Jay's Journal

[jasont 10]

Hey guys first of all I have no problems with the discussion above being here. This journal is here for learning so everyone's opinion/knowledge is valuable. Even if I or another reader doesn't use this opinion/knowledge it is still good to get the mind cranking as to ways in which things can be done differently. Please do not hold back on discussions like the above in belief I think it would disrupt my journal.

 

Sdoma, thanks for the great compliments on my journal, I appreciate the time you have taken to read and offer advice on my journal. There are filters I apply to trades which this week left me out of the market on a couple of occasions where it may have been beneficial to have been in. However, I believe it is those filters which are giving me the higher win ratio as they improve my analysis.

 

Those filters are sentiment of the underlying asset and areas of high interest. Being that I trade the ES contracts, the underlying asset is obviously the stocks which make up the S&P 500. I use the NYSE Tick to monitor this sentiment as it provides a good outline as to what the feel of the day is like and where things may change. The areas of high interest are s/r levels that I generate.

 

As an example, on Thursday we were trading within the previous day's value range. We came down and hit the Value Area Low(VAL) but bounced instead of cut through. I took the short trade at a Reaction point having a few things in mind. We had bounced from the VAL and the Tick wasn't showing consistent movement in the negative area. After I got on we traveled down a bit but then retraced taking me out of the trade for a small profit.

 

Now my interpretation was that the hesitation to break through the VAL on that push lower meant we could have gone either way. Instead I took a stand of waiting for the break of the VAL and shorting a retracement beneath there or seeing if an uptrend develops instead. After some back and forth we did in fact break the VAL. I noted the Reaction point I was looking for but when we retraced there it was only very briefly. We came back down too quick for me to get a good position and I missed the trade.

 

During my backtesting I don't have predetermined s/r levels, NYSE Tick data or other pieces of evidence that gives me an idea of the broader market activity. I have been generating roughly a 45-50% win ratio without the extra evidence to help generate entries. That is why I believe my win ratio, thus far, is slightly better during my live simulation rather than backtesting. It has only been one week though so things could change however that is what is coming through currently.

[firewalker 10]

Let's put it another way. If I put a trade on and take a profit of 1/3 the average day's range, I will generally go take a break, come back and really evaluate the action to see if I should trade again. No use in giving that back in choppy trade, for example. But if the action is nice I will look for another setup.

 

If you put it that way, I can hardly disagree

 

So from the above it would appear that scaling in and out, though does reduce my max daily loss, it reduces my max daily gain much more. Therefore the prospect of scaling into and out of trades is not working well for me. The win ratio appears to be better by 5% on the scaling of trades however it doesn't compete with the added 0.21 points per trade reward seen in entering and exiting upon a full position.

 

So at this point I am swaying towards entering and exiting in a full position. I am going to continue the testing with scaling in and out whilst I do some more analysis on scaling out and scaling in just to make sure things are as they appear.

 

I think it's difficult to analyze the net result between scaling in/out and entering/exiting full position unless you split the scaling in and scaling out and compare those to the 'normal' trading strategy. It looks to me like scaling has will do little for you, because pyramiding is usually a strategy employed for longer term positions. When I read that you hold trades sometimes for less then 10 minutes, I can see why this approach hasn't yielded better results. I'm not sure if I missed it, but have you compared what entering with full position combined with scaling out does to your average profit?

 

Except for two days, all the testing has been made on days that have a VIX volatility reading of 25 and above. I am aware that high volatility periods will act different to low volatility periods so I am now in the process of testing my plan on days where the VIX is beneath a reading of 20. Doing so will help confirm the exit strategy is solid and can work in periods of high and low volatility. I am interested to see what the results come up with.

 

I guess you'll need to go back in history a bit for that! Good luck on that, I never really done much analysis based on VIX alone, therefore I'd like to subscribe to the results of your study In my backtesting, I always normalized the daily range so that results deviating from the mean, just because of the volatility, didn't give me the wrong impression about the profitability of my method.

[jasont 10]

Thanks for the great post FW. I know exactly what you mean by needing to separate the scaling in/out from full position in/out. Comparing the process of entering full and scaling out with entering full and exiting full is next on my agenda. I haven't had time to break that down just yet but will get to that as soon as I can. It will be interesting to see those results.

 

The history for my backtesting of VIX levels less than 20 is May this year. So far the results haven't been as desirable as I'd hoped. In the above 25 VIX testing I had 15 days backtested with 3 losing days. On average that is one losing day per week which is acceptable to me. However with the testing of days which read below 20 VIX I have experienced 3 days of 5 tested thus far which end as losses. This suggests to me that either my stop is too wide on these days or I am looking for trends in ranging days. I will continue the testing though and update the results. Hopefully I can see if there is a common problem occurring.

[jasont 10]

Trading For 13th October

 

Trading Goals For Today:

 

Identify The Trend And Note Changes In Trend Where Needed

Only Place Trades At Reaction Points In The Direction Of The Established Trend

Exit Positions According To New Plan

Only Trade After 9:50am

 

8:58 No major news due out during market hours today. Currently the pre market has us at 50 points higher than Friday's close. Guessing it is caused by the efforts globally to slow the selling we are seeing. VIX reached 70+ levels last week, Gold made a large move lower on Friday and Oil still making significant losses. Friday was a violent move down followed by an equal reversal. Turbulent times we are seeing and although it could be a promissing reversal we saw Friday, I'm not willing to treat it as a bottom until further confirmation.

 

9:30 Tick pretty strong into positive territory off the open. General market action is also pretty strong right away.

 

9:37 Tick still holding positive numbers, came down toward 940 support area and now making new highs for the day.

 

9:44 New low, Tick currently still positive though it may not last long. Hit the 950 resistance area and moved right down to the 940 support area. Volume declined on the rise on the 1 minute chart.

 

9:48 Currently the market is rather choppy according to the 5 minute chart. No clear trend on the 1 minute chart as yet.

 

9:52 New low made, Tick still holding positive area, big volume came in prior to the new low. In a messy area between the EMA's right now, in a current downtrend.

 

9:59 Rather choppy market at this stage. Makes it difficult to identify strong RP areas, Tick remains positive which is keeping me from placing any short trades at this stage. Volume declined during the recent sideways stall on the 1 minute and is picking up slightly on this push higher. Chopping around at the support area, above EMA's but beneath SMA on 1 minute, in a 1 minute downtrend. Best leaving this until we tip our intentions, otherwise it isn't a game of probability but gambling.

 

10:05 Down prevails.

 

10:11 Tick has moved into negative territory but struggling to show follow through selling from the stocks. Pushed a couple of points beneath the previous low though we are seeing buying halt the downward movement.

 

10:15 Downtrend broken on big volume suggesting there is interest to buy this market. Tick moved back strongly into positive territory suggesting we may see a trend up type day. Haven't yet seen market action supporting that scenario though.

 

10:38 Gotta love bathroom breaks that result in lost trades. 949 area was a reaction point coinciding with the trend up and it currently looks like we may move higher without me. Tick shows stocks remain strong, volume rose as we moved higher on the 1 minute chart and declined on the pullbacks.

 

10:42 Heavy volume just came in, we may be set for a decent pullback here. Big selling period by stocks seen on the Tick.

 

10:53 Calling it a night. Rather uneventful. There was a trade I missed due to a toilet break and another where my RP level was off. I didn't really feel switched on tonight with my RP areas which no doubt fueled my lack of trades. I am pleased that I followed my plan and if that means no trades because my RP areas were inaccurate then I think it is a good day. If my plan presents no trades I can physically take, then I am pleased if I don't trade.

 

Daily Wrap Up

 

An example of how the the Tick helps me stay on the right side of the market was seen today. I didn't place any long trades as I missed my opportunity as I was having a bathroom break however I steered away from the short side early on.

 

I had an off night when it came to identifying the RP areas which I believe could have been caused by a bit of fatigue. I stuck out the day though and only looked for trades that were on my terms according to the plan. That resulted in no trades, 2 true opportunities were there however one of those I was away, the other was missed due to my RP levels being off. The latter I am referring to was at 10:25am where I had my RP area at 941 however 942 in hindsight was the stronger area.

 

There isn't much more I can say on a day where I don't place trades. I followed my plan well and my analysis was good in regards to assessing the type of day we were likely to present. For following my plan I give myself an 8 out of 10. Mainly the score is a result of following my plan through patience. There was a period there where we were 50/50 to go either way and instead of trying to pick one or the other, I let the market sort itself out and wait for a retracement.

 

[jasont 10]

In my backtesting, I always normalized the daily range so that results deviating from the mean, just because of the volatility, didn't give me the wrong impression about the profitability of my method.

 

Hey FW, do you mind explaining what you mean by that?

[jasont 10]

Trading For 14th September

 

Trading Goals For Today:

 

Identify The Trend And Note Changes In Trend Where Needed

Only Place Trades At Reaction Points In The Direction Of The Established Trend

Exit Positions According To New Plan

Only Trade After 9:50am

 

9:09 No major news out today. Vix made a sizable move down yesterday and all three major indexes made a sizable bounce. This could be a bottom but I'm not willing to presume so until some solid foundations are built. USD still looking rather healthy at this stage also.

 

9:26 Market looks set to open 40 points higher.

 

9:35 Rejection of higher prices at the open is seen by the market action. Tick is remaining positive, could be similar to what we saw yesterday as the market looks to gain buying power at lower prices. Playing near the 1050 support area right now.

 

9:41 Market doing a good job of selling right now. Moving down pretty hard and fast at this stage. Trend down is pretty steep. Stocks showing some buyers are still with us as the Tick hesitates at moves beneath the zero area. Volume on the 5 minute chart has declined on the down move. 1046 is current area of interest.

 

9:46 Hmm, selling is relentless at this stage yet the Tick is doing a good job of holding positive numbers. Volume has picked up on the selling but could be the airing out of positions.

 

9:52 Was hoping to see us reach the 1038 RP area but we pulled just shy of it. Tick has made a big move into negative territory. Buying in amongst this may be a poor idea and until we make a significant base here I will stick to the short side. No strong pullbacks seen on the 5 minute chart as yet.

 

10:03 First sizable bounce we have seen today. 1035 is the area I am watching. Will see what we do around that area.

 

10:08 Hmm pulled away before reaching my area. Pretty volatile day today so half positions will be used for trades. I am being strict on where I enter today as well. Reason being that with this volatility you need to nail the entries to avoid being shaken out unnecessarily. It may mean placing no trades today but if that is the alternative to 3 losing trades that were the right idea but poor timing then so be it.

 

10:11 Tick playing more around the zero area now than before.

 

10:21 It is interesting to note that we found some support at yesterdays close. We have seen some buying come in down at yesterday's close but whether or not it is sufficient to turn this market or not is yet to be seen. Tick playing at zero area however is making more movement above the zero area. I actually believe this market may be too volatile for my liking. I'll stick it out to see if something comes up however I am not going to place any expectations upon myself to trade. 1 minute ranges are between 4-7 points which is pretty massive in my opinion.

 

10:48 Well we pulled lower after some initial hesitation and it was a decent sized move. I am going to call it a night here. Another day of no trades, a bit disappointing as I had opportunities however the volatility was too high for me. Considering the minimum average range on my 1 minute chart was greater than my stop, I think I made the right choice. It was good to watch this market move and I think I did well picking up early the intended direction of this market.

 

Daily Wrap Up

 

Today was a rather volatile day. It reminded me of the past two days we had in recent weeks where the market only wanted to sell from the open. It was good to see that I picked up early on the type of day we were seeing and although disappointed I didn't trade, I am aware that it was the right choice.

 

Running a 3 point stop whilst the market is showing 1 minute ranges of 4+ points requires my entries to be spot on. The last day like this I traded, I took two max losses and only barely kept a trade that turned around the day.

 

My RP levels were better than yesterday and I realized that it is hard to get spot on levels when we are so volatile. Either way I accept the choice I made not to trade and will work further on the testing of my exit strategy. For following my plan today I give myself an 8 out of 10. I analyzed the market well, only looked for trades after 9:50am and respected my risk limits when I saw how volatile the day was.

 

Update On Testing

 

I have found some interesting results regarding scaling out with my plan. I thought entering on a full position and then scaling out would have provided a better return than entering and exiting full.

 

Entering on a full position and then scaling out did in fact provide better gains than scaling in and then scaling out. However it still did not provide better gains for my plan than entering full and exiting full. The results are below for the full period thus far:

 

Scaling In And Scaling Out

Total Days Traded: 25

Total Trade Ideas : 75

Wins: 61

Losses: 62

Total Trades: 123

Win %: 49.6%

Points Gained: 179.25

Points Lost: -119.00

Total Points: 60.25

Average Win: 2.93

Average Loss: -1.91

Risk Reward Ratio: 1:1.53

Average Points Per Day: 2.41

Average Points Per Trade: 0.49

Max Win: 13.5

Max Loss: -3

 

Entering Full And Scaling Out

Total Days Traded: 25

Total Trade Ideas : 75

Wins: 72

Losses: 77

Total Trades: 149

Win %: 48.3%

Points Gained: 223.5

Points Lost: -156.50

Total Points: 67

Average Win: 3.10

Average Loss: -2.03

Risk Reward Ratio: 1:1.53

Average Points Per Day: 2.68

Average Points Per Trade: 0.45

Max Win: 18.25

Max Loss: -6

 

Entering Full And Exiting Full

Total Days Traded: 25

Total Trade Ideas : 75

Wins: 70

Losses: 82

Total Trades: 152

Win %: 46.1%

Points Gained: 244.5

Points Lost: -161

Total Points: 83.5

Average Win: 3.49

Average Loss: 1.96

Risk Reward Ratio: 1:1.78

Average Points Per Day: 3.34

Average Points Per Trade: 0.55

Max Win: 27

Max Loss: -6

 

So from the above statistics I have found that entering and exiting a full position for my strategy is the best way to go in regards to total point gain, average point gain, risk reward ratio and max win size. I was actually a bit surprised that scaling out wasn't the better option. However when I think logically about it, I would enter risking a full position, then take half off after a few points and then trail the other half. If the first half is not taken at least at the same or great than I originally risk, it is difficult to make good gains using my particular plan.

 

Now I have also noticed a decent sized decline in my results whilst testing days beneath a VIX reading of 20. Big sized moves are less frequent than we see in times above a reading of 25. Trends do exist however they are not as determined. An interesting observation I found was that the SMA on the 1 minute chart isn't providing as much guidance as it does during higher volatility periods. The SMA is giving an average for a 30 minute time frame.

 

The EMA's on the other hand which give the average for a 1 hour time frame and a 5 hour time frame, are providing much better guidance. What the above mentioned tells me is that trends are there, however strong trends that retrace only marginally, like we are seeing in the current environment, are less frequent. When I trade the low volatility periods using the EMA's as my main guidance as opposed to the SMA which works well during high volatility, I get better results.

 

What this comes down to is more patience being needed during lower volatility periods and less trades in effect are placed. More attention is placed on the 5 minute chart during these lower volatility periods which could also mean trailing the stop may need to be adjusted.

 

I have also found that a 3 point stop in lower volatile periods is unnecessary. The maximum heat I am taking on winning trades has been 1.5 points. That has been only once that it has occurred as well. That leads me to believe that lowering my stop to 1.75 points rather than 3 points would improve my results during lower volatility periods. This is still in early periods of testing but does look promising.

[firewalker 10]

Hey FW, do you mind explaining what you mean by that?

 

Sure, for example

 

Your backtesting shows you made an average of 12 points per day in a certain period (let's assume January till March year 200x), versus an average of 8 pts/day in the months April till June.

 

Next you compare those points with the daily range.

From January to March that was 20 points (for example), and from April till June it was 10. Your first conclusion would be that you did worse in April-June, but in relative (%) terms you actually did better. If you don't pay attention to this, you might begin to extrapolate the numbers and draw the wrong conclusions...

[jasont 10]

Thanks for that FW. I had thought about recording the range during the times that I trade however didn't really think of a good way to use it. You have just provided me with a good way to use it. Thanks mate.

[jasont 10]

Trading For 15th October

 

Trading Goals For Today:

 

Identify The Trend And Note Changes In Trend Where Needed

Only Place Trades At Reaction Points In The Direction Of The Established Trend

Exit Positions According To New Plan

Only Trade After 9:50am

 

8:53 No major news for the morning today. Currently we are near 30 points down from yesterdays close. VIX is still up at high levels, all 3 indexes slowed down after Monday's rise. Gold and Oil both getting a small rise but at this point appear to be a bounce in a declining market.

 

9:33 Market making a pretty strong move down right from the open at this stage. Tick is in negative territory.

 

9:42 Market remains down, stocks still selling though negative tick readings are expected after such a big down open. Volume increased on the way down and currently seeing a bounce on the 1 minute chart that is attracting less volume. Currently in a downtrend in the 1 minute chart. 974 possibly an RP area.

 

9:59 Took a short at 971 for a move down from the SMA at the 974 RP area. I was late on the entry and I took a loss at 974. Tick is still playing in the negative area though we have tested the positive area.

 

10:03 This emphasizes the importance of patience in this market. We have now made new lows for the day.

 

10:07 Seems to be getting choppy around this 967 area.

 

10:17 Tick still negative, we reached the SMA again but I missed the opportunity. We are trending down on both the 5 minute and 1 minute charts.

 

10:27 Market has been trickling lower at this stage. No strong down moves seen, does this mean there are strong buyers in today's market? The Tick indicates a trend down type day. The 70-72 area is of interest to me and somewhere I'd be looking for some action. Volume has remained steady, pretty much summing up this market with no clear side surging away. Tick is in fact showing a buying divergence at this stage.

10:41 I sat here when the market reached 971. I had waited for the market to reach that point and instead of placing the trade I just watched the market play around at that area and now its on its way down. For the life of me I just didn't pull the trigger.

 

10:51 I'm calling it a night.

 

Daily Wrap Up

 

I have sat here wondering what to type and not really sure on the direction I'll take. My analysis today was spot on, my timing on the first trade was off but the idea was good. That threw me after I watched the market go in my intended direction, I let it get to me. I then noted the market reaching the 70-72 area being a place I'd look for a trade and I couldn't place the trade.

 

I physically sat there and watched as it couldn't break that area. It declined whilst I sat there dumbfounded at the fact I wouldn't put the trade on. I know it was based out of fear of losing but it doesn't make sense to me. I know the figures during high volatility periods are favorable. I know my analysis is good, for the life of me placing the actual trades seems to be like tearing stitches out. If I do the first one and it's ok, I can do the next. If the first one hurts, well then I hesitate the next time.

 

For following my plan today I am giving myself a 4 out of 10. I analyzed the market well and took a trade in the direction of the trend. The trade was part of the plan but the timing was off. I can't really be too hard on myself, maybe I need a break from trading or maybe I just take it way too seriously.

 

[firewalker 10]

Identify The Trend And Note Changes In Trend Where Needed

Only Place Trades At Reaction Points In The Direction Of The Established Trend

Exit Positions According To New Plan

Only Trade After 9:50am

 

I'm wondering how your last rule is going, to only trade after 9:50am. I set myself the rule not to open new positions after US lunchtime, as a form of protection against giving profits back and also because I prefer to manage a winning position then enter a new one near the end of the day. However, last two weeks I've been papertrading the rest of the day, and very often I see a good trading opportunity arise, and indeed it's a profitable one.

 

The only thing I'm doing now really, is not squeezing out as much profits of the market as would be possible. I am faced with the dilemma of breaking my rules, or at least adjusting the rules to compensate, but I remind myself why there were put there in the first place: to prevent overtrading and to stop undisciplined behaviour.

 

So what if you have a very high probability signal, the market is screaming at you to take it, but it happens before 9:50am your time?

[brownsfan019 17]

So what if you have a very high probability signal, the market is screaming at you to take it, but it happens before 9:50am your time?

 

Is it a high probability signal if it violates one of your fundamental rules?

[firewalker 10]

Is it a high probability signal if it violates one of your fundamental rules?

 

I like to look at it this way:

 

on one part there is 'the plan': strategy, tactics, entry & exit, stops, etc.

on the other part there are 'the rules': position size, risk, number of trades per day, maximum losing streak, etc...

 

So yes it can be a high probability signal but at the same time violating the rules...

[jasont 10]

For me during my backtesting the trades pre 9:50am produced terrible results. I had one or two winners for memory and about ten losers. My overall standing points wise was about 1 point up. Brokerage however makes it a useless exercise.

 

What I find is that pre market or the overnight market has little bearing on what I see occurring during the actual market open. I tried trading the open during backtesting according to the market action during pre market and to be honest, it did the opposite to what normally works for me. Now I'm not saying there is no correlation between pre market and market open as I have seen many traders here promote strategies looking at pre market to make an early trade. Unfortunately I cannot see any relationships that provide me with a solid edge. It is likely that my perception is the reason.

 

I actually find giving myself 20 minutes of space from the open allows me to spot any areas of interest without any bias related to placing trades. That 20 minutes has in fact been a big help to me as I use that time to identify the type of day we are seeing, what the intention of the traders behind the market is and I avoid the emotional trading that is seen at the open. I personally have found myself chopped up numerous times during the open which far outweighs the occasional one I get right.

 

I also see what you're saying about going against the rules on a high probability trade and at times it is easy to see a good trade prior to 9:50am. My backtesting says to me that it is my least profitable time to place a trade. So I tend not to take the high probability signal as I know there are many other opportunities to trade. I trade a rather quick time frame, well when I can get on the trades as the market currently is moving like a bullet at my trade points, so 3-4 opportunities often arise within an hour or so.

[sdoma 10]

So what if you have a very high probability signal, the market is screaming at you to take it, but it happens before 9:50am your time?

 

I dealt with this by keeping records of paper trades made during "the doldrums" for a few months until I had a decent sample size. Then, you go back and do your stats on the setup. If the stats are favorable, you try it live with half size and you keep your records to make sure you're sticking to the setup and that your live statistics confirm your paper stats. When you have some live stats to back it up, move to full size. Voila, more money.

 

I've always tended to find that my "overtrading" is due to me swinging at anything that moves and not following my plan.

Edited October 16, 2008 by sdoma

[sevensa 10]

I like to look at it this way:

 

on one part there is 'the plan': strategy, tactics, entry & exit, stops, etc.

on the other part there are 'the rules': position size, risk, number of trades per day, maximum losing streak, etc...

 

So yes it can be a high probability signal but at the same time violating the rules...

 

 

Hi firewalker

 

I can see your point and I also see brownsfan's point. For me, my trading plan is to allow me to be as profitable as possible based on my edge defined over many, many years of testing and looking at charts. If my trading plan say not to trade before or after a certain time, then any setups during that time is low probability by definition because they go against my plan.

 

If I do start to notice that I am starting to get high probablity trades against my plan, then I will go back to charts, test this "new" pattern and see if this is consistent and if it is, then I will update my plan. Only then will I start trading this setup. Unless my plan is updated, I do not take this setup, no matter how much it is screaming at me. Trading this, will be against my plan and defeat the purpose of having a plan to begin with. If I have to keep overriding my plan and break the rules to take high probability setups, then clearly there is an issue with my plan.

[firewalker 10]

I actually find giving myself 20 minutes of space from the open allows me to spot any areas of interest without any bias related to placing trades. That 20 minutes has in fact been a big help to me as I use that time to identify the type of day we are seeing, what the intention of the traders behind the market is and I avoid the emotional trading that is seen at the open. I personally have found myself chopped up numerous times during the open which far outweighs the occasional one I get right.

so.

 

I absolutely agree that the open can be the most emotional point of the trading day. That, and news. I've found myself getting stopped out of a trade too on occasion, only for minutes later to see things going in the right direction. There can be some 'overshooting' as I like to call it as regard to S/R levels during these times. The positive side is: the more emotion involved, the faster price moves... whether that's a good or bad depends entirely on the trader

[brownsfan019 17]

If I have to keep overriding my plan and break the rules to take high probability setups, then clearly there is an issue with my plan.

 

My thoughts exactly.

[jasont 10]

I guess for me, I am trying to build consistency. If I follow a plan, whether I am profitable or not, I will know where things are going wrong because I am doing the same thing over and over. That makes it much easier for me to improve in comparison to adding trades here and there that aren't in the plan.

[jasont 10]

Trading For 16th October

 

Todays Trading Goals:

 

Identify The Trend And Note Changes In Trend Where Needed

Only Place Trades At Reaction Points In The Direction Of The Established Trend

Exit Positions According To New Plan

Only Trade After 9:50am

 

9:30 No major news out today. Market opened roughly 8 points above yesterdays close. Keeping an eye on the VAL at 933.75. Tick opened positively. VIX made another rise yesterday, a reading of 70 is becoming the new 20 hehe. Oil declined yesterday, Gold doesn't look much better. Everything is selling at this stage, not just stocks.

 

9:37 910 area potential RP point, we sold off pretty hard from the open but appear as though we are failing to follow through. Volume declining on the rise, Tick playing across the zero area but making a fair go of positive numbers at this stage. As I type this the 910 area has been busted through without as much as a second thought.

 

9:39 Reaching the SMA and EMA's with volume extreme hitting on the 3 second chart. I think we are actually gearing up for a positive run here though I could be wrong. If we break these EMA's I will be looking for long trades rather than short trades as long as the Tick remains positive. Not until after 9:50am though as thems the rulez. Still keeping an eye on that VAL at 933.75.

 

9:46 Ok the Tick is currently suggesting a trend up type day. Market action suggests the same as we trend up on the 1 minute chart and have bounced from the SMA. I am concerned about the VAL area but will see what happens when we get there. It could stop this uptrend in its tracks or we could see a move back into yesterdays Value Area. Volume declining on the rise in the 5 minute chart though the 1 minute chart is showing a consistent volume.

 

9:53 917 area is a potential RP area. We are halting up at 927 resistance area. Volume declining on the sideways movement, Tick still remaining positive though testing the downside.

 

9:58 Market concerned me the way it broke through the 917 area so I didn't place a trade. Not the sort of action I'd like to see at a reaction point. Tick made a new low in the Tick showing stocks aren't ready to slow the selling just yet. Will wait a bit longer to gauge where we are today. Playing in amongst the EMA's and SMA right now so will let the market find direction here.

 

10:01 Sheesh whilst I was typing we moved up to the 920 RP area and are now hammering down. From the looks of it the move up was possibly used to sucker the longs in for better positions on the short side.

 

10:06 Funny but a 28 point range day so far can be described by me as choppy. No clear direction at this point though down currently looks the most likely candidate. Tick playing across the zero more but still taking deep strides into the negative area. Looks like more selling is being seen by stocks than buying at this point. Range day as indicated by the Tick at this point. EMA's and SMA running steady sideways right now indicating the same thing.

 

10:13 Does anyone have any reasons to be buying right now? If we went to zero would anyone see that as a good buying opportunity? I can hear Eddie Murphy's wife asking the market, "What has the market done for me lately Eddie?". Good ol Delirious or Raw, whichever one it is. 900 area right now is a potential RP point though I'd rather see some movement into 904 I doubt it will happen anytime soon.

 

10:23 Gee this market doesn't give one much time to get on board the train. No more than 10 seconds at 903 and we press down.

 

10:29 I'm not exactly sure what is going on with this market right now but my data is seeing freezes. Occasionally it seems to lock up and then keep going. Well 903 seems to be the reaching point and I didn't get my chance to trade it as we were only there momentarily. I must say that catching this market is difficult at the speed we are traveling.

 

10:31 Market still down trending according to the 1 minute chart and also by the 5 minute chart. Pretty steep trends at this point which leads me to believe we could see a sizable bounce at this point looking like 900 or 904 area will be reaction points. Market declined on the bounce, Tick is in negative territory complimenting the downwards action.

 

10:41 894 is a point of interest. Tick still negative suggesting trend down type environment. Big volume came in on the recent low, not enough for me to strongly believe it is a market turnaround but enough to suggest a decent pullback. 894 may be close enough for the market to break through, if that's the case then 900 or 904 area is my RP areas to concentrate on.

 

10:52 Whoops been typing away instead of watching the market as we reached 894. Bah, what a pain in the ass.

 

10:55 Lowered volume on the decline... any chance of a move back up to 900 or 904? Not going to matter anyway as it is going to be time for me to call it a night. I wonder if I should consider putting in orders ahead of time that way I don't miss the moves?

 

10:57 You know when we reached 903 and turned down I was looking at placing a trade at 901-901.50 as we played in that area a bit. I didn't trade because I was worried that we could reach 904 and possibly overshoot it a bit. I was afraid of getting in too early and taking a loss. I guess that is the core of what happens when we reach areas my plan says to place trades at.

 

11:04 Ok time to call it a night. Another night of good analysis but no profits to show for it. Sometimes I wonder if I could get someone to place the trades at the points I see in the market. Maybe then I'd make some gains. I believe the opposite to trigger happy would be trigger unhappy which seems to be the category I fall under right now. Ruth Barrons Roosevelt says in one of her books that there are generally two types of traders. The analyst who manages to see what the market is doing very well but isn't as good at placing the trades, then there is the trigger man who can pull the trigger without hesitation but could perform better with some more analysis before doing so. Ruth mentions that a blend of the two would be the ideal trader. Just an interesting thought.

 

Daily Wrap Up

 

Same old story just a different day. At least the one thing I am consistently doing well is analyzing the market. I seem to be improving in that avenue which I guess is a part of becoming a better trader. Now if I can just get my finger to agree with me, I might be able to make some more progress.

 

I found it interesting to dissect my thoughts when we reached the 903 area. Now I think about it, when we reached the 894 area, I was concerned that we could reach the 900 area. This seems to be a pattern but I'm not exactly sure what the underlying reasoning I seem to have is.

 

The most prominent thing that sticks out in my mind is I am searching for certainty in an uncertain environment. My plan says area X is a highly probable point to place a trade as A, B and C all combine to make it so. There is a Catch 22 though, I feel like I want to confirm the market is going my way yet once I do so, the market has moved too far for me to get on board safely. Fear of being wrong or fear of losing $? Treating each individual trade as the most important trade and placing too much weight on each trade. I believe I need to adjust my mindset to look at trades in groups rather than individually.

 

Instead of looking at the shorter term of each trade, it might be an idea to assess my trading in groups of 5 trades or 10 trades. That way instead of emphasizing each individual trade, I will look at them as a group and place less importance on an individual win or loss.

 

So for following my plan today I am giving myself a 3 out of 10. I analyzed the market well and didn't place any trades prior to 9:50am. However I also didn't place any trades that were in the plan. I am trying my hardest to build some consistency here and it is very difficult to do so if I don't take the trades that are in the plan. I think I may have a new goal for tomorrow.

 

[sdoma 10]

The most prominent thing that sticks out in my mind is I am searching for certainty in an uncertain environment.

 

Ah, you're starting to go down the rabbit hole. Welcome. Most trading systems seek to identify an underlying aspect of market behavior that is inherent to the market. But is it really an aspect of market structure, or is it just an arbitrary structure that we superimpose in order to make sense out of an environment that essentially has no inherent reference points?

 

For example, dates: When we say this is the year 2008, what are we counting from? Not only that, how are we measuring time? We chose a fixed point in time, the AGREED UPON (not necessarily true) date of Jesus Christ's birth, and counted from there. Of course, now scholars say we may be off a few years, but does that really affect anything? No, we just needed a point of reference to anchor us. With that, we can tell where something is in relation to everything else.

 

But we could have just as easily chosen another date: the founding of the Roman Empire, for example, or Alexander the Great's birth, or whatever.

 

Also, how are we measuring a year? One revolution of our planet around the sun. But if we had ended up on another planet, maybe a year would be a much different amount of time. The same goes for days: one earthly rotation.

 

All of this is like trading in that we find something that is essentially formless (time in our example) and impose forms upon it to make it navigable and manageable. In fact, Einstein's relativity says that nothing makes sense in isolation, only in relation to everything else. In other words, good reference points are hard to find.

 

How does that apply to trading, you ask? I say not to get too attached to a method, even if it works well for you at the moment. Use it but do not grow attached to it because if our conceptions of what is "market structure" change, it may invalidate your system with a swiftness. In that Bo Yoder article he says that his method isn't working as well because of all the algorithms in the market. That should tell you something - what you think is basic market structure can change. There is no structure, just the opinions of the participants as a collective.

 

This market at the moment is wreaking havoc with many people's trading methods/systems. I have watched multi-millionaire traders who have lost a boatload of money in the last year because they just can't admit their systems don't work at the moment. They'd have been better off taking a vacation and blowing their money. What these guys should have done is get back to basics and develop new systems.

 

But here's a dirty little secret: A lot of big big traders are only doing what they're taught. They can't make anything new. So take heart, if you've designed a good method and know you can do it again, that's like gold, you just have to find someone to help you take advantage.

[jasont 10]

Thanks for the excellent post sdoma. I agree that we tend, as humans, to place labels and forms on things so we can reference them in such a way. In a spiritual sense, though I don't want to get into this on a trading forum, it can be good to form reference but knowing that it is just a reference and not a certainty is always humbling.

 

My trading quite a while ago took on the approach of trading like the current trade outcome was random but the results over a long period of time was less so. That plan was based upon trend trading and we hit a period where the trending stopped. At the time I believed the way I was trading was wrong and that I needed to find a way to improve my analysis.

 

Only now am I beginning to understand that my method from a long time ago was not wrong, in fact the way I traded appears to be the way I should have been trading. It just wasn't complete and I needed to experience markets more. I needed to understand and recognize the differences between market types. So really what I have been doing though not the way I need to trade, has been somewhat of a blessing in disguise. During the past year or so I have learnt about the nature of markets and been able to experience trending markets as well as ranging markets.

 

I can relate to your comments above how big traders are feeling the pain as their system isn't working anymore. I used to trade CFD's on Aussie stocks beginning in 2007. I only had a way to trade trending markets but as we hit the peak in June 2007 and began to switch from up to down my strategy stopped working. I had sensible risk management, though now I know it could have been better, which kept me from losing my account.

 

I now understand that the risk management side of things is key to keep me in the game, then working on multiple strategies for the different styles of markets so I can adapt and continue to trade when one style no longer works. The benefit the past year or so has given me, though not profitable, is the understanding of market movement under different conditions.

[jasont 10]

Weekly Wrap Up

 

This week I don't really have much to say in regards to my trading as I only took one trade and I didn't trade Friday. The one trade was a loss and then I became a bit gun shy for the rest of the week. This has prompted me to work on my trading plan a bit more and search for some answers as to why I am not pulling the trigger.

 

I guess the first thing I will assess is the current market. No doubt everyone here is a little amazed at the amount of volatility we are seeing, I am quite on awe of it to be honest. Average range size of 1 minute candles has been above 2 points on the ES for the most part and above 5 points on the 5 minute chart. On the YM we are seeing an average range size of 20 points on the 1 minute chart for the most part and above 50 points on the 5 minute chart.

 

During times of high volatility I cannot trade the same risk management as I do during lower volatility periods. I have seen volatility reach 30-40 as a measure of the VIX in the past but never have I experienced readings of 70+. I believe this is playing a part in my failure to pull the trigger as my 3 point stop, though greater than what I use during lower volatility periods, just doesn't seem to provide me with the buffer I'd like.

 

I do get the feeling the ES in relation to my capital size is not allowing me to utilize the type of risk management I feel would be best. At least in the current volatility conditions. Considering the average range of a 1 minute candle is 2 points, using a 3 point stop means I will be easily chopped out of trades should I not make the ideal entry.

 

Now I don't believe the actual problem is using the tight stop, what I do believe the problem is that I have developed a tendency to presume I know what is going to occur next in the market. As per Brownsfan's recommendation I have been reading "Trading In the Zone" by Mark Douglas. I had forgotten how many great insights that book actually had. So as each trade opportunity would arrive, instead of accepting that this trade was independent of any other trade I have made though had similarities to past patterns, I referenced each trade opportunity to a past one.

 

I believe my reference has aligned itself with past trades where I have been shaken out early. Going by memory, the element that causes me hesitation in my trading is that prior to a trade I fear getting in and then the market shaking me out right before it goes in my direction. So to combat that I attempt to wait for the market to prove to me that it is going my way prior to entering a position. There is where I look for the certainty that doesn't exist on an individual trade basis. That is enough to drive me to attempt to look for better ways to confirm I am right before getting in. The silly part is, no such thing exists. It's like searching for that pot of gold at the end of the rainbow.

 

I have placed so much emphasis on not being shaken out of quality trades prior to entering them that I end up missing them altogether. Should I attempt to get on them, that hesitation has me entering late like what occurred last week. I actually shoot myself in the foot by not getting on when my plan says to by waiting for that extra movement before entering my position. I get on late and I get chopped up by the regular back and forth that goes on.

 

In a simplified way, it is like trying to trade a trending strategy and entering upon a breakout. Instead of entering on the breakout one waits for the market to move a few points to confirm the breakout is real. They enter a few points beyond the breakout and their stop can't be placed further away than right at the point of breakout. Obviously the market has a common tendency to return to breakout areas to test them and the trader gets chopped up on a common basis simply because they wanted that extra confirmation.

 

I guess there is a learning or re-learning for me as I previously traded in a fashion where the individual trade outcome was not known, yet the longer term result in regards to profit was more predictable. Had I stuck with my CFD trend following system back in 2007 no doubt I would be profitable with the gains made on down trends. That doesn't bother me though as trading in that style didn't suit me on a personal level.

 

Where does this leave me right now? I am actually of the belief that I may need to switch my trading over to the YM instead of trading the ES. Both markets trade very similar to one another so I don't believe there will be a big change. The main reason being that with $5 per point I have more options in regards to my risk management. I can still use the same tools I do with the ES as they work on both markets. I will need to get used to the s/r levels in the YM but don't believe that will be a major problem.

 

I am going to watch the YM this week and look at adjusting my trading plan to suit it accordingly. The same entry and exit setups will remain however more care will need to be taken with creating a sound risk management strategy. Staying in the game at this point is my number one priority.

[firewalker 10]

Where does this leave me right now? I am actually of the belief that I may need to switch my trading over to the YM instead of trading the ES. Both markets trade very similar to one another so I don't believe there will be a big change. The main reason being that with $5 per point I have more options in regards to my risk management. I can still use the same tools I do with the ES as they work on both markets. I will need to get used to the s/r levels in the YM but don't believe that will be a major problem.

 

I am going to watch the YM this week and look at adjusting my trading plan to suit it accordingly. The same entry and exit setups will remain however more care will need to be taken with creating a sound risk management strategy. Staying in the game at this point is my number one priority.

 

Hi jason, I'm not sure if you have "more options" just because 1 point is only $5. It terms of absolute volatility it's pretty much the same as the ES. For example, if the ES moves 4-5 points in 1 minute, then the YM moves 40-50... net result the same.

 

I agree both are very correlated and move in similar ways. Because the ES is much thicker in terms of liquidity, I did conclude that the tendency to "spike" or "overshoot" is much less probably on the ES than on the YM... just thought I'd tell you about my experiences. As always, I'm interested to hear what your conclusions will be

[jasont 10]

Thanks for the great insight FW. I stuck to the ES today as I tend to find myself more familiar with it. I didn't think about the slippage issue that I could come across on the YM though I'd have to check it out for myself with my trading. I see what you are saying about the YM in regards to it being relative risk wise.

 

My idea was that 30 points being my stop on the YM would have 30 ticks as opposed to the ES stop of 3 points having 12 ticks. Although the YM would move through the 30 ticks just as quick as the 12 ticks on the ES, the 30 ticks does allow one to break up the risk a bit more as opposed to having to bulk. If you understand what I mean. Moving in units of $5 as opposed to $12.50 allows one to position size better.

[jasont 10]

Trading For 20th October

 

Today's Trading Goals:

 

Identify The Trend And Note Changes In Trend Where Needed

Only Place Trades At Reaction Points In The Direction Of The Established Trend

Place Every Trade My Plan Says To

Only Trade After 9:50am

 

9:10 Major news in at 10am so won't trade until after then. VIX is still up near the 70 area which indicates the high volatility is still with us at this point. Gold at this stage is declining from its recent attempt to move higher. The same goes for oil. USD still on the rise. All three indexes have put in a possible bottom, I'm not really going to place much emphasis on it just yet though. Roughly up at about 15 points in the overnight market. We are set to open within Friday's Value area so whilst we remain in that area I will be cautious of any trends.

 

9:35 I'm going to continue to watch the ES today and see what happens. I'll keep the YM in mind but not move to it just yet. Tick mainly trading above the zero area, currently chopping at the open.

 

9:44 Stocks testing the selling side of the market as seen by the Tick. New low for the day made, no real trend seen on the 1 minute or the 5 minute charts. Still appears to be chop.

 

9:51 Tick moved strongly into positive territory now, made new high for the day. Still not trading prior to 10am due to the major news. Volume declining on the move higher. Volatility appears to have quietened off from the past few weeks thus far, could be in anticipation of the news.

 

10:04 Market up a fair bit after the news. Halted at the 970 area, just out of Friday's value. Looking for a move down to the 59-58 area as a possible reaction point. Tick testing the negative area at this stage.

 

10:15 In long at 958.75 due to reaction point at 59-58, EMA's and a volume spike on 3 second chart. Market moved up to 62 area and then hit stop at 960.

10:21 Decline has seen decreasing volume though the Tick is making good efforts to sell.

 

10:28 In long at 957.25 for the EMA's and volume decline seen on the 5 minute chart. Market moving my direction. stop currently at 959.50. Stop hit for another small gain.

10:38 Market is in down trend according to 1 minute chart. EMA's currently trading sideways, Tick playing mainly in the positive but swinging across the zero area quite a bit. Volume was light on the attempt to swing higher.

 

10:50 Calling it a night.

 

Daily Wrap Up

 

Still struggling with my consistency my partner offered to sit with me as I trade to help keep me on the right track. I must say it did help quite a bit and it allowed me to see a few things occur. Big thanks to her on that.

 

I kept to the plan today which was good and probably the best I have kept to it in quite a while. As the market came to my points of interest and showed signs of slowing, I jumped in right away instead of hesitating. I actually can look at the second trade and had I opted to enter as we moved up, I would have been chopped out. The very thing I have been fearing in my trading was prevented by getting in without the confirmation of certainty that I tend to search for.

 

That being said, I was actually going to write how I was on the wrong side of the trend with my two trades. However I realized that at the time there was no real way I could determine that as we had made a higher high and had been putting in signs of a higher low. In fact we did put in a higher low. Placing expectations on myself to know where a trend is when there is no clear one is the sort of unrealistic pressures I have been placing on myself during my trading.

 

It was good to see that I outlined the area I was waiting for and when other elements lined up, I took the trades. The way I followed my plan today is how I would like to follow my plan each day. Setting myself a goal of taking every trade that my plan says to helped me quite a bit. On the first trade I outlined the area I was looking for a trade, when I saw the EMA's line up as well as big volume come in, I took the trade with little hesitation. I trailed the stop on it well and though it wasn't a big gain, it came up positive.

 

The second trade was working another reaction point area that I only noticed as we reached it. I saw the EMA's still holding and the decline of volume on the way down which prompted the entry. Again it wasn't a big gainer but it all counts.

 

So for following my plan today I am giving myself a 10 out of 10. I took every trade my plan said to take and analyzed the market well. There was a time I was skeptical of the second trade working out as I took 2.25 points heat on it initially but I stuck to the plan and ended up on the day 3.5 points.