Humbled Trading Log

[humbled 10]

I need to learn how to become consistent on a weekly or monthly basis. That is the focus of this journal. I have traded with some success and some failures. This journal is not about the roller coaster version of trading I have done in the past. This is about extracting a return out of the market that is reliable over time.

[humbled 10]

For Monday 6/10/2013 on SPX

Key Levels

 

Resistance = 1646 prior swing high - Above that is a cluster from 1655 to 1662

 

Support = 1633 minor intraday swing from Friday with a gap fill and prior swing low at 1622 which would lead to an inverse head and shoulder right shoulder pattern if held.

[humbled 10]

1 hour chart for 6/10/13 with support and resistance levels marked.

[humbled 10]

We are at my first resistance level I posted this morning. We rejected off this level and now are testing it with a potential lower high. I am afraid to short against the trend but would love some advice. My notes are on the chart for a potential trade that I will not take.

[humbled 10]

This screenshot shows a small 5 minute potential short but with a market consolidating at the highs I will just watch.

[humbled 10]

Just what I see. Nothing traded today.

[humbled 10]

A potential setup for tomorrow could trigger. Entry, Stop and Target areas are marked on the chart.

[thalestrader 14]

Hi there Humbled (love the name),

 

I presume your intention is to day trade. In addition to the levels you have annotated, I would suggest that you maintain an awareness of where price is in relation to the the prior day's high, low, and midpoint when you go about your work. I do not mean to imply that you simply buy or sell at these levels; rather, you want to watch what price does once in reaches those levels.

 

Consider that the market put in two range expansion days and managed to eke out another higher high this morning. The subsequent price action - pullback and then ranging - is quite common. You will see this pattern repeated many times.

 

Tomorrow I would be watching to see what happens if/when price tests today's high/low (given today's contracting range, I'm inclined to disregard the midpoint 0 the most important midpoint right now will be the midpoint between today's high and last Thursday's low. (For more on the importance of these levels, I strongly recommned you spend some time studying DbPhoenix's work here at TL in the Wyckoff forum - it is a truly invaluable resource).

 

Best Wishes,

 

Thales

[humbled 10]

Thank you very much for the review. I am reading a few other books, but I do own the stuff I bought before from DbPhoenix. I will review those again after I am caught up. I have added the "Prior High" and "Prior Lows" to my work as well as the "Previous Mid". Today I used a Fib to show the 50% from the high to low which matches an area where I see more reasons to watch.

 

I am watching the key level of 1623 to 1625 on the SPX cash.

[humbled 10]

I am sorry for the delay and TL is holding my posts back anyway so I will have to show this trade in hindsight. I did take this position.

 

Green = Long = 1630

 

Red = Stop 1625

 

Yellow = 1st target 1638 = 2nd Target 1646 approx has not been hit.

 

I am holding one additional long for the resistance on the hourly chart which is the prior day high and also a key swing high from my prior charts.

[humbled 10]

The first target was profitable the 2nd was stopped out at my cost.

 

+4 Avg ES points using the SPX for entry but trading the Emini.

[humbled 10]

We are still above the support area I posted this morning near 1623 to 1625. We now made a higher low. I have entered on the Green line with a stop at the Red swing low. Here is an image of the trade.

[humbled 10]

I was stopped quickly on this second long trade today.

[humbled 10]

I leave today net positive a few dollars. Not sure if that second trade should have been taken. The first had all the planning behind it and was a good execution. The second trade I am not so sure. Maybe it was and as a losing trade I automatically question it.

[thalestrader 14]

I was stopped quickly on this second long trade today.

 

I like what you did with the first entry, the second entry was tricky. As you get more experience, you will probably find that so long as your entries are in response to price action responding to S/R levels, you will "see" the 123 earlier. What I mean by this is that a more favorable risk/reward will be obtained by buying (or selling) the first L-H-HL (H-L-LH) as viewed on, for example, a one minute or even a tick chart, or the DOM itself.

 

For example, you identified an important potentialsupport area prior to the open. Once the market traded down into that support area, you would be advised to "drill down" beneath the 5 or 10 or 15 minute timeframe and look at what is really going on in "real time."

 

Look at the one minute chart:

 

 

You had the support level properly identified. The market traded right down to it, and look and see if you do not see a 123 right there at that support level. Also, you must not only note the prior day's high and low, but you must be aware of when price is trading at those levels, and wathcing what it does once it gets there. The rally failed at yesterday's low. Yesterday's support is now today's resistence. At that point price offered a short. Had price broke above yesterday's low, then you would look for a 123 as a continuation pattern, e.g. price rallies a bit above yesterday's low, pullas back to test that low as support once more, and you buy as it resumes the rally. Having failed to break and hold above yesterday's low, it would now be permissable to look for a 123 short.

 

I think, overall, you should be pleased by what you accomplished today.

 

Best Wishes,

 

Thales

[humbled 10]

Thales,

 

Thank you for your post. I will "drill down" closer when I get to these levels. The risk/reward was clearly better on your chart. Lesson learned.

 

In hindsight I now see my mistake at the "Prior Low". I took my first target but held on for the second target even though I now see the signal to short. When I reach a key level I must be flexible to listen to what the reaction tells me.

 

 

Here is what I was thinking:

When we hit that "Prior Low" as resistance I thought............. Maybe we will make a pullback but the trend is up on my larger charts and the big test level was a good reaction earlier. I was rigid in my thinking that the direction may have been decided already.

 

Once again thank you for the help. I am taking notes in my journal to make these adjustments.

[humbled 10]

For 6/12/2013 I have distilled my key levels down to this one chart.

 

 

The red lines are the prior day's highs and the green are the prior day lows along with key levels in magenta.

 

The support remains in the area of 1623.

Resistance levels are 1639-1640 which is both the high of yesterday and Monday's low.

If this level is support I see a move to the swing high or Moday's high around. 1646-1647.

 

If these levels were busted and support was found I would consider a move to the cluster from 1658 to 1661.

[humbled 10]

I just noticed as this SPX cash market drops. I selected one level for support and 3 levels of resistance. I clearly had a long bias to some degree when I posted those levels.

 

An error in my thinking pre-market

[humbled 10]

This chart explains my experience today. Two losing trades. One I still question the decision on and the 2nd which was a big area of confusion for me. Long or Short? I must have asked myself that question 4 times while looking at that spot in the 2nd yellow box.

 

I questioned " Was this a shakeout just under support and it will go back up or do I short to the next support?"

 

 

I decided to short but was stopped out by a few ticks before it proceeded to new lows.

[thalestrader 14]

This chart explains my experience today. Two losing trades. One I still question the decision on and the 2nd which was a big area of confusion for me. Long or Short? I must have asked myself that question 4 times while looking at that spot in the 2nd yellow box.

 

I questioned " Was this a shakeout just under support and it will go back up or do I short to the next support?"

 

 

I decided to short but was stopped out by a few ticks before it proceeded to new lows.

 

What seems to be missing in your approach is a second-nature knowledge of certain fundamental aspects of price action. By "second-nature," I simply mean that there are things which you must know so well that you react/respond almost instinctively to the presence of one of these things. The good news is that they are relatively easy to point out to you; the flip side is that you need to watch a lot of price action in real time or in replay so that you can learn to identify them as they develop.

 

Some of these are easy:

 

Let's talk about gaps:

 

1) A market that gaps open and starts trending from its opening 5-10 minute range has increased odds of being a trend day, i.e. a day that opens at one end of its range and closes at the other. Unless a clear reversal of that initial trend takes place at a clear S/R level, assume the trend will continue into the close and look for opportunities to enter on pullbacks aginst the trend.

 

2) A market that gaps open and the gap does not begin to fill relatively quickly has increased odds of the gap not being filled during that session. Trade in the direction of the gap until a clear indication that the gap trend move is fading occurs.

 

As with anything related to the collective action of a significant number of human creatures, there are exceptions to everything, including whjat I just said about gaps. However, gaps are important, and what price does immediately following a gap is often very actionable information. So resolve to start paying attention to gaps.

 

Let's talk about S/R:

 

There is nothing more important to trading profitably than the ability to identify support and resistance, the ability to interpret price action at those levels, and to act upon that information. You can throw every 123 and 2b and divergence and volume spread analysis and whatever trigger method you can think of out the window so long as you can identify S/R and you can tell a succesful test from a failure, and you know what is most likely to come next as a result. Know what is most likely is not the same as knowing for certain - but all you need is a "most likely" and over the long run, you'll make money (or at least not lose all of it).

 

1) The most important immediate S/R levels for a daytrader will be the prior day's high/low, with the midpoint being of secondary importance. There are of course nuances involved, e.g. what do you do when the prior day was an inside day? For now, focus your efforts on watching price as it approached the prior day's high/low.

 

2) When price pulls back to or rallies into a significant S/R level such as a former swing high or swing low, as it did last week when the SPX pulled back to 1598, take your cue from price's reaction to that level until price gives a contrary indication.

 

For example, once price rallied off that 1598 level, then I would want to trade primarily from the long side so long as price did not break and hold below a prior dailyu low. Once price breaks and holds below a prior session's low, then it is again a two-sided market (trade both long and short).

 

If it then proceeds to break that low, you now have a market where day trades from the short side likely have an edge. Long trades should be held to a tight leash if at all until one of two things happen a) price again pulls back and finds support at a significant support level (a prior swing low, a former high now being tested as support, etc. or b) price takes out a prior day's high.

 

3) I do not always practice what I preach, but when I trade contrary to the above considerations, I cut my losses agressively and I can decide in an instant whether to go flat or stop and reverse. It took a lot of hours to get to that point.

 

For now, you might find it helpful to really keeping it simple: Trade primarily from prior highs/lows. If price is above a prior high and tests it, look to long. If price breaks above a prior high and then breaks below, consider a short with a target at the prior day's low. If price pulls back the prior day's low and holds it, look to go long. If it breaks it, look to go short. Etc. and so on.

 

The 123 is a great tool, but it only should be used when and where appropriate, which is when price is trading off of a visible S/R level. Here is a relevant post from a time gone by that you might wish to ponder:

 

Some breakout traders might suggest that the reason so many feel that breakouts are unreliable is because, as DbPhoenix might say, they tend to see breakouts everywhere, even out "in the middle of nowhere."

 

The "middle of nowhere" is a dangerous place, and price spends most of its time there. But it is not the whole of price action. Price action is the entire universe composed of both support and resistance levels as well as the gaseous and vacuous middle of nowhere.

 

A candlestick, a volume spike, or a pullback to a moving average is not Price Action any more than a comet, a moon, or a nebula is the Universe. This does not mean that important information may not be derived from such phenomena, but it would be a mistake to extrapolate a general conclusion about the whole from an observation based on an isolated part.

 

It would, therefore, be in the would-be speculator's interest to learn the difference between bona fide S/R levels and the the amorphous middle of nowhere. Even if the trader decides that trading breakouts is not for him, an understanding of what constitutes a breakout would presumably help that trader to distinguish between a genuine breakout and a mere hiccup in the middle of nowhere that might be safely faded.

 

Best Wishes,

 

Thales

 

As to your chart from today, I have circled two areas just benath yesterday's low where I would have looked to short.

 

 

Under most circumstances, you would be right to be looking for a reason to get long as price tested yesterday's low, although the gap open higher that immediately met with selling would have given me pause.

 

Once price broke below yesterday's low, it was really time to look for short entries. Whenever shorting near an assumed resistance level (which you did and which was good) you must be sure your stop is above that level.

 

Here is a link to a chart I posted sometime ago: Just note my notes, especially the reference to "the prior day's low."

 

Best Wishes,

 

Thales

[steve46 12]

Couple of observations.

 

First, one of the benefits of trying to teach others (and taking the job seriously) is that eventually even I have observed that although we are each individuals, we can make some important generalizations about how people learn....

 

What I have come to see, is that people rely on one of several "modalities" to learn anything....and those modalities are primarily either visual or auditory or kinesthetic. When I see someone posting a chart like the ones here, it occurs to me that the original poster is not getting what they need in order to have a "feeling" (kinesthetic) of confidence in their judgements....the downside is that most folks continue to beat their heads against the wall, believing that if they just keep at it, eventually they will figure it out or someone will point them in the right direction (price action for example)....too bad it doesn't work that way or should I say "to bad WE (humans) don't work that way".....

 

So what to do....? Well one way to work around this problem is to simplify charts (as much as you can) so that you only see the most important data points.....the second is to concentrate on recognizing one or two (at most) "preferred" opportunities.....practicing until you can "see them" as they develop in front of you....and that is the key....learning how to recognize the patterns before they are fully developed.....

 

I learned from a highly skilled person years ago, who figured this out....since then I have been trying to improve on it (and I think I have)...anyway I have attached a chart that I have had success using....it puts a context around previous action and lets the viewer concentrate on the boundaries of the rectangles, looking for tests of those areas, entering based on what I call volume triggers (the lower pane in the chart).....I figure if I can do this, most other folks can if they simply look patiently at the charts and ask themselves "what about price action is most important"....(and what do I ignore)....the example comes from today's blog.

[fxThunder 10]

Here is a link to a chart I posted sometime ago: Just note my notes, especially the reference to "the prior day's low."

 

 

Good to see you back, Thales!

 

Good comment as always...

 

The above link seems to have gone missing from the post.

 

Take care,

 

fxT

[humbled 10]

Thales,

 

Thank you:

I am so glad you pointed these out. They seem fairly simple to put on my checklist to watch for. I am not sure that screen time will be needed so long as I am not trying to execute at lighting speed, I should have the moment to check my surroundings before taking a trade.

 

My pre-market work had already selected these key areas to focus on so as long as I have the "Prior Low" , "Prior High" and "Prior Mid" marked up along with other swing levels, I should know where to begin looking in real time. I can watch the patterns and price swings in between these levels but I assume I will need to hold off taking action till I reach one of these junctures which is how I have handled my few trades in this thread so far.

 

There is nothing more important to trading profitably than the ability to identify support and resistance, the ability to interpret price action at those levels, and to act upon that information. You can throw every 123 and 2b and divergence and volume spread analysis and whatever trigger method you can think of out the window so long as you can identify S/R and you can tell a successful test from a failure, and you know what is most likely to come next as a result.

 

This quote I pulled from your post brings up a critical issue. If you believe I have identified the right areas in my last few days then this thread has found an issue. I need to define rules and methods such as your comments here to build that ability "to interpret price action at those levels".

 

I have copied all of your notes into my trading journal and I will use these assumptions at the point of interest levels you have highlighted.

 

Keeping it simple works for me. I am happy to sit and wait till an edge appears. I would rather watch multiple symbols and take fewer trades per day than find myself chopped up with the low accuracy I have experienced day trading. I will continue to show my thinking taking your comments into consideration when I act.

 

If people like yourself can highlight the errors where my thinking is "off", I can make some course corrections toward fixing these like you have shown me here.

 

The first trade at the gap fill area yesterday did not match any of the rules you suggested so I believe that is the reason for most of your comments. The second trade I consider valid and I believe my stop was too tight. If I had held that stop above the key level I highlighted, I would have had a very profitable short trade regardless of the turmoil I had in deciding if it was a short. The action was correct, the stop was not.

 

Again thank you so much for your direction.

 

Humbled (again)

[humbled 10]

These are my levels for 6/13/2013

 

I will be using the comments here along with what I have already shared to trade at these key levels. It will not be an overnight change as many of these ideas are fresh to me but progress is all I can ask for.

[thalestrader 14]

The first trade at the gap fill area yesterday did not match any of the rules you suggested so I believe that is the reason for most of your comments. The second trade I consider valid and I believe my stop was too tight. If I had held that stop above the key level I highlighted, I would have had a very profitable short trade regardless of the turmoil I had in deciding if it was a short. The action was correct, the stop was not.

 

Again thank you so much for your direction.

 

Humbled (again)

 

1) The gap open was still well within the range of the prior day. A Gap fill trade is more likely to work when the market gaps entirely above or below the prior day's range - look to buy a test of the prior high as support or sell the test of the prior low now as resistance.

 

2) You bought before price tested the prior day's low. You need to be patient and only trade when you have an edge. There is no edge in buying or selling the middle of nowhere.

 

3) You correctly pointed out a possible long when price did test the prior day's low, and you correctly saw there was no trigger, as price broke that low without having devleoped any trending attempt after the test of support.

 

4) The final short was fine. I merely pointed out where it could have been made earlier at a much lower risk point. You are correct - your stop was too tight: It needs to be a few ticks above resistance or below support.

 

5) I don't know anyone who trades profitably who does not have losses, and that certainly includes me. Don't let a loss get you down. Some will be the result of a mistake, but most will be the result of the fact that this is an odds-game. Rules are for us, not the market. We must play by the rules to put the odds in our favor. The market cares nothing for our well-being. This mean that even perfectly executed trades that comply with all we know about price action's tendencies can still end with a stop out.

 

Best Wishes,

 

Thales