Prediction Wizard

Good traders  constantly try to improve their market participation  performance.

Lasting   improvement is impossible without feedback from  already executed trades.

Whether the feedback comes from the same trader, analyzing previous trades or  come from a coach or other, more experienced traders is independent in this view.

Trading journals  are created for the  purpose of improvement and documentation.

In each of our development levels as traders we might need a bit different format of journals,  as we strive to improve different things  during our development process.

One of the tools, that we use in addition to trading journal is the Market Participation Chart or MPC.

What do wee need to create an MPC chart?

-          It is  wise to  have  a maximum position size, that we are  allowing to put onto the table   in the best case, when we see the best setup.  No matter what is the dollar amount  we could mark that as 100% (Some trader, who  willing to take the additional risk  using margin account in certain cases, than  the  total  maximum size, including the margin portion of the  trade  could be the 100%  position size.)

-          We need the position opening time.

-          We need the position closing time

-          We need to show  all trades, when we either increased or decreased the position size.

Some example to  demonstrate trades in  MPC:

The first picture below is  about presenting Long trades  in MPC.

The most often executed trade is  probably  opening a fixed size position P1  at time T1 and closing the same P1 position at T2 time sometimes later.

The next,  a bit more complex trade, when we open a bigger (Say 100%) position at P1 at time T1 and   first we close only part of the position at T2 to let the profit run more with the remaining position  and close it sometimes later  at T3.

A bit more complex  trade management showed as the third and fourth trade.

We might use very complex strategies to build up and to tear down our  positions, depending on market  behavior.

Different traders might have different favorites in different periods during   their trading career.

If someone is very good at selecting   good entry points  and  according to  some evaluation is not patient enough to  let the profit run long enough,  than  the second scenario, when we close a portion of the trade might  help to improve overall performance by  helping to  maintain better, more relaxed  mental state during trade management.

The following examples demonstrate some Short trades in MPC:

Big market players might cut their  Long and Short positions into a lot of smaller positions  to mask their intention  in the market.

Many other  MPC  strategies could be created and played in different market situations.

To put this  in real perspective we   created an MPC on top of  a real Chart, which contains  a week of trading, using 15 minutes time-frame.

The presented sample chart is drawn on the NASDAQ100 following ETF, the QQQQ.

The trades on the chart below is only for demonstration purposes:

It is not  optimal market play, but definitely shows some of the characteristics of the experienced trader.

The green color represent the winning trades (Yellow or red colors could represent  losing trades.)

During this trading week we presented  we could identify the  strength and weaknesses.

The good points:

-          The trader was able to hold the position long enough to bear fruit, especially in trending market..

-          The trader did not hesitate to completely flip the direction of the trade, once evidence showed good reason to do that.

-          Even though many of the reasoning for the individual trades  might not  be presented on the chart, the goodness of the result easily could be evaluated. So If the reasoning during trading is not optimal, it will show up  on these charts.

Some of the missed opportunities:

- On 07/19  afternoon the long trade was closed, instead of increasing the size earlier, when the uptrend became evident.

- On 07 / 20, when the price moved out of a 45 minute range to the upside,  the position size could have been increased massively, knowing that we had a Bullish  daily prediction and the previous market close was way above  current levels as potential profit target.

- On 07 / 21 a short position could have been initiated after the BIG GAP UP recognizing when the down move attracted more and more participants, more and more down volume, knowing that resistance was deeply below current prices.

- On 07 / 22 we could open a Long position midday, after  getting the confirmation that the pullback was  really only a pullback and not a reversal,  but  a potential move to test the previous intraday high  did not present a really good risk / reward ratio.

Indicators, that used in the decision making process could be added to this kind of charts. Even if we know that  not necessarily all reasoning will  be presented here.

Advantages of the Market Participation Chart: (MPC)

1

Since one picture can tell a million words, it  contains much more information, than a simple  trading journal. In addition to this we can  write data into the trading journal and actually use that  to create the  picture.

2.

Since the trades and the trade management is  demonstrated on one simple chart / picture  it is very easy to interpret, compared to trading journals.  It is hard to find a general  trading journal, because  different traders have different objectives and improvement ideas, which make it almost impossible for other trader to quickly judge the performance of   another trader.

This difficulty is not exist  judging the performance  based on the interpretation of a Market Participation Chart. (MPC)

3.

A trading journal obviously does Not have  information about missed opportunities.

After a  stressful trading period, in a weekend  or after a month we can sit down and objectively   evaluate all trades and all potential missed opportunities, that  will show up on the chart, at least for the  pro traders.

4. 

The Market participation Chart is  a good way to  convey   most trading information and  it can be sent to others to  ask the opinion of the pro trader about  the executed trades and trade management. It can help to  improve the performance of a trader community by discussing  the same thing,  using a generic  way of presentation.

5. 

A lot of performance metrics could be calculated from  the chart  either manually or in head (Suggested for those, who can count  in head  and  can even complete  a bit more complex  calculations.)

Data like win loss ratio,  Profit / Loss during the charted period  could be added to the chart, so that  these charts could be compared  week after week or trading period after trading period. If the trades look the same but  the profit is much less than   other times on other MPC,  than  the reason could be that the Volatility or other aspects of the market changed and we did not adapted  to that.

6.

It could be more objective, than  a trading journal, (When you probably add your comments about  a specific trade)   In some cases you might feel you completed a great trade,  that will not look that great a few days later, when you evaluate the same thing in a more relaxed mode based on the MPC, or some trades might actually  be executed better based on the MPC,  than you feel  just after the completion of the trade, 

7.

Position or trade management is a very important topic, especially for the more advanced traders, who can  benefit more  from the application of the  advanced methods than  novice traders. MPC  shows its real strength  in this area.