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I have had some requests from users of my Trade Tracking Spreadsheet for more statistical control over the kinds of plays that they enter. This update is my answer. When I calculated my personal trading results I was quite surprised by some of the readings.

For starters, let me explain what the spreadsheet measures exactly. As you know, there are a number of different factors that I look at when deciding when to enter a play. (see my “Importance of Convergence” article for an almost-comprehensive list of the factors & their definitions). Altogether, there are about 20-25 different things that I look at from volume, to price patterns & indicator readings.

Well up until now, I have only been able to gather statistics on the number of factors that were occuring simultaneously when I entered the trade. What I found was that when I had 3 or more my trades were overwhelmingly profitable. When I had 1 (or sometimes none!), my trades were overwhelmingly unprofitable. And when I had 2, I got mixed results. While this statistical revelation was an epiphany for me at the time and has propelled me to the next level according to my Trading Plan…I soon found myself wondering what other valuable bits of information lay untapped within my trading log.

Specifically, I wondered what the profitability ratios were for each of the 20+ factors that I use. All I knew was that when 3 or more of them converged, that gave me an edge. But how much of an edge and were all the factors equal or were some more valuable than others?

This most recent update was designed to answer these questions and boy has it ever! Here’s what I’ve learned:

Market Delta Trades are far & my away my most profitable

Up until a month ago, I had no idea what a market delta chart was. But then I stumbled accross a couple of free trading videos at TeachMeFutures.com. The 2 videos were:

Assessing Market Psychology by Brett Steenbarger.
and
Market Delta Identifying Short Term E-mini Price Moves (password = markets)

I then found a Market Delta Indicator for TradeStation. (See my 10-18-2006 Post Here for more information & link to download) Based solely off the information from the 2 videos above I started to implement Brett’s system into my trades.

The results are incredible with my Market Delta trades yielding nearly 40% more profit, on average, then the next closest factor that I monitor. And the average profit nearly doubles when taking only those market delta trades that occur with 3+ convergence. And to make it even better, there was virtually no downside to taking a Market Delta play in total issolation (ie: without convergence) as such plays showed an average loss of only $1 each.

This knowledge alone is incredibly valuable, but wait, there’s more!

Properly Implemented Fades Can Yield Great Profit

Flash Formation Fractals have been the most recent addition to my trading toolbox and have drastically improved the timing of my fades and trading targets. I wish there were information I could point to out there that explained them further but as of right now, it would appear that there is only 1 other website in the world that even mentions FFFs and its in german. Feel free to Contact Me if you would like to learn more about FFF and I’ll see if I can’t shoot you a copy of the material I do have. But if you skim through my Educational Archives you should be able to piece together a good deal of info based on my trade reviews alone.

There are few trades I love to make more than a well timed fade. By jumping on the the boat when everyone else is jumping off, you can sometimes score yourself a nice new boat (ok, maybe not the best analogy, but you get the point). The key is to know why everyone’s jumping and to turn tail and jump yourself if things don”t get any better (ie: your stop gets hit). Perhaps a rubber band analogy would serve better here. The more it stretches in one direction, the greater the chance its going to snap back at some point. By using support/resistance, FFFs, & other price-based criteria for entry, you can locate those areas where price is most likely to undergo some type of correction.

The reason I love these plays so much is that they are low risk, high reward plays that hardly anyone in the general public are making. My FFF plays (including 1, 2, & 3 factor convergences) have a win rate of over 84% and this quarter any other kind of Fade I make with 3+ convergence has had a win rate of 100%. Some people call it catching falling knives, I say let them think that way. I call it catching falling C-notes.

80/20 Rule Epitomized

I’m talking about losses here. 80%+ of my losses are the result of only 4 cells in the distribution matrix.

1.) Nothing: Account for 30% of my losses. Trades where afterwards I just scratch my head & wonder why, trades where I accidentally hit a button to enter, and plays where I just plain old jump the gun.

2.) 2 Factor TRIX Divergences: Account for 23% of my losses. Apparently TRIX divergences (TXD) are only profitable (and nicely so) when there is 3+ Convergence. This is one of those things that would have continued to fly unnoticed under the radar indefinitely were it not for these new stats

3.) Single Factor Alternative Fades: Account for 20% of my losses. I guess I just get so excited that price is entering a potential reversal area that I become myopic in my view of the market and just mindlessly enter the trade. Just goes to show the importance of keeping the big picture in mind

4.) 2 Factor TRIX Hooks: Account for 14% of my losses. This has always been a minor signal that is useful only with strong convergence. This just goes to show you how much so.

Average Loss from 1 Factor Trades is Nearly 3.5x Larger than my Average Win from 3 Factor Trades

Those trades that I enter with only 1 Factor loose an average of $55/trade while those trades that I enter with 3+ Convergence only win an average of $16/trade. This was another eye opening statistic that just goes to show the powerful negative effects of NOT having convergence.

Lucky for me only 12% of my trades were 1 factor while 59% of them were 3 Factor. In time I’d like to get that first % down to 0.00 and that second upt to about 75%+. I’ve made a lot of progress towards that end for when I initially discovered the importance of convergence, I was trading at about 33% for 1, 2, & 3 factor trades.

A Surprising # of 2-Factor Trades Can Be Profitable

2ndTCKH, Channel breakouts, FFF Fades, minor trendline breaks, Single TICK Hooks, & Volume Discrepancies can all be used in the right context to form consistently profitable 2-factor trades. While all the other ones cannot be. With this knowledge I can slowly start to ween myself off of those unprofitable types of 2-Factor trades and be more ready to accept those setups with the profitable factors.

Bottom line is that this statistical addition to my spreadsheet has paid off dividends already and I look forward to continue to monitor my progress on these fronts as we close out this quarter and head into the new year.

For those of you who are interested, a trial version of this spreadsheet can be downloaded here. It has the basic order entry worksheet functional only. To gain access to to all the statistical components & other features, you can Purchase the Full Version for $49.95 by clicking the button below.