical edge it has.  I use Average Positive Expectancy (APE).  From the results of my back test, I take the {winning percentage of the number of trades and multiply it times the average win per trade] minus {the loss percentage of the number of trades times the average loss per trade]. This will give you an average expectancy per trade in dollars.

To find the APE in terms of average risk (R) you divide your average gain in dollars per trade by your average risk (R) in dollars per trade and this will give you your APE in terms of R.  After completion of your stats, I suggest that you take the final figures and discount them between 10% and 20%. It’s a good idea to discount your testing results because testing takes all trades over a certain time period.  This is probably unrealistic because there will be days that you won’t trade for one reason or another.

BTW, if you only test a few trades and think that you have a system, you’re probably fooling yourself.  For my new day-trading system, I’ve already back tested 308 trades on paper and have more testing to do.  However, after my initial testing phase, I felt comfortable enough to live trade this system. My new system is off to a good start but I plan on more testing.

Why? This is because I want to put it under as many market conditions as possible on paper so there will be fewer surprises while live trading.  Another thing is that testing is practice and the more I practice, the more confident I am with my trading and the less susceptible I am to emotion.   On Friday someone asked if you could code a computer to do the back testing.

I really don’t know how that would work but I will say that if you automate the back testing then you probably should automate your trading too.  I back test by pencil and paper to get a feel for my potential trades.  I don’t know how you can accomplish this and become one with your system if a computer has done your back testing but that’s JMNSHO.

I’ve seen many people get completely wiped out swinging for the big home run that was going to take them to the promise land.    If you’re new or even a struggling veteran, do yourself a favor, build a system/trading plan and learn how to trade small before you trade big.  I refuse to take anymore reckless trades relying on luck.  It’s been a long arduous process rebuilding my account with small bite sized trades but my account has purpose now and is ready to take the fifth fork in the road to prosperity.

BobbyLow


About The Author
Robert Lowman

  • HD

    “the fifth fork in the road to prosperity” Awesome stuff BL!
    Perseverance is huge asset to have in this biz! Kudos

  • Sp00nman

    Thanks for sharing your journey BL. Always interesting to hear others’ stories and the struggles along the way!

  • BobbyLow

    Thanks. I remember Scott saying that trading and acheiving consistent positive results is one of the most difficult things there is to do and that’s the truth.

  • BobbyLow

    Thanks HD – I appreciate your kind words.

  • BobbyLow

    Drew and closed first blood of the day. +12 Points.

    Might go for round 2 soon.

  • BobbyLow

    Re-upped and back long 2868.25

  • Sp00nman

    For sure. I think most people that start trading are flying by the seat of their pants. 🙂 As you’ve said, I think developing some kind of system is critical not just for consistency in returns, but for sanity (how you mentally deal with drawdowns). I’m relatively new here and went back and read a lot of Scott’s old system building posts and they are critical. As you’ve said there are many ways to skin a cat and we all have different styles/etc.

  • BobbyLow

    BTW, my post was scheduled for tomorrow and Mole decided to post it today instead. Perhaps he wanted some variety. . .:)

  • HD

    Rode the break out for +10. watching TIME today as the rallies all month have had a shelf life.

    https://uploads.disquscdn.com/images/7390762acb3e0e1b77df419f3bcb40dda452c9c89a9e473a73aa8e8d6da3a587.png

  • BobbyLow

    Nice one HD.

    Yep, this market’s been more crazy than usual lately.

  • http://iberianviews.blogspot.com/ catracho

    not surprising with the “news flow!

  • BobbyLow

    Yep, it’s super sensitve right now when a bullshit tweet can create a large move in either direction.

    This morning, I read on a sports website where someone said that the world would be a better place without Twitter. He was talking about an athlete Tweeting stupid stuff. . .

  • http://iberianviews.blogspot.com/ catracho

    My feeling is that Trump has shot himself in the foot – Huawei is 2nd largest mobile phone in world after Samsung – if they develop their own operating system – could be very detrimental for US companies (Goog, and chip makers) – he has broken the synergy and the status quo – even if it gets resolved short term, the Chinese will continue to develop their own OS – to be prepared

  • HD

    VIX 15 is a big deal. Not saying it leads just that the IV going forward may look different if lower.

  • zzezzezz

    Great post, BL! Thank you

  • BobbyLow

    Isn’t 15 relatively low? I’ve never paid much attention to the VIX especially since the numbers have changed so much over the years. I remember when it was a danger signal when the VIX was over 20 or even 30 and under 20 was safe ground. The range is totally different now. QE might have changed how to interepet these numbers.

  • zzezzezz

    Nice! I’m looking to grab a short if we break
    today’s lows on /ES

  • BobbyLow

    Thanks Z.

  • BobbyLow

    Are you looking at a break of 2846/48?

  • zzezzezz

    I should’ve been more clear… I meant /ES lows since regular trading hours started this morning… So a break of 2856

  • BobbyLow

    That sounds about right. I might join you around that level if it’s still early enough in the day but it would be nice for price to hit my upside target first. 🙂

  • HD

    The VIX is a pos. Terrible. But it has some use in gauging how far they might run it. If it gets below 15 things can really slow down

  • BobbyLow

    I was a little limited for space in my post and I also want to say that if anyone plans to back test a trading plan that when you back test there is absolutely no pressure about price movement during each candle because all you see is the end result. However when your plan becomes live and trading real money, watching each candle develop is like maing sausage and can be pretty ugly from beginning to end. This BTW, is my main reason for having a big sign on my desk that reads – Let the FKG Candle Complete! 🙂

  • BobbyLow

    Yes and perhaps a low volatility run up – run down is possible with a low vix. OTOH, there’s also a chance for a more or less flatline which I call gentle hills and valleys on a road to nowhere when it’s very difficult to make any money.

  • Dyellowflash

    i am totally incapable of reading the zero today. So going to use 2 basic principles. A KO of that 1m mole buy arrow or/and a break-up or break-down of the pair of 5 min candles from 1210 to 1220 (1284-1287) will be it for me. Though also beware of a fake break.

  • Dyellowflash

    current candle price at 2863… we wont know if its a false break until it proven itself to be false (usu within 1/2 an hr it will make itself known if its a fake break down). I feel that I am wrong to short, but got to follow my bloody rules.

  • BobbyLow

    Understood. We all should go with our own rules and whatever has the best chance of working. BTW, where are you located? I think you said that there’s a big time difference between where you are and the NYSE.

  • Dyellowflash

    yeah, I am in Singapore. Spent the last 3 years mostly trading eurusd and gold, hence you dont see me here for long stretches. But ultimately, without the zerofx, I could not replicate my results when I had it. The brokerages also sabotage too many of my trades during the non-NY hrs, so ultimately need a super indicator like zero or zerofx to counter the stop-hunters.

  • BobbyLow

    We’ve had people here from all over the world but I think your the first person from Singapore. Welcome!

  • Dyellowflash

    Tks, we are all under mole’s roof. Though our usage of the zero varies.

  • HD

    There wasn’t a lot of interest in RTN last week when I suggested a buy. Take this to the bank! Anytime war w Iran gets on the news buy it. https://uploads.disquscdn.com/images/9fbb014146737bc0b61f75ecc727e9f534ca241da63d957f8d7847a33ebca627.png

  • BobbyLow

    I guess there’s money in them thar missles.

    Seriously this could be another version of “Wag the Dog” or something worse.

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    Don’t sweat it. Slovenia wine, and slow internet? Sh!t Happens.
    thanks for sharing.
    -GG

  • BobbyLow

    Yeah, I heard that Slovenia wine is some wicked stuff. LOL

  • BobbyLow

    OK it’s 2 PM. Do we close up from here or does the market change momentum again and close red?

  • BKXtoZERO

    Nice post BL. I was right with you every step of the way…. Started when I worked in silicon valley 1998. Made a bunch just like you. The MKT blew up Valentines Day 2000 as I was on the road moving to Seattle. In Seattle I met a guy who knew everything about trading and explained Elliott Wave Theory to me. I literally bought the book! Then like you I became an angry bear after losing bull money. So the pain kept going….like you being on the wrong side twice in a row. Camp to camp like you. Found this place…..got yelled at (and for good reason) and through reading moles work and posts here eventually turned myself around. Nice post! Brings back memories!

  • BobbyLow

    Thanks BKX. I think it’s extraordinary that so many of us have shared a similar journey. I’m grateful for being able to survive and come out the other end after running the gauntlet. Look at how many people we’ve seen come and go – quite a few who left were definite casualties.

  • HD

    There’s a book about Elliot wave?

  • BKXtoZERO

    Blue cover yellow title. How to turn 100k into 10k

  • HD

    Oh. I read a book like that on options.

  • BobbyLow

    LOL

  • BobbyLow

    Me too. That’s why I don’t want to comment about options on Tony’s Post because as the old saying goes, “if you don’t have something nice to say don’t say anything at all.” 🙂

  • http://www.linkedin.com/in/sharondsessions/ Sharon

    Thank You, BL I am sitting at the place to begin creating my system. So, I am glad Mole is going to begin working on that process.

  • HD

    Speaking of EW. Imo SPX is coiling before the holiday weekend. That continuation pattern measures 140 points.

  • Darkthirty

    1/2 hour before close by fib time, 2872 is symmetrical FWIW

  • BobbyLow

    You’re welcome Sharon. You probably can expect a lot of variation with trial an error from which will come a number of tweaks to your system. But one way to look at the time and effort you will spend is that the main objective is for you to maximize your
    profit. Your eventual results should eventually be well worth your effort.

  • HD

    TIME. This is when they’ve shown up all month.

  • BobbyLow

    Thanks for reminding me about the upcoming long weekend.

  • HD

    I’m trading thru Th and then vrbo’d a beach house for the rest of May 🙂

  • BobbyLow

    Nice. Sounds great!

  • BobbyLow

    I’d be OK with 2872 because that would have me ITM on my second round.

  • BobbyLow

    I moved my stop up so I won’t get whacked as a preventative measure. But price appears to be acting a little differently in late afternoon trading than it has in recent days.

  • BKXtoZERO

    Cooling for move up?

  • BKXtoZERO

    Chart? Not sure which pattern you consider a continuation pattern.thanks

  • BobbyLow

    Still hanging near the HOD. It would be nice to have one last burst upward before 4 PM. What happens between 4:PM and 4:15 PM is anybody’s guess and I’ll be out before then.

  • HD

    B wave triangle. C down continuation.

  • BKXtoZERO

    Thanks amigo…. Out running errands at lunch today.

  • BobbyLow

    Closed my second trade of the day and lost 1 Point in Round 2 so wound up with +11 Points on the day. Today was better than yesterday and we’ll see what tomorrow brings.

  • https://evilspeculator.com Sir Mole III

    BobbyLow: Thanks for the awesome post. I didn’t have time to write a worthy introduction this morning for reasons I’ll explain in the coming days. My whole trip has changed and I had to rush in the morning. Anyway thanks Bobby – candid and insightful post!

  • https://evilspeculator.com Sir Mole III

    I was living in Silicon Valley as well during that time – down in Cupertino near the golf club 🙂

  • https://evilspeculator.com Sir Mole III

    Here we go….

  • https://evilspeculator.com Sir Mole III

    If it’s too whippy you just walk away. Sometimes even the Zero is SOL – especially when there is uncertainty among market participants.

  • https://evilspeculator.com Sir Mole III
  • https://evilspeculator.com Sir Mole III

    Huawei is doomed – no way they can go up against Google – they are dead Chinese walking.

    And let’s remember the real underlying reason for this. Those mofos have been installing spyware galore – not just in mobile phones but also into routers and other communications equipment. This challenge to our collective digital privacy and national security cannot go unpunished and Huawei is now reaping what it has sown.

  • https://evilspeculator.com Sir Mole III

    The leeches were getting restless. Remember Juvenal’s motto: panem et circenses 😉

  • https://evilspeculator.com Sir Mole III

    The girls are pretty wicked as well. Oooops – here comes my wife… ow ow owww!!!

  • BobbyLow

    Bitte. 🙂

  • http://iberianviews.blogspot.com/ catracho

    “it takes a thief to catch a thief”
    😉
    maybe I’m biased as I have some Chinese in my genes!

  • Darkthirty

    Great post BL! Amazing how we travel similar paths through the learning processes. I started trading grain and silver. Grains were basically fundamental, global weather / supply demand based trades. Silver was as reliable as todays manipulated market. Broker introduced me to e mini options, and after finding 4 indicators that would call the turns with 95% reliability, I was hooked. My 4 year old granddaughter could watch the charts and tell me when to get in or out. After the bottom in 09, I had nothing but trouble with the “market”. Then I had the came to the same conclusion as you, the dice are loaded and you’re still in the game? LOL

  • BobbyLow

    Thanks DT.

  • http://www.captainboom.com/ captainboom

    Are you still trading ES options?

  • sutluc

    Thanks for the post Bobby.

    I liked the less gentle Mole, as well as Scott telling it like it is.

  • Darkthirty

    Yeah, but it’s like living with a schizophrenic / pathological liar. It’s 98% bullshit!

  • sutluc

    No one else would install spyware or back doors of course.

  • Darkthirty

    2728 target?

  • https://evilspeculator.com Sir Mole III

    STFU!!

    😉

  • HD

    yes