ER2 Trading Strategy Question

[Soultrader 12]

My strength as a day trader lies in the morning session. I dont have trouble finding setups during the morning and I usually have levels that I identify premarket that I focus on at the open.

 

Although I do not lose in the afternoon sessions, my weakness lies clearly during this timezone. I have trouble identifying setups and usually miss the nice afernoon reversals.

 

An interesting comment was made in the chat room today by GCB.

 

Well, I should have anticipated that big ER breakout. The market broke down, but ER really didn't. The overall breakdown fizzled and ER went to the top of its range. Should have banked on it. I love those kind of plays.

 

It didnt strike me at first but I was going over my trades after the close today and this comment triggered in my mind. I realized that I need to add further method to play these reversals myself. The comment refers to the ER2 breakout from todays chart.

 

 

 

I would love to hear other traders thoughts on identifying afternoon turning points and strategies. How do you guys decide whether a market will reverse or continue in the initial direction of the trend?

 

One method I use it by using fib retracements but then I would be getting a pretty late entry on the long side. (break of 61.8% retracement)

 

Thanks

[wsam29 10]

I just avoid the afternoon all together. (That is what I did from my best month)

 

Give it a try, go do something else other than wanting to trade. At first, its hard to do because you have all these ideas you want to try out. That curiosity needs to be satisfied, and the end result may end up losing what you made in the morning.

 

If you made money in the morning, trade smaller position in the afternoon.

 

Now I know you use tick charts, just do a volume comparison with a time chart. More volume, more people at the party, people with BIG accounts. Heck I don't mind rubbing elbows with the rich and snub the poor. :p I snub myself all the time!

[Soultrader 12]

I understand that is an option. But rather than avoiding it all together I would like to gain new insights into afternoon trading so I can come up with a strategy. Trading small when in profit is an option as well but I only do so when I dont feel comfortable with the current market condition and trading setup.

[wsam29 10]

From what I recall hearing from someone, some of those locals are done after the morning session. Win or lose.

 

I figure, why not emulate what they do, and believe me, it takes a lot of self discipline to say "I am not going to trade the afternoon session." When you have a family and kids, that will come naturally because all you want to do is spend time with them. Thinking of new ways to trade would be the least of your concern. I look forward to that day myself.

 

Or do what JC and HS do, we did when I was there in Austin, TX. 2 hour lunch and be back for 1400h and look for plays in the last 2 hours of the session.

 

Tiger Woods loves to tweak his swing from what I hear, even when its fine, he ended up being in a slump one season because he kept tweaking. Like that saying goes, "Don't fix it until its broke."

[slableak 10]

I usually draw trend lines and when the price breaks the trend lines I am in a trade that direction. I get out on the break of the next trend line. I use a method of finding the trend line points. A to B equals C to D. THen I draw the trend line from A to C. I tried to post a picture but it would not post. It is up-loaded though. If you can post it for me soultrader it would be much appreciated.

[Soultrader 12]

Is this the chart you are referring to?

 

[slableak 10]

Yep, thats my trading chart. I made $400 off that chart today. 3 trades no losses.

[Soultrader 12]

Could you explain a little on that chart? I see alot of trendlines but how do you determine entries? How do you draw your trendlines? etc..

[walterw 10]

I like this thread ¡¡ it takes a great topic that I also have in common with Soul, I have a good statistical performance on the morning session... not that good on the afternoon.... Soul : I started doing this on the afternoon: Coil Breaks and believe me they work pretty good... it takes lots of patience... specially when you are used to trade on the morning energetic mood of the market, the tactic I use is taking the continuation of the break and not the break itself, because there are also a lot of false breaks... also I only pay attention to "big and long coils".... I attach concept.... cheers Walter.

Afternoon Coil Breaks.xls

[GCB 10]

James,

 

To me this kind of trade is a chart pattern and price action recognition thing, coupled with the background of the market behavior and internals. Today the market really tried to go down. There were some serious sellers today. But for whatever reason (pc ratio, liquidity) it just didn't go down like it seemed it want to. The ER has been so bouyant lately. It seems to end the day near its highs a lot. Like I said, I should have known and I did. I just missed it. I had a chance to get in. Next time I will.

 

The great thing about these reversals is that you can see them building up, so you have time to enter, and if you're bold and anticipatory you can get into them near the bottom of the preamble range and maybe even get your initial target before the breakout and then ride the breakout itself stress free. Either way, the great thing about them is that you can hit your initial target before you even know it. Reversals are becoming one of my favorite patterns to trade.

 

I don't know how long ER will continue to act this way, but these afternoon run ups are becoming semi-regular events.

[walterw 10]

Slab : I am also interested on your method... please tell us how it works, looks very nice ¡¡ cheers Walter.

[Soultrader 12]

I like this thread ¡¡ it takes a great topic that I also have in common with Soul, I have a good statistical performance on the morning session... not that good on the afternoon.... Soul : I started doing this on the afternoon: Coil Breaks and believe me they work pretty good... it takes lots of patience... specially when you are used to trade on the morning energetic mood of the market, the tactic I use is taking the continuation of the break and not the break itself, because there are also a lot of false breaks... also I only pay attention to "big and long coils".... I attach concept.... cheers Walter.

 

Hi Walter,

 

Thank you for sharing this with us. I have a question. One of the things that I have trouble with is breakout plays during the lunch hours. I have seen way too many false breakouts that I have drifted away from this setup after the morning session. My question is this:

 

How do you bracket your range? Do you take the morning low and doldrum high as the range? At what time do you decide to take a breakout? In other words when does the doldrum end for you?

 

Do you always consider a continuation of this breakout as a move for the afternoon session? Thanks.

[Soultrader 12]

James,

 

To me this kind of trade is a chart pattern and price action recognition thing, coupled with the background of the market behavior and internals. Today the market really tried to go down. There were some serious sellers today. But for whatever reason (pc ratio, liquidity) it just didn't go down like it seemed it want to. The ER has been so bouyant lately. It seems to end the day near its highs a lot. Like I said, I should have known and I did. I just missed it. I had a chance to get in. Next time I will.

 

The great thing about these reversals is that you can see them building up, so you have time to enter, and if you're bold and anticipatory you can get into them near the bottom of the preamble range and maybe even get your initial target before the breakout and then ride the breakout itself stress free. Either way, the great thing about them is that you can hit your initial target before you even know it. Reversals are becoming one of my favorite patterns to trade.

 

I don't know how long ER will continue to act this way, but these afternoon run ups are becoming semi-regular events.

 

Hi GCB,

 

Thank you for the follow up. By rest of the market are you referring to the other emini futs or major cash indexes? Because the YM did a similar thing..... a fake out move down and then reversal back up.

 

A very good point indeed about the ER2 closing near its highs lately and the frequent afternoon rallies. This is something I need to keep in mind. Regarding the initial setup, would you bracket the range at the morning low? Where would you bracket the high of the range?

 

Thanks alot GCB.

[GCB 10]

Hi GCB,

 

Thank you for the follow up. By rest of the market are you referring to the other emini futs or major cash indexes? Because the YM did a similar thing..... a fake out move down and then reversal back up.

 

A very good point indeed about the ER2 closing near its highs lately and the frequent afternoon rallies. This is something I need to keep in mind. Regarding the initial setup, would you bracket the range at the morning low? Where would you bracket the high of the range?

 

Thanks alot GCB.

 

If you look at the charts, NQ, ES and YM broke out of the their lunchtime ranges to the downside, but the ER2 simply went to the bottom of its range. It didn't break lower. That indicated its greater relative strength as compared to the others. So when the others were exposed as fakeouts that was a strong indication that ER2 was NOT going to go down, which meant an upside breakout was likely.

 

As far as the ER2 range goes, I saw it a about 824.5 or so, but that doesn't mean I would trade a break of that, I would probably need a new low or break of the previous days's lo. As to the high of the range, it was to me about 827.

[walterw 10]

Soul : I dont use a pre-fixed level to bracket the coil , the coil forms when you have at least two equal highs and two equal lows forming a rectangle... there is no fixed time to consider getting in, when it breaks wich is a very strong event you start considering a posible trade after a pullback that will not re enter the coil.... maybe I can show more examples on a thread I did start on this... (gota trade now) cheers Walter.

[Soultrader 12]

Thanks walterw. Any chart work that can show the coil would help tremendously.

[walterw 10]

Soul this is a classsic coil break, they dont happen every day, but when you thought things where so sleepy and boring suddenly BUMM ¡¡ coil break ¡¡ you can notice the multiple retesting of this levels its what makes the bracket... the difference between false breaks and real ones is the velocity of the break... other key is that price once broke, doesnt get back in coil, it may test previous resitance (now support) but not break in again... that makes the pattern very powerfull... cheers Walter.

[Soultrader 12]

Excellent walter. Thank you for this. Playing the pullback of the breakout seems to be the key here. I learned the hard way today

[walterw 10]

It sounds like you took the break itself... ? :rolleyes:

[Soultrader 12]

Yea... I played a breakout on the YM today for the afternoon session which failed miserably. I ended up being the sucker who bought the high.

[wsam29 10]

Yea... I played a breakout on the YM today for the afternoon session which failed miserably. I ended up being the sucker who bought the high.

 

Hey now you can say you've picked the top!

 

I know I have, what a nice feeling to see it trade lower on you.

 

You can only laugh about it after its done.

[slableak 10]

 

Here is how you trade the trend lines on my previous post. You find a trend like on the ER2 this morning. Draw trend lines from the tops of the price bars. I use a jtHMA and when I see a slight pullback in the jtHMA I am ready to enter the trend. My entry is where the pink arrow is. Then my exit is when it breaks the continuation of that trend line. I had to draw 1 additional trend line to follow the trend. Sometimes these trends go for several points. I hope you can see my entry and exits on the second picture.

 

[GCB 10]

Excellent walter. Thank you for this. Playing the pullback of the breakout seems to be the key here.

Either that or get in before the breakout if you see it forming. That's what I like to do sometimes, if I seen the reversal forming clearly and I feel strongly it's going to take place. That's what I did today and it worked.

[Soultrader 12]

slableak, youre charts are severely messed up. Perhaps you can fix that for us?

 

Speaking of getting in before breakouts, it is a setup I do enjoy taking. But I find it a little risky. You are buying the top or bottom of the range. You can either use an extremely wide stop or will get stopped out prematurely before the move. What I like to see is price hugging the upper range or lower range for 3-4 bars on a 233 tick chart on YM with buy/sell volume being equal. (using volume delta)

[GCB 10]

Speaking of getting in before breakouts, it is a setup I do enjoy taking. But I find it a little risky. You are buying the top or bottom of the range. You can either use an extremely wide stop or will get stopped out prematurely before the move.

 

I think you can sometimes have enough time before the breakout happens to buy/sell the bottom/top of the pre-breakout range on up/down breakouts. This requires nerve and premonition, but is actually safe if you feel strongly about the breakout. It gets you some more ticks of profit and eliminates the noise factor in getting stopped out.