steve46

Head2k I took a quick look at the chart and have to agree with you on the first, second and third dot. I would add the following on the first dot....the proposed entry is late in the move...the low vol tells me that it is probably not the end of the move....but like you, I would need to wait, not only for better prices, but I would want to be nearer to a clear exit (I can say more if there is interest). As I read the chart, my stoploss would have to be bigger than I would like so I would stay off this one. Second dot....same thing again. Late in the move..and agree that it seems like a possible shakeout. For the third dot...I see increased volatility as traders anticipate the climax and position for the reversal. Typically I would stay off this and wait for better prices on the short side. Again I would like to be nearer to an exit so that if I am wrong the damage is minimized. You have a good feel for it Head2k. Your instincts are to keep from getting in at the wrong time....that will help you in the long run. The main thing I would suggest if you don't already have it down, is to look for entries where if you are wrong, you see it right away... Best of luck to you Steve

A comment from Firewalker "Steve, couple of questions if you don't mind. You seem pretty convinced that 'outside information' (not in the chart) can help a trader improve his performance and although I'm not saying that combining FA+TA isn't useful, I am still not clear on what kind of 'information' it is you are referring to. I've gone over several of your latest posts (not the whole thread sorry...), and I could not come up with anything other than:" Yes, thanks for your comment. I refer you to my previous post to Hakuna. As mentioned, markets "react" to outside information every day. The behavior of traders is also a part of the system. Those of us who do this for a living know how other traders are likely to respond to economic events like today's housing report. As mentioned in my reply to Hakuna, there are several ways to approach event trading. I am not saying it is easy...sometimes you win (for example, every time president Bush appeared on TV over the last several months, he became my personal ATM machine as I shorted the market during his comments) and sometimes you lose (over the years, I have taken a beating every so often trading the FOMC announcements). The operative idea is that human behavior is in often predictable. An astute observer of this behavior can learn to see what poker players call "tells"...(small things that tip you off to what is going to happen). Now this may or may not appeal to everyone, but it is a valid form of trading that has been practiced by skilled folks for years. Another comment from Firewalker "This is an interesting point, and if there were elements that could help pinpoint 'when' something is going to happen, I'm sure a lot of traders would benefit. If I knew in advance when price was going to approach my levels (where I trade from) then I would not have to sit around and wait for trades each day but just go to my screen at the time the trade will be there. So please, enlighten me " Well, I don't know if it is possible to "enlighten you" other than to suggest that another world exists to traders who have these skills. What I can say is that it requires thoughtful analysis of current conditions and the ability to synthesize a plan based on what you see. As I mentioned in a previous comment, it may help to network with other like minded traders (who want to develop this kind of approach). In my own office, I worked with 5 other traders each of whom had responsibility for market sector. Each of us would be required to develop one or more strategies a week that could be traded. I hope this helps. and one more comment "As we are now in your thread, it's no longer off-topic and I'm sure it would benefit everybody if you answered that question publicly, rather than in a dozen PMs..." This relates to the comment that there are additional strategies (other than the example of the oil industry) that could serve as basis for event trading. Again I refer you to the many specific examples detailed above from reports to economic events....I also made reference to a book on the subject of Event Trading by Ben Warwick....I wish you the best of luck in your pursuit of more knowledge on this subject. Firewalker as to your last comment, I don't worry about who is on the other side of my trade. I simply evaluate the signal. If it fits my risk reward protocol I take it. As to your comment about compliance, I don't expect YOU to be knowledgable about that. I took the time to learn it so I was prepared when the opportunity came along. For me it was just a part of my professional training. Thanks for your questions. Steve

Perhaps I am not making myself understood. Human behavior is happening all the time. The charts reflect that behavior and the refractory time (the time between when the behavior happens and when it is seen on the charts) is different for each "event". So it doesn't matter whether you are trading equities or futures. Go to http://www.briefing.com and look at the economic calender. Those events are the human behaviors that get reflected in futures charts every week. Whether it is unemployment reports, housing, FOMC, beige book or any public figure (Bernanke, President Bush, every Fed Governor....) Some professionals call this "event trading"....In fact there is a book by the same name "Event Trading" by Ben Warwick, that outlines how it is done. Here is a chart of today's S&P market. At 10am EST, pending home sales were released and coincidentally (not) the market reacted favorably moving up from a consolidation low of 895 to a high of 916.25. Looking at the chart you can see that consolidation as traders waited for the report, then reacted to the report.... I think this is about as clear as I am make it. Now as to how to trade it, there are several approaches. 1. You try to guess and position yourself prior to the report 2. You research the report looking at previous charts and develop a strategy based on how it traded previously in good and bad times. 3. You develop connections in the business who will advise you as to what to expect 4. You find a way to get the data before others 5. You wait, since the market generally over reacts, and trade the reversal. Depending on your skill set, you might find one or more of these approaches viable. I made a living trading events for years, using a variety of strategies including outright positions prior to the event, taking positions in the overnight market in anticipation of the event (professionals call this "stealing the trade"), options positions looking to profit from the volatility crush after an event, and some few others that may or may not be workable for you. I hope this answers your question.

Hi Folks I see that there are comments and questions that are backed up behind me...Please be aware that the process I use is time consuming and I have to complete my analysis before each trading day...I will try to answer each question as soon as possible. I appreciate your patience. Best of luck to all Steve

Hello Hakuna With regard to the various approaches I outlined, the geneeral principle is that a trader who takes trades based on the confluence of two or more different signals (say for example, price tests a pivot and a moving average and they happen to "line up" together or are in close proximity) has a statistically better chance of winning, because in theory there are more individual traders looking at that setup and (perhaps) taking it themselves. For this "theory" to be proved true, one has to (in my experience) choose carefully which signals to use. From my experience, the signals that offer the most value are 1.) Moving averages, 2.)Market Profile, 3.) Pivots, 3.) Human behavior (news, events, and other examples that are not IMMEDIATELY reflected in the charts. When I say these signals offer the most value what I am suggesting is the more participants monitor these signals than any other and I am stating that institutional traders monitor these signals more than any others. Finally the issue of behavioral elements (under the heading "Behavioral Finance"). I suggest that all information is not in the charts. If you think about it, it becomes obvious. Information that might impact markets has to "originate" somewhere and it takes some (unknown) amount of time for it to enter the public domain where it affects price. Now chances are good that YOU are not the first person to know what that information is, this is true, but you can develop an edge by being able to process that information and to decide accurately what its IMPACT will be on the markets (on price). That ability (in my opinion) is the edge that a retail trader (or any trader for that matter) can obtain. So for example, when I was doing this professionally in my office, I knew which analysts followed my stock and had the best feel for that company. I would follow their (publicly made) comments and look to position myself ahead of the crowd. Alternatively if I didn't have confidence in my ability to get an edge, I might take either an options position or an outright position (long or short stock) based on the idea that volatility would drive prices up or down prior to the announcement. That position would depend on my knowledge of the history of how that stock acted prior to an earnings announcement. As another example, I would follow announcements that a stock was going to be put into the S&P500 (as AOL was long ago). knowing that money managers would have to buy it to balance portfolios, I would take a position prior to the move. Now the question becomes "are others learning about this and acting on it as well?" and my answer is "yes, I certainly hope so"... There are many other examples that fall under the heading of behavioral finance. As you might guess, these opportunities have a limited lifetime and so as a professional you are always looking for them, and evaluating the risk reward. In my office, we did this as a team, each person having an areas of expertise (earnings, events, bonds, futures, etc). This is one way that you might network with others to develop both your professional relationships and your skills. I hope I have answered your primary question and offered you something to think about. Steve

Here we are in the premarket early Monday Dec 8, 2008 on Sunday, price resumed its move upward. Orienting to the market is the trader's first job. To do that we look first at the long term chart. For our long term view, we use a chart showing 570 minute candles. On that chart (attached below) you can see that we have been in a consolidating or ranging market. Suppport is found at or around 820, and scanning left, we see a previous high of 897.50. We know from experience that price will test a previous high, and we see that it has done just that. Will it take that previous high out? We note that price was marked up at the close Friday...Was that move motivated by outside influence buying value, or by institutions bidding on behalf of the Treasury? Finally we know that price is above the previous VAH (852.25) and that the monthly pivot offers support at 880.91. Seasonal influence is traditionally up at this time of year. So far everything points to an up market. The next chart shows the overnight market as it tests and failed (retraced) at 897. We will wait and watch to see how the market proceeds from here. The last chart uses 2401v candles and the influence of Resistance at 895.66 So far no trade is indicated, although we fully expect the DAX market to mark it up from here taking out 900

Characterizing Markets Characterizing a market is simply "profiling"....It is identifying the characteristic patterns of a market and by extension, its participants. For example, in the past, Currency markets (exchange traded currency markets) have been characterized by their tendency to trend, while indexes like the S&P for instance have been characterized by the tendency to alternate between trend and oscillation about a mean To characterize markets, you start by choosing a time frame. I like to work with 5 minute charts. You begin with basic observation of the movement of price, working one day at a time, until you can develop a characteristic profile of how your market moves Example #1 Currently the S&P Market exhibits the tendency to open and oscillate up and down in a range of 3 points until 10:00am EST. At that time, due to reports, events, speakers, or news, the market will often exhibit significant trend (significant meaning at least 7 points). This trend often takes 1-2 hours to complete. Local volatility then contracts and the market consolidates during the lunch hour. At the end of lunch hour (NY time), The market often resumes the original trend. Technical Issues Because a group of financial institutions are working with federal money, periodically we observe distortions of the characteristic profile. Specifically the effect of federal (loan) money being put to work is seen on Tuesdays, and Fridays. Currently (in our opinion) the urban myth of PPT (plunge protection) is supported by the activity of institutions acting to mark markets up at intervals. Example #2 Another equally valid way to characterize markets is to export data to a spreadsheet, normalize (detrend) and break it into "jumps" (1 point, 2 points, 1.5 points, 3 points etc). As you work with the data in this manner (see the text of "Mathematics of Technical Analysis" by Clifford Sherry) you start to see patterns of movement. Specifically you will note that price tends to move in non random ways at specific times during the day. If you apply basic descriptive statistics to the data, you also see that sometimes the distribution of jumps is random, and sometimes non-random...If you continue on that path a while you start to see windows in time (what Clifford Sherry calls "temporal windows") where certain patterns (series of jumps) repeat. As you can imagine these are places where a trader could find an edge (a setup that you would be willing to bet on).... I hope this helps Steve

You are absolutely right DB. I saw the title "identification of trading opportunities" and got caught up in the subject matter. Please delete my posts. Thanks Steve

We will continue on a bit further to show how the simple principles of Support and Resistance work on the big scale. The attached chart uses constant volume candles (16807) so it takes time out of the equation and allows the trader to display a lot of data on a relatively small screen area. I have marked yesterdays open, and the horizontal lines show Support at 817.75 and Resistance at about 848. What I want to emphasize here is on the right side of the chart. You can see that at the end of the day, price closed on the high, attempting to take out resistance, but ultimately it failed. At this point I like to use Market Profile concepts to put a context to the data. I notice that price closed above the Value Area High. In the overnight market, first Asia, then Europe tested back down to that area (844.25)...This in my experience is very common (a trader familiar with Market Profile might have anticipated it). As can be seen price traded through that area and then came back up to test it again, and failed. Ultimately price traded down to the Value Area Low (825.25 was the actual VAL) and the overnight low was 826. In the next chart we see the market open, move up and then come back to "retest" that VAL....We see a little spike down that I have mentioned many times before called a "peekaboo". This is what the locals do to try to find sellers, or stops above or in this case below the market. They don't find any so up we go.... In another thread, Blowfish was kind enough to point out (and other good traders have also suggested) that one has to find basic principles that work, that have proven themselves over and over.....In these charts I think we can see some of those including 1.) Support and Resistance at work 2.) The concept of test and retest (The S&P market likes to test and retest price points) 3.) Market Profile Concepts of "Value" 4.) The concept that before a market trends in one direction, it will often probe in the opposite direction. These are concepts that I have seen many times, and that can be the basis for a traders systematic approach. Good luck Steve

Well Blowfish, I think you are talking about "perceptual bias" and yes all humans are prone to it. In regards to trading as a pursuit, perceptual bias is the reason that I have suggested (many times) that traders learn to characterize markets, and to test the patterns and tools they use. I have already done this with my charts and that is why I use a long ema, a shorter ema and only a few other tools. Notice if you will, that no one ever asks "why the 200 period EMA? or "Why the 80 period EMA?" or "How did you decide which EMA to use?".....This is one of the problems that newbies and struggling traders face....often they don't have an interest in the details and in how things work...and believe me when I say this...sooner or later you have to know how and why things work (or don't work) in order to make it in this business. Also you don't see posts from newbies or struggling traders saying "hey I backtested your approach, or "I changed it this way or that way and it tests very nice", or "I did the basic test and am now doing the forward test"...One hopes that some few traders understand and do that very important "homework", but I fear that what really happens is that they just grab it and run, using it or some part of what I am proposing without really testing or understanding what is going on. As I hope you can understand, on a public Internet billboard one can only suggest and hope for the best. Good luck to all, Steve

Just a suggestion. In my thread "Ideas for Struggling Traders", the last several posts deal with identification of trading opportunities. One of the problems with talking about trading, and posting "after-the-fact" charts, is that you really can't duplicate the experience of trading, nor can you duplicate the way it feels to see a chart and not know how to approach it in a constructive way...In these last several posts on my thread, I look at charts in the way a trader would have to....first looking at the premarket, developing a conceptual understanding of where price might go, and then waiting for price to prove itself based a few basic rules. Perhaps those of you who are having problems will see it, understand it, and "run with it".... Best Regards Steve

Here is the follow up on that premarket trade.... As you may remember we suggested in our previous post, that price was likely to head north to test the Previous Day's Value Area Low at 837.50. Check the attached chart and you can see that price did indeed move north to test that area. We annotate the first move to 836.75. Price retraced back down to test the weekly S1 at 820. Price moved back up to test the 80 period EMA at 842 (which also happens to be the previous day's POC), then retraces back down to re-test the weekly S1. In both cases the intraday lows were hit at 817.75 As you may know from previous posts, my preferred entry is on a retest of a price point where confluence exists (two or more important data points in close proximity). The retest of 817.75 (close proximity to Weekly S1) would have been a high percentage long entry. Study the chart. The lessons to be learned are as follows 1.) In order to have a chance of success, a trader has to start with a strong concept (an accurate concept that allows one to anticipate where price is likely to go on a specific time frame). 2.) Then you have to have a high percentage entry (high percentage initial success with reasonable stoploss). 3.) Finally you need to have a position management protocol that allows you to get paid quickly, and to hold long enough to catch trades that run. If you understand what we have been talking about here you should be able to identify the two other high percentage long entries. Today was quite an easy day if you approached it in a thoughtful, patient way. Bump: To preserve some continuity, here is my take on what will happen tomorrow Look at the attached chart. Notice that right after the close of RTH, price tested the 200 period ema (several times), hitting a high (so far) of 852. The framework I use is Market Profile. From that framework I can see that price closed ABOVE the previous day's Value Area High. The first priority is to watch for a retest of that price point (844.25). We have several possible scenarios from there. 1.) Price can test the Previous Day's VAH and then continue north (continuation trade) or 2.) Price can retest the Previous Day's VAH and then retrace inside the value area, chopping around (open auction inside the value area). 3.) Price can retest the VAH, fail, and retrace back down to a previous multi-day low. At this point (9:38pm PST) price has retraced back below the Previous Day's Value Area High, to a low of 841.50....just below the VAH...It seems to be consolidating (chopping around) here, unable to go further south. So far, no trade...just testing and waiting to see what happens. Remembering that we are still in a bear market, and so we give higher priority to short setups. On the longer term charts we have price making a higher high.

Thanks for the kind words, it's gratifying to hear that you found a method that works for you...I wish you the best of luck in the markets Steve Bump: Here's a nice trade I often look for after a big trend day. Generally speaking, the day after a trend day, I will monitor the overnight market, waiting for the DAX to open. If there is to be a reversal move, I am looking for the DAX to initiate it. First chart shows 30 minute candles and we can see price consolidating in the overnight Globex market. Notice how price doesn't want to go any further south. The obvious question is "Why not?"....Remember that I pointed out that price is always testing some data point. The overnight market is no different. During the overnight session, during this consolidation price has been "testing" the following price points. 1. Weekly S1 at 820 2. Previous Settlement at 815.75 3. Yesterday's Low at 814.25 Price tried to take out these areas and couldn't....AND for those who use Market Profile we have the Previous Day's Value Area Low at 837.50. From experience we know that participants will want to probe (test) that area at some point between this evening and the EOD tomorrow. So, when we see that price cannot go lower, we look for a way to get long assuming that the bias will be to go up and test that area.. The process is simple....you monitor the 30 minute chart...and you see price consolidating and you wait for it to test lower before heading north. At 4:00am (we annotate that bar on the next chart) you see price move up and you refer to the constant volume chart )729v candles. What you see should be familiar.....price tests and "takes out" the 200 ema, then comes back to retest the 200 ema. You anticipate that the 80 ema is going to advance above the 200 and you get long on the next candle or perhaps at the open of the next candle at 4:02:49. So from the time you started looking for the entry, you had approximately 2-3 minutes to make a decision and pull the trigger. As you can see, price continued up to test the daily pivot at 833+ for a nice move in excess of 10 points.

DB's comment is one that I agree with (defining a "setup"). I prefer to keep things simple (if possible). Price (for many reasons) tends to "test" other price points. Some of these price points happen to coincide with EMA's, with pivots, and with other specific price points that I identify as "value" (from Market Profile) For me, I choose a long EMA (200), a shorter EMA (80), and Pivots as the basis for my big picture decision making. I look for setups by scanning longer term charts (570 minute candles). The primary concept I look for is "test and retest", or "test and classic failure". "Test & Retest" is where price tests a specific point and takes off north (also known as a continuation trade), "Test & Failure" or "Classic Failure" is where price tests a point, and fails to take it out, or tests, takes it out briefly, and then fails (heading south). Seeing one of these setups on the longer term charts, one can look for entry using shorter term charts. I like to take time out of the equation by changing to constant volume charts at this point..This means that I can look for entry at a specific price without regard to time. The advantage of this is that I can sometimes get a favorable entry in the premarket and enjoy a bit of breathing room when the US Market opens. If the day happens to be a trend day (and I am on the right side) I can simply watch and either scale out or hold to EOD. If the day is does not trend, you may have to repeat the process several times. The benefit is that the trader learns to think conceptually (on a larger scale) and to have patience. It has worked well for a number of years. I think this is a good starting point for traders who may be having trouble seeing the markets. Best to all Steve

Trend Days Today price trended strongly from pre-market throughout the early part of the day. As sometimes happens the market did stagnate at midday, then it broke towards the end of day finishing down significantly (Dow at minus 600) Although trend days like this one are rare, because of the profit potential, it makes sense to learn how to anticipate them and how to get on board. So today I will illustrate the first of several ways to do that as follows; First Method The first chart is a 570 minute long view. Note the obvious. We are in a downtrending bear market. We can see the countertrend move up from 11/20 Then take a look a closer look at that same chart (next chart) and observe that price moves up to test the 80 period EMA. It tests, briefly takes out the EMA and then we have a "classic failure move" as price fails, the Doji (classic sign of indecision) at 19:00 hours EST, then a "waterfall" move down starting in the overnight market (Midnight EST). The test, failure and "waterfall" move in the premarket are strong indicators of a possible trend day. If this is a trend day, how do we get on board? Scan to the left and note the wide range bar (WRB) from 11/26. Typically an entry just at or slighly beneath the midpoint of that bar is a good fail safe entry for shorts. I have noted the entry point (midpoint of that bar) at 862.75. For the next step, lets check out a 5 minute chart....(see next chart) and see where 862.75 falls.....Notice that price point is hit at 9:35 EST and coincidentally it is also a doji-like candle (not a true doji, but similar). That candle opens at 862.75 and short entry there would require the trader to take heat up to a high of 864.25 (1.5pts drawdown). The rest is history.

1.) In terms of actual trading, newbies lack the diverse background & experience needed to properly evaluate the environment around them. If a new trader were to sit next to me watching a chart develop, one would see just how significant that gap is.....as a professional I am going to recognize opportunity quickly while a newbie, even a talented one, would probably be too slow to see it, and too indecisive to pull the trigger. 2.) Clearly newbies are vulnerable to vendors selling a variety of products and services of questionable value. Again the lack of experience and background mean that newbies are vulnerable to being pulled off the "narrow path". 3.) Newbies underestimate the importance of risk management. 4.) Newbies underestimate the importance of waiting patiently for the right setup. 5.) Newbies underestimate the importance of documentation and learning from their failures. 6.) Newbies underestimate the importance of continued learning. Professionals often have a variety of skills including the ability to program (pick any computer language), to backtest or characterize markets, to use a spreadsheet, to understand and utilize basic descriptive statistics. Skilled traders are always learning about the markets, how they work, new rules, new developments...they continue to learn and improve their skill sets and most importantly they do so because they enjoy it....Newbies often have significant gaps in their understanding of how markets actually work. 7.) Finally and perhaps most importantly, newbies underestimate the importance of understanding human behavior. It is after all, human beings who move markets...understanding how other participants think and view the markets is critical to a trader's long term success. I hope this helps. Steve

Couple of items of business here First, an update on my Citi stock purchase. Current price about $8.30+ and holding. I would expect a pullback on Monday. For those who took notice on the day I purchased, this purely a speculative trade made with money I can afford to lose. The way I was trained, when you have a spec trade on and you see a profit of 100%, it is termed a "windfall" and I was trained to "never let windfall profits evaporate" (exact quote from my mentor). So on Monday I will be taking some off the table. The Importance of Visualization Visualizing the market is important to newbies. Generally speaking newbies are poor visualizers, so what I suggest is to look at a variety of long term charts to establish a view of the market that works for you...So lets begin... We are going to start with a chart showing 570 minute candles. This view shows us the obvious, clearly we have a bear market, AND looking at the spread (vertical distance) between the 200ema and the 80ema, I would say the trend is strong. By itself, this chart doesn't (in my opinion) give you enough data to make a high percentage trade. So lets add something to this chart to help us out..... Now in the next view we put the monthly pivots in place. Boom what you see is "context" and for the newbies this context is how you find something to lean on in this market and it helps you make better decisions. Notice the way price "tested" the monthly pivot in the first week, closing above the pivot, then retracing. This is what I call a classic (swing) failure setup. Not only did price "fail" to take out the monthly pivot, it also failed to take out the 80 period EMA. When you see that "confluence" of pivot and EMA, in my experience you have a high percentage setup with a natural profit target at monthly S1. The swing trade here if you saw it, was a short entry on the failure move back below the Monthly Pivot (at 988). With current volatility you would use a stop of 13-15 points and a profit target at 803.50. So the risk-reward equation for this trade would be risk $700-800/contract to make $9500/contract. In a bear market with multiple signals lining up this is (in my opinion) an example of a favorable risk-reward scenario. Bump: Visualization Con't An interesting thing about time frame, is that going from one time frame to another, can give you a completely different view of the market. Check this out.... In the previous chart (570 minute candles) we clearly saw the current bear market trend, and we noted the strength of the trend as shown by the vertical distance between the 80ema and 200ema. In this next chart we have a 81 minute candles (more on why we choose "81" later)....and voila we see an entirely different view of the market. Direct your attention to the multiple tests and retests of the 80 period EMA. This chart alerts you to countertrend setups BUT again by itself (in my opinion) it doesn't give enough info to compel me to consider a countertrend setup. So in the next chart we add Weekly Pivots and again we see the confluence of two data points (the 80 period EMA and the Weekly Pivot). As price takes out and retests, you can see a nice long entry setup at 810 with a natural profit target of 869.50. With current volatility a close below 804.50 would serve as a stoploss. So the risk-reward equation for this countertrend trade is risk $300/contract to make $2950/contract. Again a favorable risk-reward ratio, even for a countertrend trade. Bump: Here are a couple more examples of longer term charts. The first is a 60 minute chart and in this one you can see that price is now testing the 200 period EMA. Again (in my opinion) there isn't sufficient data to interest me in a trade. So we put in Daily Pivots (at 60 minutes or less we use daily pivots) and again we see a possible context for a long trade, with a test of two data points at the Daily S1 and 80 period EMA. This countertrend setup is Long entry at 833.25 with a stop loss of 2 points, multiple profit targets at 854 and 875. The risk-reward equation for this setup is risk $100 to make $1050 (if exiting at 854) and risk $100 to make $2100 (if exiting at 875). In both cases a favorable risk-reward. Bump: In our previous post we looked at swing trades using charts with 570 minute candles, 81 minute candles and 60 minute candles. The 60 minute chart showed an example of a swing trade that one could put on in the pre-market. In this post we carry things a step further, working with a 45 minute chart. This time we can see another nice pre-market setup. As you look at this one, note the following; First, notice the 80 period EMA moves from below the 200 to above it, then we see price test the 200 period EMA. For newbies, these are two important elements that signal a possible profitable trade. The test happens at 8:15am EST. With no other defining element, we would probably sete the stoploss just under the local low at 829.50. In this next chart we add Daily Pivots, and immediately we see that S1 lines up with the 200 period EMA and so a trader looking for a setup would have three elements together at the setup point. Once again you have confluence of several (three) elements lining up. When you add the Daily Pivots, the added benefit if that you define possible profit targets on the daily time frame. If we assume a long entry at 834.50 the risk-reward equation is as follows....1.) Risk $250/contract to make $950/contract (assuming exit at 853.50), 2.) Risk $250/contract to make $1950/contract (If exiting at R1) and finally 3.) Risk $250/contract to make $3000 (assuming exit at 894.75). As you can see from the chart, a disciplined trader holding to EOD could have taken in a profit anyplace in that range.

Much of what produces success trading has to do with hard work of preparation and attitude (what we call discipline). If you haven't done a good job of researching, and developing a detailed trading plan, then you are "in the weeds"....that is to say, you will not be able to last through the daily stresses of trading as a profession. If you haven't got sufficient "experience" or you haven't got an idea of what to expect when executing your plan, then again you are "in the weeds"...the result is that you are always dealing with uncertainty....and this eventually will beat you down. Most newbies don't have a detailed plan to follow, and because of that, they start to second guess when they lose. In contrast, skilled professionals have a detailed plan...They know what to expect in terms of wins and losses. They also know what kind of experience they will have on a daily basis. Finally they know how to deal psychologically with both success and failure. I hope you will take the time to think about this and apply it to your situation. Good luck Steve

I see the old adage of the majority losing in this profession and find it easy to understand. Few find their way, fewer still are willing to do the work to maintain whatever advantage they started with. Most do not learn to manage money (risk) adequately, therefore they eventually (quickly or slowly) lose it all. Also notable to me, are the many threads where newbies are looking for technical indicators. I believe the majority of professionals use moving averages, pivots and volume. Knowing that these are primarily visualization tools, they also use previous daily, weekly and monthly price points (highs, lows, settlements) as areas where price might look to "test". The concept of "tests" remains the most important single concept from which to find a tradeable approach, and of course when Market Profile was introduced, many found that a viable basis for structuring a trading plan. Those of us who lasted long enough developed what used to be called a "feel" for the market. This simply meant that after a long enough exposure to the work, you knew what price was likely to do, because you "knew" what your fellow professionals where looking at, and what they were thinking. In other words you learned to "read" or anticipate human behavior. Trading as a profession is an obstacle course. One either learns to overcome the obstacles or one falls by the wayside.

For you struggling intraday traders, I suggest a couple of things 1. Get familiar with your newspaper or your Internet sources of news. Look for articles of interest relating to the economy, to energy usage, get familiar with the names of the new government appointees and check for quotes from these folks. Remember that this is an event driven market, and a very emotional market. 2. If you are having trouble trade small or stand aside until you get some visibility to your approach. The old saying is "Don't throw good money after bad"....If you don't have an edge....if you're not recognizing opportunities, if you are late on your entries, or late to ring the register, if you see profits evaporate because you are unsure of your decisions, Stand Aside. 3. The most reliable principles in my experience are A.) confluence...when you see several "signals" happening at the same price point or very near to one another.....B.) Support & Resistance....what I mean is when you see price test a price and bounce, then test again....if that is part of your program...don't hesitate.....select a position size that allows you to take your signals fearlessly....and finally.....scale out....and manage the trade with discipline.....always make sure to get a pay day as soon as possible in the session.....the sooner you get favorable trade position, the longer you can hold and the more you will profit....(its that "early bird" thing).... Keep it simple in this very volatile market....and you will get by....if on the other hand you get greedy or fearful and you don't control your emotions...it can be over in a few short minutes. Wishing everyone the best of luck Steve

Hey Ben That is the 64 billion dollar question. We are in big mess, a once in a lifetime situation that is going to need big intervention by our new administration. Can they pull it off? We better hope so...cause if not, boy are we are headed south in a big way....I believe that when Mr. Obama gets in office we will see a Public Works program like no other since Roosevelt. Clearly we are also going to see the Treasury intervening to save big industry and continue to add liquidity to the banking system. At the moment the credit markets are still locked up and for that reason alone we need to see our government get off its ass and tell those damn banker fat cats to start lending again. Check the Libor spread over the past couple of months and you will see what I am saying. At one point it was above 500 basis points (absolutely incredible). Now it is back down to about 200+ basis points, but it still needs to come back down to earth. Those of us who use to trade the old TED SPREAD know what I am talking about....I like our chances but I believe the next couple of years are going to be quite a ride.... Best Regards, Steve

Hello Minoo Always good to hear from you...While I do look carefully at charts I think that in this instance, because of the unusual problems we face, it may be more effective to monitor the actions of both the current president and his administration (Mr. Paulson and Mr. Bernanke) and more importantly, the new incoming president elect (Mr. Obama and his new appointees Mr. Geither, Ms. Romer, and Mr. Goolsbee). I am suggesting that by watching, reading and thinking about what these people say in interviews past, present and future you could obtain an edge over folks who simply look at technical indicators. I have taken this approach myself and it is one of the primary reasons I decided to buy Citi (and other companies) recently. So far it has worked out well for me.

by the way Minoo, the afterhours spread on C (Citigroup) is 3.05 x 4+ and today (Sunday) we know that the treasury is probably going to bail Citigroup out, probably by limiting the liability they will have for the bad paper they own. My opinion (as you might guess from my previous post) is that Paulson & Bernanke will try to keep Citi out of BK (I think it is likely that they are in technical BK now). My bet is that Citi will bid up from here tomorrow. We will see. Either way I am holding that position to its conclusion. It is the most speculative of my purchases during this last month. The way I figure it I have earned the right to take a little extra risk every so often..If it works as I expect, it will be a sort of Christmas present to myself. Best of luck to you Steve

I think the subject of "due diligence" is an important one to introduce to this thread. While one contemplates how to extract money from students (as is being done here), it is also important for students to have a way to make a realistic decision as to who to spend their time with. I think the best way for a student to execute a due diligence process, is to ask and receive a reference (at least one or two) so that they can talk to people who have acheived success based on the teaching of a so called successful trader. The interview process should include questions as follows 1. How long did it take before you started to make consistent money 2. What kind of drawdowns did you experience during the learning process 3. What if any additional software did you have to buy, what was the cost. 4. Did your screen setup become simpler or more complex 5. Did your pre-market process become simpler or more complex 6. How much time did your mentor spend with you on a daily and weekly basis 7. Did you spend time together via Internet connection, or in person 8. Were you able to relate to your mentor easily, or did it require some adjustment on your part 9. Were your mentor's instructions easily understood or did you struggle to "get it" 10. Describe your worst day as a student 11. Describe your best day as a student 12. When did you decide to leave that relationship and why 13. Do you continue to have success trading 14. Is trading your sole source of income 15. Knowing what you know now, would you enter into this relationship again "Performance" is a two way street folks, sure the trader's time is important, but I think the student's time is no less important to him or her. I think this comment brings a little more balance to the thread. Good luck everyone. Steve

By the way, Trader B does have a real problem with his backtest results. Because the data distribution is non-normal, he may see initial results that do not accurately reflect future fluctuations in volatility. The biggest problem in my opinion, is how do we deal with multi-sigma moves. What I learned about this, is that multi-sigma moves occur much more frequently than parametric statistics would suggest. It is precisely because we don't at present have a way to anticipate multi-sigma moves, that I adopted a way to maintain a presence in the markets (just in case). Again I realize that I have kind of run through your question. I hope you see that I am trying to in effect "cut the gordian knot" by addressing what I believe to be the primary concern for traders (capturing big volatility/big profit potential days). The bottom line is big volatility offers potential for both big profit and big loss. One way to manage it is to obtain an early favorable position, get some breathing room right away (book some profits) and then hold on as long as possible. So far I have never found a better way to handle it. Regards Steve