Ideas for Struggling Traders

[steve46 12]

The $ADD also turned up during the lunch hour, indicating that some buying was coming into the market.

 

During the next 40 minutes price moved up to test the Value Area Low, failing to take it out and again we can see the retest at 14:27:09 and the subsequent failure creating a lower high. As always there were several places to get short.

 

This is an important trade because it is based on the idea of rejection of the value area. Not just the value area high, but previous value in general and that (to me) means the market is rolling over and that traders are taking profits and looking for value at a lower price (professional use the phrase finding value at a "better price"). As you can see from a quick review of the original chart, the downtrend that started in the morning, continued after the lunch hour (this happens all the time) and traders took this market down another 10 points in front of a long holiday weekend.

 

In closing I think its important to mention the value of Market Profile. If you use it for a while it forces you to think in terms of value, not as a single price point, but as a general concept. Today's market rejected a range of prices as it moved up and down testing. Knowing that this was a possibility, a trader could enter at the extremes with some confidence knowing that they might get a 10 point profit. Otherwise you might be tempted to scalp and get flushed out early, leaving money on the table. For those who are not familiar with Market Profile I suggest looking into it.

Edited August 30, 2008 by steve46

[Turkii1520887476 10]

Steve helpful posts...thank you....i do have one suggestion though in looking at it....I like the 3 chart concept and use an 800, 2400 and 7200 (3x) one thing that might be helpful to some is to change the 200 moving avg on the 800 and the 2400 to 240 and what happens is that on the 800, the 240 line is the same as the 80 on the 2400, and on the 2400, the 240 line becomes the same as the 80 on the 7200, thus you are working with the same numbers.....it helps me so i thought i might add it here.....

[steve46 12]

I appreciate your kind suggestion. Been there, done that, got the T-Shirt.....

 

As with many such ideas, there is a cost, a "trade-off" if you will. What is it? Well, you can see for yourself by putting the 240 EMA in place right alongside the 200 EMA. Then you simply scroll back through the candles.....sometimes you get signals you wouldn't have with the 200...I think each trader has to make their own decision.

 

Now on a related subject....and this pertains particularly to newbies and struggling traders.....one of the problems you (both groups) suffer from is the need to have an EXACT PAINT BY THE NUMBERS BLACK OR WHITE trade signal....if you last long enough and get enough screen time you will at some point figure out that exact signals, crisp, no debate, black or white, yes or no, trade signals are NOT a feature of most decent systems. Instead what we have to work with, are signals that tell us to go long or short in an area, a neighborhood and to watch how the market develops at that point, and THIS is my segue into the importance of stops, of knowing what the correct stop size is for the current volatility and (as you develop your experience and your abilities) how to judge whether your entry is going to work or not....

 

One way is to look (after your entry) at how many units traded around your entry on the bid and on the offer. As an example look at the previous days chart and if you have the data check out the entries I show on my chart. Look at the number of contracts that traded on the bid/offer at 1297.50 and you will see "why" it was right to go short at that point.

 

Look particularly at the candle at 9:48:22 (on the 10,000V chart). Professionals call that candle a "peekaboo" because locals use that candle (price) to get a "peek" at what is hiding (stops) above that price point. If a significant number of stops had been hit at and above 1297.50, the market would have broken out to the upside, but as you can see it did not. In fact the opposite was true, and the "stops" were waiting below that price point and as you can see, price retraced a full 12 points down from there. For those who are serious about obtaining professional status in this business, this is one of the differences between a skilled professional and a retail trader. A professional knows how to read the tape, a retail trader cannot and so he just enters and hopes for the best......The moral of the story, start learning (it takes a while) to read the tape.

 

Good luck

Steve

Edited September 1, 2008 by steve46

[steve46 12]

There is one more thing that occurs to me.

 

It is important that people who are trying, who are giving their best effort to this very difficult pursuit, not be mislead.....One thing that is important (to me) is to provide traders and would be traders with an accurate picture of what the business requires and what the risks are. In this respect my views are very similar to Mark Cook's. Here is a link to a short speech Mark gave about "avoiding trading mistakes" (under "PDF workbook", click on the arrow).

 

http://club.ino.com/trading/tag/common-trading-mistakes/

 

Most people tell me it is difficult to listen to because what he talks about falls into two (2) categories, things you want to know and things you don't want to know....

 

I strongly suggest traders (newbies and struggling alike) take a moment to listen to "both sides of the story"....

[Kiwi 16]

Well worth listening too even when things are going ok steve.

 

I really liked his definitions of "idiot" and "moron" and will apply the terms with slightly more care over at et. Clearly some of the people I labeled morons might only be idiots.

[Turkii1520887476 10]

the "area" idea was sort of my point...as we are looking for a "neighborhood" to get into a trade, just thought that some might benefit from seeing the picture from the same side of the street from two different size charts as all...so essentially i am in agreement with you, but just thought that might add a little something for some people (i also have the t-shirt)....lol:cool:

[steve46 12]

I think Mark Cook's comments are very realistic. It is cliche but true that this business is a marathon rather than a sprint, and to survive I think one has to get into subjects they don't really want to including how to prepare for (and come back from) significant losses. Also on a related subject, every trader should have a program in place to handle interruptions of service, natural disasters, and other events that could cause harm to their accounts. Similar to backing up your computer files, nobody wants to do it, until it is too late. If you really want to a part of this business, you have to give this some thought or one day events will overtake you.....

 

As regards "ET" clearly the site owner has decided to let it become the equivalent of an Internet "public restroom". Too bad...

[steve46 12]

the "area" idea was sort of my point...as we are looking for a "neighborhood" to get into a trade, just thought that some might benefit from seeing the picture from the same side of the street from two different size charts as all...so essentially i am in agreement with you, but just thought that might add a little something for some people (i also have the t-shirt)....lol:cool:

 

I appreciate your comment and I hope you will continue to participate.

[dandxg 10]

Hi Steve quick question (s) if I could?

 

First thanks for your thread.

 

When you use monthly, weekly pivots what formula do you use? John Person, a well know pivot guy has one his site and my pivots dot com uses another? Or atleast the results don't match using the same input? Here are the examples below

 

http://www.mypivots.com/calculators/pivot-point-calculator.aspx

 

http://www.nationalfutures.com/pivotcalculator.htm

 

Regarding using market profile S/R VAH VAL in your examples are you referring to the previous days' VAH VAL or current? I must have missed that one.

 

Thanks,

 

Dan

[steve46 12]

Hello

 

If you read the text on both site, they claim to use the same formula

 

"H + L + C /3"..This is how most users get their daily pivots. The rest is just a matter of manipulating the basic formula to get support and resistance. Personally I use the formula built-in to Esignal. I think MyPivots is probably fine as well.

 

The market profile items I mention in my posts refer (always) to the previous day. I also use current day information that is proprietary, so I have not shared it. I will say however that one can develop a number of reasonably good systems by looking at the the way the current day's profile develops and thinking about it a bit...Its not rocket science. I found a number of elements based on the size of the initial balance that worked well just by trial and error. Remember that my own preference is to trade "tests" and "retests" of specific price points.

 

I hope this helps a bit

 

Steve

[dandxg 10]

Hello

 

If you read the text on both site, they claim to use the same formula

 

"H + L + C /3"..This is how most users get their daily pivots. The rest is just a matter of manipulating the basic formula to get support and resistance. Personally I use the formula built-in to Esignal. I think MyPivots is probably fine as well.

 

The market profile items I mention in my posts refer (always) to the previous day. I also use current day information that is proprietary, so I have not shared it. I will say however that one can develop a number of reasonably good systems by looking at the the way the current day's profile develops and thinking about it a bit...Its not rocket science. I found a number of elements based on the size of the initial balance that worked well just by trial and error. Remember that my own preference is to trade "tests" and "retests" of specific price points.

 

I hope this helps a bit

 

Steve

 

Steve, thanks, yes it clears it up. I meant to ask you do you use all session data for pivots and S/R or just pit traded hours?

[brownsfan019 17]

I noticed that too that some sites have different numbers for pivots.

[steve46 12]

I use RTH (reg trade hours) for everything except Market Profile. Regular Trade Hours are 9:30am to 16:20pm EST

 

I use several Market Profile charts as follows

 

1. RTH chart (see above) for my RTH trades

2. Overnight chart (16:30pm to 9:30am) to identify specific opportunities (sorry that is the best I can offer you)

3. Longer term charts (Weekly and Monthly) and again I use these to identify specific opportunities

 

Steve

[dandxg 10]

I use RTH (reg trade hours) for everything except Market Profile. Regular Trade Hours are 9:30am to 16:20pm EST

 

I use several Market Profile charts as follows

 

1. RTH chart (see above) for my RTH trades

2. Overnight chart (16:30pm to 9:30am) to identify specific opportunities (sorry that is the best I can offer you)

3. Longer term charts (Weekly and Monthly) and again I use these to identify specific opportunities

 

Steve

 

 

Thanks Steve, don't you mean 9:30-16:15ET? The futures close then unless something has changed or something I have missed?

[steve46 12]

Sure go ahead and use 16:15

 

I happen to use the CME close at 16:20 for my own work...

 

16:15 will work just fine....

 

Good luck

 

Steve

[Guest forsearch]

Sure go ahead and use 16:15

 

I happen to use the CME close at 16:20 for my own work...

 

16:15 will work just fine....

 

Good luck

 

Steve

 

Since this isn't ET, I won't belabor the issue, but....where and when did CME start closing at 16:20? Maybe a cite would help us all get on the same page here.

 

Thanks,

-fs

[steve46 12]

The CME settlement is an accounting process that happens after the close at 16:15. Simply put it take a few moments for all trades to be counted (this is my understanding). I have no idea "when" the CME decided to do this. You may want to inquire if it is important to you....I use the CME settlement (not the close at 16:15) in my calculations so I wait until 16:20....and if you have Esignal you can take that data point off the 16:20 bar or candle, or you can go to the CME site and get it from the Settlement data for index futures. Here is a link to the CME settlement

 

http://www.cme.com/html.wrap/wrappedpages/end_of_day/daily_settlement_prices/es.html?h=1

Edited September 6, 2008 by steve46

[steve46 12]

Ah it seems I missed your point. Your comment was about "who is right"

 

I see

 

Yes the "close" of trading is at 16:15

 

The CME settlement which I mistakenly labeled the "CME close" usually posts at 16:20

 

I have made that mistake when talking informally to traders for years.

 

You are right....

[steve46 12]

Okay so lets get back on the track here....The next item that should be important to struggling traders is detecting trend on the larger time frame. I have attached a chart using 570 minute candles. I like this because it shows longer term trend nicely and one of the candles always corresponds to the market open. As you can see from a quick scan of the chart, since mid-July we saw a very nice up trend, and if you had some experience with this kind of chart and the use of trend lines, it is possible that you could have taken some early entries, and just held to EOD for an average of 28 pts.

 

Notice also the transition from up to downtrending movement, and notice particularly the last significant move down. The wide range bar (taking out the trend line at 1258.75) moving down to a low of 1226. One can see the origin of tha move beginning on 9/02, where price tried to take out the upper trend line, tested that area and failed. Traders came in at that point (1297) and sold that market down significantly and if you had a longer term chart to refer to, you might have taken part of that move to the bank.

Edited September 8, 2008 by steve46

[steve46 12]

Easy to take for granted the simple skills like drawing a trend line

 

I will use the previous chart (which by the way was badly annotated, my bad) and do it correctly this time.

 

In general you want to connect three points with your trend lines. This is the classical method. I don't adhere to that however. I will start with any two points and look for price to confirm my trend lines with a third touch.

 

Further, I like to draw one set with what I call an "origin" or base point (seen on the top of this chart, and for the secondary line I like to start it somewhere BETWEEN the upper touch points.

 

While it may not seem important, it is a detail that new or struggling traders should pay attention to because it can impact how you enter and/or exit your trades

[steve46 12]

Regarding the use of the longer term 570 minute bar or candle chart, you can see the touch of the upper trend line in the overnight market (sometime after 00:00:00 EST) This suggests that price might want to correct back down. Its just a data point and one would want to develop some more evidence for a possible short before entering of course.

 

That pre-market test occurred at 1282 and the US market opened at 1276.50. A swing trader might have been willing to take that trade using a stop just above 82, perhaps trading around an options position. I would not be doing that, and I am pretty sure a newbie or struggling trader could not afford that risk. The return however could be anticipated from previous recent volatility (one way of estimating profit targets is to measure previous wide range "down" bars or candles).

Edited September 8, 2008 by steve46

[steve46 12]

Today was a fairly easy to anticipate trend day down, as institutions and funds took this opportunity to sell inventory to retail.

 

Newbies and struggling traders who want to survive, have no option but to observe during these times. I think the way to handle it is to simply follow whatever rule set you have established and be cautious. Market psychology rules the market. That is to say, media creates the illusion of an opportunity to buy (releasing the news of a "bail out" after close of market). The market shows a "gap up" suggesting that (retail) demand exists, and institutions are only too glad to cooperate by selling marked up inventory to naive retail buyers.

 

The next day (today) institutions sell it down as the public continued to buy early in the morning. Then as the bids trailed off, size players marked it down and were able to sell at a profit all the way back to the previous low (where many of them bought it to begin with). and so it goes back and forth.....

 

Once you learn to see the cyclic nature of this activity, it is easier to be patient and wait for the periodic opportunities that show themselves in this and every market in the world. This also illustrates the importance of risk management and learning to minimize loss so that when an opportunity arises, you have sufficient capital to participate.

 

Two charts this time. the first is a 5 min chart of the Globex market showing the early action and test of the previous days market.

 

Then another 570 minute chart with Monthly, Weekly and Daily pivot, as well as support lines in place. Note the confluence of the trend line and Monthly Pivot.

 

By the way, there is a good reason why the test of the trend line occurs during the night...can anyone guess why that is usually the way it happens?

[steve46 12]

Here we go again folks

 

News this afternoon includes Bank of America's expected bid (expected by this evening).

 

Here is the chart showing the gap down

 

Re-read the previous post and ask yourself "what will the market do tomorrow?" Will the retail public take the bait yet again?...Will the market rally tomorrow (only to see institutions take it down the next day). News also includes an article about a 50 billion dollar fund that will be use to help troubled US institutions.

 

Will institutions and size players try to steal this one in the overnight market this evening....Look at where we stand right now (4:40 PST/7:30 EST)

[steve46 12]

and here we are a little after midnight (PST). A lot of coincidences tonight in the charts. First we have the daily and weekly pivots exactly the same (see the chart). Then we have price testing the weekly low, which happens to be Friday's low...at 1210.75

[steve46 12]

Well, I am done for the day. The time on the west coast is 8:26am PST

 

As can be seen on the chart, the market opened and retail investors took the bait yet again, buying the market on reassurances that the government would not allow these major institutions to fail. Of course we looked for places to get short in the pre-market, but did not see a low risk opportunity, so we waited for the "sure bet" at the open...and right off the opening bell we saw several nice low risk entry points, the easiest of them offered favorable position on a retest of support (1213.50). Entry at 1214, holding to this point in time resulted in a nice profit (we exited at 08:23:17 PST) of 18 ES points.

 

The next "idea" for struggling and newbie traders is use of the trend line. As you can see from our chart, price respected the trend line a number of times along the way to our ultimate destination. Judicious use of trend lines helps the trader to visualize price, to see possible entries and exits, and to stay in the trade longer. The "secret" is when to establish the line and how to draw it. We will talk about that subject more in following posts. Good luck to all.

 

Steve