Ideas for Struggling Traders

[steve46 12]

I'd like to offer a few ideas for trader who may be struggling or simply not seeing the market as well as they could

 

First one needs to see the market in a context. For this I use daily charts

and to frame the action, I use a 200 period EMA (White line) and a shorter 80 period EMA (Blue line).

 

If I can see an area where the market has shown major support in past I locate it using a horizontal line as shown at the bottom of that chart

 

While I do use this primarily to frame price movement, I would have taken a short trade off the test of the 200 period EMA.

[steve46 12]

This chart with daily candles, shows more recent action with the addition of the monthly pivots.

 

In my opinion, an important concept in trading is that of "tests". Price is always testing some landmark or "line in the sand" and one of the challenges is to find out which of these "lines in the sand" is significant.

 

What we can observe here is that recently (8-11-08) price tested an area where two (2) "landmarks" exist close together (the monthly pivot and the 80 period EMA). In my experience, trades taken off tests of areas where two or more such elements exist together offer improved odds of success.

 

A swing trade taken off the test of the 80 period EMA at 1313.50 or off of the test of the monthly pivot at 1307.50 would have had good success with a low to date of 1274.

 

A short term or daytrade taken from the test point at 1313 and held to EOD would have reached a low of 1288 and a profit of 25 ES points.

Edited August 17, 2008 by steve46

[steve46 12]

Since we are talking about "seeing" the markets I will begin by suggesting that struggling traders try using constant volume bars (or candles). For the ES market I favor three charts, 10,000V, 2401V and 800V....each chart offers a different "resolution" to market action.

 

Here I show a recent chart using 10,000V candles

 

First notice that I annotate the Nikkei open. What I want to know is "What does Asia want to do, mark it up, down or consolidate?" Then I annotate the approximate open of the DAX, and again I want to make note of how it acts (what its effect is on the Globex market). Of course one could also simply get the charts for these markets, but this way one sees the "effect" of other markets on the Globex. In this chart we see the effect of both markets conjointly. Clearly they are going to take the market up and as the evening wears on, we see higher lows formed (HL symbol).

 

As the US Market opens, I always wait for 4 candles to complete before making a decision. I believe this gives me some idea of the direction of the market's "first move". In this instance a quickly drawn trendline helps to make the decision. Where I show the word "entries" what I notice is that price tests the trendline and respects it (once). In my opinion entry on the test is aggressive (not high percentage) but entry on the open of the next bar with a tight stoploss is a higher percentage move. That entry at 1299 would have offered a 3 point profit before violating the trendline. What follows is a retest of the trendline which forms a lower high and offers several favorable short entries.

 

Frankly the short entries are a reflection of the trader's ability to recognize changes in momentum. Obviously the "failure" candle is hardest to recognize, but the short tail of the next candle should tell you that the odds are in your favor, and the next candle really confirms it. Short entry in this area (1299.25) provides favorable position and results in a nice potential profit.

 

Although the subject of position sizing is complex, I suggest that a trader not trade small accounts. Instead I would wait until I could trade at least 4 units (with a minimum 20,000 USD) acccount. I would suggest scaling out one (1) unit each at 3, 5, and 10 points, leaving one unit to run. For this market and current volatility I would use a 2 point stop. I would not trade this market with one unit.

Edited August 17, 2008 by steve46

[steve46 12]

In this next post we show the balance of the 10,000V chart for that day (8-15-2008)

 

What happens is that price continues to consolidate and test the 200 period EMA. When this happens we take notice of the relative position of the 80 period EMA. Notice that both are approximately horizontal. We expect consolidation to continue and we look for long entries (because the 80 period is above the 200). Entries upon retest of the 200 EMA proved profitable in this chart. The first entry at 1294.75 resulted in a profit of at least three points if you scaled out as I recommend. The second entry was at 1295 and took heat down to 1294. This trade would have resulted in a five point profit, scaling out at three and five points (if exiting at 1300).

[steve46 12]

Here is an example chart of the same open using 2401V candles.

 

Note the open of the Nikkei and the resulting move up..somewhat later the DAX opens and moves up. There is a retacement but ultimately the market forms a series of higher lows prior to the open at 9:30 EST (Market Open).

 

Notice the test of the 200 period EMA (where it says "Higher Low" during premarket) and the relative position of the 80 period (blue) EMA. Notice that price then creates a higher low but never really tests the 200 again. This indicates strength. The market opens and tests the 80 period EMA and the long entry is obvious.

[steve46 12]

and finally we have a chart using 800V candles

 

On this chart, because the data is spread out a bit more, it is not possible to see much of the premarket. We assume one would review and monitor that movement using one of the other charts.

 

The nice thing about this chart is that it shows tests of the 200 and 80 period EMAs very clearly. Again we see the relative position of the 80 above the 200. High probability entries (long) happen when the 80 period moves from below the 200 to above just prior to the test and vice versa. Once that happens we look for the test and take the trade.

 

As one can see there is an advantage to using several of these charts concurrently. If for example the trader misses an entry on the 10,000V chart, often there is another chance to enter by switching to the next "level".

 

One important comment at this point. Although it seems easy in hindsight, I think the primary challenge for a struggling trader is controlling the urge to act impulsively. One has to wait for the setup and not "improvise". This takes a lot of screen time and practice.

Edited August 17, 2008 by steve46

[daedalus 10]

Great posts steve! The 200ema and 80ema's can be powerful support and resistance tools.

[brownsfan019 17]

One important comment at this point. Although it seems easy in hindsight, I think the primary challenge for a struggling trader is controlling the urge to act impulsively. One has to wait for the setup and not "improvise". This takes a lot of screen time and practice.

 

Ain't that the truth.

[james_gsx 16]

I have a question for you, you use longer term moving average and try to determine the longer term price trend, then you take a short term signal. That sounds contradictory. Have you thought of using those signals to find the big picture, then taking "big picture" trades? From my experience, if you use something long term as the 80ema then take a "short term" trade you will most likely get filled with emotions and take a bad trade. The reason being is because it takes time for price to reach those levels, and they won't be accepted or rejected quickly. Rather they will hang around that area and bob around, before making a move. If you want a shorter term trade, try looking at a shorter term picture and taking trades that correspond with that picture.

 

There is no right or wrong time frame, just find the one that works best for you. While it may seem easy to hold for 2 hours, you may find it difficult to hold for 15 minutes. Theres nothing wrong with that, it's just the way you trade.

 

Now, onto some of your charts. The first problem I see come up is theres no real system involved. You are doing a good job at analyzing the markets, but I don't see anything in there that you could use consistently as a system. What you did is really easy to do in hindsight like you said, but not so easy in real time. From there, I would suggest looking over your annotations and see if there is some sort of consistent flow that continues to pop up. You may not notice it over time, but eventually you'll probably see it. From there, try to draft a system and stick to that while watching the market in real time.

 

You should also decide whether or not you want to trade trend or counter trend. From looking at those charts, I see a lot of good counter trend setups. Since I want to help you, I'll let you look for them. Pay attention to the size of the candle body in relation to support and resistance. That might be a starting point for you.

 

Hope it helps.

[Kiwi 16]

Steve,

 

It seems that james thinks that you don't know how to trade and are looking for advice.

 

My own reading of your explanations varies from his so I suspect that this is not the case. Perhaps you might share your background to avoid future misconceptions (if, of course, this is a misconception )

[james_gsx 16]

Steve,

 

It seems that james thinks that you don't know how to trade and are looking for advice.

 

My own reading of your explanations varies from his so I suspect that this is not the case. Perhaps you might share your background to avoid future misconceptions (if, of course, this is a misconception )

 

First off, I apologize if that is the way I came across in my post. That was not my intent, but now I can see how I was perceived that way. So again, I apologize. The reason I said what I said was because of what he said in the first post about looking for shorter term trades, and because I've been there before. I used to take longer term objectives, and then try to take trades from there. Obviously, it didn't work in the long haul as I was tossed around a lot and couldn't hold on. In hindsight, it looked like a good idea. But hindsight doesn't show the candle in the making - if that makes sense.

 

I would venture though to say, that the OP has experience in reading charts. But I would say he does not know how to translate this skill into a profitable trading plan?

 

eh... maybe I should learn how to read the opening statement. He offers advice to <b>new traders</b> looking for help. I thought he said he WAS a new trader looking for help.

 

I'll insert my foot in mouth, and kindly look like the forum douchebag.

Edited August 18, 2008 by james_gsx

[steve46 12]

Hello Kiwi

 

No, I am not looking for advice. I have been doing this for many years (about 17).

 

I simply wanted to suggest some ideas that struggling traders could adapt to their own use.

 

The 200 and 80 period EMAs, constant volume charts, and the idea of watching how world markets react, are concepts that I have had success with.

I thought I would discuss these concepts briefly, so that traders who may be struggling can see some examples and evaluate for themselves.

 

I hope that clears up any misconception.

 

Good luck to everyone

 

Steve

Edited August 18, 2008 by steve46

[steve46 12]

Another important concept that I have had success with is Market Profile

 

This next chart shows the effect of Asia on our Globex market. As can be seen, the Asian market opens and auctions down to 1297 (near the daily pivot). Then the Globex market moves up to test the 200 and 80 period EMAs located at 1299...coincidentally the value area high is located at 1299.50

 

Price fails to take the value area high out on the initial test. Price retraces and then tests that point again....and fails again...auctioning all the way down to 1295 which is (coincidence again) the value area low. This is where the DAX opens....

 

Now I am limited in what I can say about this but I do believe that Market Profile offers a trader a lot of opportunity if they are willing to do some research...

[smwinc 20]

 

eh... maybe I should learn how to read the opening statement. He offers advice to new traders looking for help. I thought he said he WAS a new trader looking for help.

 

I'll insert my foot in mouth, and kindly look like the forum douchebag.

 

James your post made me laugh so much I had to nominate it :rofl:

[OAC 10]

Hello Kiwi

 

No, I am not looking for advice. I have been doing this for many years (about 17).

 

No personal offense, but 17 years does not mean you may not benefit from advice from someone with less experience. we are very often too close to the trees to see the forest.

For instance, our Wyckoff devotees on this forum would have a huge problem with your almost total exclusion of using natural horizontal S/R levels.

[brownsfan019 17]

How about we just let Steve post what he wants. If you like it, great; if not, head back to DB's area.

 

The title of the thread is Ideas for Struggling Traders. If you are not struggling, then there's really nothing of interest here. If you are struggling, then keep an open mind to a new idea.

 

I personally like the MA's that Steve is using here for intraday trading. I realize that it's not fixed horizontal levels like Wyckoff, but that means nothing.

 

As my high school math teacher used to say - there's more than one way to skin a cat. That's such an odd way to say there's more than one way to do things, but after all these years, that saying has stuck w/ me.

[steve46 12]

This is a little off the subject of my thread but I do want to offer a comment about pivots as follows;

 

When I trade I keep track of daily, weekly and monthly pivots. I prefer however to take trades based on the confluence of weekly or monthly pivots and moving averages. I also take trades when pivots, moving averages and Market Profile numbers line up. If I can get those three planets to line up, I find that produces the best percentage success. I stay off (or fade) trades based on daily pivots. I do this because I believe that retail traders and weak hands are often using daily pivots as entry points. Generally speaking I want to be on the other side of those trades because that group is often wrong, they are easy to flush out of their positions and their stops (when they use them) are the fuel that moves a position in my favor. I don't say this to insult anyone. If you (any of you) use daily pivots, so be it. Divergent viewpoints make the market what it is.

 

The area annotated on this chart shows the confluence of two pivots (daily and weekly) and the Value Area Low is also right there at 1295. Short entry in this area is essentially a bet that price will be rejected from previous value.

Edited August 18, 2008 by steve46

[steve46 12]

Ordinarilly I won't be posting during the trading day. This one worked out nice and I think its a good example for those who might want to see a trade in progress.

 

I got long on what I call a reversal move at 1264.75

 

The chart is self explanatory based on previous posted data.

 

Simply put I like to enter on the retest of an EMA

[steve46 12]

Then as the trade progressed I scaled out all but 2 runners at DVAH 1270.25

 

I did this because I have seen price reverse at the DVAH many times. In fact this area (DVAH) is often a good place enter trades. I chose to stay in my long position and watch.

[steve46 12]

and another shot as the trade continues

 

I scaled out another unit at 1271.75

 

At this point I moved my stop to 1268.50

[dandxg 10]

Steve, question for, since you like to look for a confluence of S/R, which makes sense, what do you do when they are spread up by a couple of points? It's logical to what for everyone to agree and use the same S/R area, but often times they are just a bit off. For example, the VAH may be one place and R1, RTH, is 1.5 pts. away?

 

In that instance would you pass, scale down, or stand aside? Thanks for sharing,

 

Dan

[steve46 12]

Sure I understand. If the spread is more than a couple of points I look to the strength of the setup (whatever is closest to price). So if my 200 period EMA is closest to current price, and the nearest S/R is more than 2 points away, then I may trade it based on how it acts around the 200, but I don't expect much "help" from the S/R area.

 

Also you should take a moment to watch whenever price is near to a pivot or established S/R. What I have found is this....if price is going to go through (take out that area) then it will often do so on a wide range bar. Since we are all watching the Olympics these days, the example I will call on is a high jumper running up to the bar. he has to generate momemtum before he can clear that height. Same with price as it goes through an area of S/R. This means that if you are wrong, be ready to bail as price can and will often move through an area of S/R with a sudden spike or impulse move.

 

The opposite is also true. If price fails to take out an area of S/R it will often move right away in your favor. If it doesn't or just consolidates I will often scratch the trade. I don't mind missing a move because my system always provides another setup to trade.

 

I hope this helps you

 

Steve

[steve46 12]

and this last post to show how that trade ended as I was stopped out at

1268.50

[steve46 12]

This is my final trade for the day

 

Again we see price test an area where both the 200 EMA and S1 are close together. This is a good short entry, but if you missed it, be patient cause here comes the retest.....

[minoo 11]

Steve many thanks for your postings

 

I have been using 200MA & look out for confluences, price patterns formed when its crosses 200MA than anticipate Change or Continuation of direction with test of 200. One question I would like to ask

 

Q) Do you give importance to the slope of 200MA ?

 

 

Thanks Minoo