Soultrader

Pure trading wisdom. Jesse Livermore is a true legend in the trading business. This book was recommended by my trading buddy several years ago and I am very fortunate to have read this. Very rich in trading philosophy and good old wall street wisdom. Jesse Livermore's life is a wild roller coaster; losing and making fortunes. Core concepts discussed in this book are money management, crowd psychology, and market timing. It's a wonderful page turner especially for those who loved Reminiscence of a Stock Operator. Jesse Livermore till this day remains by number one trading hero. His market philosophy and trading strategies have had tremendous impact on my development as a trader. Jesse Livermore's strength lies in his ability to read the tape. In my opinion mastering tape reading skills can give you a tremendous edge in trading. Tape reading is pure information. This book is highly recommended for those who have a true passion in trading.

It is estimated that 90-95% of all futures traders lose money in the markets. Most traders deplete their trading account within the first 6 months. Out of all who survive past the first 6 months, 50% of them will never make it beyond 12 months. Why are these stats so low? And why am I not surpised? Let me explain: Most market participants enter the market without much knowledge of how the markets function. It is common to see successful lawyers, doctors, and businessmen enter the market just to lose their entire trading captial. As a trader I am in the business of risk. Without this in mind you are doomed to fail. Trading and investing are not primarily about picking hot stocks, using the greatest technical indicator, or following a trading system. The only holy grail to trading is strict self-discipline and money management. Top reasons why traders fail: 1. Lack of market understanding 2. Being undercapitalized 3. Too much leverage 4. Not understanding trading mechanics: tools of the trade 5. Not having an edge 6. Lack of self-understanding: unaware of your own pyschological components 7. Lack of passion Many trading/investment textbooks will tell you to seek out for low risk:high reward trades without telling you how. There is a reason why they are authors and not traders. Low risk:high reward do not always exist. But what I would like to explain in this thread is identifying high probabilitiy trades. Of course these setups can not be identified easily. A trader must gain tremendous market knowledge and insight to identify these high probability setups. The markets are an auction between sellers and buyers. The only factor that will cause a market to trend or consolidate is market balance and imbalance. It is a simple law of supply vs demand. Many traders will become too absorbed in the tick by tick intraday action. What they lack is seeing the bigger picture. Most of the intraday action is noise. The ability to filter out noise from key information is an important element in trading success. Undestanding the bigger picture: Ask yourself two important questions when trading the markets. 1. Which direction is the market trying to go? 2. Is it doing a good job trying to go in that direction? When the markets are consolidating, confidence among buyers and sellers are balanced. When one side expresses greater confidence, this will create a imbalance of supply and demand causing the markets to trend or enter a new price zone. What is important to understand is this: Is there market acceptance or rejection in the current price zone? Value area or value refers to the price zone in which approx 70% of the volume took place the previous day. Value high is the upper pivot of this range and value low is the lower pivot of this range. If the markets trade within value, this indicates a market in balance. If the markets trade outside of value, this indicates market imbalance. This is a important concept to understand when trading the futures markets. If prices are trading outside of value but pushed back into value, this indicates price rejection outside value. If price is trading outside of value but remains in value, this indicates price acceptance in the new zone. Usually the markets will consolidate when trading inside of value. If the markets breakout to the upside, the value high pivot will act as a key support and if the markets breakdown below value the value low pivot will act as key resistance. High probability trading exists once you fully understand market acceptance vs market rejection and balance vs imbalance. This is the bigger picture. Once you grasp the bigger picture, you will need to look at the micro view of the markets. This involves identifying key pivot levels that will act as significant support and resistance. As an intraday trader, I will always identify: yesterdays low, yesterdays high, yesterdays 50% range, daily pivots, weekly pivots, monthly pivots, value high, value low, and POC (point of control). The POC is simply the price where most volume occurred the previous day. By doing this analysis I will get approx 25-30 different prices. I will then take these pivots and look for cluster zones. A cluster zone is any price level in which 2 or more pivots line up with each other. For example: if yesterdays high was 11400 and the value high pivot is at 11395, this area would be a key pivot point cluster zone. In any given day, there will be 2-5 pivot point cluster zones to look at. These are the high probability trading levels. If the markets are trading above value and there is acceptance, I will look for a long setup at these cluster zones. If the market is trading below value, I will look to short these cluster zones. If the markets are trading within value, I will look to fade any cluster zone. These are just the basics of trade setups using pivot point clusters. In order to trade this method successfully you must understand what the market is doing. There are several market internal tools that you can use to identify the pulse of the market. They include: TRIN, TICK, put/call ratio, and PREM. Explaining these different tools will go beyond the scope of this thread. Explanation of these market internal tools are provided in the multimedia video forum. I hope this information helps. Good luck and best of trading.

The YM has shown an impressive bull run the last few trading days. With 4 consecutive higher value areas established, we are currently testing the upper range of the 4 month old trading bracket. With 11400 as an ultra key level, we willl need to see significant volume to asborb the sellers in this area for any movement to the upside. The remaining of the week will be crucial for the bulls. The bears will be trying to protect this zone, shorting around the 11400 level. However, with strong other time frame buying presence there is a good possibility that this level will break. This breakout can be quite drastic as alot of stop orders will be taken out in the process. A short squeeze will occur and may fuel enough energy for new market participants to start buying this break. This will lead to further rally causing a possible beginning of a new uptrend.

Thread discussing the opening gap play. http://www.traderslaboratory.com/forums/e-mini-journal/117-soletrader-ym-mini-sized-dow-trade-journal-8-17-06-a.html

Two parts to this video explaining a price and TICK divergence. It is always crucial in spotting out a shift in market sentiment. One way to do this is to observe price action with TICK action. CLICK HERE TO VIEW PART 1 CLICK HERE TO VIEW PART 2

Chart example of the TICK's in action. Anytime you have the TICK spending 90% or more time above zero in the morning session, expect a continuation of the trend in the afternoon session. This works on a uptrending day. The TICK, regardless of a downtrend or uptrend will usually spend more time above zero. Therefore, a downtrend can occur with the TICK fluctuating both ways.

Yea.. thats hilarious. I think I've seen that one before. Imagine being in a position, you could be stuck in there for hours

Welcome aboard trading4life. Please feel free to post any questions or comments. Also make sure to check out our multimedia section. As a registered member you will be able to watch trading video clips. I usually update them on a daily basis.

Brief video on how to use the TICK as a market internal tool. In this clip I go over a few simple tricks of the trade. Further explanation of the TICK can be found in this thread. CLICK HERE TO VIEW VIDEO

Posted a chart up for you. A TICK hook is hard to explain in text format. So I posted a video for you also. Understanding the TICK VIDEO

I use a line on close TICK chart primarily for visual purposes. A line on close TICK chart will show me TICK hooks which a candlestick chart will not. However, one disadvantage of using a line on close TICK chart is that you will not see the actual highs and lows produced by candlestick wicks. I will also use a candlestick TICK chart and will place audio alerts at +1000, +1200, -1000, and -1200 readings. Other than that I do not focus on it as much.

It is always important to look for clues that cause a shift in market sentiment. One method I use is by bracketing a TICK chart. Whenever TICKS breakout of a 2 hour range, this is usually a strong signal of a shift in market sentiment. For example: In a downtrend, if TICK's make a new 2 hour high I will look for a long setup. In an uptrend, if TICK's make a new 2 hour low I will look for a short setup. This method also works when the TICK is stuck in a channel. Anytime the TICK breaks out of a channel, expect to see price move in that direction.

Just made a post regarding capitalization. Remember, money management is everything. Take a look here. http://www.traderslaboratory.com/forums/options/94-can-some-one-please-help.html

This is what happened at the overnight session. I am sure alot of new traders who went short at the closing assuming market weakness got burned. By understanding market concept, you could of placed yourself on the long side at the close.

This is an interesting chart from 8/14/06. This is a typical mistake that new traders will make. The markets decline from the lunch hour doldrums into the close for roughly 100 points. They will look at this decline and assume a weak market. I am sure some new traders went short at the close. Looks are deceiving. Lets take a look at the bigger picture. If we visualize a market profile chart from the candlestick chart below, notice that we are actually trading at a higher value. This concept is crucial for market understanding. Price were not accepted within or below value indicating market strength. Although the 60 point gap was filled we have established higher value.

I do not trade options so I can not provide you an exact answer. But when trading emini futures contracts I recommend $10,000 per contract. One thing you want to avoid is taking more risk than your trading capital. Most traders lose because they are undercapitalized. Also, the amount of starting capital depends on your trading skill. A professional trader can make money of a $10,000 account. However, a new trader will need enough capital to survive the steep learning curve. I usually tell new traders to have approx $30,000 - $40,000 risk capital available. First I will recommend new traders to study the market they are trying to trade. If it is the emini, I believe it is alot easier to trade in quarter lots than single-lots. Why? Trading 4 contracts allows you to scale out to minimize risk while you can not trading 1-lot. Let me explain: In the index futures, there are many times where the contract moves 10 dow points in your favor just to reverse and stop you out for a -10 point trade. When trading 4-lots, by scaling out half at +10 points you have eliminated risk for the other half position. Your only loss is a commission loss. I hope this helps and good luck with your journey.

Value area is a level where both buyers and sellers perceive price to be fair. When there is greater confidence from either the other time frame buyer or seller, this will cause market imbalance of supply and demand and price will break out of value. When trading with market profile, you must always ask yourself questions such as: What is the market trying to do? In which direction is it trying to go? And is it doing a good job in going towards that direction? Once prices break out of value and is accepted, a new value area will form. Thus, there is market acceptance at these new levels. Market acceptance vs market rejection. These are two important concepts to understand. The only tools I use to anticipate breakouts are market internal tools. These include the TICK, TRIN, put/call ratio, and the PREM. Whenever the TRIN is uptrending I will anticipate a breakout to the downside. For example, if the TRIN is in a stready uptrend and prices have reached the value low pivot I will anticipate a breakout to the downside. Another useful tool is the TICK. If the TICK has spent the majority of the morning session above the zero line, I will anticipate a breakout to the upside in the afternoon session. The PREM I use to see the number of buy programs vs sell programs. The put/call ratio I use to judge how many market participants are short and long. If the put/call ratio reaches a high extreme number, this means that alot of traders are short. Therefore I will try to be contrary and look for long setups and vice versa. Hope this helps.

Stats for the YM; mini-sized Dow ($5) Here are some stats based on the TRIN at the market close. One strategy is to buy the dow at the close on a high TRIN reading. The idea behind is that the markets are oversold and expect the market to gap up the next morning. Stats are based on the last 2 years from 2004 May to 2006 May. When the TRIN closes above 2.0, there is a 64.7% chance that the markets will open higher. This has happened 17 times over the past 2 years. When the TRIN closes above 1.9, there is 71.4% chance that the markets will open higher. This has happened 21 times over the past 2 years. When the TRIN closes above 1.8, there is a 69.6% chance that the markets will open higher. This has happened 23 times over the past 2 years. When the TRIN closes above 1.7, there is a 76.7% chance that the markets will open higher. This has happened 30 times over the past 2 years. When the TRIN closes above 1.6, there is a 73.2% chance that the markets will open higher. This has happened 41 times over the past 2 years. When the TRIN closes above 1.5, there is a 70.9% chance that the markets will open higher. This has happened 55 times over the past 2 years. Do not take this information and blindly buy the Dow Futures contracts at the close. This does not take into account the overnight action. Prices can drop overnight to stop you out then take off to the upside. Therefore, adjust your strategy accordingly. A trader I know will wait until after hours to buy. This allows a better fill at times. Remember, this setup requires a wider stop and depending on your risk tolerance this strategy may not be for you. I usually minimize my position to a quarter size and use a 40 point stop on the dow mini's. Due to the high percentage of the setup, I am able to risk 40 points on a quarter size.

The link below is a complete list of market indices. Compatible with Tradestation platform. Symbols may vary depending on your data vendor. File is ia PDF format. Right click the link => Save file as => Select a location to download file CLICK HERE TO DOWNLOAD FILE

Heres a simple method that you can use to anticipate the trading range based on the previous days range. We use only Fibonacci numbers of 1.27 and 1.618. First we identify the previous days range. In this example lets take the S&P 500 emini: High: 1294 Low: 1281.50 Range: 12.5 Second, we take the (Range x 1.27) + Previous Day Low (12.5 x 1.27) + 1281.50 = 1297.375 This is our first estimated high. To get the low: High - (Range x 1.27) 1294 - (12.5 x 1.27) = 1278.125 This is our first estimated low. Third: We use the same exact formula but replace 1.27 with 1.618. High: (Range x 1.618) + Previous Day Low (12.5 x 1.618) + 1281.50 = 1301.725 This is our second estimated high. Low: High - (Range x 1.618) 1294 - (12.5 x 1.618) = 1273.775 This is our second estimated low. Now we get two estimated ranges: 1297.375 - 1278.125 & 1301.725 - 1273.775. Hope you find this useful.

This information is only available in Tony Crabel's, "Day Trading With Short Term Price Patterns and Opening Range Breakout". This is a mathematical formula used to play the opening range breakout. If you are unfamiliar with this method it may sound complicated but bear with me. First Step: you get the (High - Open) and the (Open - Low) For example: Let's take the S&P 500 emini contract High: 1294 Low: 1281.5 Open: 1290.50 (High - Open) = 3.5 (Open - Low) = 9 2nd Step: You take the minimum of the two numbers. In this example the minimum would be 3.5. 3rd Step: Add the minimum for the last 10 trading days and divide it by 10. So you would add 3.5 to the minimum of the previous 9 days. In total you will have 10 numbers. Divide that by 10 to get the average. 4th Step: For example, let's say you get a 10 day average of 2.5. You simply play the breakout of the opening range. If prices open up at 1293, you would buy a breakout above 1295.5 and short a breakdown below 1290.50. Simple and easy. I have not tested this to work but I know this was a famous opening break method amongst the professionals for many years. Alot of traders still use this method. Some may chose to take the 10 day average minimum and multiply it by 1.1 or 1.2 to make slight adjustments to the markets they are trading. Hope it helps.

Tape reading is perhaps the hardest but most effective skill in trading. When I first started learning the tape, I would stare at it for 8 hours a day for approx 10 months before it started making any sense to me. After hundreds of hours of practice you start to see visual clues on the tape that will help you time your entries and warn you of short-term price reversals. In this picture I want to go over just one method on tape reading. Although this does not happen all the time, this pattern is one of the most highly effective methods to capture a short term price reversal. The concept is simple, however, the timing is hard. This can happen in a matter of 1-2 seconds so if you miss it you pretty much have to pass on it. Here's the method: As price approach a key level, watch the tape carefully. What you are looking for is a quick price rejection on the tape. Preferably 1-3 prints of a certain price and then a quick rejection back down/up. For example, if my key price level is 12100 on the dow mini's, I want to see 1-3 prints of 12101 then a quick rejection back to 12099, 12098, 12097. etc... A picture is worth a thousand words. (see attachment) In this example, we saw a beautiful single print at 11043 then a quick rejection of price. There was simply no buyers willing to bid at the 11043 level. We then saw prices fall on its own weight from lack of demand back to 11034.

Terms are taken from Tony Crabel's famous book, "Day Trading with Short Term Price Patterns & Opening Range Breakout". This book is extremely rare and close to impossible to find. I have seen copies being sold on ebay for close to $1000. NR; Narrow Range - Today's trading range was narrower than the previous days range. NR7; Narrow Range 7 - Similar to the NR. The range was the narrowest compared to the last 7 trading days. WS; Wide Spread - Exact opposite of the NR. Today's trading range was wider than the previous days range. WS7; Wide Spread 7 - Similar to the WS. The range was the widest compared to the last 7 trading days. Inside Day - Price bar in which the high is lower than the previous days high AND the low is higher than the previous days low. Outside Day - Price bar in which the high is higher than the previous days high AND the low is lower than the previous days low. IDnr4 - An inside day with the narrowest trading range in the last 4 trading session's. Bear Hook - NR with Open < Previous Low and Close > Previous Close. Bull Hook - NR with Open > Previous High and Close < Previous Close. Stretch - The 10 period SMA of the absolute difference between the open and either the high or low, whichever difference is smaller.

Pivot point setup trade. Here's how I play pivots. I place a buy order 2 ticks above the actual pivot at S1. I do this to make sure I get filled. I use a 10 point stop and scale out half at +10. I move my stop to breakeven so I have half a position left with no risk. Then I will scale out a quarter at +20. I will leave my stop at breakeven for my last quarter position. In this chart, my entry is at 11074 (plus 2 ticks above S1). I let go of my first half at 11084 and a quarter at 11094. 11094 is also a great place to exit because it is directly at the monthly pivot. Also notice the value low pivot at 11006. The last quarter I will try to hold on by using smart stops and will let the markets stop me out. In this case, I was able to hold on until the close.