Vader Declaration to Trading [working document]

Note: This is a working declaration; Rule #13 – Stay flexible.

11-25-2015 10-17-23 AM

Trading is an elite performance. Not everyone can do it. Like any professional I need to put the time in to improve. Below I put together a working list of intangibles I believe will keep me on track for FU trading going forward.

  1. Model 3 high probability ideas – trades that present 3R+ risk/reward ratio. Don’t waist my time with scalps, stick to trades with high confidence factors.
  2. PATIENCE, PATIENCE, PATIENCE – 90% of my time should be spent lurking like a lion
  3. Try hard NOT to scale – I need to get paid on the RISK I am taking. Let the trade come to fruition before thinking about exiting.
  4. Hit Hard – great setups are rare opportunities, so size right.
  5. Accept losses – its part of trading, but DON’T GET EMOTIONAL. There is no forgiveness for revenge trading and bad executions.
  6. Respect Stops – I should know where i’m wrong. There’s nothing wrong with taking a stop and folding your trade. There’s always another trade.
  7. Plan for Variance – I can’t be perfect so watch how markets trade around key areas or events. I can dabble before pouncing. But be swift and quick to make that decision.
  8. Embrace volatility and risk – I can’t win big without being a little uncomfortable.
  9. Prey on where others will be trapped, or where they will ‘fold’.
  10. Have an understanding of other participants; are they weaker, stronger, herding or aggressive. You’re competing with the smartest of the world, possibly less information – it’s always a poker game. They are waiting for you to make a mistake… Don’t
  11. Listen…. Mr. Market is talking to you. There is a tempo. He doesn’t give a shit if I have bills to pay or would like a new Lambo. He is telling me to get in or out of a trade. It’s an art, but learn to open your ears and eyes.
  12. Milk the trade – when you’re in the zone stay calm and steadfast with strategy. DON’T GET SLOPPY (see #1).
  13. Stay flexible – Learn to reverse a trade or exit early if it doesn’t feel right, else see #3.
  14. Be humble – It’s a lonely world. Life is short. Share any success with those close to you or less fortunate. volunteer, hug the kids. Learn to love things that are not material.
  15. Rinse and Repeat the process

Trading is only fun if i’m executing well and winning. Follow rules or be unhappy.


Market Observations 11/12 – trade review

After a great trading streak of have a downward bias I finally woke up to a gap lower in an area I was watching – 2050 ES. Most of the day markets had trouble gaining ground and ended up closing at lows. It was a an ugly combination of de-risking, low volume/liquidity, fear of rate hikes, earnings all being a reason. Basically a recipe to get run over if fading.

…and guess who tried fading it?! Well i did. I came in neutral but was looking for 2050 to hold for an upside swing. Positive divergences and favorable risk/reward being the short term thesis on the trade. Kick in a little overconfidence and it can be a cognitive disaster.

What worked right?

I had good entries from areas planned pre market. On any given day other then a gap and go type of day, they would of worked well. Entries 2056, 2051, 2046 (red arrows below). MFE (Maximum Favorable Excursion) was 7,6,3 on each of those.

11-12-2015 2-14-31 PM

What didn’t work?

I tried to be too complacent with swing long thesis. Assumption was that we’re in a correction, not a crisis but with all the de-risking with low liquidity up ticks kept getting slammed.

The takeaway?

Cognitive bias strikes again. Operate like an algo. That is my bread and butter. To add, trade the odds vs the rewards. I had the tunnel vision goggles on for a swing thesis while ignoring the intraday metrics – bearish internals, lower highs, rising vol to name a few. It’s ok to swing big and sometimes go for the homerun, but varying time frames should trade and be sized differently to avoid larger drawdowns and more variance.

My go forward thesis needs a little resetting short term. I am not looking to short so will play a defensive long until new opportunity comes again. Again, the goal is to trade the model and what I see and not to get run over.

Hitting the channel as described few days back ( Will be patient for flagging action or 50% retraces.

11-12-2015 2-40-05 PM



Daily Observations 11/9 – ES hits channel low

ES finally hits channel low as speculated on 11/3 (

11-9-2015 2-28-50 PM


Rising rates and unsteady earnings keeps this as a peculiar trading market. Negative divergences still persists with weak cumulative leadership but my expectation remains for a ranged market into Nov and Dec. I assume we’ll have our baskets of out-performers and under performers in a seesaw environment.. something for everyone who does their work.

“With stock prices well above average by most measures, the ratio of prices to earnings should decline as rates rise, meaning stocks will likely rise more slowly than profits. … That combination leads to a slowly rising stock market,” – GS

11-9-2015 2-24-54 PM

Mid term model would template something like this.. again, something for bulls and bears with the right timing and work on individual stocks and indexes.

11-9-2015 2-39-18 PM

with vol curves in contango

11-9-2015 2-55-05 PM

Daily Observations 11/5 –

“If you don’t have superior insight, how can something be to your advantage?” – Howard Marks

Just wanted to note, even though I just started logging some quick thoughts only a few weeks ago, I’ve been on a little hot streak. I’m not here to be the greatest writer. These observations are quick thoughts for the next day. Overall, I’m looking forward to improving second level thinking.

Anyhow, tomorrow we have job #s (forecast 5%, previous 5.1%). Either print, it will be a 2 way trade, With global easing still prevalent, there’s still an underlying bid and a risk appetite for stocks. Expectation is for dip buyers to pick up the slack and sell volatility at key areas like 50% retraces.

  • Here’s on the Oct job report traded. Gap down and ramp all day.

11-5-2015 2-51-54 PM

Highly doubt the risk appetite is the same, but its key to note the big gap was faded. That move basically kicked off the super rally for Oct. Going forward I still have the same bias, for a neutral to slight up November with an even more neutral December. This means, volatility continues to be sold with a few aftershocks. So any major moves should be contained but a great environment for dispersion. Divergences remain, but it’s not a sell signal if we heal with time.

11-5-2015 2-20-01 PM



  • Last, here’s a potential idea based on developing trends/channels

11-5-2015 3-10-44 PM

  • Howard Marks on mechanical trading rules

“The reasons are simple. No rule always works. The environment isn’t controllable, and circumstances rarely repeat exactly. Psychology plays a major role in markets, and because it’s highly variable, cause-and-effect relationships aren’t reliable. An investment approach may work for a while, but eventually the actions it calls for will change the environment, meaning a new approach is needed. And if others emulate an approach, that will blunt its effectiveness.”


Market Observations 11/4

Markets had a nice pull back from channel high 2110 posted y’day ( .I’m still seeing the same picture as far as underlying weakness and negative divergences in the bigger picture. I covered shorts today, played some longs.

The biggest outlier remains within NYSE names generally speaking.

11-4-2015 4-25-19 PM

If we do churn, then looking for buyers to step in lower channel areas or 50% retrace levels. Typical areas when dip buyers might appear. With FB out of the way, nasdaq is left with no near term catalyst. Just a herd piling into the same stocks. I’ll watch that for any signs of extreme overbought or holes.

Near term, Job report is next in play. Is good news bad news, or good news good news? I don’t know. I do expect volatility to keep making lower highs with a few minor after shocks in november. Anyhow, time to take my kid to basketball practice. then hopefully enough time for a glass of wine or 2 for a mid week unwind.

Before i forget, someone did tell me today that their brother wanted to buy stocks cause it seems to just go up. i thought that was interesting timing this morning. made me press shorts a little more.

11-4-2015 4-43-39 PM