Reading Charts in Real Time

[thalestrader 14]

For a little long term perspective on the EURYEN, you can see that the EJ bounced off nearly ten year old support in January of 2009, and thirteen months later, in May 2010, it broke below that ten year support. After rallying back to test that support level, and finding that yes, indeed, "support is now resistance," the EJ has started heading down, and is currently within 20 pips of its May 2010 low, a break of which, one might reasonably expect, may open the floodgates for a waterfall down to par (100.00).

 

 

 

Best Wishes,

 

Thales

[thalestrader 14]

For a little long term perspective on the EURYEN, you can see that the EJ bounced off nearly ten year old support in January of 2009, and thirteen months later, in May 2010, it broke below that ten year support. After rallying back to test that support level, and finding that yes, indeed, "support is now resistance," the EJ has started heading down, and is currently within 20 pips of its May 2010 low, a break of which, one might reasonably expect, may open the floodgates for a waterfall down to par (100.00).

 

And for a really BIG PICTURE, should Par break, then I would be looking for a bottom down between 67-78 ...

 

 

Best Wishes,

 

Thales

[thalestrader 14]

Hi folks,

 

I just updated the chart of the day at my blog with a current view of the S&P 600 small cap index: The Speculator King: Chart of the Day

 

I also posted a few thoughts on what the current correction means for my intelligent plan for doubling my money: The Speculator King: Market in Correction: Now What?

 

Also, I will be starting the discussion of Darvas's How I Made 2,000,000 in the Stock Market within the next few day, so if you want to follow along and you haven't read Darvas yet, get reading!

 

Best Wishes,

 

Thales

[thalestrader 14]

Hi Folks,

 

Here are two daily charts of a stock that is on my watch list as a potential buy if it is still acting strong when the market flashes its next rally attempt and follow-through day: You can see that even though the market was generally weak yesterday, this stock seems to be in its own private bull market:

 

 

As far as what I am looking for when I speak of "rally atempts" and "folow-through days," I posted a short explanation on my blog in response to e recent comment I received from an earlier post. You can read it here: The Speculator King: When to Buy Stocks: On Rally Attempts and Follow Through Days

 

I have also posted my entire Buy Watch list with charts on th Buy Watch page at the blog which you can find here: The Speculator King: Buy Watch

 

Best Wishes,

 

Thales

[Cory2679 11]

Hi Thales,

 

I've been enjoying your blog and appreciate all of the time you've put into it.

 

I have a general question...and this isn't only you...it seems to me like a lot of traders are this way...

 

Why do you trade so many different markets? Obviously you trade stocks, but you also trade futures/currencies (currency futures). Why not solely focus on stocks or futures? And if futures, why not just one instrument?

 

My hypotheses are as follows:

• You want more opportunities
  
• You want to diversify your trading
  
• Maybe it's more fun/less boring to trade a variety of markets/strategies
  
• Perhaps it's simply a matter of that's the way it happened to work out, you're used to it, it works, so why change?
  

I'm just curious.

 

Thanks,

 

Cory

[thalestrader 14]

I have a general question...and this isn't only you...it seems to me like a lot of traders are this way...

 

Why do you trade so many different markets? Obviously you trade stocks, but you also trade futures/currencies (currency futures)

 

I primarily day trade the 6E, 6B, 6J, and consider the three to be nearly "one market," and I simply look for the best opportunity of the moment for day trading.

 

I day trade stocks for a group of investors (though not much the last three months) because that is what they want me to trade.

 

I swing trade stocks and futures. There are, at any given time, maybe 10 stocks worth following, and of the 15 or so futures markets, typically no more than 1-3 representing a potential opportunity. And swing trading is end of day stuff, and the monitoring and decision making occurs at a much more "leisurely" pace than day trading requires.

 

Day trading pays well when done well.

 

Day trading will bankrupt you if done poorly, since if you are trading all day, you probably do not have another source of income, i.e. a job.

 

Swing trading is what will make you wealthy.

 

You might go broke, but probably not insolvent from poor swing trading, since you probably still hold another source of income, i.e. a job.

 

For what its worth, my own opinion is that one would have a better chance of taking enough from the markets to lose the day job by swing trading stocks and futures and currencies for the intermediate swing than you do day trading your way into a living.

 

I did not begin day trading until after I was doing very well swing trading for quite a few years. And in spite of doing well swing trading, my initial years as a day trader were nothing short of a disaster.

 

Day trading is tough stuff. But it can be done, and it can make you phenomenal multiples of your capital fairly regularly. If you have the attitude and the dream, I will continue to defend day trading as a way to take an enormous amount of money out of the market. But it can kill you too.

 

I would suggest that for a new trader who insists upon day trading, he or she should focus on one market, and the focus should be on trying to identify the main intraday swing, rather than trying to scalp for a handful of ticks.

 

In any event, the goal should be to learn to trade. I learned to trade from my father, who read Darvas as a teenager and who was an early subscriber to IBD. I have an early printing of Darvas that my father has owned since 1960-1, and I also have a casette tape of William O'Neil explaining CANSLIM that my dad got when he first subscribed to IBD in '84-'85. I was 16 when I read Darvas and O'Neil's books for the first time, and I was 18 when I bought my first stock - I bought Adobe systems in '86-'87 for $10/share and I sold it for just over $40 maybe six months later. I was hooked. I've been buying stocks ever since.

 

I started trading futures in '93-'94. I basically applied the same chart reading principles I learned from Darvas and O'Neil to futures. For the most part I did very well, though I did have two rather spectacular explosions, both caused by ill-organized pyramiding of highly leveraged futures.

 

My early attempts at day trading, on the other hand, were dismal, largely because I thought it was "different" from swing trading. I started to use every sort of indicator. I bought systems and software. I read every book, I bought tapes, videos, and I subscribed to newsletters (back then they wer fax services rather than on-line "trading rooms," etc. and so on. Like I said, it was a disaster.

 

What finally set my day trading aright was that I came to realize that the same patterns of price action I was looking for in daily and weekly charts were occurring on the intraday charts. Then I discover Trader Vic, and added his 123 and 2B to my way of viewing price action, and what do you know? I was able to get moving in the right direction.

 

This thread has been a real time demonstration of how I day trade. Nothing has changed from its beginning through this post. I started this thread from where I am now. I am staring the blog in such a way as to show where I began, and then I hope to recreate how I got here. It is basically the same path my daughter took. The difference is that it took me nearly twenty years to be able to do what she learned to do in three to six months.

 

But she is a lot smarter than me.

 

And she focused very early on on just one market - the EURJPY. And that is still 95% of her trading.

 

Best Wishes,

 

Thales

[thalestrader 14]

Current view of the 5 minute ES ...

 

 

Best Wishes,

 

Thales

[thalestrader 14]

ES continues to trade between a rock and a hard place ...

 

 

Best Wishes,

 

Thales

[thalestrader 14]

Hi Folks,

 

I just published the weekly review of my intelligent plan aimed at doubling my money at my blog:

 

The Speculator King: An Intelligent Plan Weekly Review for the Week of 8/23/2010

 

Best Wishes,

 

Thales

[snowbird 10]

I primarily day trade the 6E, 6B, 6J, and consider the three to be nearly "one market," and I simply look for the best opportunity of the moment for day trading..........

 

This thread has been a real time demonstration of how I day trade. Nothing has changed from its beginning through this post....

 

Thales

 

I have always been curious about the 15 min time frame charts you typically use throughout the thread. I assumed you were using these for real time examples and education throughout the thread (since 5 minute or shorter time frames were too fast for "near real-time" posting), but that the principles still applied to shorter time frames and in your personal day trading you did not limit yourself to 15 minute charts/swings (often finishing the day in the morning session). But your comment on focusing on capturing the "main intra-day swing" for the day, makes me wonder if the time frame one chooses to chart and trade is a critical element and has advantages as well?

 

snowbird

[thalestrader 14]

Current view of the EURJPY show price rallied back to test the most recent breakdown point at 109.00 as resistance and is now falling again. Price may break last week's low and fall to new lows, price might now test last week's low as support and reverse, or price may already be in the process of reversing, and this drop from the prior breakdown point is the "3" of a "123" long opportunity ...

 

 

Best Wishes,

 

Thales

[thalestrader 14]

But your comment on focusing on capturing the "main intra-day swing" for the day, makes me wonder if the time frame one chooses to chart and trade is a critical element and has advantages as well?

 

For me, what is important is learning to see the S/R levels at which price, i.e. the market, will need to make a decision. That decision is always to continue, to consolidate, or to reverse. That is all the market can do - and each excludes the other.

 

Once I learned correctly to identify these "areas of decision," the next step was to determine just how I would decide which decision the market was making, and how I would trade based upon that decision. I decided ultimatley to rely upon certain patterns of price action, i.e. market behavior. These patterns repeat themselves. You can find them on charts of all time frames. You can find them on weekly charts from the 1860's and on 89 tick charts of the ES today.

 

Others may choose to use moving averages, various oscillators, indicator divergences, etc. and so on to determine what decision the market is making and how and when to enter, i.e. make a trading decision.

 

Time frame, i.e. how one chooses to bundle and summarize price information is really a matter of personal convention and the method one uses to determine market direction and make trade decisions. I actually prefer to use range charts when trading currencies. I adjust the range size depending upon current volatility in general, and the volatility of the session in particular. This range varies between bars with as few as 7 ticks and as many as 40 ticks. I use fifteen minute charts here because they tend to be a good "all purpose summary" view.

 

If you are day trading, and if you are trying to play for a swing 1-2 times/day rather than scalp for ticks 4,5 or more times each day, then you need to select fro yourself a time fram, range, point and figure box size, Renko, ect that lets you see in real time the information that you are using to 1) determine what the market is deciding to do and 2) how you are going to trade based upon that information.

 

What works for me likely will not work for someone else. And what works for me in one market does not necessarily carry into another. For currencies, I use range charts, and if I do use a time based chart, it will be a fiftenn minute more likely than anything else. But when I day trade stocks, I rarely look at anything other than a five minute chart.

 

I know we've talked a lot in this thread about "seeing" price. "Seeing" really means understanding and interpreting. The way you chart price must be one in which you are able to come to see price. I would suggest that you try a few different ways out. But don't just flip through from this to that - pick a time frame and then spend a few days watching price unfold on that time frame before you decide that yes this works or no this doesn't. Experience, more than anything else, certainly more than anything I can say, will be your ultimate guide.

 

 

Best Wishes,

 

Thales

[Kiwi 16]

I'd add a bit to what Thales just said in reply to the M15 question.

 

If you're defining a strategy to catch the main swing then you are looking for a relatively early entry (rather than high reliability but potentially later in that major swing). So that tends to point at 2bs or 123s.

 

Then you look at the places where you'd hope to get turned around, and perhaps you say, "given the big swing I'll get I'm prepared to take 1-2 losses for each of those big wins." And you start big with perhaps hourly or H4 bars and then drop in size until the noise means you get too many 123 signals that don't lead into the big swing. I don't know about stocks but in forex M5 is too fine and noisy for catching the big swings (multiple H4 bars long) - you just get too many false reversals. M15 seems to be about the sweet spot.

[thalestrader 14]

Current view of the EURJPY show price rallied back to test the most recent breakdown point at 109.00 as resistance and is now falling again. Price may break last week's low and fall to new lows, price might now test last week's low as support and reverse, or price may already be in the process of reversing, and this drop from the prior breakdown point is the "3" of a "123" long opportunity ...

 

Current view of the EURJOY shows price working its way lower, but all possibilities are still open ...

 

 

Best Wishes,

 

Thales

[Cory2679 11]

...the focus should be on trying to identify the main intraday swing, rather than trying to scalp for a handful of ticks.

 

Hi Thales,

 

I have a question...why do you suggest that the daytrader's focus be on the main intraday swing? As you said...

 

...certain patterns of price action, i.e. market behavior. These patterns repeat themselves. You can find them on charts of all time frames. You can find them on weekly charts from the 1860's and on 89 tick charts of the ES today.

 

I understand that there are downsides to trading faster timeframes (the impact of slippage/commission, it requires fast action/decisions, etc.). But other than that, I see no reason why not to try for smaller swings (if that's the trader's personal preference, of course).

 

Here's a 1-minute EUR/USD chart from today...

 

 

Why would you advise not trading a chart like this?

 

Thanks,

 

Cory

[Kiwi 16]

Note wishing to stop Thales responding here. Again just my opinion based on watching myself and seeing what others have written Cory.

 

1. As you've said the impacts of slippage and commission are higher at short timeframes and given a report I saw that most losing traders made a little before s&c this shouldn't be underestimated.

 

2. Markets do become more readable as timeframes rise as the noise is lower (I suspect that the higher the timeframe the bigger you have to be to make a meaningful impact / manipulation / spike on a given market.)

 

3. Psychological issues are bigger than the deniers would suggest. Most deniers then go on to describe issues that are psychological but they just see as hardening the xxxx up! The shorter the timeframe the more impact losses, fears, etc have because when you have an emotion the brain chemicals take a certain amount of time to flow away ... even if at the thought level you think you are past it. I think that strong emotions tend to impact for 15-30 minutes so you need to get your trading decisions out of this time frame until you develop skills for handling your edge and yourself.

 

4. Markets are different and some typically have more than one swing in a day ... so 1 might be the wrong number. I have developed a liking for trading two swings on forex ... the first from around 6am gmt into 8-8:30 gmt and the second that develops out of that swing (often a reversal for a moderate period).

[thalestrader 14]

I have a question...why do you suggest that the day trader's focus be on the main intraday swing?...I understand that there are downsides to trading faster time frames (the impact of slippage/commission, it requires fast action/decisions, etc.). But other than that, I see no reason why not to try for smaller swings (if that's the trader's personal preference, of course).

 

Here's a 1-minute EUR/USD chart from today...

 

SEE CHART IN CORY'S POST ABOVE

 

Why would you advise not trading a chart like this?

 

Look at this 15 minute EURUSD from today and you should see why I feel as I do. That doesn't mean you'll agree with me. But you should at least be able to see why I prefer to trade as I do ...

 

 

Best Wishes,

 

Thales

[JEHs 10]

A quick question on your chart Thales...

[thalestrader 14]

A quick question on your chart Thales...

 

After the first buy point (the 123 off the low) I would usually wait for a new scale in point above the 61.8% fib of the entire decline. Your buy point has the benefit of being in the upper half of the base, though just barely. Once a decline is retraced by a 61.8% rally, and pricethen tries but fails to resume a decline, my experience has shown such rallies are more likely to succeed at carrying a fair way higher.

 

In other words, if a large move is retraced by 2/3rds or more, and then price tries but fails in an attempt to reassert the direction of the larger move, then odds favor that the retracement is actually a full-on reversal. Make sense? It is not 100%, by any means (what is, after all?). By he way, I am pretty sure Marko made just this point at some time in this thread - I couldn't find the exact post, but I did revisit an excellent series of posts by Marko starting with this one found here:

 

If you could explain that, you would have no difficulties to spot them... To be continued...

 

At any rate, a case could be made to buy at the point you note, and I would not criticize anyone who did just that right there at that point. Just realize a quick shakeout is more likely than not, so set your stop accordingly, or be ready to buy back in at a higher price if stopped out on the entry.

 

Best Wishes,

 

Thales

[thalestrader 14]

Hi Folks,

 

NASDAQ followed-through today - the market is now in a confirmed uptrend as far as I'm concerned. I posted a bit about it on my blog: The Speculator King: NASDAQ Follows Through - Market in Confirmed Uptrend

 

Best Wishes,

 

Thales

[SIUYA 11]

After the first buy point (the 123 off the low) I would usually wait for a new scale in point above the 61.8% fib of the entire decline. Your buy point has the benefit of being in the upper half of the base, though just barely. Once a decline is retraced by a 61.8% rally, and pricethen tries but fails to resume a decline, my experience has shown such rallies are more likely to succeed at carrying a fair way higher.

 

In other words, if a large move is retraced by 2/3rds or more, and then price tries but fails in an attempt to reassert the direction of the larger move, then odds favor that the retracement is actually a full-on reversal. Make sense? It is not 100%, by any means (what is, after all?). By he way, I am pretty sure Marko made just this point at some time in this thread - I couldn't find the exact post, but I did revisit an excellent series of posts by Marko starting with this one found here:

 

 

 

Just adding to Thales input two points (that I hope might help rather than confuse)

There is a good book that I bought about 15 years ago that was written about 100 years ago, about "the rule that will make you rich" (sorry cannot remember many of the other details, but I found it on traders press, read it and its somewhere in a garage) but the basis of the book was that... you took a trade at every 50% reversal of a previous move, and then if this went further than the 61.8% re-tracement then you use this as a stop, as it meant it was more than a reversal. A very broad, blunt, but still a good rule of thumb.

 

Additionally, if you like a quick and dirty wave count (ala elliot waves and threes and fives)

I often figure if something does more than a 123 or abc up, then its likely to continue and extend the move, especially in an established up trend that clearly visible.

As you are always worried about it only being a 123, then you can skip the missed in between trade, but then definitely after its confirmed that its more than a 123, you take the next break.....

(There are a few 123 swings that can be found)

[Cory2679 11]

Look at this 15 minute EURUSD from today and you should see why I feel as I do. That doesn't mean you'll agree with me. But you should at least be able to see why I prefer to trade as I do ...

 

 

Hi Thales,

 

Let me start by saying that I want you to know that it is not my intention to be disagreeable/argumentative. I know that you know much more than I and I am simply arguing/asking questions so that I can learn from you. (I just want to make sure that you don't misinterpret my intentions or tone).

 

When I look at the chart you posted, my thoughts are: yes, it's a big move (a lot of ticks), but it's not necessarily any more R than a smaller move/swing on a faster timeframe...if a 3R winner is 24 ticks or 100 ticks, what difference does it make? 3R is 3R.

 

The base and rally you posted took 12+ hours to form. Yes, it was a nice, clear, obvious trade with everything...a test of support, a 123, a cup with a handle, etc. BUT, similar looking setups can form on a 2 minute chart, too.

 

With my personality, making the same $$$, I would honestly probably rather have 5 trades per day than 1. I enjoy trading/action. I get bored, otherwise. (Yes, I'm aware that this characteristic can potentially lead to overtrading...and it does. haha) You have to remember that all I currently focus on is daytrading the EUR/USD...nothing else, no stocks, no futures, no swing trading, etc.

 

Say a trader's daytrading goal is 10R per week risking 2% per trade. I personally would rather risk 1% per trade (because a 2% risk on 5-10 ticks of risk is a pretty hefty position size) and strive to average 20R per week on a faster timeframe (which presents more opportuntities...a longer chart).

 

I like daytrading the EUR/USD during the 6E regular trading hours (8:20 a.m. - 3:00 p.m. Eastern Time)...that means trades entered and exited within that time period. A fast timeframe allows me to sit down, take multiple trades, and be done by 3pm. I usually leave and go out in the evenings. I prefer this to keeping an eye on the market/my trades from the time I get up til the time I go to bed. (Don't mistake this for laziness...I'm willing to do whatever it takes...but if I have the choice, I prefer this lifestyle).

 

I've talked about the upsides to a faster timeframe, but I also want to aknowledge the downsides...I think Kiwi's earlier post summed it up pretty nicely. Also, there are only certain times of day where trading a faster timeframe is reasonable. For a 2 minute chart, the 6E RTH are generally ok...as well as the european session leading up to it. Later in the afternoon and into Tokyo are not usually the best times. Sometimes, even during the U.S. session, the chart looks like chop...it's just up to the discretion of the trader to determine when it's good to trade.

 

I've just sort of leaned this way in my trading...focusing solely on daytrading the EUR/USD during the 6E RTH, on a relatively fast timeframe. I attribute most of my trading methodology to you and this thread, so when I'm doing something that doesn't have your "blessing," it just concerns me and I want to discuss it.

 

Sorry for the long post.

 

Thanks,

 

Cory

[SIUYA 11]

Cory - there is nothing wrong with the intense focus of a finer time frame.

So long as you remember that its a lot about sensitivity.

I have attached a simple Risk reward calculator I put together - its simple straightforward and no guarantees for accuracy. But its a handy thing to be able to check out the sensitivities using a what if scenario.

(vary any input that is surrounded by the box, eg; % winners, risk in ticks.)

 

The other thing that can kill you over time is the mental attitude of the focus, and the ability to temper the desire to trade v the opportunities that are present.

but you are young and eager i am old and slower....so I understand where you are coming from.

SimpleRiskReturnCaluclator.xls

[thalestrader 14]

... I enjoy trading/action. I get bored, otherwise...

 

"Everyone gets what they want form the markets." -Ed Seykota

 

You can trade for excitement, or you can trade for profit. I doubt that you can trade for both. Don't get me wrong. I enjoy trading. But honestly, once I'm in a trade, I set my stops and targets and my audible alarms. Then I read books, or TL, or work on a blog post, or since it is summer, I go outside on the deck and watch the hummingbirds, tend to the garden, ride bikes with my kids ... you get the idea.

 

...but if I have the choice, I prefer this lifestyle...

 

You certainly do have the choice, at least for now. So as long as we do enjoy the freedom to choose for ourselves, only you should choose your life ... the only question for you to ask yourself is "is this life worthy of my choice."

 

I attribute most of my trading methodology to you and this thread, so when I'm doing something that doesn't have your "blessing," it just concerns me and I want to discuss it.

 

I'm not at all comfortable with the notion of granting or denying blessings - as a mere human creature, I have no power to bless and thus no blessing to give or to withhold. I can only do with you as I do for everyone - I wish you the best that life has to offer.

 

I have never said that my way was the only way, and I certainly have never said that there is only one way to do it my way. In fact, it is not "my way" at all, but simply the way I choose to do things. None of what I do is original with me.

 

And if you read my last post, I never said you were wrong. You asked me why I wouldn't do it your way. My answer was "I'd rather trade this than that." Your response here is that you'd rather "trade that than this." There is no conflict here.

 

Now, if I had said that my way was the only way to trade, and if I had also said that the only way to trade my way was to do so exactly as I do, and that this is the only way to do it right always, and without exception, then we would have grounds on which to disagree. There are plenty of folks here at TL and elsewhere who make such claims in their threads about their methods, systems, and approaches. But I am not one of them and this thread is not one of those.

 

My way is not the only way to trade.

 

The way I employ my approach is not the only way to use it profitably.

 

You don't need me or anyone else to tell you whether or not you are wrong. The market has a built-in, immediate feedback system called "profit or loss" to tell you that .You will know you are right if you make a profit. You will know you are wrong if you go broke.

 

Best Wishes,

 

Thales

[thalestrader 14]

Hi Folks,

 

I have just started a Virtual Trading Game at Marketwatch's Virtual Stock Exchange that I am administering as part of my blog's search for an intelligent plan aimed at doubling my money.

 

It is a friendly little paper trading competition, and I would hope to see many of you there. If I can get at least ten participants, I will start a thread here at TL where I can post the weekly leader board, and the participants can post charts, discuss trades, etc.

 

Unlike "The Race," the focus is not on day trading a live account, but swing trading a virtual account. I would hope this would make it easier for folks to join in, and also less distracting from the day to day actual trading by those who do indeed trade for their daily bread.

 

You can sign up by following this link:

 

Virtual Stock Exchange - Home

 

Trading opens on Tuesday, September 7, 2010, and the competition ends at the close of trading on September 2, 2011. If all goes well, I will sponsor the game again the following year, and run it from US Labor day to Labor day. If not, well, nothing ventured nothing gained - and there is really no risk to running a paper trading contest, is there?

 

You can read a few more of my thoughts about it at my blog:

 

The Speculator King: The Speculator King - An Intelligent Plan Competition

 

I hope to see you there!

 

Best Wishes,

 

Thales