Some Hole

I need to perform a reset, but not for the reason that you might think. So, on Thursday night, I was thinking a bit more about how I can get out when I'm wrong. This led me to rethink the contract increments I'm using.

For the longest time, I was using 5,000-contract increments on NQ. It worked great for generating clean moves. However, it didn't capture a lot of the smaller incremental tick by tick movement. As a result, this required me to set a wider stop loss. Because of this, my ALT was consistently higher than my AWT. This was slightly optimized when I changed it to a 3,000-contract increment, but I was still in a situation where I still had to ride out a lot of the volatility.

On Thursday night, I decided to drop the increments. I experimented with 100 contracts and slowly worked my way up. I believe I configured my settings so that I was using 500-contract increments on NQ, 1,000-contract increments on ES, and 100-contract increments on YM. This allowed me to set much tighter stop losses and at just two points. I also had to change the way I analyzed the price action because the move of each bar is quite choppy. Instead, you can plot out minor levels where accumulation occurred.

This didn't go so well in Friday's session. The main reason is because I didn't backtest this. If I did, I would've realized that each bar only took one to two seconds to form. This is partially due to the added volatility due to the Jackson Hole Symposium, which I'm mostly in-tune with from just a macro standpoint. 

I went into Friday's session with chart configurations that produced too much "noise." My old settings did a great job of removing this noise, but it also meant a lot of information loss. Now, this has become an optimization problem. Specifically, how do I get enough information while smoothening out the volatility just enough? Unfortunately, trading and trying to re-configure my chart settings on the spot led me to taking on a string of losses.

However, I did gain quite a bit of value out of this process. Since I'm setting tighter stop losses, I do need to be a bit selective with my entries. Not only am I setting a fixed stop loss, but I'm trailing it. If I optimize my entry, price shouldn't hit the stop loss immediately. However, price could move in my favor and then reverse. In this case, I would end up exiting at a small loss. What this means is that I'll need to be very selective with my entries so I'm capitalizing on explosive momentum moves. By doing so, this ensures that I'll be able to sustain a slightly lower win rate by making sure that my AWT is larger than my ALT.

To test this out, I replayed Friday's open, just the first 30 minutes. Here are the results.

TSTrader Performance Center

My ALT is still larger than my AWT, but the gap has narrowed. I'm not experiencing $100+ ALTs, which is a good sign that I'm moving in the right direction. My win rate is also lower, which is to be expected because I'm basically trailing a stop loss as my trades move in the money. It's entirely possible for me go in the money and then have the move reverse on me. The idea here is that I'll minimize my losses if a trade suddenly reverses on me.

Finally, let's take a look at my fills.

NQU1

The moves are pretty clean over on the 1,000-contract increments. It's a bit cleaner to see the relative lows and highs over on the 500-contract increments, but the rate at which those moves occur is too damn fast for manual point and click. I also have a 2,000-contract increment micros chart in the tab above. I plan to use this if we enter a day where price action is a bit choppier. The Micros would essentially allow me to reduce the risk while generating nearly the same signals.

For the week ahead, I plan to reset my $50K Combine and continue grinding. I do think I'll be making less entries. Specifically, only making plays when we see a pullback from a dominant bar.