8 lessons learned from my first 2 months back to live trading!

I re-funded my Sure Trader account on the 6th of December with $2,500 and promptly resumed day trading the next day, Friday, 7th of December, 2018.

From that date till the present day, I have made a total of 122 day trades with 45 of those in December and the remaining 77 in January. During this time my average winner has been around $75 while my average loser has been around $45. I spent $230 in commissions in December or $5.11 avg./trade and $417 or $5.42 avg./trade in commissions in January. 

For the entire period, my win rate was 39%. However, my win rate in December was just 29.55% but I improved it to 44.16% in January.

While my expectancy over the entire 2 month period was +$2.97/trade; in December it was -$4.71/trade but then I improved it to +7.46/trade in January.

The improvements from December to January were no fluke but instead a product of daily journalling and reflecting on my trades, mistakes and improvements I needed to try to make daily. 

That being said, my goal for February is to continue making improvements, reduce the average number of trades I take daily and reduce the number of mistakes I make with a view to making
around 50 trades at a 60% win rate and around +$27 expectancy (($75 x 0.6) -  ($45 x 0.4)) or to gross around $1,350 before commissions and fees which I would like to get back to around the December avg. or $5.10ish/trade.

I think this is very doable if I can master these lessons that I've learned from my last 2 months of trading:

1. MARKET BREADTH/OVERALL MARKET ENVIRONMENT

In December, which was pretty much the last leg of the market correction that begun in October, market plays and shorting (or longing inverse ETF's) worked extremely well while "in-play stocks" did not really get the kind of follow through you'd usually expect from them! For example, in December, I had a 46.15% win rate on market plays although my overall accuracy was a very poor 29.55% as stated above. In addition, my win rate on shorts was 33.33% while my win rate on longs was only 26.09% which is truly even lower as this figure includes longs I took in inverse ETF's which are technically short plays.

January, on the other hand, has been the complete opposite. Shorts have generally had poor follow through, market plays have been less successful and "in-play stocks" have worked very well especially to the long side. My win rate on longs in January was 51.16% but only 35.29% for shorts. While I did not take too many market plays; I was only right on 1 out of the 3 I took while I was right 45.45% of the time on in-play stocks!

LESSON: Try to only take trades that align with the overall market breadth as the probability of success will be higher. Continue to focus on in-play stocks and ignore market plays as long as the markets remain in a healthy uptrend. 

2. MARKET INTRA-DAY TREND & RELATIVE STRENGTH

My win rate on trades that did not align with the market's intra-day trend was only 28.57% versus 50% for those that aligned with the intra day trend of the markets. Interestingly though, for trades that did not align with the overall markets trend but were showing extreme relative strength/weakness, my win rate was an impressive 80%! 

LESSON: Try to ensure that all trades are aligned with the intra-day trend of the overall markets especially for trend continuation set-ups. Pay extra special attention to stocks that are clearly resisting the intra-day trend of the overall markets and are forming tight flags or wedges! 

3. STICKING TO "IN-PLAY" STOCKS

I define a stock as "in-play" if it is on course to end the day with volume traded that will be two or more times it's average daily volume over the past 50 trading sessions. For stocks with a relative volume less than 2, my win rate is 21.88% and stock less than 1 even lower at 14.29%. Where as my win rate rises dramatically to 45.98% on stocks with relative volume of 2 or greater!

LESSON: Avoid stocks with relative volume below 2 like the plague! Trade only stocks with RVol of 2+ and obviously the higher the better!

4. SPREADS, MARKET DEPTH, ORDER FLOW & RISK MANAGEMENT

I'm way too experienced now to still be placing trades in stocks that have wide and erratic spreads, constantly changing market depth and crappy order flow. It's extremely hard to manage risk in these types of situations and I know don't need to trade them to make money. My risk management demands that I enter a hard stop into the system after entering a trade and the above make it extremely difficult to manage risk and it's very likely will not be filled within a few cents of my stop loss if it gets triggered. Most if not all of my losers that exceed 1R were from situations like this!

LESSON: Do not trade when you cannot enter a market stop in the system aka no trading in pre-market or after hours. Do not trade if you can enter a market stop but are not absolutely certain that you will get filled within a few cents of your planned stop out point.

5. FLOATS 

Stocks with float under 25 mil, I have a 50% win rate but -$26.25 expectancy on the ORB set-up but 100% win rate on trend continuation set-ups like pullbacks, flags, wedges, etc. Clearly due these types of stocks being very spread and erratic at the open!

With mid float stocks (between 25 mil and 500 mil) my win rate on trend continuation set-ups is 43.48% with +$15.74 expectancy and 35.71% win rate with +$2.60 expectancy for ORB set-ups. 

With high float stocks, float > 500mil, my win rate on ORB set-ups is 50% with +$24.21 expectancy but -27.27% with -$12.64 expectancy on trend continuation set-ups. 

LESSON: Avoid trading micro float stocks at the open. Focus on higher float stocks for the ORB play. For trend continuation plays on the other hand, avoid trading stocks with float above 500mil and favour the lower float stocks! 

6. THE 5-MINUTE CHART IS MY BEST FRIEND!

Any time I deviate from the 5-minute chart and step down to the 1-minute chart I almost always end up taking a poor entry, setting too tight of a stop loss (and consequently over sizing), not giving solid trade ideas even time to work or getting out of moving in my favour way earlier than I should. 

LESSON: Stick to the 5-minute chart at all times: for low risk/high reward entries + setting proper stop losses + giving trades room to work initially + locking initial profit and then letting the 2nd half of trades mature into big winners!

7. TRADE MANAGEMENT/COMMISSIONS

Stop getting carried away with 3,4 or even 5 partial exits. My trading size is not big enough for that! This is only carrying up my commissions and fees without a dis-proportionally larger increase in profits as well as stifling the gains from my partial position.

LESSON: Exit winners in 2 pieces and no more than 2! 

8. MONEY MANAGEMENT

Too often I've been guilty of giving back more than half of my profits on the day and sometimes even going from a significant green position into the red. Furthermore, on my biggest green days, I rarely if ever suffer two consecutive losses out of the gate. 

LESSON: Reduce my maximum daily stop to $100 or 2R from $150 or 3R until the first month I'm able to pay myself. Do not give back more than half of profits on  the day. Do not go from green to red on the day!