Eiger

Hi Habi, I don't think I referred to a wedge - I don't usually put much stock into wedges, flags, triangles, etc. They really don't have much meaning for me. I was talking about the downside break through the Demand Line from the mid-March lows on the daily chart. Since there was some rounding over at the highs in May, an UpThrust-like bar on the 19th with the next bar down, and then a break of the trend line on an increase in volume and wide spread, it indicated bearish implications. I believe this is the widest spread down bar with the largest volume since the beginning of the rally, mid-March. Thus far, there has been no successful Test of this, so to me, there is weakness. There was also quite some volume on Friday on a very narrow spread, and now this morning the response is down. So that seems like more weakness. There is also the weekly chart. Two weeks ago, the market made an effort to go higher early in the week, but the result was that we closed under the lows of the previous three weeks. So, weakness on the higher time frame via a Top Reversal, as well. Eiger

Thanks, I'll take a look. By this point, most of my charting is automated. The only exception is the FC. I still like to do these by hand for the major markets. I do use BullsEye Broker for most FC work in stocks and other commodities that I trade, but I still like to keep the hand charts of the SPX, DJIA, etc. It helps to keep me in tune with the market, and takes only a few minutes to do. I will take a look, though -- thanks again. Eiger

This is the weekly continuation chart of the ES. Last week gave us a 2-bar UpThrust or Top Reversal (red arrow). Combine this with the FC and daily SPX bar chart from the earlier post and we can now begin to think about a further move down into the 1325 area, and perhaps lower depending on what additional cause may build on the FC. VSA works in all time frames and the higher time frames are always important to keep in mind. This has become quite negative. We can think about No Demand on the weekly for entering shorts. Eiger

I think that if you study VSA, annotate your charts every night, practice trade it for a while, and keep an eye on what different timeframes are doing, you can do quite well with VSA. Not every day has so many indications as today, but pretty much every day has at least a few very good trades. Tom Williams talks about P&F in his book. It is a part of VSA, but they couldn't get the software to work correctly, so it hasn't been highlighted before. It is a specific way to create the chart and apparaently the software is tough to code. They say that P&F will be in the next version of TradeGuider and that those issues will be resolved. I'll think about buying the software then In any event, the P&F analysis is useful in many respects. It is great for support and resistance, and also tells you where many moves are likely to end. Also, they are good for tracking the trend. I love the 5-min chart. It is my main trading chart. I also look at the 3 and 10-minute charts and will take trades off of these, as well. As you know, I have no use for time frames below the 3-minute chart - for me, they can be quite detrimental. During the day, i will also keep an eye on the 30-minute chart. I think a lot about the day can be read off the 30-minute chart. Some very good traders call it the "Key of the Day," for good reason. It often gives the best indications on what will happen next. Eiger

Update on SPX: On the attached pdf file, you can see on the 5-point Figure Chart of the SPX (updated through today) that we have completed a first phase reaction to the 1375 level -- this is the first small triangle or flag. Often, the market will have a little bounce at the first phase level or begin consolidating and eventually either rally to higher levels or set up to go lower when there is an other phase to the count, as is the case here. (use the view/rotate/counter clockwise buttons to view the FC). The lower count reaches down to 1325, which may materialize. We can also rally a little higher and set up for a potentially large move down, but that is getting ahead of ourselves. The market broke through the Demand Line last week on increasing volume and wider spread, indicating supply is dominate (red arrow on the daily SPX bar chart). A run down to 1325 would take us past the 1/2-way point and into the resistance area at that level. Many times, the FC will give a "stepping stone count" at a first phase level that reaches the second phase of the original count. This is typically a good timing indicator for an intermediate move. The key, of course, will be the character of the current rally. Eiger SPX FC 5 pt May 28 08.pdf

And here is the rest of the day: 9 - Test 10 - No Demand 11 - Top Revesral 12 - Stopping volume 13 - No Demand 14 - Stopping volume & Spring 15 - Test 16 - Hidden Test 17 - Test followed by a Bottom Reversal 18 - Another Test followed by another Bottom Reversal. Very logical, very straightforward. So many good opportunities hard not to do well today. This is what I like about VSA. Eiger

These are VSA terms that you can learn from Tom Williams's book: The Undeclared Secrets that Drive the Stock Market. I am told that the book Master the Markets put out by Trade Guider is very similar, though i have never read that. There are also some educational materials available from TradeGuider that are helpful, particualrly their "Chart Reading Boot Camp" CD. The 5-minute chart can sometimes be noisey. Noisey days are usually related to money flow. On low volume days when there isn't much activity, it can get sloppy. When there is decent activity like today, the 5-minute chart is pretty orderly and readable.

"Caught up in the moment" is an interesting choice of words. Usually, people become distracted from their goals by thinking about one of two things: the past or the future. In an important way, they are really not in the moment, but in some other time frame. Take a live trade, for example. Someone who sees the current trade set up just like a big winning trade from last week may be re-living the past trade and thinking about another big win. A different live trade may be losing money right from the start and the trader is hoping it will turn around in the next few minutes (future). The mind is not really present. It is not following the market. Instead, the mind is caught up thinking about the past or the future. Either way, the mind is distracted by emotions. So, a useful tip: When you notice your emotions coming into play, take a deep breath or two and remember your goals. It can also be useful to acknowledge your emotion, "I am feeling scared (or elated, hopeful, anxious, etc), but my goals and focus are more important." Recommit to your goals at that moment, refocus on what the market is saying, and take whatever action may be needed. Eiger

Good VSA indications and trading this Am on the ES 5-minute chart: 1 - No Demand after weakness off the open 2 - Stopping Volume over two bars 3 - Test 4 - Top Reversal 5 - No Demand 6 - No Demand after lower high 7 - Stopping volume 8 - Spring Eiger

A Little More Food for Thought: When you are about to take a trade, are you checking one last indicator for confirmation (i.e., are you preparing to trade when you are executing/managing your trade? When you are in a trade is your mind on the results of that trade, thinking about the outcome of the trade (i.e., are you assessing your results during trade management)? Keep the three key areas separate. Prepare before, not during; assess after, not during. Focusing on things other than execution/management during a trade cuases 1) unnecessary stress, 2) lack of focus when it counts most, and 3) poor results. Eiger

Food for Thought: If you think about it, there are really only three areas that psychology can help a trader: how well you prepare, how well you execute & manage your trades, and how you deal with results. What you do before, what you do during, and what you do after are the key areas. Everything else is ... well, maybe fun cocktail talk, but probably impractical. Focus on: 1) quality preparation (before), 2) effective execution (during), and 3) accurate self-assessment (after) to bring yourself more in alignment with your intentions. Eiger

That's definately true over the short term. Longer term, though, the market cycles should even out and you will get a truer picture of your strength (long or short), if you have one. Eiger

It helps to know whether you trade better to the long side or to the short side, or if there isn't much of a difference. Do you keep metrics on your trading? For example, What percentage of your shorts are winners vs what percentage of your longs. What about points or pips? Does your average short result in more profit, or is it your average long? There are lots of ways to evaluate this, but you need the basic data. Let me know if you would like a simple log and worksheet to do this and I can post what i use. Eiger

Kiwi, Nice trade and nice pre-trade routine. Checklists like this are great little tools. They boil down your trades to the key elements and help you stay focused while trading. But, maybe more importantly, they are a summary of your trade plan criteria. You are doing a great job of making your trading plan a constant part of your trading throughout the day through the use of the pre-trade checklist. Nice job. We can all learn from your good work. Eiger

That was a good VSA trade that just didn't pan out. I was following the same trade on the 10-min chart. At A, there was good stopping volume over three bars. Note how the lows refused to go lower - a shortening of the thrusts on increased volume ("bag holding"). A nice, low volume Test on higher lows was what you entered on. Nothing wrong with that. It was a good trade that just didn't pan out because of the shake out/test of lows that caught your stop. Usually, even with good stopping volume like that, the market will not immediately go higher after trending down (though sometimes it does) without a larger test of the lows to make sure supply has been fully cleaned out. So, you can exit the trade at the first resistance, bring your stop to break even as soon as you can, trail stops under the lows, or put in a wider initial stop. Eiger

Better journaling before the fact is asking the question, "What have I been doing that prevents me from appropriately considering the situation and is causing me to act in ways contrary to my interests?"

I'm not sure who Goenka is (I assume a yogi or buddist thinker?), but I like the quote. Yogis and Zen masters have been studying the mind for an awfully long time and have made numerous useful discoveries, many of which are now being confirmed by science. Currently, the cognitive-behavioral branch of clinical psychology is undergoing a revolution in which things like an internal orientation, mindful observation, and other related practicies are becoming an integral part of clinical therapy. Sport and human performance psychologies have used some of these techniques for more than 30 years. The quote above talking about mindfulness or meditation to help maintain balance and prevent reacting to the torrent of mental activity that flows continuously in the mind. Someone has estimated that the average person has over 60,000 separate thoughts a day! Most of us react to those thoughts as if they were reality. Our reactions to our thoughts is a major cause of distress, or as a buddist might say, suffering. Here's an example: I am hiking quiety along a trail in Vermont and come to a vista of a small town in the valley. I begin thinking to myself, "How beautiful. I can see a church steeple, houses, a town green. I wonder what it would be like to live in such a place. Easy, I'll bet. Hardly anything to stress about ... I'm so tired of stress. About the only time I'm not feeling pressured is when I'm on vacation. Last year's vacation was great, nice an peaceful. France was beautiful. I really liked Paris. That great little cafe on the left bank. Great cafe au lait. I didn't like that waiter, though. What an ass. So what if I couldn't speak French all that well. He didn't have to talk down to me, as if i was stupid. He's the one who is stupid. What a jerk. I should have talked to the manager. I would have had him fired. That would fix him ........ So, here I was hiking in Vermont enjoying a nice view, and suddenly my thoughts brought me back in time and transported me 3,500 miles to Paris and I am arguing with a waiter. You can be sure that my breath would have quickened and my muscels suddenly became tight. Even though this is all going on in my mind, if asked, I would attribute my current distress to that waiter and not my mind and its associative mental flow. Self-observation is the key to begin to deal with this, not just in life, but in trading as well (the two aren't really all that different). Observe your thoughts when trading (or anytime). What are you saying to yourself? Is this affecting your behavior? Are you failing to pull the trigger because of thoughts, or cutting your gains short? Anytime you notice psychiological changes (e.g., your muscels tighten or your breath quickens), or you feel an emotional change (anger, elation, sadness, nervousness), turn to your thoughts. This is the grist for your journal.

I started a new thread in the psychology section called Practical Trading Psychology. Mr Ed said he will copy the recent psych posts from here over to there, and then we can continue, if you like. Thanks Mr Ed! Eiger

I always liked Yogi Berra's take on performance psychology: "Ninety percent of this game is half mental." That sort of sums it up well, i think Eiger

I always liked Yogi Berra's take on performance psychology: "Ninety percent of this game is half mental." That sort of sums it up well, i think Eiger

I know about being lengthy. I'm Irish, and my grandmother used to say I could talk the dogs off the meat wagon! There are lots of different ways to do a journal. The best method is the one that helps you and helps you to do it consistently. Here are a few ideas for consideration: State your intention for the day. In Michele's example, it might be something like "Today, I will look left for a SOS or a SOW before I trade a VSA indication." Log every trade. In addition to entry, exit, stop, P/L, you can also add thoughts and feelings for each trade, which will later help you see patterns. At the end of the day, ask yourself specific things like: [*]Did I look left on every VSA indication? If not, why? [*]Were all trades taken with appropriate trading plan criteria? If not, why? [*]What did I learn from my thoughts and feelings? Was there any pattern that I noticed? [*]What did I learn about myself and my trading today that is important to my future performance? [*]What steps can I take tomorrow and in the future to improve my 1) mental/emotional skills, 2) trading skills? The basic idea of the journal is to help you identify strengths and limitations, address the limitiations, and track your progress over time. It needn't be complicated, and you don't have to write a book. Just jot down a few specific things. Anyway, just a few thoughts that might be helpful. Eiger

I know about being lengthy. I'm Irish, and my grandmother used to say I could talk the dogs off the meat wagon! There are lots of different ways to do a journal. The best method is the one that helps you and helps you to do it consistently. Here are a few ideas for consideration: State your intention for the day. In Michele's example, it might be something like "Today, I will look left for a SOS or a SOW before I trade a VSA indication." Log every trade. In addition to entry, exit, stop, P/L, you can also add thoughts and feelings for each trade, which will later help you see patterns. At the end of the day, ask yourself specific things like: [*]Did I look left on every VSA indication? If not, why? [*]Were all trades taken with appropriate trading plan criteria? If not, why? [*]What did I learn from my thoughts and feelings? Was there any pattern that I noticed? [*]What did I learn about myself and my trading today that is important to my future performance? [*]What steps can I take tomorrow and in the future to improve my 1) mental/emotional skills, 2) trading skills? The basic idea of the journal is to help you identify strengths and limitations, address the limitiations, and track your progress over time. It needn't be complicated, and you don't have to write a book. Just jot down a few specific things. Anyway, just a few thoughts that might be helpful. Eiger

Actually, you are the wise one. Most traders spend most of their time and effort studying charts and trying to improve their technical skills. That's a good thing. But, few spend much time and effort working on themselves. That's not such a good thing. I say you are wise because you have identified a limitation, figured out how to adjust for it, and then you put it into your plan. You will only improve as a trader by doing this. What you are doing is a simple, but highly effective way to improve. Here is a little more to consider. First, write stuff down. Keep a journal and write things that are meaningful. Don't just complain, (e.g., "Agh! Another losing trade; I'll never get this."); that kind of writing is rather useless. Be specific about your trading behavior, and include thoughts and feelings. Then, after a while, look for patterns that have a negative impact on your trading, like jumping in because of impatience. This is a "current limitation." Be excited! You've now found something you can work on to get better (how else are you going to improve?). Next, devise a workable plan to neutralize the limitation or even turn it into a strength. Put this into your trading plan and then track your progress on it. Write about it in your journal, and make any adjustments that might be needed. This is the bare bones of how to use your journal and trading plan to help yourself improve. You have to be your own coach in a lot of ways. That means you have to be able to step back and observe (think witness) your own behaviour. Hard to do, but the journaling can really help. OK, enough trading psychology. This is, after all, the VSA thread Hope this is helpful, Eiger

Some of the folks in the VSA II thread began to get into a discussion about trading psychology and how to apply it in a practical manner, including how to apply it on your own. The discussion began to grow and seemed useful enough to warrant a separate thread. The relevant posts will get copied below, and we can then use this thread to continue. Eiger Actually, you are the wise one. Most traders spend most of their time and effort studying charts and trying to improve their technical skills. That's a good thing. But, few spend much time and effort working on themselves. That's not such a good thing. I say you are wise because you have identified a limitation, figured out how to adjust for it, and then you put it into your plan. You will only improve as a trader by doing this. What you are doing is a simple, but highly effective way to improve. Here is a little more to consider. First, write stuff down. Keep a journal and write things that are meaningful. Don't just complain, (e.g., "Agh! Another losing trade; I'll never get this."); that kind of writing is rather useless. Be specific about your trading behavior, and include thoughts and feelings. Then, after a while, look for patterns that have a negative impact on your trading, like jumping in because of impatience. This is a "current limitation." Be excited! You've now found something you can work on to get better (how else are you going to improve?). Next, devise a workable plan to neutralize the limitation or even turn it into a strength. Put this into your trading plan and then track your progress on it. Write about it in your journal, and make any adjustments that might be needed. This is the bare bones of how to use your journal and trading plan to help yourself improve. You have to be your own coach in a lot of ways. That means you have to be able to step back and observe (think witness) your own behaviour. Hard to do, but the journaling can really help. OK, enough trading psychology. This is, after all, the VSA thread Hope this is helpful, Eiger

Hi Mike, Great question and a great response from Tawe. I sometimes do the same thing (forget to widen the view). We can get so excited at seeing an indication, we just want to jump in One thing that helped me with this, was to make a simple rule before taking a trade. When I saw what I thought was a set-up, instead of jumping right in I told myself to Stop, Look left (and also to the higher time frame), and then Decide. (Stop, Look, Decide). It sounds corny, but making this into a little rule helped me quite a bit. In a fairly short period of time, I basically trained myself to follow this little procedure every time before taking a trade. You see atheletes do this all the time. A tenise player will adjust the strings after a point or bounce the ball a few times before the serve. These little rituals aren't just strange quirks. They are done purposefully as a quick way to help them focus and prepare to play the next point. We can do the same thing in trading with little cues like Stop, Look, Decide. Eiger