Enigmatics

Let's say a stock suddenly falls 8% .... you zero in on a 5min chart and you see the stock recover and bounce immediately off that drop. Visually that formation looks more like a "V" .... sometimes it takes a little longer to form a more "rounded bottom" which would be more like a "U" ....

Oh trust me, I've quickly learned that this setup reacts differently depending on market conditions. Honestly though, what setup doesn't? EBIX provided ample opportunity to be traded intraday. Long term outlook? That's certainly up for debate. Per my studies in VSA, that last daily candle is a stop volume, indicating interest in shares hitting the market. It's been on a serious downtrend (almost 50% markdown) since it's CEO resigned and CFO said was going to as well. Motely Fool reported they had a good Q1. Well, in your opinion, what pattern is typical no matter the market condition? If anything I should be more disciplined in choosing the days I trade the pattern. Well let's talk about EBIX again. It bounced and I was heavily confident it would get one based on what I was observing in the price and volume. I waited for my confirmation after the stop volume bar on the 10min chart. I need to correct myself, as EBIX did not make a new low after my entry. The low was 16.50. After I entered at 17.12 it hit around 17.35 then proceeded to sell off to 16.80. So in essence that was a higher low, except I didn't stick around to see that higher low because my stop loss was too tight. Now I'm sure I missed a cue for re-entry once it made it's new higher low. I'm not saying it's easy. My personal opinion though is that people are very averse to even looking at them because they're afraid of the falling knife. I'm sure you've heard old adages like "When there's blood in the water" or "Be greedy when others are fearful" .... well I've seen this play out with these setups enough to be considered significant and make some of what VSA teaches valid. You might assume I'm doing something wrong and it's "because" of the setup, but I think that's a very surface judgement since we clearly have different strategies and whatnot. I think if I sent you charts on what it is I'm actually watching (with my entries/exits) you might be able to discern whether it's more psychology than setup.

Well I'm down from that 10k, which is also why I'm feeling the pressure. Alas, I look back at this journey and I agree, perhaps supplementing my income would be a smarter route. Oh trust me, it's one of the most frustrating aspects ..... My stops are "mental" stops too. I'm not actually physically setting them. I stay away from out of control volume too because of this. Again I agree this is forcing me to re-examine the risk/reward ratio and my position sizes. I'm not going to sit here and say VSA is the gospel but there are many excellent nuggets of information gained from it. It also explained what was going on down at those bottoms and why I liked the setup I did. It forced me to pay more attention to what was actually going on with price and volume instead of blindly following lagging indicators. I can't really dispute this. It takes money to make money. Being under-capitalized and trading from the "necessity" stand point instead of opportunity has slowly but surely put me in an unenviable position. I've been doing a lot of introspection into my trading since (especially after I started this thread) and it's becoming increasingly clear that I need to alleviate the pressure of trading for income while I'm still learning the ever-changing landscapes of the market.

Well I'm typically looking for high sell volume on a hammer candle or candle where the price finishes above the 50% of the body of the candle ...... indicating that absorption of the shares is taking place and a reversal (whether short term bounce or legit) is trying to take place. I then look to enter based on the next candle, particularly when it opens above the previous candle's close. Richard Wyckoff described some of these and noted that there were ones that had "automatic" reversals which bounce, but then fall back off again testing a new low before accumulation hits and a real bounce commences some time later. These are the ones giving me the most trouble because I haven't sold when the signals were there that the bounce was going to play out as planned. Then I get stopped out as it tests a new low because I keep my stops too tight.

Honestly, I've done nothing but watch dippers and bottoms for the better part of the last 2.5 years. It's not nearly as hard as you think it is. People are just extremely fearful of "catching a falling knife" and prone to going after something that's already moving. The more I've examined the responses in these threads, the more I realize much of my inability to execute my strategy up to this point has been because of my psychology (dependence on income from trading) and improper stop loss goals (risk/reward management). Seriously these setups yield really nice moves when approached correctly.

Bottoms became more attractive to me because I was trying to eliminate as much downside risk as possible. Now, originally when I began charting this and dabbling with my cash account, I was concentrating on daily charts with the setup I preferred. As I started day trading, I noticed there weren't enough "daily" chart opportunities and I could get the same indicator setup on smaller time intervals. Obviously day trading that setup on an intraday is not always like a daily. The daily charts tend to be depressed for a period. So there is inherently going to be more downside risk. You're very right about the V-shaped bottoms. That is the ideal result, but it's obviously not the typical one on each instance. It wasn't until I started reading about volume spread analysis that I started understanding what it was that was going on at those attempts to form bottoms and reversals ........... much of which is predicated on the kind of volume happening at those levels. I've since incorporated the ideology expressed. Patience is two fold for me. I used to jump in too early instead of waiting for a confirmation. Thru VSA, I developed a much stricter confirmation strategy .... it's just that as you described, these bouncers can often test a slightly lower low, before doing exactly what I thought it was gonna do. This is what guys like Richard Wyckoff and Ted Williams describe as a "test" as supply is still being removed before a reversal can take place and accumulating hands can begin distributing into a bounce. My "patience" issue runs amuck when I don't get the V-Shape and it ends up testing a slightly lower low and I'm keeping my stops too small. This is why I think I really need to examine the risk/reward ratio on my trades.

This particular section really hit home with me. It's what I'm trying to re-wire.

Or you should give up posting on internet message boards if you can't carry on a mature conversation. I came here for advice. Not for smart mouthed answers.

Explain further ..... What is random about the price action? From my experience in the 10months I've been day trading, false positives can happen no matter what the pattern of choice, for various other factors outside of the chart that extend well into the kind of market day equities are having and their sectors.

It's not about "random" .... what I've learned is that there are various factors (layers to the onion) as to why the stocks will bounce and why they won't. It's really no different than any other pattern people may prefer. I'm merely seeking to benefit from that wick on a daily chart that you see on stocks that dip. That's it. Again, I point to volume spread analysis, which details specifics on how to spot absorption and stop volume as the shares hit the open market on a dip. However, other factors come into play. How's the sector doing that day? Was there major global or stateside news (perhaps economic numbers)? Is the dollar up that day (equities and the dollar have been trading inversely for the most part)? Why did the stock drop, was it bad fundamental news or just some profit taking? I don't think there's any way to avoid those factors is this market. I will attest that my opportunities become far more limited if something above is amiss and I am not yet adept at shorting the market. Another aspect that I need to fine tune about my setup, is profit taking goals (particularly sell signals) and risk management which we've discussed mightily in here.

Have I studied all methods and tried them all? No. However, this method I use has made the most sense to me. Most definitely. Now, a lot of people equate bouncers to "catching a falling knife", but I don't look at it that way. I see it as opportunity to buy a stock at cheaper prices. I like buying as cheap as possible (who doesn't?) however, I'm also trying to eliminate as much downside risk as possible. Yes. I prefer not to be long in this market so that is why I've been day trading. Not sure what you mean here. I do not have peers around me. I simply trade from home in my own home office. However, if you're referring to my financial situation then yes there is a conflict there. Perhaps a conflict exists here. Essentially the market is a step out of the norm for me. As I've said before, I've been a very pragmatic person and the market requires risk management. That's a good thing though because it's an attribute I aspire to acquire. Depends on the market day. The set up I prefer works in all time frames, however it depends on the market day whether or not a longer term time frame will work over a shorter term.

Yes, you've made your point. I appreciate it. Am now seeking the solution to executing properly.

I've seen hundreds if not thousands of these since I started using it. It's most definitely my application/execution. Particularly my stops. Now psychologically it should not surprise me at all that people who managed to snag on the lower end of 16.50 would want to take some profit up near where my buy was at 17.12 .... therefore a dip should not be surprising whatsoever ..... but that long wick on the 10min chart is supposed to be a sign of strength for a bounce as someone is removing supply of shares off the market. I've seen it time and time again. There's always a chance of re-test of the bottom .... no patter is perfect. I'm more then likely missing a sell cue and a re-entry cue which I need to work on.

Alright see I did it again this morning ..... EBIX shares hit the market as it drops down from 18.59 to 16.50. I checked the different time intervals on the chart looking for absorption or stop volume when I notice the 10min chart showing it at around 11:00am, that long wick where the price finished above 50% of the body of the candle. I also noticed that Motley Fool had come out with an article about good Q1 results on it. So I jump in at 17.12 ...... Starts looking like it's moving when it hits a wall around 17.22. It proceeds to drop down and I stop myself out at 17.02 ...... Whenever I see that stop volume, per VSA, it's supposed to be a cue that smarter money is accumulating the supply of shares in the market. My threshold for the dip though kept me out of what turned out to be a fantastic move. Although, in all fairness EBIX did drop back down to 16.80 before it started its real ascent to 17.75. So let's look at this .... and now I feel really stupid .... I stopped myself out after a .05% stop. Had I allowed for more slippage, the most it would've been was 1.8% ...... oh and now look it's well over 18.10 ..... that sucker bounced nearly 10%! All I'm looking for is 3-4%. Ugggh. This kind of trade right here has been what's frustrating me the most.

I never said it was any of those things and I've never treated it that way. Again, my goal is to make this my career, not a casino.

I know .... but what choice did I have? I couldn't get PDT status at any of the retail operations. You know how hard it is to trade for a living with a cash account? You have very limited opportunities to trade because of settling times. My commission per trade now isn't so bad ($4.95 after they lowered it). That new place I checked out though seemed pathetic. I wanted no part of it.

I'm with a prop firm right now .... needed 5k as as deposit to start. I signed up because it allowed me the ability to day trade. I looked into another one yesterday I saw posted on a job add, unfortunately it's just another one that needs 5k to start and startup costs they said could be anywhere between $0 - 9,000 depending on my level of ability .... which I'm sure they judge fairly. Wish I could find a place that was a legit house. I want so badly to make this my career. I've never said that before about any job I've had.

Not sure if we have trading houses out here. How does one even break into those anyways?

Yes, I was just looking for a bounce. Again, my approach is based off the supply/demand of shares as they hit the open market on a drop like that. I watch to see if it looks like they're being absorbed (removal of supply) and a bounce. That huge volume though came out of freaking nowhere and after looking back at the chart a few times recently, I guess there was really no way to know.

I'm almost exclusively trading volume and price. I've given up indicators as a basis for my entries/exits. They are simply symptoms of a trade. I am actually working a short set up (because it's something I've clearly been lacking only playing only bouncers) and tomorrow one of my goals was to put it in action with tiny money like you said.

Oh I hear you about the job thing. Just really wish I had done that from the beginning. As far as teaching, I'm not sitting here saying I've turned everyone into winners. There's clearly a gap in my own psychology but that doesn't mean I don't recognize it. I spent the better part of 2 years prior to my day trading learning technical analysis and charting. I put together many picks based on my setups and chart tutorials. I've earned the respect of many long term traders I've come across (not on this site). So I know it's not flukey in that regard. The example I gave of that guy I helped gain 45% on his account - well clearly there's a difference in his psychology and mine. I just have to get it right "between the ears" like you said. You can "know things" but are you doing it yourself? That is the issue here with me and trading psychology. However I have plenty of learning to go.

That's definitely a part of it. At times, I've found myself bending my rules because of what another trader I taught was doing when he did. I found myself bending them even further after I'd find myself in a string of failing trades or market conditions I didn't quite grasp .... not to mention trading for income. I don't have huge expenses and I swear if I just stuck to even $100 day I could be really far along by now.

I know exactly of which you speak. I look back at when I first came into the market about 10 months ago and see just how much I've learned that extends beyond charts and indicators. Indicators were for first foray into the market, but I cut my dependence on them off about 4 months ago after I had gotten my hands on that Tom Williams book "Master the Markets" ..... I also started noticing just from my day to day experiences that I was going to have to pay much more attention to the kind of market I'm trading in that particular day. Patterns are just patterns unless they get the right combination of price/volume and sector/market conditions. For example, the past month I've followed the dollar like a hawk as the equities market had been trading quite inversely to it for weeks. Position sizing has always been something I've been well aware from in the beginning. My whole set objective originally was to try to snag $300/day by using $5,000 position sizes (with my margin) looking for 3-4% on a trade. I always knew that looking at a chart and seeing a huge mover thinking I could have all of that might be the wrong way to approach because of the natural ebb and flow of a stock o a particular day. I just wanted chunks. My set up was good for that particular because of the supply/demand of shares that get dumped into the marketplace on a dipper. On one hand this experience has taught me a lot about myself and how I've always wanted to smash my pragmatic ways in life. I said this earlier, but for once in my life I've felt purpose, like something fit. I picked up on charting as quickly as any ..... and people who've seen my blog will tell you this. I've helped many-a-people. I'm just still learning how to evolve in my "risk management" abilities and how that translates to the psychology of trading. Unfortunately I'm just under more pressure because I didn't come into this thing set up the way I would've preferred with enough capital, reserves to pay bills, etc. etc. Hate to say it but perhaps I bit off more than I could chew in that regards. I've seen the possibilities and what I could do with this setup with continued market experience and working towards getting my psychology in-line. This I have absolutely no doubt. At first when I was really strict and stuck to my rules I was up in the account 20%. It was when I started experiencing various market conditions is when I started breaking them because I really didn't have experience in how they effect them. I just wonder if I'll be able to dig myself out of this hole and re-instill some confidence one trade at a time. It's really that on the edge for me. The person who helped get me started with all of this knows no boundaries with money, but he's also the type who thinks nobody can figure this stuff out. Not to confident I could work out another arrangement in that regard ..... which reminds me of how hard it is to break into this when it takes money to make money.

Sigh .... you're right. Trading out of necessity instead of opportunity.

My trading commission aren't too bad at $7.99. The problem isn't my set up. The problem is a few things here which I've mentioned. I needed to pick my spots better. I've attempted these set ups on days when the market was getting beaten or better yet options expirations, which I had very little understanding of it's effect on the market. I'm also trading so "tightly" because again when I'm using my margin, if I don't keep losses under control it impacts my real equity moreso than the average. I've repeatedly tried to keep my losses to around $100-$150 (lately being even stingier) and there have been NUMEROUS occasions where I'm getting shaken out because of it, even though the stock ends up bouncing like I thought. I also find myself over-valuing a move because of prior losses, so I'm holding on too long to make up the difference, which I've repeatedly told others not to do. These have all added to the mental gridlock I've found myself in. I know this setup works for people who are patient and pick their spots. I taught a friend of mine everything I know and he's taken the material and earned himself a nice 45% on his money in about 3 months. I just wish I could outlast this moment somehow. I've never felt like I had purpose in my life until I got into this. I've wanted to soak in everything I possibly can about it.