steve46

I decided to set my comment about this session aside in a separate post First, some may view my comment as a political statement. I assure you it is not. I am retired and don't have an axe to grind. No need of anyones patronage. Don't need money....nothing to complain about. So I say this without any bias. I think one could have anticipated the news (house fails to pass the bailout).....and the reason why is that dems are interested in framing this election as a Obama coming to the rescue of a failing economy, simple....Those republicans who want to preserve their political lives, have little option but to distance themselves from a bill that will end up costing all of us at least 700 billion dollars....They don't want to be seen bailing out Wall Street fat cats....so they got themselves on the record saying it is a bad idea and when the markets opened you could see it coming (I hope some of you could anyway)... I guess what I am really saying is, it is a good idea to take a moment to think about what the possible bias might be for a market on open....you look at the news of the day, you look at the people who control sentiment (newsmakers) and ask yourself, what do these folks want the rest of us to "believe"....Look at how the news media frames events and the timing of the news releases (before and after market hours, during weekends, etc) ask yourself why they do this? Its not that hard folks to get a heads up as to what is coming down the road. I hope this helps a little bit Steve

Interesting day to say the least. I want to say a few things about this session and post a couple of charts The first chart is a standard 5 min candle chart of the open. You can see that market opened and we had an immediate waterfall. Unless you were trading a breakout approach, newbies may have gotten left at the station here. The next chart shows the same action using a 1 min chart and again not much different. Unless you had a heads up that this was going to be a big day, you may have ended up watching the move from the sidelines. In this case drawing a trendline got you a possible entries around 9:45am EST and 10:00am EST and the last chart, using 800v candles shows a nice local high to use for the origin of your trendline, notice the open and then the Anchor point, and then price dips below the 200ema and retests for a clean signal at 9:33am EST (entry at 1195.50 to 1195.75). Clearly if you anticipate a strong move, the 800v chart provides a little more definition, and may give you an entry that easier to see.

Minoo I appreciate your kind words. I am glad you find some value in the ideas. I want to be clear about what I am doing here. I am not offering a "system". What I am doing is suggesting "ideas" or concepts that any new or struggling trader can evaluate for themselves. I hope that one or two of these ideas will prove valuable and can be incorporated into a system approach. Generally speaking, most retail traders fail to understand that this is a very competitive business. Your competitors are some of the most intelligent folks on the planet. For this and many reasons, I suggest that ALL traders develop a comprehensive business plan. If a trader is truly serious about obtaining success in this field, it is imperative that you do so. That plan should include every aspect of your business including equipment requirements, markets traded, hours of operation, brokerage, execution platform, setups traded, backtests showing expected profit and loss, risk management plan, emergency plan, minimum account size, position sizing, EVERYTHING that your business will do every day....should be a part of this plan.... Every skilled (read profitable) professional I know has done this and follows that plan to the letter. They do so, because it is the PROCESS of drawing up the plan that instills confidence that you need to execute without hesitation. They do so, because they KNOW, that success depends on developing the business plan and when problems occur, they refer back to that plan and they adapt and change it until they again have a profitable business plan... This is some of the best advice that I can give, and I realize that few will take it seriously...but at least I tried. Good luck everyone. Steve

In response to question #1 Well, we are getting far afield from what a new or struggling trader can use. What I mean to say is this....From the time you choose your point of origin (origin) to the time you get ready to trade you have only a few minutes. If you are new to this game, you have to restrict what you look at or you will just get confused...I do look at the DOM to see where the bids are, but I DO NOT take it seriously because those bids can be withdrawn right up to the time price hits them. If you have squawk service, what you are listening for is when Ben says he sees a "top ten" local hitting the bid or that he sees "paper" coming into the pit. I look for "paper" and I look for additional color to tell me how important his observation is. There is a lot more to this, but it will not help you much, for example I know many of the locals, and so I have an idea of who likes to sell it down and who likes to mark it up. I also know who has been on a winning streak and who is losing and likely to be weak to the deck. I hope you are getting what I am saying. It is unlikely that you can get enough background to help you with some of this....I hope some of it is of help. Ben is pretty good but his replacement is not as accurate and so my comment relate only to what Ben says. Question #2 Remember that this market is unusual. Because of recent developments the price action is unusual. I would not normally take some of these trades, but again I am looking a different market than you are...and I have access to different information. Whatever else I say about this, I have to say that price action rules....in the end, you can see what actually happened. Price bottomed around a specific place and moved up decisively from there. As far as the trendline goes, I look for 2 touches, and I am usually on long or short at the second one. Question #3 I look for 10 point moves. I know that longer term participants (institutions and size) and looking for the same. If you observe carefully you will see that many of the moves test prices points in 10 point "chunks". Question #4 I am sorry to say I am not willing to show you my Market Profile chart. I do however advise you to use one of your own development. I always refer to mine before the open. I look at the position of the value area low and high, as well as the previous weekly low and high. Also I take careful note of the "singles" and I watch the big contract to see if and when they fill in. Many of my signals come from the confluence of Market Profile numbers and others such as pivots, EMA's and singles. Finally I like to watch how price acts once the initial balance is completed. I am afraid that is about all I can say about that subject. I hope it helps a little bit.

Sure, in answer to your first question "How do I derive my bias?" First please remember that I am not a new or struggling trader, so I am going to use resources you may not have access to. Those resources include people you don't know, my ability to read the tape, my evaluation of recent news, etc. I say this because it all has impact on my decision. So... 1.) I look at a Market Profile worksheet that I developed. My worksheet indicated that I might find a "local low" in the area from 1185.50 to 1191. 2.) I talk to colleagues in the market who suggested that size players might be coming in to lift bids on the open. I correlate this with the recent news about restrictions on shorting and other issues that I am aware of. 3.) On my chart you see a candle at 8:35am EST. That candle hit a low of 1184.75 and then buying came in. That low corresponds to my idea that price might be moving up from that point. Also that price point is an important one on my Market Profile chart (it is a weekly number that often signals turning point). 4.) The wide range candle at 9:00am EST indicated significant pre-market buying again confirming my idea that some participants are interested in obtaining early position long 5.) On my squawk, I can hear the participants coming in to lift bids during the open process, confirming my bias is correct. 6.) I read the tape 7.) I pick a point after the open and draw a trendline. The "origin" is my estimated local low, the "anchor" point is where I believe a limit might be located. Sometimes I am right, sometimes wrong. If for example you would have chosen the low of 8:39am EST, you would have a similar slope to your trendline. After I draw that trendline I am looking for evidence that price is respecting that line. For me, "evidence" is two hits. That second hit would be my signal to get on board. I hope this helps a little. Steve

I don't happen to know Mr. Paul.. But I have a source of my own that I like to quote periodically. From the "Encyclopedia of Trading Strategies" by Katz & McCormick page 308 ".....but the results support the contention that a really good exit strategy is, more than anything else, the key to successful trading......" and here is another quote from the same page... ".....an experienced trader, skilled in money management, can make a profit even with a bad system, while a novice trader, unskilled in money management, can lose everything, trading a great system ("system" in this context usually referring to an entry model)." So from my point of view what has been said is basically true. The method by itself isn't as important as the trader's ability to execute in a disciplined way, to use good risk management rules, and to exit correctly. When I say exit correctly, what I am talking about is holding a trade and scaling out over an extended period of time, instead of cashing in for a couple of ticks or a couple of points as retail traders often do..... I've already commented about this a while back... Steve

Yes I identify pivots and trendlines as problematic. I do so because I did my own research on them and found that they offer limited utility. I'm not the only person to come to this conclusion. A gentleman named Ben Warwick also did some research on signals and came to a similar conclusion. As I recall he wrote a book whose title is "Event Trading"...For anyone interested in that approach (trading earnings, economic reports, bond auctions, etc.) Now to go further with my comment, even though pivots (particularly daily pivots) and trendlines are "problematic" they do work pretty well IF you use them early in the session. That is why I suggest struggling traders take a look and see if they can make it work for them ON THE OPEN. There's a lot more I can say about the subject, so I started there. I am glad to entertain comments of all kinds. Critical comments are just as welcome as any..have at it... Good luck to all Steve

I think its amazing that people continue to be so gullible. But then that is human nature isn't it? If we can get back to the subject of helping struggling traders, I would suggest that simplicity is the key. Clearly if you give a set of simple tools to a woodworking expert, he or she will usually produce a beautiful product, conversely if you give the same tools to a person with few skills, they are likely to produce a pile of rubble. I did the basic research long ago. The only "indicators" that seem to add value to this problem (how to trade) are moving averages, selected pivots and trendlines and frankly, pivots & trendlines are problematic (because they are static in nature and lose effectiveness after a short time). This is my good deed for the week (done early as early as usual). Some will agree, some will not, and as usual the winners will be those who take a moment to think before pounding on the keyboard. Good luck folks Steve

Here is another chart showing how a trader might handle the open First I think it is helpful to have a concept or bias in mind. One doesn't have to do this, but it may help to think in terms of the market's likely trend. Second, one needs to understand that this is just one technique (one of many) that a trader might use to orient to the market open and provide a way to obtain favorable trade position. The reason this is important is because in my view, the earlier you get on the right side of the market, the bigger your potential profit (especially if you scale out like I do). As mentioned before, the first challenge is to find a local high or low. Obviously this is a starting place or "origin" for your trend line. Then you watch the open and after waiting approximately 5 minutes you choose a second point to "anchor" your trendline. Once you do this you are committed to a course of action and that committment is to take a position long or short based on tests and/or re-tests of that trendline. Attached is today's chart (1 minute candles).

Is your use of Skew and VWAP the only solution (that you know of) to having to deal with unstable distributions?

Jerry, what would your response be to the suggestion that any distribution other than normal or gaussian is ultimately unstable? Referring only to stock market price data of course.

I understand entirely. I was trained in a specific way. Its possible that we don't have enough in common to communicate. Fortunately there are plenty of other points of view for you to evaluate. By the way, I should clear something up....I don't think of retail traders as inherently "dumb"...Clearly however, retail traders are prone to making dumb decisions when it comes to trading. I think the same is true of the professionals who allowed a money market fund, a short term fund at that, to own commercial paper from Lehman, that was really incredibly dumb (and irresponsible)...Clearly retail traders aren't the only people making dumb decisions these days. Good luck

I didn't invent these euphemisms, but I can tell you that time after time, they are proved correct. As an example I often fade signals at the daily pivot, and I do so because time after time, retail traders prove to be "weak hands" that get flushed out of positions easily. Even when retail traders use stops, they are positioned so obviously that it is easy for professionals to trigger them. For retail traders, I suggest that instead of taking it personally, they try to determine how professionals approach the markets, and try to trade more like they do.... Good luck to you

No need to apologize James. "Broke the dollar" means that the institutional money market fund (that I referred to) did not maintain sufficient funds to respond to demands for redemption.

Sure, first I am not interested in having you change anything. As regards my comments I stated what I know, and that is that institutional markets out of the immediate view of the public have experienced turmoil. What I can say in a public forum is as follows. Institutional market funds (not open to the general public) were caught holding commercial paper whose value was questionable. That paper originated from Lehman Bros and others and to those of us in this business it is incredible that a short term fund manager would take that kind of risk. But they did, and it backfired on them causing that institutional fund to experience a breakdown. In our business, this is called "breaking the dollar" meaning the net assets of the money market fund were no longer dollar good, but in fact were worth slightly less than a dollar. The repercussions of this were noticed immediately since it is extremely unusual for this to happen (I can't remember the last occurrence). The fund closed operation and for a time commercial entities with assets in the fund could not redeem...Although there is more to it, government regulators immediately noticed this and acted to avert what used to be called a "crisis of confidence" that would have spread to the larger market. What you may notice starting on Monday, is that part of the program the Treasury is working on will in essence offer some guarantee to cover losses that could affect (public) money market funds. In terms of politics, this is an election year and if the present administration were to let the problem run its course without intervening, it would have given the election to the dems.... I will leave it at that. Good luck to you.

Well, this is my profession, so it is unlikely that I would make a mistake of that kind. If you re-read, you may notice that I talk about "retail daytraders". I try to be very specific about who "they" are. Finally your conception of what is happening is likely to be incomplete. The events that have shaped this last week in the financial markets have happened largely out of the public's sight, and are related to the problems that institutions have had managing risk associated with holding of commercial paper originating from Lehman (and others). I can talk more about it if there is interest. OR not...

Sorry, that is just incorrect. Retail daytraders aren't the problem that regulators are concerned with. Basically (assuming you are a daytrader) you don't have enough capital individually or as a group to make much difference. The concern is for commericial entities (hedge funds for example) that have access to significant leverage and move size in the markets on a daily basis. Simply put, the change in rules is meant to give the markets a break from the constant short pressure put on the financial sector by these groups. During that time, the government will try to fix the problems and keep the economy out of recession. Remember that we have an election in just a few weeks. Much of this is simple common sense. One assumes that a professional participant could think this through and determine how and when to put on a position that would profit while managing risk appropriately. The same cannot be said for the general public (or daytraders for that matter). That is why in the industry, daytraders and the public at large are known as "weak hands" and "dumb money"....

First of all, my apologies. The preceding post contains an error describing how to create a trendline. I will correct it here as follows First as mentioned before, I like to use this method to obtain early entry off the open. The way I do this is to look for what I call a "local high or low" occurring before the open. Although it is usually pretty clear what constitutes a local high or low, I use common sense (AKA discretion). Next, I choose a bar just prior to the open to serve as the starting point for my trendline. The market opens and I wait at least 5 minutes to choose a second bar. I draw a trendline connecting the two points and trade tests and retests of that line. As can be seen in the example, this method works best if the open lies between the point of origin and the 2nd bar or candle. I have attached today's 1 minute chart showing a successful trade off the open using a test of that line as my entry signal.

Absent further dialogue on the subject I want to proceed with my comments about using trendlines. I have developed a way to do this that works pretty well. What you do is look for what I call a "local high or low" prior to the open. The way you find the local high or low is to simply eyeball a chart (on whatever time scale you wish). It should be clear where the previous local high or low is prior to the open. Once the market opens wait a minimum of 5 minutes and draw a trendline that connects at least two (2) data points. One of those points should be the open. I prefer to do this on a chart with either 1 min or 3 min candles. Take a look at the attached chart. We see a chart with 3 minute candles. The local low is clear. The trendline gets drawn and 9 minutes later price tests the trendline. Possible long entries include that "test" or the open of the next candle. The stoploss is 2 points. On this trade the low of the "test" candle is 1213. So we would have taken 1.5 pts heat on the trade. As you can see, the trade takes off and gives some breathing room right away as good trades should. If we assume the trader puts on 12 units, then the profit net of commission is about $2600 on the basic 10 pt win. If we assume the trader leaves 2 units to run, and he holds to the next *10 point target, then you have a profit of about $3600. The risk/reward ratio for this trade is about 3:1 (we assume that the trade would be stopped out for a loss of about $1260) *In general I am always thinking in terms of 10 pts at a time. If I get a 10 point win, I am looking ahead to the next 10 points. The protocol for this (scaling out, risk management, etc) is found on page 5 of this thread.

Yes, I understand your view....it is common for retail traders to think in these terms..(because you rarely "see" a big move it is unrealistic to think I can catch one)....So I direct you back through this thread to the place where I suggest that you trade a minimum number of units. Why? Precisely so that when volatility changes and a move does happen, you have those extra cars in place. Of course I can't make you hold the position out to the last point, and no one knows where that "last point" is, but I can demonstrate how it works, and I can assure you that professionals do in fact catch these moves....and it is because they plan for them...... As I have said in previous posts, you have to find a way to catch the occasional big move or you won't make serious money.... Once again and for the record. Don't trade the ES contract with small chips. I suggest putting on enough units to scale out at 2 (or 1.5 in certain circumstances) 3, 5, 7, 10 and leaving at least one unit in case the trade runs. I would suggest trading a minimum of 10-12 units, or stand aside and practice until you have a suitable account size. Further I am saying that if you can't get to this point, chances are quite good you will never beat expenses. I am suggesting that this is true for the ES contract. I make no comment about other markets.

Got back in just in time to see the news. "Dow drops 500 points"....ooooh.... Well there is just too much opportunity in these volatile markets. I should have stayed on instead of going out, but there's always tomorrow. Here is a chart showing a nice move down from the confluence of two data items, the first is the daily S2 at 1226, the second is the 200 period EMA. As they cross, price re-tests, and fails and boom the first stop down is 1213.50. The next stop on this tour is 1201.25 for a nice profit of approximately 25 ES points, then if you left some units in to run, it ran right on down to 1190 A total of 36 ES points..... Nice day..

Well, I am done for the day. The time on the west coast is 8:26am PST As can be seen on the chart, the market opened and retail investors took the bait yet again, buying the market on reassurances that the government would not allow these major institutions to fail. Of course we looked for places to get short in the pre-market, but did not see a low risk opportunity, so we waited for the "sure bet" at the open...and right off the opening bell we saw several nice low risk entry points, the easiest of them offered favorable position on a retest of support (1213.50). Entry at 1214, holding to this point in time resulted in a nice profit (we exited at 08:23:17 PST) of 18 ES points. The next "idea" for struggling and newbie traders is use of the trend line. As you can see from our chart, price respected the trend line a number of times along the way to our ultimate destination. Judicious use of trend lines helps the trader to visualize price, to see possible entries and exits, and to stay in the trade longer. The "secret" is when to establish the line and how to draw it. We will talk about that subject more in following posts. Good luck to all. Steve

and here we are a little after midnight (PST). A lot of coincidences tonight in the charts. First we have the daily and weekly pivots exactly the same (see the chart). Then we have price testing the weekly low, which happens to be Friday's low...at 1210.75

Here we go again folks News this afternoon includes Bank of America's expected bid (expected by this evening). Here is the chart showing the gap down Re-read the previous post and ask yourself "what will the market do tomorrow?" Will the retail public take the bait yet again?...Will the market rally tomorrow (only to see institutions take it down the next day). News also includes an article about a 50 billion dollar fund that will be use to help troubled US institutions. Will institutions and size players try to steal this one in the overnight market this evening....Look at where we stand right now (4:40 PST/7:30 EST)

Well, first I want to point out the obvious, that traders do not make trade decisions at the "end of each bar" therefore using that metric provides a misleading context for evaluating a chart. Second, moving from one context to another (from one time frame to another) is in fact very helpful to traders who have problems holding a position. I am glad to show examples in my own thread. In order to make sense of your proposal Suri, one has to substitute a tradeable system and see how many "tradeable" opportunities they find in each. Once that is done, they then have to evaluate the liklihood that they will take those signals. While I agree in principle with your criticism of how traders decide to adopt a specific type of chart, I do think that one has to acknowledge that some chart types are simply easier to read. There is a psychological aspect to this that I can elaborate on, and perhaps move the discussion forward (if you don't mind)... I will stop here, as you indicate that you want reponses by pm, but frankly that doesn't help readers to evaluate their options. I will talk more about those options in my own thread (unless you decide to permit further comment here). Thanks Steve