Member Spotlight - July 2013
Greg from Atlanta
How long have you been trading?
I started trading some tech stocks just before I graduated from the Georgia Institute of Technology as a Mechanical Engineer in 1999. I had a small tech-heavy account that took a beating into 2001 and 2002 so I put playing around in individual stocks aside to focus on my career.
Over the years I followed different “gurus” trying to find someone that could show me “the way”. Just about everything I tried would work for a while and then I would give the money right back or end up negative and disillusioned. I was fortunate to have a career I really enjoyed and that allowed me to build some capital. Around 2008, I began to focus heavily on technical analysis and started looking at services that were using statistical based methods.
How long have you been a member of MasterTheGap.com and how long did it take for you to start having success or getting value from using MTG?
I joined MTG in 2009 and found the technical approach very interesting. Initially I would try to do exactly what Scott was doing, listening to his every word in the trading room to figure out the best place to put my stops and targets. The problem was that my own beliefs about what the market was going to do would cause me to make adjustments and I would move my stop up and get taken out only to see the market turn around and hit his target. I would beat myself up and swear that next time I was going to stick to his exact positions, but in the heat of the moment I would make changes again.
It sounds crazy looking back on it now but in the first year and half with MTG it was like a competition between me a Scott. If I decided not to trade and he did I was upset that I missed out. If I took a trade that was bordline and got stopped I would listen to his gap-wrap and become so irritated at how logically he could substantiate his decision not to take the trade.
In the midst of all this I had started trading the ES and using Tradestation thinking the software would give me an edge. Trading futures only enhanced the size of the swings in my account, I was losing money I had worked hard for and something had to change. I got to the tipping point where I had to withdraw and come up with a new game plan.
I immersed myself in the works of Brett Steenbarger, Mark Douglas and Denise Shull. It became clear that the reason I couldn't follow others successfully was because I didn't understand the mechanics and inner-workings of the system they were using to make their trades. The reason that they could stick to their trades is because deep down inside they had confidence in their system, having developed it on their own they were familiar with the nuances of it. It became apparent that I was stuck in the mindset of being a perpetual follower. I was working really hard to succeed but my work was not focused in the right direction.
What tools and services from MastertheGap have helped to get you on course to becoming a consistently profitable trader?
My trading epiphany happened in early 2010 and I began my own serious research using many of the core concepts I learned from MTG. I had hundreds of notes written down from Scott about how the market acts under different conditions, around opex, after an outside day, when to use bigger stops etc, but now I wanted to test it all for myself. I needed to know the inner workings of a system to develop the belief and confidence I would need to stick to my trades and put on larger size.
I worked with Coach Mock on the psychology of the game and he helped me to come up with a business plan. I used the MTG Wizard to look at return profiles. While I found the tool very useful I found that one must do their own portfolio-level risk analysis to calculate suitable position sizing. It's always a lot more painful than you think it will be when you are in a drawdown. I spent months staying up all hours of the night learning EasyLanguage and testing various market conditions. I was intrigued with Market Profile and auction market concepts so I integrated them into my gap trading strategies.
My backtesting began to reveal some patterns I had never heard anyone talk about before. I was focused like never before and it all started to come together. This was an intense immersion process and required me sacrificing many other things in my life. I want to emphasize that a key element to me surviving the toughest period of becoming a trader was that I always maintained my full-time job and had consistent income to offset trading losses.
From this experience and through the last couple of years I have matured greatly and realized that each trader has to follow their own path. It is a continuous process and just when you think you have something there will often be more stumbling blocks that come along. The big difference now is that I am no longer a follower. I reviewed everything I learned and then took the parts of it that made sense and did my own testing and system development.
I have run thousands of back-tests and learned the dangers of curve-fitting and over-optimization. I strongly recommend the use of walk-forward testing as part of the development process. There is a walk-forward tool in TS 9.0 but make sure you understand how it works. Monte Carlo testing is a great way to see alternative outcomes you could have from a large sample of trades. Always run a system in an incubation period with unseen data before going live with it.
Gap trading is a mean-reversion strategy and as-such returns will have the most Gaussian distribution when volatility is normal. When volatility is high or you have powerful outside forces at play, you are subject to fat-tail distributions that can do damage to a portfolio. If you don't know what these terms mean then you may not have done a proper risk assessment of your overall portfolio. This is why I run numerous strategies in order to have a diversified portfolio and minimize drawdowns. I am looking closely at not just my returns but my standard deviation and variance of returns. My strategies are all quantitative in nature and include stock swing trading, ES overnight strategies, ES gap strategies, ES/TF value area reversion daytrading, and ES/ TF/Corn trend daytrade strategies.
How do you use the Gap and/or First Hour Guides at MTG?
I have my own gap trading strategies and they were all developed using what I learned at Master the Gap. I primarily trade the ES and my zones look different because I use prior day value area ranges in my system to determine targets (this is the volume based value area from Market Profile). I use Investor R/T Professional for the profile calculations and volume profile charting and use IQ-Feed for data.
I always review the posted guides and read Scotts comments to make sure I haven't missed anything. Here are some ideas I have incorporated into my gap-trading plan:
-Mondays are more volatile and test out differently from other days of the week. I don't trade up gaps on Mondays and only trade small size on down gaps.
-Gaps following strong trend days act differently from gaps following non-trend days.
-There are certain zones that test well for early entry where you can get a trade in you otherwise would have missed by waiting for the open.
-I try not to get too focused on an exact number for gap fill. There are thousands of issues being traded and the market is auctioning to determine the fair price. One large fund with a buy or sell program can put a floor in just before gap fill and it can turn around. I scale out of my positions through a range which doesn't affect my long term returns but it does smooth my equity curve.
-When I go for an extended target it is based on prior day structure and where the bounds of value are, not an ATR multiplier past gap fill. This often puts my target at a larger distance than my stop with a 55-65% win rate. Any use of a structural extended target has been validated through backtesting.
Any suggestions or words of wisdom for new MTG members?
In closing I can't emphasize strongly enough that each person needs to do their own work. This is the only way to have belief and confidence in what you are doing. It was not an easy road I have traveled but I feel I am now equipped not just with systems that I can trade, but an ability to develop and modify systems as the markets evolve into the future. I can't think of a better place I would rather be.
(Full Disclosure: This information was submitted verbatim by the member. This member received two months of membership time for his submission. Email me: email@example.com if you are interested in participating in the Member Spotlight program.)