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Going through the process of revamping my trading plan has been quite an eye opening experience as I struggle to put into concrete rules & words a solid structure for the new indicators and processes that I have been adding to my style. So as an aid in this endeavor, I pulled up a log of all of my trades (simulated & live) for the past year. It takes a lot to really get me excited, but what I discovered hidden within my spreadsheet was something truly incredible that could forever change the way I approach trading!

For those of you who have been following this blog for a while, you know I don’t use such strong words that often. But what the numbers showed me came as a total paradigm shift for me.

OK, so let me get a little big closer to the point. In trying to construct a more definitive strucure for the various trading plays that I will take I first wrote down all the different little things that I will look at when deciding whether or not to take a play. These are the abbreviations that you see in my Trading Results & Analysis –> “SETUP” column. One of these days I plan on getting creating a definitions page to further elaborate on what they all are but here’s a quick list:

For simplicity’s sake, I’m assuming that the signal is giving me a Long sign, signified by +, but just replace the + with – when abbreviating for short signals.

TL+ : Trendline Cross Upwards
TXD+ : Positive TRIX Divergence
MD+ : Market Delta Stage 4
2ndTCKH+ : Second $TICK Hook
Vol+ : Significant Increase in Up Volume
-Vol- : Significant Drop in Down Volume
-Vol Fade : Low Volume Fade
mTL+ : Minor TL+
Sq+ : Long Bollinger Band Squeeze Signal
PD+ : Positive Price Divergence
Channel + : Posstive Channel breakout
2T or 2B : Double Top/Bottom
H&S : Head & Shoulders
IRS+ : Intra-Range Scalp
RBO+ : Range Breakout
MPB : Momentum Pivot Break
TXH+ : Positive TRIX Hook
H+ : Positive Price Hook

That’s the majority of the building blocks that I use to devise the different trading strategies that I employ. Hopefully you can at least have a little bit better idea of what all those letters mean in my “SETUP” column. So as I was reviewing the close to 1000 Simulated & Live trades I’ve made since the begining of the year I decided to take a look at the data from a slightly different angle.

As most of you probably know, there are 3 major classifications of the kinds of trades I make. They are:

2t : Scalps where I am targeting a quick profit of 1-3 ticks (on the ER2) ; I use a full lot size.
Trend : Plays where I cut my lot size in half, widen my stop, and go for a bigger portion of a move
2tr: Plays where I use a full lot size as in 2t, keep my stop closer, but go for a little bit bigger move than a mere 2 ticks

But instead of simply looking at the PnL of each of these categories, I decided to create a matrix depending on the number of factors (ie: TL+, TXD-, Vol+, etc…) that I had listed in the “SETUP” column for each trade. So I divided my trades into 3 groups:

1.) Those trades with only 1 entry factor
2.) Those trades with exactly 2 entry factors
3.) Those trades with 3 or more entry factors

Surprisingly, the number of trades in each group worked out to be about even. I then calculated my PnL and Average PnL for each cell and this is what I came up with:

Findings:

1.) The first and most astonishing thing that jumped out was the 3-Row. It was the only column that showed a net total profit and a net profit in each cell.

2.) The next thing was the Win Rate associated with those plays where there was a convergence of 3 or more factors. Not a single play-type had less than an 83% Win Rate!

3.) If the 3-Row was made of golden row, then the 1-Row was its evil twin. Over 80% of my losing trades occured when I entered based solely on one signal; I don’t know how I missed this fact until now.

4.) My Win Rate was not above 52% in any of the cells, although I did show a Net Profit in my Trend trades despite the 51% Win Rate…This can only be due to my Wins being greater than my Losses on average..but only barely.

5.) The 2-Row was a mix of the other two with 2tr & Trend being positive & 2t being negative. This makes sense actually because my 2t plays start with a .20 R-Unit target and a 1.00 R-Unit stop loss. So in order to achieve a positive net, my win rate must be at least 80%. Conversely, my 2tr & Trend plays can have a lower win rate and still be profitable because they still have the same Stop limit but are attempting to go for bigger chunks.

If I were to totally eliminate those plays in Rows 1 & 2 and solely take those in Row 3, then I would basically ensure the elusive consistent profitability that I have sought after for since I started trading full time 14 months ago. I could also selectively incorporate Row-2 trades into my overall plan to further increase my edge.

I have known the importance of patience for some time. (See This Article on Patience, which I wrote many months ago). But never before have I had such an objective way to quantify and measure what I am being patient for. All of this time, I have been trying to hone in and focus on the Quality of my setups and trading systems while totally ignoring the Quantity of converging factors.

By taking this knowledge and incorporating it into my trading plan and structure going forward, I hope to be able to look forward to more Row-3 and less Row-1.

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