Ideas for Struggling Traders

[steve46 12]

As regards "slope" of the EMA here is the way I look at it.

 

If the slope of the 200 EMA is up, there are two (2) obvious possibilities. The first is to look for a continuation trade, the other to look for a reversal trade

 

For a continuation trade, I look to see if price has touched and bounced off of the 200 period EMA earlier in the session. If this has happened once before I believe it can (and is likely to) happen again. If it has not, I look at the next level of constant volume chart (2401V) to see if price has "respected" the 200 period EMA, if not I look at the 800V. Each time, I am looking for the same thing. I want to see if price has touched and bounced off the moving average.

 

For a reversal trade and I want to see the 80 period EMA change its position relative to the 200 period EMA. That means I want to see the it move below the 200 EMA before I take a position. As price moves below the 200 I look for a retrace to test that EMA. I want to get filled right at the point where price hits the 200 on a retest. In the current volatility I am giving it a 2 point stop.

 

It is difficult to quantify the angle of slope because charts change perspective as each bar or candle is added. This is part of the "art" of trading. In my view, as the slope steepens, the move is likely to be what I call an "impulse" move. Evaluating the strength of the move becomes difficult because each candle fills quickly. If you are not using Constant Volume bars or candles, you can simply "read" the volume. If for example, you are looking at a standard chart with 5 minute bars or candles you can "cheat" by placing a horizontal line at the 25,000 level. In the current volatility, this is the minimum level needed to sustain a significant move. Also you can look at the relative distance between the open and close of each bar or candle. In a strong directional impulse move, the open and close are at the opposite ends of each bar/candle.

 

Another alternative is to read the "time & sales" chart. One way to do this is to filter your display to show >50 or >100 lot size. As the larger players "lift the offer" (on a move up) you will see the acceleration on the display. Conversely on a move down you will see size "hit the bid" and it will cause the display to speed up as participants scramble to get favorable position.

 

This is just a small part of the picture. Rather than get too long winded I will stop here

 

I hope that helps you

 

Steve

Edited August 21, 2008 by steve46

[steve46 12]

A couple of important ideas for struggling traders. The first is record keeping, the second research.

 

As regards record keeping I think its important to keep a record of your trades and to analyze the results as soon after the session as possible.

 

So I have a simple example of how a trader might keep and maintain records of intraday trading. As you can see it is a very basic record using an Excel spreadsheet.

Constant Volume System Research Spreadsheet #1.xls

Edited August 24, 2008 by steve46

[fy2604981520887472 10]

Hi Steve...

My name is Yusuf and Yes, I am a struggling trader, currently practicing how can I reduce my losses while trading on ES-Future Contract. I have gone through your explaination on 200 EMA Test w.r.t. 80 EMA line that sounds very interesting and I checked it for a couple of times - IT WORKED. Thanks for posting such informative articles. I used to keep 200 SMA line as dynamic S/R and wait for confluence to occur but never dared to open any position as most of the times I get caught in a choppy zone forcing me to close a position only to realize later on that the trade finally ended in my favour. However this was not a good practice as I kept losing money on this idea. Your concept seems to be quiet definitive and I just hope it helps me avoiding my loss nightmare if not profitable trade in the chop-zone (Which it did in the past as per my chart reading and study). I will keep you posted about the developments, but thanks for your post and informations provided for novice traders like ME...

 

A Question - Is there anyway where we can avoid taking such trade set-ups which is range bounded within 2 to 3 points. I can give you examples on the chart where 80 EMA line keeps playing around 200 EMA line thereby confusing us as which break-out it is going to follow. This had been the biggest problem I am facing since I started trading on ES. Unfortunately, by the time the actual break-out happens, I am out of my guts to trade any further after having caught into earlier enteries. If you can help me out so that I can avoid such set-ups, I will be more than thankful.

 

Thanks in all cases for your time and details.

Best regards,

Yusuf SHAIKH

[steve46 12]

The reason I posted an example spreadsheet is to encourage traders who are having trouble to take the time to analyze how price moves. One of the benefits of recording the data is that you have to look at the chart closely, and sometimes you can see that certain circumstances produce higher probability setups.

 

The big problem for any trader is how to handle choppy conditions. If you look at this closely you see that price consolidates around a small range of prices, oscillating up and down a few points. Often the chop can be characterized by price testing the same price points back and forth

 

The first clue is that the 200 and 80 period EMAs are flat (no slope to them). Then if you are looking at volume, you see it fall off significantly. Finally, look at the clock. Ask yourself, is this lunch hour in New York? Are traders waiting for an important economic report (CPI/PPI or something similar)? or for a speaker (a fed banker for instance)? If this is the case, I suggest standing aside until the event is over.

 

In addition to the method I outlined, one has to find some kind of filter mechanism to help point you in the right direction. You could for example use the $VOLD (if you use Esignal). This will show the difference between the up volume and down volume on the NYSE. Also one could look at the $ADD (number of advancing minus number of declining issues on the NYSE).

 

Another method is to simply place horizontal lines on the previous day's chart to show primary support and resistance. Done correctly this will indicate prices where traders have come in to protect their positions. In theory you would want to put on a trade when you see price touch or test a support area and bounce off it. Conversely you would want to put on a short trade when you see price approach a resistance area, test and fail to take it out. Pivots often helpful in this task.

 

A lot of this is basic screen experience and unfortunately I don't know of any shortcuts. I used to spend many hours each evening looking for just such examples. I hope this helps.

 

Steve

[steve46 12]

For those who may want to investigate using $VOLD and $ADD, I suggest trying the following (For Esignal users).

 

Setup a standard or advanced chart displaying $VOLD for example. Put one or two EMAs on the chart. I suggest the same EMA's as for your trading charts if you are using the CV (Constant Volume) charts. That would be mean using an 80 period EMA and a 200 period EMA. Put 3 minute bars or candles on the chart and monitor for at least a month. What you will probably notice is that as long as the bars/candles stay above the EMA's, price is likely to be moving up. Watch the distribution of bars/candles. Trend is when all or most of the bars are one color. As you watch you may be able to see turning points or changes as bars progress. It is helpful to take notice of how price moves as these bars approach and test the 80 period EMA.

 

If you decide to use the $ADD in addition to the $VOLD be aware that they show different data. For instance, you may see the $VOLD display move up showing all trending bars or candles, while at the same time the $ADD shows bars moving in the opposite direction. This can mean that the broader market is moving up, while some players are selling into that move. We might assume for instance that larger players are taking this opportunity to sell into that buying...and of course the reverse (of the above scenario) also occurs.

 

Again this is all predicated on taking the time to get used to these indicators.

 

Hope this helps

 

Steve

Edited August 25, 2008 by steve46

[steve46 12]

Yusuf this might be of some help to you

 

Today was an example of a choppy open. We had a housing report at 10:00am EST so there was plenty of reason to stand aside and let things shake out.

 

All the while I am watching the $VOLD and $ADD and they are red all the way

 

We did see some minor program buying early in the AM

 

BUT if you were patient and kept watching the 800V chart, you would have had a nice setup test of the 200 period EMA to trade short.

[steve46 12]

Here is the same trade about 30 minutes later. 5pts profit so far.

[steve46 12]

and here is a shot of the 5 min $VOLD

[steve46 12]

and the 5 min $ADD

 

In both cases ($VOLD and $ADD) the 80 period and 200 period lines are not visible because we gapped down and the lines are above the display...

[steve46 12]

This is what the open looked like on an 800V chart....

 

You had a couple of tests of the 80 period EMA, but no tests of the 200 period EMA

 

Just using this chart, your choices were to trade the test of the 80 or stand aside

[steve46 12]

and a shot of the open using a 10,000V chart

[steve46 12]

and a final shot of the 2401V chart

 

Again you can see how choppy the open and the beginning of the day was as traders waited for the report at 10:00 EST

[steve46 12]

And a traditional candle chart (w/5 min candles). I have a horizontal line in place showing Friday's low. The 10:00 candle shows the market's response to the housing report. It gets sorted out in the next 40 minutes and then we have a nice short opportunity. The wide range red candle is what I term a "failure candle". Right after that you have some nice high probability short entries.

[steve46 12]

I have a couple of final comments as regards using this system

 

First, one can see (at least I hope one can see) that the first challenge struggling traders face is find a way to "see the markets". To me this means having some context or framework in which to see movement, and some baseline to gauge when to get in and when to get out.

 

Second, one has to develop some confidence in the system. One way to do that is to spend time (screen time) watching price movement develop on your charts, seeing how price acts when it tests the 200 and 80 period EMAs. Especially for new traders, I think it is important to see for yourself how price moves, so that you can start to have some confidence in your entries. Also I posted a spreadsheet showing one simple way to keep intraday data. This is also important because the next challenge is learning to manage the trade

 

Managing the trade means having a stop in place (the right size stop) and knowing when to take profits. My advise to beginners and struggling traders is not to trade one contract. Its just too difficult to make money that way. If your account size is less than 20,000 USD, I suggest you either wait and work on a simulator. If you have risk capital (capital that you don't mind losing) I suggest trading on a sim until you have consistent success, then trading at least 3 contracts and scaling out. If you look at the max profits column on my spreadsheet you can see where the scale outs should be in this volatility. Of course you would want to evaluate this based on more than one day's data.

 

The final challenges are discipline and focus. I believe most if not all of you (new and struggling traders) have the same problem. That is you don't or cannot currently focus on a chart without distraction. What that means is even if you have a good system, one that you have confidence in, you will still miss trades, and you will be tempted to chase entries. Until you make it your top priority to have no distractions and to be focused on your objective, you probably won't make money. The discipline comes when you take losses. You have to have the confidence in your system to know you will win if you keep your discpline and take the entries. If you stop or hesitate because you think you're going to take a loss, then you are already beaten. You might as well stop trading and go back to your research, because you haven't found the method that works for you yet.

 

I think that is about all I can say on this subject. So I will stop posting at this point. I wish everyone the best of luck in the markets.

 

Steve

 

PS; That last trade is now at +14 ES points.

[brownsfan019 17]

Good thread Steve, thanks for sharing.

 

Much easier to do it here vs. ET.

[fy2604981520887472 10]

Hi Steve...

 

First of all - MANY THANKS for your kind contribution.

Its just that Simple Principles sometimes are overlooked and the result is a disaster. I totally agree with your ideas and infact I started implementing those on my daily chart as well. Things seems to have changed for me as I can visualise a trader rather than guess it. Thanks for all your time and ideas once again.

 

Good day,

Yusuf SHAIKH

[minoo 11]

Hi Steve

 

Below is an short blog (Oliver Velez) which discusses the Igniting and Ending WRB's from & to areas

 

http://blog.vcmtrading.com/2007/10/20/wide-range-bars-and-what-they-reveal.aspx

(podcast at left-end of the article)

 

You described in your previous thread WRB which cuts through the areas (200 EMA)

I would like to discuss which WRBs are likely to get retrace most;

The one which cuts through the Area - or - the ones which gather-steam (chop) and lift off from areas (Igniting type)

 

I absolutely benefited from your previous threads, you quite well demonstrated that Simple Solutions can be applied consistently & market rewards one to be consistent. Unfortunately most of us lack belief in such simple solutions. Please throw us some light on the Psychological aspect of trading

 

Many Thanks

Minoo

[OAC 10]

I absolutely benefited from your previous threads, you quite well demonstrated that Simple Solutions can be applied consistently & market rewards one to be consistent. Unfortunately most of us lack belief in such simple solutions. Please throw us some light on the Psychological aspect of trading

 

Many Thanks

Minoo

 

Simple solution yes, simple implementation no.

You still need 10,000+ hours of screen time.

[steve46 12]

Hello

 

I can't help but smile when I read comments like the one above

 

Clearly high level performance in any pursuit requires practice. I think each individual has to decide how to approach this subject. I certainly understand the wish to "have it right now"...I suggest moving ahead deliberately and patiently and then (if you are using a simulator or perhaps just "putting a toe in the water" periodically) evaluate your results over a period of time. In my view it is consistent performance that counts. To give an idea of what to shoot for, I make money 4 days out of every 5 that I trade. To restrict losses, I have a setpoint that I never exceed on a daily basis. The last time I came near to that point was May of 2004, and just as importantly when you do have a losing day, DO NOT TRADE AGAIN UNTIL YOU HAVE FOUND OUT WHY IT HAPPENED. Make a point of understanding what went wrong.....and correct that before risking money again. This is one of the more important bits of advice that I could offer a trader. I hope its taken seriously as you probably won't advance much until you get this right.

 

So to simplify....Choose from the ideas that I suggested and use what works for you...I suggest trading tests and/or retests of the 200 period EMA as a beginning point.....Then be disciplined in the application of the principles....Study and analyze your results using a spreadsheet or something similar....when you make a mistake...stop....identify what you are doing wrong and correct that problem before you trade again......rinse and repeat.

[steve46 12]

Regarding the psychology of trading, understand that I am not a skilled mental health practitioner. In my professional work I had the luxury of hiring only folks who exhibited positive mental outlooks....they were the "winners" who seemed to find a way to overcome the challenges that life imposes on us.

 

What I noticed about them was their attitude....They always maintained a positive outlook...they looked forward to those challenges and approached them with confidence...they assumed they would prevail against any problem, and they were willing to work at it....to do whatever it took...however long it took...eventually they were going to win....period.

 

My suggestion is to start with a winning attitude (confidence) and patience.

 

Most of us know what we should be doing, but do not do it......so

 

Take a sober look at what you are doing with your time.....take the time to analyze what is not working for you and correct it....as a practical issue, whatever issue you are trying to overcome...if you can monitor and correct it for a period of one month, generally speaking you have beaten it.....much of success in trading is about changing your perceptions and learning new habits.....I can assure you the rest will fall into place IF you can simply do this...

[minoo 11]

Hi OAC / Steve

 

Please refer to my chart, I have been a full time learner since the last three years and have successfully traded the eminis from last year (Oct 07)

My setup has two 24" panels and I have attached the layout of one side, I normally trade the ES with the market internal setup, I am quite use to it by now.

On the other panel I watch ER2, NQ & ES 2min charts (for emini price divergence, hedging on trend days or with swing positions, 2B Signals, Confluence of area trades, Gaps, Virgin POC, etc)

 

I am going through a project to simplify my layout, want to cut down on the different trades I take and concentrate in quantity & reduce time of trading

What I have learnt is once the price goes through the 200EMA and successfully test it and once 200EMA gains slope the prices will most likely continue to confluence of target areas (ie weekly monthly pivot yesterdays Hi Lo midpoint pivots etc)

The orange line in the chart is Fib89 band equivalent to 200MA

I am going to base more of my trades around this event and once successful retest occurs, to start scaling in as prices go through areas. I do not take full position on initial entry I scale into to make up the quantity (Still learning the multi contract trade management issues) The entry / exit signals, trailing stops all auto ploted on chart with pre-timely verbal alerts, green markers are entry and green cross are stops. My definition of intraday uptrend is continuous break of minor tops these are scaling levels for me. I use multiple of four to scale in and use lock in profit levels at each scale in point all taken with Tape Tick and Premium with OBV Hook as confirmation in trade continuation direction.

 

Many thanks for the valuable input You all have made a good healthy experience here to learn, share and enjoy and hope this thread sensibly continues on.

 

-Minoo

[steve46 12]

I have two setups, one for summer and another for the rest of the year...I will describe my summer screen.....

 

1. One constant volume chart (during summer I normally use 800V) with 200EMA, 80EMA, pivots and previous day's high and low

 

2. $VOLD and $ADD in very small charts next to the primary CV chart with 80 & 200 EMA on both.

 

I review a market profile spreadsheet that I developed for my trading about 15 minutes prior to the market open. I am able to remember those price points well enough that I don't need to refer to it during the day.

 

Thats it....

 

I hope the message is clear....I couldn't make a quick decision having to consider all the data you show on your screen. I would be chasing entries all the time...

 

Some of this is a function of how good a trader is at remembering and visualizing important price points. I happen to be good at it. If you are not good at visualizing perhaps you need to keep more information on your screen.

Edited August 28, 2008 by steve46

[steve46 12]

As regards scaling in, I know of one person who can make that work. he scales in early in the day, holding to end of day or overnight (possibly for a multi-day swing). For shorter intraday trading, I do not like it. I do however like to scale out. Scaling out allows me to take small profits on trades that do not run, also I am able to scratch trades easier and pay my fixed expenses (commissions for example) that way. I treat this as a business, paying all expenses from my trading revenues. As I have mentioned previously I suggest traders do not trade one unit, as it is virtually impossible to make a living that way. In my opinion a skilled trader with a decent sized account should trade no less than 12 units, scaling out at 2*,3,5,7 and 10 and keeping 2 units left in the market in case the trade runs in your favor.

 

*During the summer I execute my first scale out at 1.5 pts.

 

So the economics of a sample trade are as follows

 

Enter at price A with 12 units.

 

Exit 2 units at 1.5 points for a profit of $150 minus about $10 commission = $140.00

 

Exit 2 units at 3 points for a profit of $300 minus about $10 = $290

 

Exit 2 units at 5 points for a profit of $500 minus about $10 = $490

 

Exit 2 units at 7 points for a profit of $700 minus about $10 = $690

 

Exit 2 units at 10 points for a profit of $1000 minus about $10 = $990

 

A completed 10 point trade brings in a minimum $2600 net of commissions. Remember that we have 2 units to run to EOD if necessary.

 

A losing trade costs about $1260.00 (2 pt stoploss x 12 units x $50/pt plus about $60 commission)

 

This tells the aspiring business person that

 

A. They want to select trades carefully as each loser costs significant money

 

B. Select your stoploss carefully so as to maximize your opportunities.

 

C. They want to hold each trade as long as possible, because it is important to take as many 10 point winners as possible (in order to overcome expenses). Further it is important to catch some trades that move to 15 and 20 points (because this constitutes the majority of your long term profits).

 

D. If you encounter losing streaks of more than 3 consecutive trades, you need to stop and re-evaluate your performance. That includes the size of your stoploss.

 

Hope this helps.

 

Steve

Edited August 28, 2008 by steve46

[steve46 12]

I thought I would re-visit the subject of screen display. I was thinking about it today and it occurs to me that my setup may not work well for new or struggling traders. As I mentioned, we all have our strengths. I am able to remember and visualize price, not everybody can do this....If you are one of those folks who needs to see the larger context, it may be better for you to have a display that includes both a 10,000V chart (or perhaps a 5 min standard candle chart) AND an 800V chart. In some instances, one may serve you better than the other.

 

Here is one example where the 10,000V chart may do a better job (vs the 800V) of showing you where to get on board

 

Look at today's price action on a 10,000V chart. Start at the far left and note how the Asian Markets open and move down, then the DAX (Europe) opens and retraces up to test both the Value Area High and Yesterday's Close...As readers will remember, one of our "ideas" is to trade tests of confluence (2 data points) and the preferred entry is on retest and failure. In this case the test occurs in the pre-market, and the retest at 9:45 AM EST. As usual, there are several nice entry points at or near 1297.50.

Edited August 30, 2008 by steve46

[steve46 12]

Sorry I was interrupted and didn't finish my comments

 

That second trade is an important one. Again the 10,000V chart shows the larger picture, but it is up to the trader to know how to interpret it. I see it this way

 

1. As mentioned in the previous post, price tested the Value Area High (1299) and Yesterday's Close (1298) and failed to take them out. As we can see, traders rejected that area and price retaced to another area of confluence (Daily Pivot at 1291.16 and the Value Area Low at 1291.50). Price consolidated for while in this area for 10 minutes (10:23 to 10:33am EST) and then took that area out to the downside. Traders continued to "reject" this area looking for "fair value" elsewhere.

 

During this move down, the $VOLD indicated a trend day down with mostly red candles. But at the lunch hour, those candles turned to doji's and then the display turned up indicating a possible move up..Check out the attached chart