Ideas for Struggling Traders

[steve46 12]

Steve, this is amazing, your reply helps a lot, learning quite a bit here my friend. The more I practise the trades your style and read your replies the more it sinks in. More importantly the belief in the system is building stronger.

 

In the end of reply you suggest quite a bit of information to comprehend

 

“anchor point is where limit might be located”

 

Does this mean large limit order /s to be filled, so the floor traders bring the market to that level

Do you pick this up via Squawk-box (what would Ben_L normally Squawk-speak here ?) Could you please further throw some light on this

 

The trendline you draw between local low and anchor if its opposite to the 200MA slope you would still take trade in its direction if it shows evidence (3rd touch or 2nd touch ?).

 

Many times this could be the first mean reversion trade to 200MA, if it has the momentum then they go on to reach an area (ie previous Hi/Lo or Globex Hi/Lo confluence with midpoint of daily pivot) adjacent above/below the 200MA. Please comment.

 

I have sighed away from market profile charts and just use the POC as S&R & Virgin-POC same as historical unfilled gaps; Could you please show your weekly / daily profile-chart with the weekly figure / pivot ? you mention

 

Many thanks man, for making this a quite enjoyable learning experience

 

Regards Minoo

 

In response to question #1

 

Well, we are getting far afield from what a new or struggling trader can use. What I mean to say is this....From the time you choose your point of origin (origin) to the time you get ready to trade you have only a few minutes. If you are new to this game, you have to restrict what you look at or you will just get confused...I do look at the DOM to see where the bids are, but I DO NOT take it seriously because those bids can be withdrawn right up to the time price hits them. If you have squawk service, what you are listening for is when Ben says he sees a "top ten" local hitting the bid or that he sees "paper" coming into the pit. I look for "paper" and I look for additional color to tell me how important his observation is. There is a lot more to this, but it will not help you much, for example I know many of the locals, and so I have an idea of who likes to sell it down and who likes to mark it up. I also know who has been on a winning streak and who is losing and likely to be weak to the deck. I hope you are getting what I am saying. It is unlikely that you can get enough background to help you with some of this....I hope some of it is of help. Ben is pretty good but his replacement is not as accurate and so my comment relate only to what Ben says.

 

Question #2

 

Remember that this market is unusual. Because of recent developments the price action is unusual. I would not normally take some of these trades, but again I am looking a different market than you are...and I have access to different information. Whatever else I say about this, I have to say that price action rules....in the end, you can see what actually happened. Price bottomed around a specific place and moved up decisively from there. As far as the trendline goes, I look for 2 touches, and I am usually on long or short at the second one.

 

Question #3

 

I look for 10 point moves. I know that longer term participants (institutions and size) and looking for the same. If you observe carefully you will see that many of the moves test prices points in 10 point "chunks".

 

Question #4

 

I am sorry to say I am not willing to show you my Market Profile chart. I do however advise you to use one of your own development. I always refer to mine before the open. I look at the position of the value area low and high, as well as the previous weekly low and high. Also I take careful note of the "singles" and I watch the big contract to see if and when they fill in. Many of my signals come from the confluence of Market Profile numbers and others such as pivots, EMA's and singles. Finally I like to watch how price acts once the initial balance is completed. I am afraid that is about all I can say about that subject. I hope it helps a little bit.

[steve46 12]

Minoo

 

I appreciate your kind words. I am glad you find some value in the ideas.

 

I want to be clear about what I am doing here. I am not offering a "system". What I am doing is suggesting "ideas" or concepts that any new or struggling trader can evaluate for themselves. I hope that one or two of these ideas will prove valuable and can be incorporated into a system approach.

 

Generally speaking, most retail traders fail to understand that this is a very competitive business. Your competitors are some of the most intelligent folks on the planet. For this and many reasons, I suggest that ALL traders develop a comprehensive business plan. If a trader is truly serious about obtaining success in this field, it is imperative that you do so. That plan should include every aspect of your business including equipment requirements, markets traded, hours of operation, brokerage, execution platform, setups traded, backtests showing expected profit and loss, risk management plan, emergency plan, minimum account size, position sizing, EVERYTHING that your business will do every day....should be a part of this plan....

 

Every skilled (read profitable) professional I know has done this and follows that plan to the letter. They do so, because it is the PROCESS of drawing up the plan that instills confidence that you need to execute without hesitation. They do so, because they KNOW, that success depends on developing the business plan and when problems occur, they refer back to that plan and they adapt and change it until they again have a profitable business plan...

 

This is some of the best advice that I can give, and I realize that few will take it seriously...but at least I tried.

 

Good luck everyone.

 

Steve

[steve46 12]

Interesting day to say the least.

 

I want to say a few things about this session and post a couple of charts

 

The first chart is a standard 5 min candle chart of the open. You can see that market opened and we had an immediate waterfall. Unless you were trading a breakout approach, newbies may have gotten left at the station here.

 

The next chart shows the same action using a 1 min chart and again not much different. Unless you had a heads up that this was going to be a big day, you may have ended up watching the move from the sidelines. In this case drawing a trendline got you a possible entries around 9:45am EST and 10:00am EST

 

and the last chart, using 800v candles shows a nice local high to use for the origin of your trendline, notice the open and then the Anchor point, and then price dips below the 200ema and retests for a clean signal at 9:33am EST (entry at 1195.50 to 1195.75).

 

Clearly if you anticipate a strong move, the 800v chart provides a little more definition, and may give you an entry that easier to see.

Edited September 29, 2008 by steve46

[steve46 12]

I decided to set my comment about this session aside in a separate post

 

First, some may view my comment as a political statement. I assure you it is not. I am retired and don't have an axe to grind. No need of anyones patronage. Don't need money....nothing to complain about. So I say this without any bias. I think one could have anticipated the news (house fails to pass the bailout).....and the reason why is that dems are interested in framing this election as a Obama coming to the rescue of a failing economy, simple....Those republicans who want to preserve their political lives, have little option but to distance themselves from a bill that will end up costing all of us at least 700 billion dollars....They don't want to be seen bailing out Wall Street fat cats....so they got themselves on the record saying it is a bad idea and when the markets opened you could see it coming (I hope some of you could anyway)...

 

I guess what I am really saying is, it is a good idea to take a moment to think about what the possible bias might be for a market on open....you look at the news of the day, you look at the people who control sentiment (newsmakers) and ask yourself, what do these folks want the rest of us to "believe"....Look at how the news media frames events and the timing of the news releases (before and after market hours, during weekends, etc) ask yourself why they do this? Its not that hard folks to get a heads up as to what is coming down the road.

 

I hope this helps a little bit

 

Steve

[steve46 12]

Here is another example of use of a trendline pre-market (origin) and then watching the market open, selecting an anchor point and waiting for a second test.

 

The long trade that follows used a retest of the 200 ema as a signal.

 

Just those trades and you would have been done early, or you could have looked for additional signals (there were several).

[justlurkin 10]

Steve.

 

Could you elaborate on entry on test of EMA method. Do you just enter a limit order and hope not to catch a falling knife or is there something more to look at for confirmation (bar pattern, shorter ma, etc.)

 

thanks

[steve46 12]

You have choices

 

You can enter "at the market" on the re-test (I do this all the time) or you can wait for that doji (pin) formation and enter on the open of the next candle (again using a "marketable" order). I use "marketable" orders about half the time. I don't really care what the slippage is, because I am in the trade for 10 points (or more). After all these years, I pretty much know when I have a good entry point and I just want to get filled.

 

If you decide to wait for the open of the next candle (after the re-test) you have less desirable trade position, and frankly just a much chance of getting stopped out (in my opinion). There is a lot of nuance to the entry, for instance, if you take a moment to look carefully you may see that in some instances the 80 period ema penetrates the 200ema just prior to the signal (you would probably want to use a limit order there). If you wait for this feature to occur, you get fewer but more reliable signals. One thing for certain, you are going to get stopped out periodically, thats just how the game goes.

 

Hope this helps

Steve

Edited October 1, 2008 by steve46

[steve46 12]

Another relatively easy day

 

The 800v chart shows nice detail. The origin is pretty easy to see. The anchor point is where the "art" lies. It is more difficult to determine in real time however, I think if one is patient and watches closely you see where the possible anchor point is....Once you have that in (if you are correct) the rest is pretty easy. This one got 10 points pretty early in the session.

[justlurkin 10]

You have choices

 

You can enter "at the market" on the re-test (I do this all the time) or you can wait for that doji (pin) formation and enter on the open of the next candle (again using a "marketable" order). I use "marketable" orders about half the time. I don't really care what the slippage is, because I am in the trade for 10 points (or more). After all these years, I pretty much know when I have a good entry point and I just want to get filled.

 

If you decide to wait for the open of the next candle (after the re-test) you have less desirable trade position, and frankly just a much chance of getting stopped out (in my opinion). There is a lot of nuance to the entry, for instance, if you take a moment to look carefully you may see that in some instances the 80 period ema penetrates the 200ema just prior to the signal (you would probably want to use a limit order there). If you wait for this feature to occur, you get fewer but more reliable signals. One thing for certain, you are going to get stopped out periodically, thats just how the game goes.

 

Hope this helps

Steve

 

 

I see your point with the 200 ema being powerful turning points but I don't know if I could pull the trigger in real time without quite understanding why this happens (any reasoning appreciated). I read over at ET you used a WMA. Is ther any specific preference to EMA over WMA?

 

Having said this, perusing over the last few weeks' charts, I would feel comfortable fading the 200ema if there has been at least one test and failure to break during the day. i.e. take the second retest with much more confidence. Is there any merit to this method in your experience? Would I miss too many good moves?

 

Jumping in right at the EMA, although scary also would require a valid stop loss. I see that for ES you use a 2 pt stop based on the current volatility. Is it safe to assume that for other products a similar volatility based stop is also valid? Would the first scale out have to be at entry + Volatility in order to get the correct R&R?

 

 

thanks

[steve46 12]

Your comments are well taken. I think that these concepts are just that, only ideas that a trader might want to consider, and perhaps incorporate into a trading plan that fits their personality.

 

As regards the confidence issue, I have addressed that a couple of times, most recently in my suggestion that retail traders draw up a detailed business plan that included backtesting of specific setups. In fact my original business plan is updated every year (sooner if conditions warrant) and one of the things I include is an updated backtest of signals that I HAVE TO TAKE....this is very important. Before I even boot up my computer I have behind me a record of testing that tells me what to expect in terms of my projected P&L. I know how many consecutive wins and losses I can expect on each of my setups. I know if I experience more than that....that I may be seeing some fundamental change in my edge, and that I better take a closer look at the next review date.

 

I treat each setup as a profit center. I keep records of how each setup performs every day, and I tally the results every weekend and make a report that I review at the end of each month. every 4 months, if one of my setups doesn't perform as I expect, I take a very close look, going back in the intraday charts and trying to see what the reason might be for that divergence from expected results.

 

I am guessing that most retail traders don't go to the trouble of doing this...yet it is one of the reasons why I can pull the trigger with no hesitation, and I am thinking that it is the main reason why I was able to retire in my 50's.....

 

Another important idea that you may have missed is the importance of "confluence". What this means is that I place special significance on situations where I see two or more signals line up together or in the same general vicinity. The reason for this is simple, more folks are likely to be taking similar signals giving me better odds of success.

 

As for the debate of whether to use WMA (weighted moving averages) or EMA (exponential moving averages) at this point in time, I think it isn't a big deal either way.....In the light of significant experience, I suggest that when you take a trade based on any signal, you have to realize that these markets (particularly the S&P) are noisy.....This is why you need to adopt a realistic stoploss related to local volatility. I know there are folks who suggest they can trade using tight stops...I have never seen it done consistently and I suggest to you that it can't be done. Even when I incorporate Market Profile levels in my setups, I still have to give myself a 2 and sometimes 3 point stop.......Thats just the way the game goes nowadays.

 

Hope some of this helps.

 

Steve

Edited October 3, 2008 by steve46

[steve46 12]

I didn't trade the open today, but I have a chart that illustrates the idea of waiting patiently....not only for a re-test of the 200 but for the 80 period ema to change position relative to the 200 period ema

 

As can be seen in this snapshot..the price moved below the 200, retested once, twice, three times...each time the 80 stays above the 200....then on the last test (which is really a double top that doesn't quite touch the 200) price takes off down the line for a nice 10 point bump...

 

So the lesson to be learned in my opinion is patience and judgement. You've seen it here, you will see it again, IF you are patient and willing to wait....of course you could have anticipated (bet that the 80 would continue down) and just put on the position earlier, but the risks would have been greater as well. I leave it to your judgement.

 

Good luck

[steve46 12]

I am going to post two charts today. One is a daily chart (candles) with 200 and 80 period emas in place, the other a 570 minute chart (candles).

 

Each type of trading has its challenges. For short term (intraday) traders, the challenges are numerous, including finding a context in which to view the markets, finding a framework that gives the trader something to lean on when he or she pulls the trigger, finding a way to manage risk, learning the importance of account size and proper bet sizing, learning risk management and finally and perhaps most importantly acquiring mature judgement (what some call "market feel", learning the nuances of your market).

 

Longer term or "swing traders" also need to find an appropriate context for viewing market action. Like short term traders they need a "line in the sand" that allows them to know when to act. The other challenges are identical.

 

My point is that for longer term traders, the opportunities are fewer, and once those opportunities have past, the remaining challenge for that trader is to learn to wait patiently, to control to urge to act out of frustration, out of boredom, or because they just need the temporary gratification of "doing something"..

 

For those who have seen these charts before, your first impulse will be to say, "so what, I have seen this. In fact, I see it all the time" and my question to you is "Do you really see it at all?" "Do you really see what is in front of you?" If so, how many of you acted to short this market back in June?" There were several chances to make a decision, and to act

 

If you happened to miss those or you found those entries problematic for some reason, this 570 period chart below provided additional short entries on 8/11, 8/18, 8/28, 9/02, and most recently at 9/19 (where most would have been stopped out).

 

If you are a newbie and you need a context, my thought is, try looking where most folks aren't looking....try approaching the markets in a slightly different manner, and take a long hard look at your own behavior. Markets after all are just the manifestation of group behavior. What you see in these charts is the aggregate behavior of all the participants. Depending on the way you approach these markets, you can be just one of the participants (cannon fodder) or you can control your destiny by taking note of what happens and being ready to act in a disciplined way when your opportunity comes along.

[minoo 11]

Hi Steve

 

Yes you are absolutely right what you said about system & concepts

One can only trade successfully ones own system otherwise I will land up trading against my own personality (traderself) with somebody else's trading plan.

 

My aim was to simplify my system and after coming across your thread I started putting more attention to it!

I similarly trade of Fib89 (Orange) and Fast89 (Yellow) but previously had too much of clutter on my charts

Please have a look at my previous posted chart (at Page 5) and ponder through this simplified one

 

What I have done so far, is taken your outstanding concepts (put it through my learning plan first) and weeded out the rest of my system. This has not only simplified my system and un-clutter my charts; But more importantly I find myself more a-tuned with my system with less decisions to make. I have live tested this system and so far the results are not only good but have been much easier to achieve.

 

My support chart has all the weekly, monthly pivots, midpoint pivots, value areas, daily open etc on them I use this chart as an grid with the Fib89 lines and as usual I use Market Internals with the eMinis

 

I look forward to your comments

 

Regards Minoo

[nycdweller 10]

Hi Steve46,

 

In regards to drawing trendlines do you ever redraw a line to reflect the changes going on with the price action? What criteria do you use to determine when it is time to redraw a trendline? My other question applies to time frames. Is it possible to daytrade using 1 chart and if it is possible, what time frame would you use? Thank you.

 

NYC Dweller

[steve46 12]

Sure, first the trendline process I illustrated in this thread is for the open only. Looking at that process, you can see that identifying the local high or low is not particularly difficult, waiting for the open can cause a bit of tension if you are a newbie, but the real difficult is identifying the anchor point. By definition you must have a straight shot from the local high/low, to the anchor AND to obtain favorable trade position you have to have a retest which is your signal to trade.

 

So you can see where the "art" is, and there is plenty of opportunity for error.

 

This is why I like a slow chart (729V or 800V) on the open. When the planets line up, you see an arc or curve, from the local high/low, past the open, to the anchor point. If things continue to go your way, you see another arc or curve from the anchor point to the point of retest.

 

Now the most common problem is putting in the trend line too soon. If that happens you're going to get stopped out. Its as simple as that. Go back and look at the examples that I posted, and see what happens if you act too soon, if you aren't patient. You may get a test, but then price takes out the trendline. This is why I like to keep a chart up that has the 200 and 80 period emas in place. This can help you to see whether price agrees with the placement of your line.

 

If you want to look for other time frames, you might experiment with slower ones, like 343V for example. Holding both charts up on the screen in front of you may give you a clue early in the game, as to whether you have made the right choice placing your line.

 

I hope some of this helps.

 

Steve

[nycdweller 10]

Hi Steve,

 

Thanks for responding to my questions. Does your method of trading work effectively on the days when the market is choppy or congesting? I notice in some of your messages you comment about the value areas. Is it necessary to incorporate Market Profile into the method or can the 80 and 200 EMA's work alone? Thanks.

 

Mario aka NYC Dweller

[steve46 12]

Hello Mario

 

Thanks for your question. The truth is that these are "ideas" only. Concepts that could be made into a systematic approach. Thinking about your question I realize that for the ES contract, it is not uncommon to see trend in the morning at the open, congestion at the lunch hour, followed by more trend behavior and then congestion in the last half hour (when the big players have left the building). In truth the most important issue for traders is to learn to judge when conditions are right for your system, to learn to know your own strengths and weaknesses (do you trade out of boredom, or because you are impatient and "think" you see a setup?). Really no system except a completely automated one, will do it all for you and let you lay out at the pool.

 

Frankly when I trade I bring everything I have to the game....I prepare like few people do, looking at the overnight markets, checking my Market Profile setups, I look at my pivots, my EMAs and a few other things that I have in my pocket.....After so many years of doing this, I can go through the homework process in a couple of hours and have a game plan ready.

 

If you could see how the best pro football coaches work, you would notice that they go into the stadium with a game plan that covers every play in advance from the kick off to the last play of the 4th quarter. They have it all ready to go, and if it doesn't work out, they also have the skills to improvise and adapt to whatever the opposition tries to do....I never show up without a similar type of plan from the opening bell to the last few minutes of the session.

 

To give just one example, I go into the open knowing that I will trade one way if the market opens "in value"...Another way if it opens "out of value"....I am also looking to see if I can strike a trendline to trade off of the premarket high/low...and at the same time I am evaluating several other options in case conditions change. Because the open is in my opinion the most important trade of the day, I really try to focus and get on the right side early....Most people don't realize it, but the real discipline is "learning how to think"...that is to say, you actually have to learn to think in a specific way (otherwise if you are a newbie, you will probably run out of time or get bogged down in analysis, missing your opportunity for favorable trade position). It is similar to the way a quarterback "checks off" his recievers as he stands in the pocket.

 

Sorry I got so long winded. The short answer is you could just trade the 200 and 80 IF you did enough testing (and screen time) to see how they work for your market.

 

I hope this helps.

 

Steve

[HAKUNA 10]

Thanks for the great posts Steve46 and insights. Kind of you to share you experience and knowledge.

Am somewhat confused regarding Anchor point after the open or prior open and local high/low, and then drawing trendline etc, would appreciate if you would take the trouble to explain on a chart.

[HAKUNA 10]

Thanks for the great posts Steve46 and insights. Kind of you to share you experience and knowledge.

Am somewhat confused regarding Anchor point after the open or prior open and local high/low, and then drawing trendline etc, would appreciate if you would take the trouble to explain on a chart.

[namstrader 10]

Thanks Steve46 for your excellent posts. Your insightful analogies and discussions about what it takes to become successful at this game have been very helpful for me. Hope that you continue further with your sharing with us struggling traders. Man, we want to be the quarterback so bad, and get off the bench but I have learned to flow and be patient and know that it is all coming together. You begin to see and anticipate likely events much better with time, and each year later I feel wiser, but I know one year later I will be at a better place again. No endpoint, just a cool journey acquiring trading wisdom and eventually I hope trading wealth. Knowledge of the game and self first. Trust has to rule fear and only time and experience offers newer awareness not seen on the charts yesterday. Most of my comments probably are nonspecific and full of fluff, but that's me. Thanks again.

[minoo 11]

Hi Steve

 

Could you please throw some light on how to handle this volatility.

Bars over 10 ticks have recently stopped me out many times at entries and before my positions can reach the anticipated targets. It seems trailing stops need to be maintained even larger than placed at entries

 

Please explain when you describe 800V as slow chart, when candles get built much quicker than say 2401V. I like the 800V as it plots smaller range candle comparatively than higher vol charts but find it difficult to handle (more decisions and more times it criss crosses the moving average lines rather than test or retest of them)

 

Many Thanks

Minoo

[steve46 12]

One quick way to manage volatility is to do a better job of planning your entry.

 

For example, I prefer to enter at places where two or more important price "landmarks" exist. It can be any two items on my list including pivots, "singles", Market Profile numbers (value are highs and lows), and EMA's (200 & 80 period). When you enter at places where two or more signals exist together that is called "confluence". Common sense tells you that where two or more important signals exist together, more traders are likely to be entering, so your odds of success are greater. If you are new to trading or struggling, I suggest you restrict your entries to places where you have "confluence" of two or more signals.

 

Now if you are an experienced trader, well, you may not need my help, but if you do, one thing I suggest is to look at how many contracts trade a specific prices. This is the simplest way to find turning points. It is called reading the tape. You can find similar information if you put up a chart with "volume at price" (if your charting software offers it).

 

Finally if you want to learn to see the effect of volume at turning points (where presumably you might want to enter) just put up a chart using 1 minute bars or candles and with standard volume. Look at how volume spikes right before price reaches a "local" high or low. If you choose candles, you will often notice volume spike right before the high or low and you will see the candle form a "doji". If this happens at a local low, the stem of that doji shows you that buying is coming in, participants see value and the market is getting ready to move up.

 

As for charts, I think you are correct, 800v charts can move fast, and perhaps it is better to think of them in terms of how they fit your trading style rather than how I characterize them.

 

I hope this helps you

[sdoma 10]

Hi Steve

 

Could you please throw some light on how to handle this volatility.

 

I know this isn't addressed to me, but my name IS Steve, so...

 

Anyway, one thing that hurt me when the volatility really opened up was that I like to buy dips in an uptrend and sell rallies in a downtrend. Normally a very profitable strategy, but when the markets get crazy like this the moves are too vicious to trade like that. You should always be getting in with the direction of the market at the moment you put on the trade, and use your stops. As soon as the trade moves for you, put the stop to breakeven plus one tick, then if it runs further start to slide along behind it and lock in profits.

 

Your attention if you are scalping this kind of market is always on your stop, because this controls your maximum loss (and minimum profit). Too many people make the mistake of getting greedy or scared in this kind of environment, and good trade management will really help you with that.

[steve46 12]

I like your comment on stops. Clearly the importance of stops is underestimated by retail traders. In addition to this, I think it is important for retail traders and traders who are struggling to learn to stand aside at certain times as follows;

 

1.) Most retail traders have small accounts. Frankly they are often undercapitalized. This results in trading with small stops in markets they should not be involved in, in the first place.....When markets display increased volatility and you have a small account, stand aside....watch and learn first, and preserve your capital

 

2.) Markets are likely to act volatile at times of release of economic reports like FOMC, around earnings reports, bond auctions and at many other times (including the first few days of each month and quarter). Know when significant "events" are scheduled and stand aside at these times. One way to do this is to check "briefing.com" or any similar website for market news.

[Bearbull 10]

Finally if you want to learn to see the effect of volume at turning points (where presumably you might want to enter) just put up a chart using 1 minute bars or candles and with standard volume. Look at how volume spikes right before price reaches a "local" high or low. If you choose candles, you will often notice volume spike right before the high or low and you will see the candle form a "doji". If this happens at a local low, the stem of that doji shows you that buying is coming in, participants see value and the market is getting ready to move up.

 

Good post, very much in keeping with the essence of Wyckoff Methodology and consistent with many of the other posts in the Wyckoff forum.

Infact Dbphoenix has illustrated this quite beautifully on 5sec charts.