Post 8 EWU Observations from a New Student

Hi Jody,

I feel like something has shifted inside. Not in a thinking way but in a feeling way. I think it changed when I sat down Saturday morning with my trading notebook and wrote out in present tense, what my day looks like as a Wavy Tunnel trader of BO-3 moves on the S&P.

I wrote a very detailed account of how I see a setup coming and I put my regular business away for the moment to focus on the setup. I spontaneously enumerated the artifacts that I have around me to help me manage setting the risk and establishing the number of shares to trade, where I register each trailing stop change and how I write down my feelings and observations as the trade sets up and becomes a position. I wrote about how I would move to the higher time frame and begin to set a timer so that I can get my other work done and just check every 15 minutes to make sure that price has not closed below the Filter and to adjust my stop if necessary…etc.

When I was done, I went back and re-read the piece and designed the artifacts that I had described. I know they will probably undergo constant modification and refinement. Describing trading this way made the idea of trading the Wavy Tunnel begin to feel like something present instead of something far away in the future. And it oddly reduced the sense of urgency that I have felt for six weeks.

I know I understand the BO-3 setup and I believe that I know how to trade it profitably. I know the instrument that I want to trade, I know the time frame I want to trade and I’m happy with the fact that I’m probably going to have many days in a row at times where I’m just waiting for the right BO-3 setups to come around. I don’t want to stare at the screen all day every day watching the market, but when a good trade sets up, I want that to be priority number 1. I also know the risk tolerance and maximum trade size that I want to start with and how I want to ratchet that up over time, with success.

So, I feel I’m ready to Demo the BO-3. This week needs to be about making sure that I have the infrastructure in place to support my trading and that I have as many kinks out of my trading plan as possible. I ultimately want there to never be any question about what the correct course of action is at any point with regard to a setup and position. I know I’m going to need to keep making minor adjustments, but the changes are getting finer and finer with each paper trade.

For instance, there was a weak BO-3 this morning, one that I would not take with real money because the 1-hour was not trading above the Wave, but I just wanted to practice my setup and maintenance skills on the 5-minute chart. I’m also fascinated by the possibilities that the Semaphores may offer in confirming that a position is in good shape or if there are early warning signs, so I wanted to see the Semaphores in action. I was trailing the stop on the lower Wave. But there came a point where my rules said to raise the stop but it would have been an illogical decision because there was clear support under the apparent Flat that had formed. It made no sense to me to raise my stop to a level that was above clear support. These are the little things that I will keep tweaking.

So, I’m going forward with Demo trading. I feel it will tell me what I need to know. Am I overconfident?

-dave

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