Trading Adverse Events

[steve46 12]

Hoping to provide some clarity about the markets I thought I would post this

 

As we can see the markets are dropping in response to the situation in Japan and adverse news appearing during the trading day...

 

As I mentioned in previous posts (the mentor thread) professionals characterize this as a market with an "obvious bias"...and when that happens they orient to one side (the short side

The general strategy is to short every bounce until made to pay up....and in this instance the bounces occurred at the end of regular trading each day....the short entry occuring after the open of the Globex session

 

The longer time frame strategy is to wait for US stocks to drop sufficiently to mobilize capital. At that point, institutions will tend to come in (as will other speculators and investors) to buy inventory at depressed prices

 

Today we are seeing the first real institutional move as price moved below 1250 to a low around 1244....The buying at those levels was strong and the S&P futures moved more than 20 pts up from that point.

 

If there is to be a continued move it will have to correspond with a change in news....that is to say that continued bad news WILL drive prices down further....institutions view this in terms of probablilty and they gather their own intelligence as to what is happening around the world. This buying is the first sign that institutions are "putting a toe into the water"...now we will see whether developements in Japan and the Mideast support continued buying or if this is just one more bounce in a continued move down.

 

The attached chart is a continuation of the original posted in the "the right coach/mentor" thread....on the right you can see the original notation where I posted my comment that participants were likely to see this move. As can be seen price dropped, then bounced and then adverse news hit and we dropped again today to the lows around 1244. At that point institutional money came into the markets

Edited March 16, 2011 by steve46

[steve46 12]

Here is a chart of the $ADD which is my preliminary indicator of institutional money coming into the market today

 

At the today's low institutions came in with basket executions of buys on stocks they wanted to obtain at distressed prices. This is reflected in the number of issues going positive at the low

[steve46 12]

One thing that needs to be said to put this in context....is that we cannot know (no one does) whether this is a bottom or not....generally speaking smart money adopts a two pronged strategy for this...on the one hand the gather intelligence as best they can about the status of events around the world. When prices drop to point where buying them would represent a significant premium to their current basis (their current average inventory cost), they "put a toe in the market" and buy (as we see today)....knowing full well that the market could continue to drop. Their thought process is that even if prices continue to drop, they have still lowered their overall cost of owning the asset. Both Institutions and smart speculators will want to wait a bit longer to obtain clarity as to the longer term status before mobilizing significant capital.

 

They wait and evaluate the news and the market's response...if the market continues down they will make periodic buys at specific levels (these can be anticipated by looking at the charts)

and continue the process of lowering their base cost of owning assets.....

 

There are two ways to monitor the market's response to news. One is to look at the open interest as it fluctuates from day to day (go to the CME website for that data), and the other is to monitor the put/call ratio....

 

If members want to obtain additional resources with regard to strategies for trading "events" one of the best books on this subject is Ben Warwick's "Event Trading; Profit from Economic Reports and Short Term Market Inefficiencies"

Edited March 16, 2011 by steve46

[Mysticforex 13]

Thank You Steve,

 

There is very strong talk of BOJ Intervention tonight during the Asian Session.

In the last 9 "Events" like this where Japan was involved, BOJ intervened 7 out of 9'times.

We shal see.

 

Edit: I should have added, the chart represents USD/JPY, Daily Range and actual movement.

 

 

------------------------------------------------------------------------------------------------------------------------------------

Edited March 16, 2011 by Mysticforex

[steve46 12]

Thanks for that Mystic

 

Actually the base and "counter" (currencies) are indicated at the bottom of your chart. They show up nicely there.

 

I assume the B indicates the scope of the intervention expressed in the base currency (please advise if I am wrong).

 

Generally speaking intervention in a currency is not productive, because the broader market is always aware of the stressor that caused the action to occur. This puts the currency under more pressure than before, because it mobilizes speculators who might otherwise stay out...What might interest you is how long (and how far) the currency can be moved by the government before heading before resuming its prior trend.

[Mysticforex 13]

The "B" is represented as in Billions USD.

 

And yes, it is really a "Band aid" approach, or perhaps I should say "tranquilizer",

as I assume it's just a measure to calm things down.

[steve46 12]

Thanks Mystic for the additional info

 

I am trying out the newest version of Esignal. I thought a screen shot might be of interest and to stay on topic, I have a comment about the Globex open and resulting trade opportunities

 

The key to successfully trading the Globex is to accurately interpret the last 60-90 minutes of the of RTH. As can be seen, we had a significant reversal move starting at 11:20am PST, originating at 1243.25.....on the left side of the screen we see a corresponding move in both the $VOLD and $ADD, each suggesting that a particular segment of the market was actively buying (something we havent seen before).

 

As can be seen in the ES chart, once I identify the supply/demand, not only can I position myself favorably but in many cases I can also identify a profit target. As mentioned in prior posts Institutions have been shorting the bounces during the first part of the Globex session. Looking at this chart you can see that this didn't happen tonight (at least not up to this point in time)....You can see that there were several excellent possible entries this evening....

Edited March 17, 2011 by steve46

[Mysticforex 13]

I am lacking in knowledge of trading index's. I'll have to make it a point to learn enough to at least be able to hold a conversation.

 

That being said, The 2 blue rectangles in the lower R/S, are they buying opportunities?

Perhaps take them up to RES @ 1277.00?

 

 

 

 

Oh, and I like the chart. When I first started out ( 2005 ) I was using Intellichart.

 

( Would like to add more, BATM I have an open scalp ).

[steve46 12]

Hello Mystic

 

The blue rectangles are my identification of balance/imbalance "nodes" in the order flow....Once I have these in place I then monitor the Time & Sales Strip as price tests these key reference areas. It takes a while to get used to but that is the way I was taught...I lot of offices use this method (or similar methods) rather than the indicators and widgets that are found in most charting software.

[steve46 12]

I will drop in another chart to show where we are in terms of the Globex. At this point you can see a couple of things.

For the ES chart on the right, we are temporarily at a stopping point. This is because we tested a supply demand node and backed off. If you look over to the left you can see the DAX chart where I have also identified a similar area. During the Globex market, the DAX dominates and leads the action. If we get sufficient volume coming in, I would expect price to take out this area and continue....If not, this could be the start of a reversal.....we will see

 

and now I need to get back to work myself....good luck

[steve46 12]

Here we go, this one is for Ingot

 

I just read your comment about the troubles you are having....This chart of the Japanese Yen might help you to see what I mean about using simple techniques....What I do is identify where supply and demand are located along a trend....What we have here is a gap, which is a strong statement about trend (isn't it)...when this happens I look for price to retrace back to the origin of the gap. At that point, you are likely to see a bounce IF the trend is still intact...and of course with this volatility it is...I outlined the upper and lower boundary of the supply/demand area...Now the real question is "can you afford the risk"..you see on any individual trade I can't tell if my entry will be successful (no one can)....that is one of the differences between amateurs and pros...we don't kid ourselves on this issue...and we don't take the trade unless we can afford to "pay for it" (if we lose)....about $800 USD

 

The payoff depended on your profit taking process but could have been close to $2,000 USD

 

From my point of view its a simple world...you analyze and watch until you see what you are looking for...you don't trade until you see a setup you like...then you manage risk either with your stop placement or with reduced size if the risk is too great.

[steve46 12]

Here is another one for Ingot

 

You mentioned the problems you were having with the Swiss

 

Notice that I have done the same thing (identify the supply/demand border) and then just wait for price to show me what it wants to do. The problem here is that price just putzed around the take-off area for quite a long while before deciding to put a move on...If you have any experience with these currencies surely you know that this is where both the Yen and Swiss had to move once we saw problems in the Mideast and Japan

 

For both example I apologize if they seem unfamiliar. I don't trade forex, only the exchange traded contracts.

[steve46 12]

and finally an 8 hour chart of the Swiss.

 

I use this time frame quite a bit...it make life a lot easier for me....

 

And now back to work, before I get into trouble....you see I am not suppose to post currency or bond charts....oh well,

 

Good luck

[steve46 12]

Alright...here on the west coast USA it is now 5:48am and I have a chart of the DAX futures for those interested in this market

 

As usual I have identified my S/D areas and left them in place as each trade unfolds

 

One thing that I can point out now is that there are two kinds of S/D areas (in my opinion) primary (those that last for a relatively long time) and secondary (those that get taken out quickly)....Eventually all S/D areas get "taken out" of course, depending on the resting orders and the participants that are motivated to return and defend an area when price retests. On this chart if you scan left you see primary demand established on the 15th (long blue rectangle) which stays in effect while price rallies and bases above. Then on the

16th about an hour after the US open, price descends to retest, bouncing off (the first time), establishing a secondary S/D area, then descending again and taking out the primary

 

I have commented on the gap up once before in prior posts.

Edited March 17, 2011 by steve46

[steve46 12]

So here it is 6:06 and I am done for the day....

 

I will post one more item and then call it quits...I was look around at the other threads, and really I have to laugh....take a LONG look folks at what you have to consider for information

 

You have folks posting what is essentially promotional material about forex "analysis" that includes "waves"...candle characterizations (bullish this and that)....and other absurd crap..and then you have folks who suggest that they can help you to (if you will only go to their website).

 

I have to admit my bias...I am pretty sure that no one can help you to learn to trade by selling you an indicator...and certainly not by telling you when to buy and when to sell (with an advisory service)....I KNOW that some things do work, and if you have the appropriate background or basis, then its a matter of learning two things.....risk management and intelligent trade selection. If you just get those to things going....you CAN make money in the markets....and just as surely if you don't have those two items in your tool belt, you ARE going (eventually) to lose it all. Maybe its just sleep deprivation, but I don't get how a person can try to convince others that they have something of value, when they cannot describe it in SIMPLE terms....without the jargon.

 

On the attached chart notice the arrows marking an area where price retraced three times to test 1257.50 before they took it up past 1273...

 

Good night/Good morning/Good luck

Edited March 17, 2011 by steve46

[steve46 12]

This next chart shows the "Globex open" on Sunday March 20th

 

As we can see the market gapped up and then retraced. From my point of view the most important landmarks are the value areas and the origin of the gap....For Monday's regular trading session, the value area high is 1281.50, the POC is 1278 and the value area low is 1274.50.

 

In this case price moves up initially to test the value area high at 1281.50, then it retests down to test the origin of the gap at 1274.50. The lowest blue rectangle shows the supply/demand node that I use to indicate support. Evaluating the data I notice the following

 

1. After the open, price retraces to test the Value Area Low at 1274.50

2. The supply/demand node lines up with the Value Area Low

3. Asian Markets are "up"

4. World news indicates that events in Japan and the Mideast are working toward resolution (for the moment).

 

There are a number of other data points supporting a long bias, but these are sufficient for my needs.

 

As you can see, a long entry as price tested the low would result in a favorable position right away. Just as importantly, there are usually three (3) additional opportunities to enter, and I have anotated them so that readers can see what the thought process is. Each entry point is less favorable (because the risk increases as we move away from the original entry) but still valid

[steve46 12]

This will be my last post on the subject.

 

Too bad really, because it is at the boundaries of the regular trade hours and Globex that the highest probability setups occur. Ironically this is the kind thing that amateurs never think to look at, and clearly there is little or no interest in the subject, a retail trader could maintain a day job and make good money trading this way...Oh well

 

So in this last chart you see how the trade work out. I say "worked out" but in fact a trader could simply hold a contract or two in case this continued to run (that is my standard procedure)

 

As you can see, over a period of hours, price moved up into my "profit target area"...the rectangular blue box at the top of my screen. I realize that skeptics will suggest that this is hindsight...thats understandable...however I have little interest in the debate...if you doubt that this works, so much the better for me....(if you think about it will come to you in time)....lol

 

Good luck in the markets

Edited March 21, 2011 by steve46

[Ingot54 13]

This will be my last post on the subject.

 

Too bad really, because it is at the boundaries of the regular trade hours and Globex that the highest probability setups occur. Ironically this is the kind thing that amateurs never think to look at, and clearly there is little or no interest in the subject, a retail trader could maintain a day job and make good money trading this way...Oh well

 

So in this last chart you see how the trade work out. I say "worked out" but in fact a trader could simply hold a contract or two in case this continued to run (that is my standard procedure)

 

As you can see, over a period of hours, price moved up into my "profit target area"...the rectangular blue box at the top of my screen. I realize that skeptics will suggest that this is hindsight...that's understandable...however I have little interest in the debate...if you doubt that this works, so much the better for me....(if you think about it will come to you in time)....lol

 

Good luck in the markets

 

Hi Steve

 

I recognise that you have spent quite a lot of time and energy to try to generate interest in methods that you have clearly found useful. I have read with interest many of your posts and enjoy the simplicity of the approach. I have also shared links to your threads with a friend who is not (yet) a member here, but who trades the ES.

 

However I admit to not understanding your setups well. And I guess this is due, in part, to the fact that I am a bit one-eyed - I trade only Forex and occasionally Oil and metals.

 

I hope you don't pull the plug here. If your employer is influencing you to not post on certain markets, then would you consider a thread on any of Forex, metals or oil/energy? I would find that of value.

 

Your style of posting is quite authoritative, and this can sometimes cause others to react, rather than be persuaded to join in positively. I would rather spend energy nailing the markets than in nailing each other, so if you have any suggestions, I'd like to hear them.

 

Having now come so close to getting control of my trading, but not quite kicking butt yet, I am reluctant to change instruments. But I do recognise a lot can be learned from traders like yourself, Mysticforex, TheNegotiator, Tams, Siuya, MighyMouse and others who don't post frequently.

 

I am going to start a new thread, and I invite you to contribute if you will - as well as any other member of course. This might be a different approach to trading diagnostics, and I will link back to it here.

 

Thank you for your time and input to this forum - I am certain I am not alone in recognising what you are trying to share, and putting our personalities aside, I hope something useful can come of future discussions.

 

I am not a good range trader, and this is probably costing me, because I tend to constantly see breakouts as the beginnings of trends. It hurts particularly when I believe I have entered a good early trend, only to have it snap back and stop me out. This does not happen when I scalp the 15M TF for 20 - 30 pips, but I can not nail the higher TF as I would like.

 

My next post in this thread will give the link to the new thread.

 

Cheers

[Ingot54 13]

Here is the link to the new thread:

 

Traders Laboratory - Professional Traders Community - Forum Rules

 

I hope I am not hijacking your intention here Steve, and am happy to continue here if you think the thread can be saved. But I am truly hoping for participation in more specific think-tank stuff.

[steve46 12]

Hello Ingot

 

I don't think the thread requires saving...It seems to me that primary message is that one can learn to trade based on news (of all kinds)...I included a reference to a very good book on the subject..I am very willing to offer advice to new and struggling traders...I think the evidence of this is in my threads "Ideas for Struggling Traders and "an Institutional "Look" at the S&P futures". The problem for me is lack of feedback and participation...I prefer an environment where people are highly motivated and the more I think about it, the more I see that I would prefer to work directly with a small group of folks (no more than a dozen) who have a decent background, the interest and motivation necessary to transform their lives by being successful in this business. I have seen several websites and what I notice is that they are very casual environments and people are not driven to succeed in that way...in fact (as you have pointed out), comments are become personal as people play out their emtional "issues" instead of trying to understand how a concept works....I have approached my boss and asked for a leave of absence so that I can pursue this dream of mine and if I can arrange it, that is what I will do, but frankly this is not the right environment for that kind of process.

 

Regarding your further comments I would like to offer something that you might pursue on your own...The main principle for my approach is the identification of supply and demand. Some folks mistake this for support and resistance...It is NOT the same thing...For one, supply/demand is always a range of prices, while traders often think of support/resistane as a single price (a line in the sand)....This is one reason why they lose money...NEXT, the idea of placement is important. For me, supply and/or demand are only useful if they allow me to identify high probability reversals, OR places where I can add to already profitable positions. To identify these areas, generally one has to look at longer term charts and work toward shorter time frames. The rule that helps you is simple, you want to see price rally (or drop) significantly (from a swing high or low), then you want to see it create a base, and finally you want to see it retrace and re-test that orignal swing point. This is just one or several scenarios that you could use to identify high probability setups and most importantly....the principles work for all markets (even currency markets)...

 

In my posts, what you are seeing is my identification of supply/demand on shorter time frames and that may confuse you....As you may appreciate, working on shorter time frames requires experience and there is a bit of "art" to it, more than I can describe in a short post (this is in part why I intend to pursue a venue where I can give people more personal attention)

 

I day or more ago I posted a couple of charts especially for you...(I advised you of that via PM)

I encourage you to take a look at them (they were currency charts). You will probably notice that I do not trade forex...only exchange traded futures contracts....So it may be of limited value...its the best I can do at the moment...I wish you the best of luck.

Edited March 21, 2011 by steve46

[Mysticforex 13]

Steve,

 

I think the environment that might work is a "Trading Group" . By invitation only, to separate the Wheat from the Chaff, so to speak. It does not have to consist of entirely "Elite" traders, but those of at least a moderate level of experience or more. There are several venues ( meeting rooms, chat rooms ) available for this that are free.

 

For several years I attended a daily meeting which we called "Chart School". It was one of the highlights of my day ( yeah, I know, I need to get a life Lol... but as time went on trading became more than "what I do", it became part of "who I am" ).

[Ingot54 13]

Here we go, this one is for Ingot

 

I just read your comment about the troubles you are having....This chart of the Japanese Yen might help you to see what I mean about using simple techniques....What I do is identify where supply and demand are located along a trend....What we have here is a gap, which is a strong statement about trend (isn't it)...when this happens I look for price to retrace back to the origin of the gap. At that point, you are likely to see a bounce IF the trend is still intact...and of course with this volatility it is...I outlined the upper and lower boundary of the supply/demand area...Now the real question is "can you afford the risk"..you see on any individual trade I can't tell if my entry will be successful (no one can)....that is one of the differences between amateurs and pros...we don't kid ourselves on this issue...and we don't take the trade unless we can afford to "pay for it" (if we lose)....about $800 USD

 

The payoff depended on your profit taking process but could have been close to $2,000 USD

 

From my point of view its a simple world...you analyze and watch until you see what you are looking for...you don't trade until you see a setup you like...then you manage risk either with your stop placement or with reduced size if the risk is too great.

 

Yes Steve - I did note those charts - thank you. My main issue is that I have been trying to get away from the computer - out to 4H or Daily trades. To do that you need large SL orders, and when we are seeing huge volatility, it makes trading the 4H untenable for retail traders. I don't have the ticker to attempt 4H at the moment.

 

Sure it would have been great for scalpers, but the higher TF guys would also certainly need to have been on the correct side of the move, or they would be toast. Fortunately I did not see the volatility personally, until I turned on the charts next day. But I became quite frustrated at the loss of trends. I have not had enough experience to manage volatility-in-trending markets, so I am afraid the opportunity was totally wasted on me.

 

The CHF is only today resuming its down-trend (for USDCHF traders) or uptrend for Globex Futures traders, but who knows how long that will last, in view of the situations in Japan and Libya? World events seem to be conspiring to keep traders close to their mouse-pads.

 

We could turn on the news later to find some 400-pip knee-jerk has wiped all the gains off the Aussie, or the Swissie. I don't trade volatility - at least not the chop. I don't mind if the movement is spread a little more casually - allows me time to detect the trends etc.

 

Thus my questioning whether I really want to be a part of this insanity for much longer. I have become a very much different and more focused trader over the years since I began, but markets too have become more incorrigible too. It is like a constant game of "catch-up" which can not be won.

 

If I can't get to enjoy this, it is pointless participating. Might be better to scalp oil, like I did 3 years ago!

[steve46 12]

I thought this important enough to post....

 

This chart shows the overnight (Globex market). What you are seeing is the continuation chart from my previous posts in this thread....I mentioned in previous posts that the highest probability setups are often found in the overnight session. This is where Asia (and Europe) come in to "take the baton" from the US market...In this chart (as I mentioned before) you can see that we tested the value area low at 1274.50....moving up steadily from that point on the favorable news from Japan and the Mideast. I anotated the levels that offer additional entrys based on my Supply/Demand analysis along the way...and you can see that we hit the targets up at 1295...What you don't know is that up at 1295.50 we had the weekly "Time-Based Pivots" (last week's weekly open/high/low) which I introduced in my thread "an Institutional "Look" at the S&P Futures".....I am sure most of you don't give this a thought, but I can assure you these numbers are very important to traders. What you see at the end of today's session is that price tests those weekly numbers and retreats....in other words that test was a high probability setup for a short trade that produced a nice 4-5 pt profit....with very little risk...So here is the result if you traded the Globex using those setups....long at the open....20 pt profit...short at the end of RTHs and an additional 4-5 pts....In order to obtain this result, one would have to

 

1. Know it was possible..this is an "obvious bias market" as I pointed out a while back

2. Anticipate that the Globex market would offer a way to get long (experience)

3. Recognize the setup (know what the "value" numbers were)

4. Be confident enough to take the trade (based on your education and experience)

5. Able to manage it patiently knowing that you had a possible big winner or at the very least a significant winning trade

 

Thats what it takes...to go from being a retail trader (watching the trade and doing nothing) to being a professional (acting on what you know, taking an agressive entry, managing the risk and taking the profit at the end). I am pretty sure that sums it up...done here...

Edited March 21, 2011 by steve46

[Mysticforex 13]

John,

 

Here's a link to a post I made to an old "John Carter" thread on the forum.

WPs are a very important part of my methodology.

 

http://www.traderslaboratory.com/forums/34/pivot-points-john-f-carter-1986-3.html

[steve46 12]

With respect to today's event. The attached chart shows the reaction and the spike down to a previously established demand area on both my long term and short term charts.

 

The process is relatively simple. Prior to the open (the evening before), we establish these areas representing both the RTH distribution and the short term or Globex distribution. We expect the distributions to capture about 98% of all price action, even in extreme events. Then if a news event occurs, whether it be anticipated (unemployment for instance) or unanticipated (this morning's recent quake in Japan), we have a way of framing the event and reacting to it using both the distributions and reading the T&S "strip"...Today the system worked quite well.

 

The operational "take away" here is the efficacy of the S/D distribution as opposed to simply support and resistance lines.