Week Two- Spookywill and the E-mini

[wshahan 10]

I go by "Spookywill" as some of my trades are spooky. Last Friday afternoon is an example.

 

I am a professional Trader. I trade for myself and 4 clients. I have been screen trading since 1982, and I have lost money in as many different ways are there are schools of technical analyses. I have blown out my account 7 different times that I can remember, and have been “really broke” once. I spent 18 years as a psychotherapist, and upon my retirement in 2008 and went back to my first love, trading. I promptly lost my shirt once again.

 

After 2008, it took me pretty much three years to get to where I think I am “real good” at trading. You may be in disagreement after the next twenty-eight days, but I have confidence. Only time will tell.

 

Thus starts the odyssey that results in this tread I started last Thursday. My hope is that I can save you some time in developing the expertise you need to be successful trading.

 

I have developed a methodology that works for me. Over the next 30 days I will give those who are willing to work, and who ask questions that don’t directly pertain to the specifics of the methodology, enough to develop their own trading plan.

 

I will, if Traders lab approves, submit two new threads per week, one with the trade specifics and one with philosophy and trade tips. The new threads hopefully will control “noise” generate by my posts to date.

 

With the caveat that that are as many different ways to trade successfully as there traders; Here are the some key elements of my trading Methodology:

 

1. I use no indicators.

 

The tools I rely on the most are:

 

2. I am an auction market trader, and I owe much to the work of Don Jones and Tom Alexander.

 

3. My background is in Market Profile trading ( since 1987), and while I don’t formally trade profiles, I keep and eye on them, particular for the migration of value. I think any serious trader needs to be well acquainted with Dalton’s book: Mind over Markets by Dalton, Jones, and Dalton. In particular, his 6 special situations are still relevant. Later today, I am going to post an entry applying his spike theories to Friday’s late decline.

 

4. I use volume at price analysis heavily in my work, and have developed my own variation of Peter Steidlmayer’s volume strips concept. Interesting to note, Steidlmayer, who originally developed the Market Profile now describes it as “Not very helpful.”

 

5. Pattern Recognition:

 

A. Acquired through experience

 

B. Intuition: To paraphrase James Dalton, Intuition is another word for experience. To this I add: There are four stages of learning, the forth is being or functioning with unconscious expertise. This is another way of saying you can only learn from your experience. The goal is to become able to make good trading decisions without much internal debate. While not all the trading decisions will be profitable, if you are consistent with your internal methodology, you will expect and be okay with your losers and overall you will be profitable. Personally, I define my trade risk so that I have the expectation of producing a satisfactory level of overall profitability if I have one out of three winners.

 

 

YOUR BRAIN: A and B above can be summarized by saying you can’t become successful by purchasing a system or learning someone else’s methodology.

 

You must learn from hard work and your own experience. If 99% of all traders fail, and you keep doing what others are doing (jumping on the latest indicator set up, paying big money for systems that can’t fail etc.), the odds are you will continue to fail. The temptation is to think: “If only I learn to do it better, ‘it’ will work”, when, in fact, ‘it’ is inherently flawed and will never work.

 

It is necessary to learn how to trade first, only then should you risk real money. This is the reverse of what the great majority of the Futures Industry promotes. [/b

 

]I will address this topic in more detail tomorrow.

 

There are a number threads posted in Trader’s Lab questioning whether the ES can be traded profitably. I say it can.

 

The S&P E-mini contract (Symbol: ES) is I think the hardest one to trade in the US session for four reasons:

 

1. Poor range development during the US session.

2. Many, if not a majority, of the recent substantial price moves have occurred in the Globex (overnight) session.

3. The ES is subject to arbitrages, program trading, and other activities that are unrelated to current trading. These frequently can have a impact on current prices that is unrelated to current supply and demand.

4. Noise: The ES tends to have a high degree of 2-way trading (overlapping) involved in its attempts at directional movement. This is particularly true in the day session, and holds true in any time frame up to 120 minutes. This means stop placement is critical. It also means small accounts with a fixed dollar stop have a good (I won’t say very high out of courtesy) probability of being stopped out. I will address the topic of stop placement probably next Monday. Such a deal you guys and gals are getting out of these threads.

 

 

I made more money recently trading in the NASDAQ and Copper than the ES. I also think the 10 year US note contract is an excellent and also low cost alternative to the 4 stock indices. However, for some reason, the ES is everyone’s favorite. And there is the challenge as to whether the ES can be profitably traded. So I have 2 profitable days trading it, and 28 more to go.

 

 

 

 

Regarding, as was suggested in a post to this thread, submitting a ten year track record. The idea is clearly spurious, ala Peter Lynch among many others. The last trade has more meaning than a ten year history. Thirty days is vastly more relevant and a good test. So now you have two days results of the thirty days and twenty-eight more days to go.

 

During that time, if you have the desire, capacity to learn, and willingness to work, you will be exposed to what is working for me as a successful trader. The idea is to adapt what I do to your own personal trading methodology.

 

The last posts I submitted on Friday stated that if prices could not hold the 1374 level, go short, and at 1:53 I warned we had no volume or range, so expect prices to decline. Of course, we got a 10 point drop in the last 30 minutes of trading.

 

Friday’s Globex session had a high 1384 shortly be the US session. That was the low risk and obvious entry. Prices then declined without pause to 1368, consolidated for five hours before selling off to new lows in the last 30 minutes of trade. If you check my tread entitled “today’s trade”, you will see I advised entering short at 1377, followed by a post saying the 9:30 AM CST low was likely to hold so cover. I then went long at 1372, but the rally never came, and it was clear by 1:00 PM that a failure was likely. The advice given was that if prices did not remain above1374 (prices reached 1374.50 and later double topped at 1374), then cover the long at a small profit and aggressive traders go short. This alert was given 2 times, the last at 1:53 CST, giving over 2 hours of advance notice of a potential sell off. Thus the gain on the three trades was up to 28 E-mini points on a day when the day session range was only 18.5 points. All the trades were posted in the thread entitled “Today’s Trade.

 

Thursday was also a good day; again see the posts in the Thread: Today’s Trade.

 

There are no short cuts to success.

 

Were the last two days flukes? Again, only time will tell. My hope is that there is enough here to encourage a few to spend the time and do the work necessary to develop a successful personal methodology.

Edited April 15, 2012 by wshahan

[wshahan 10]

4.15 POST 2

 

The Rules for Trading Spikes

 

“Spikes” are one of the six special situations featured in Dalton’s classic book on trading the CBOT Market Profile (Mind over Markets, Dalton, Jones, and Dalton). See page 280-288 for a detailed discussion of spike trading

 

Spikes are created by the rapid movement of prices away from existing value in the last few periods of the session. A spike offers no opportunity for prices to be retested during the session and hence serves as a reference for the next day’s trading. (I am ignoring the Globex session for the purposes of this discussion.)

 

We had such a spike in the last 45 minutes of Friday’s session. In profile parlance it occurred in the M, N periods (30 minute bars starting with A,) and took place between 1372.25 and 1363.75.

 

 

SPIKE STRATEGY FOR MONDAY’S OPENING:

 

The spike’s range and extremes now serve as key reference points for Monday’s trade.

 

 

1. Opening within the Spike:

An opening within the spike is the most likely occurrence and indicates that the market is accepting Friday’s new lower price levels. This is a large spike in relation to the average true range of the ES, so it would not be unreasonable for today’s trade to remain within the spike. Look for rotational trade opportunities.

 

If prices trade through either extreme; either upon retest, or with conviction, go with the breakout.

 

2. Opening above the spike:

An opening above the spike indicates that market participants consider prices within the spike range too low and indicates rejection of them. The objective is to enter long positions as close to the support offered by the spike top as possible.

 

3, Opening below the spike:

An opening below the Spike indicates that market participants consider prices within the spike range to high and indicates acceptance of lower prices. The objective is to enter short as close to the resistance supplied by the spike bottom as possible.

 

 

 

Bonus Tip:

The move has special significance because the preceding bar contained a small intra day selling tail beginning at our over/under price of 1374. (The failure at 1394 combined with the lack of volume and corresponding lack of range was the reason I went short.) The late move down went through the day’s entire value area in a small fraction of the time it took the for value area to form. Does this move have any potential significance for price movement Monday? Only time will tell.

 

 

 

Hope this is helpful,

Spookywill

[steve46 12]

Interesting...

 

Actually spikes on an intraday time frame are "created" primarily by automated execution as price hits a specific high or low of a distribution....The trademark of automated execution is the quick response as price tests a distribution extreme..If you go to a longer time frame chart and simply scan left, you may see that the price retracement coincides with an "up bar or candle" that forms a "ledge" and/or is at the origin of a previous trending move....(what a surprise)....this is in part how I generate the supply/demand nodes on my charts...

 

In addition, there are some folks who know about this and "wait for" these opportunities at specific times of the trading day...they look for these trade entries because in this market (S&P Futures) a test of a distribution extreme usually results in a low risk entry and a profitable trade...those of us who actually do this for a living call this a "layup"...

 

As for what it means on Monday....that depends on where the big boys (institutions and funds) want to move it based on Sunday's European news....it has very little to do with Mr. Dalton's commentary...

 

By the way I am enjoying the comedy act....please continue...

Edited April 15, 2012 by steve46

[BlueHorseshoe 10]

In addition, there are some folks who know about this and "wait for" these opportunities at specific times of the trading day...

 

Why would you anticipate a test of a distribution extreme to occur at a specific time of the trading day?

 

Bluehorseshoe

[wshahan 10]

omit as redundant xxxxxxxxxxxxxxxxxxxx

Edited April 15, 2012 by wshahan

[wshahan 10]

Reply from Spookywill to steve46

 

 

 

The Rules for Trading Spikes

 

Your comments sound about Spikes display complete ignorance about Dalton’s concept of “Spikes” and their utility in trading.

 

Your verbiage regarding “Automated execution” sounds sage, but in actuality is simplistic and conveys no real knowledge of the actual processes involved, just a superficial observation of some of the effects, and some of the normal phenomenon around intra day extremes. You sound like you are trying to be “one of the boys.”

 

Much of Dalton’s work is no used by successful professional traders, it is referred to as “legacy concepts”, and as I said in my post I am an auction market trader, but I like to keep an eye on the profiles. Most auction market traders and institutional traders I know use o-h-l-c bar charts rather than candlesticks, but I guess the colors are easier for those with less skill. They certainly make it harder to track migration of value which I consider vital to successful trading. I would assume that you are aware that Steidlmayer even refers to his own early profile concepts as not very helpful today.

 

The difference in the spikes I am referring to and your definition are in time, volume, magnitude, and duration. Hopefully you possess the skill to be able to figure out the differentiations.

 

From the trader’s point of view, the placement of trade, be it institutional paper, locals or whatever in relation to the previous session’s reference points is vital. And Dalton’s spikes are very useful in this regard.

 

I am glad you are enjoying my comedy, I certainly enjoyed yours!

Edited April 15, 2012 by wshahan

[kick buttkowski 10]

Hey Steve, is there any reason why you have to keep interjecting your negativity into a thread when someone is taking his time to share and teach others. If you don't agree or like what Spooky is saying why don't you go elsewhere on the site or just not say anything. Don't you think the people on the board have enough intelligence to make their own decision regarding anything Spooky has to say without your input. Please leave it alone. Your comments are taking up space that could be filled with more contructive thinking. Spooky is sharing what he does and how he makes money. If you make money a different way than him, that's great. I ask that you let the rest of us listen to Spooky without your play by play analysis. Thank you.

[gosu 10]

4.15 POST 2

 

* * *

Spikes are created by the rapid movement of prices away from existing value in the last few periods of the session. A spike offers no opportunity for prices to be retested during the session and hence serves as a reference for the next day’s trading. (I am ignoring the Globex session for the purposes of this discussion.)

 

* * *

 

 

Interesting...

 

Actually spikes on an intraday time frame are "created" primarily by automated execution as price hits a specific high or low of a distribution....* * *

 

 

 

You two boys are unfortunately using the same term "spikes" to describe different things. It is not immediately obvious that you're doing that because neither of you gives an explicit definition of what you mean by "spikes" and we're left to figure that out by reading about how they are "created" or by looking at a chart purportedly showing them.

 

To be fair to stevie, I had to do a double take when I read about the "spike" at the end of Friday because I too am used to the familiar usage of the term "spike" being a sharp move followed by a sharp retrace, or as the candleschtick people say, a long "wick." I'm not saying the term can't be used any other way and for all I know Dalton's usage of the term may be more common and I'm not aware of it.

 

In any case, from what I'm understanding here is that a "spike" can only occur at the end of the day, what I call the PM, and specifically cannot include a retrace and indeed its chief characteristic is a lack of a retrace before the close of the session. OK, got it, Prof.

 

As for the "rapidity" of the move, it's not all clear to me what is meant by this because the "spike", what I would call the PM BO (break out) from midday consolidation, was not much more "rapid" than the move to start the RTH, which according to the definition used by the spooky professor can't be a "spike" because it began the trading session and didn't end it. Of course I'm not looking to put words in anyone's mouth and am open to being corrected.

[steve46 12]

No idea what you hear when someone speaks....not my problem

 

as to when a spike occurs...that is part of "context"....personally I look for specific characteristics with regard to distribution and time of day...(as I said in my post)

 

As to the rapidity of the retrace...I was there trading...it is only my opinion. I leave it to others to determine for themselves...

Edited April 16, 2012 by steve46

[steve46 12]

Hey Steve, is there any reason why you have to keep interjecting your negativity into a thread when someone is taking his time to share and teach others. If you don't agree or like what Spooky is saying why don't you go elsewhere on the site or just not say anything. Don't you think the people on the board have enough intelligence to make their own decision regarding anything Spooky has to say without your input. Please leave it alone. Your comments are taking up space that could be filled with more contructive thinking. Spooky is sharing what he does and how he makes money. If you make money a different way than him, that's great. I ask that you let the rest of us listen to Spooky without your play by play analysis. Thank you.

 

Offering an alternative (and in this instance "correct" ) explanation is not negative unless you have an investment in one viewpoint.... or in one person's opinion....if you don't like my comment or my way of expressing myself..perhaps you should ignore me.....problem solved.

 

What amuses me, is when folks show up, suggest or claim, they have superior knowedge and then present data that isn't accurate.....I don't let that stand...sorry if it makes you uncomfortable.

Edited April 16, 2012 by steve46

[steve46 12]

Why would you anticipate a test of a distribution extreme to occur at a specific time of the trading day?

 

Bluehorseshoe

 

 

Yes....thats part of what I do...I learned the hard way that it is impossible to keep focused on my charts every minute of the day...I can't do it....and when I tried to teach, I noticed that others had the same problem (thought it was about my age, but its not)....so I went back and looked for specific time periods where these kinds of "tests" occurred....also I had help from colleagues who worked in the programmed trade business...They pointed out that the progammers, being human, tend to use "time of day" as one ( "if/then" ) input for the activation of certain strategies...

 

Now as for when....I won't give you details but I will point you in the right direction....One of the ways I determine "possible" tests of a distribution is by looking at the previous day and the same day of the previous week and month...apparently there is a symmetry to the markets that may be seen when you look back at these time periods....if you are active in the markets I think we have all see times when a specific range or a specific price acts as support or resistance over successive days....most recently it was 1370....check it out for yourself...

 

Hope this helps

Steve

 

Edit

 

You know, now that I think about it further I am not the only trader to view markets this way...if you read Mark Fisher's book "The Logical Trader" he also suggests as part of his system that you look for repeating patterns on a weekly and 30 day basis....Just a thought.

Edited April 16, 2012 by steve46

[gosu 10]

No idea what you hear when someone speaks....not my problem

 

as to when a spike occurs...that is part of "context"....personally I look for specific characteristics with regard to distribution and time of day...(as I said in my post)

 

As to the rapidity of the retrace...I was there....trading...it is my opinion. I leave it to others to determine for themselves...

 

stevie, you need to read more carefully. I "heard" Spooky and I "heard" you and what I "heard" was that you weren't talking about the same things. There's nothing wrong with disagreeing with the man, but my point is you should at least figure out what he's saying first. You heard him use the term "spike" and it conjured up all sorts of images in your head and what he said didn't jibe with those images and so you rushed in blasting with both barrels.

 

Now you can stick to your guns and continue to talk about YOUR definition of "spikes" and their "context" and characteristics and such in this thread but all you're going to do is piss people off and make yourself look like an idiot. It's all up to you, however.

 

Also, my "rapidity" comment was not in reference to your post as your post doesn't even contain the term "rapid" as his does. See if you can understand that you are not the center of attention here. If you make your own thread, I'm sure people will go there and ask questions.

[wshahan 10]

Reply from Spookywill to gosu:

 

Your comment is accurate. I am referring to Spikes as defined by Dalton in his book and I referenced the pages in my post. Part of the task here is to figure out the meat of what I am saying as I expect the people who will truly benefit from my tread to work, and “own” the material, not just observe and memorize it. Only by “owning it” do you internalize it and have it available without conscious effort. In other words, it is available on a timely basis for making trade decisions.

 

Dalton has a much different definition and meaning than the one associated with “algo” trading and long wicks. Dalton’s definition is only common to Profile users and I expected it would create some confusion. But I did give its prime characteristics as Dalton uses it and the book reference. And the utility of it to traders may be interesting or not. I personally find it useful as a reference for the spike extreme inside the previous day’s range. It is a no brainer to figure out what to do with the new low we are getting in the Globex Asian session now (8:00 PM CST.) The situation becomes more interesting it we trade back up into Friday’s range in tomorrow’s US session.

 

The opening selling conviction (auction market jargon would be vertical development) off the Globex double top was a gift from the trading Gods. It also was not retraced. Many different words for both the beginning and ending phenomena. I hope you enjoyed it as did the thread readers.

 

Thanks for your comment, and I hope my reply was helpful.

Spookywill

[steve46 12]

Quite a lot of backpedaling and bailing water going on here...by all means continue with that...but by the way your boat is sinking...

 

One final note....the idea of a "legacy concept" wasn't mentioned in your original post....shouldn't make a difference (unless you are trying to make money).....Apparently that is another "gift from the gods"......lol

[wshahan 10]

Reply from Spookywill to steve46 and original post by blueshoe:

 

I agree that it is impossible to keep fcused on the charts all day, and I agree that there are certain time periods one can more logically expect price movement than others. I have different methods to determine effective points to look for trade activity.

 

I deal with the chart fatigue issue in 2 ways:

1. Use 30 minute charts as my primary trading tool. I may go down to a ten minute chart for entries. It is much easier, for me more relaxing, and vastly less noise to watch a longer time frame chart. I also find that the patterns developed in the 30 minute charts offer much better trading.opportunities and bigger moves then shorter ones.

 

2. I generally don’t trade between approximately 11:00 to 12:30 CST. This is when most of your program traders and big institutional guys are at lunch. Early on I got chopped to pieces trying to trade these hours, I would be in a trade and all of a sudden there would be no volume and no range development. And ole Spookywill would get stopped out. Lesson learned.

 

 

Steve46, you said regarding a specific support price on Friday ….it was 1370…check it out for yourself.

 

My over/under point (as posted in the thread) on Friday was 1374, which was certainly more effective than 1370, check that out for yourself.

 

Also if you waited to go short until 1370 after the opening, you missed most of a very nice trade. I think there are much more effective ways to determine your reference points than what you describe.

 

I have internalized many patterns and this is a key part of my trading methodology. I am not familiar with Mark Fisher’s book so I can’t comment on it. If it works for you, great. I am a great believer in the value of pattern recognition.

[karoshiman 10]

 

...

 

One of the ways I determine "possible" tests of a distribution is by looking at the previous day and the same day of the previous week and month...apparently there is a symmetry to the markets that may be seen when you look back at these time periods....

 

...

 

 

 

Hi Steve,

 

Interesting insight.

 

Do you know the logic behind the phenomenon you describe other than that program traders program it that way?

 

I haven't read Mark Fisher's book yet but will certainly check it out.

 

Thanks in advance!

 

k

[karoshiman 10]

 

... as price hits a specific high or low of a distribution....The trademark of automated execution is the quick response as price tests a distribution extreme..

 

...

 

... a test of a distribution extreme usually results in a low risk entry and a profitable trade...those of us who actually do this for a living call this a "layup"...

 

 

Does this relate to the time-based standard deviation method you use? I've read about it from you in one or two other threads.

 

Which time frame do you use to calculate the 2 standard deviations which you consider in your trading? And over how many bars are these calculated?

[steve46 12]

Karoshiman

 

Can we exit the thread please. I will answer but don't want to continue here....I'll either start a new thread or provide a comment by PM....and for the record (yet again) I am NOT training traders, I do NOT have anything to sell ANYONE.....and by all means MMS please feel free to check my PM queue to verify my comment.

 

Best Regards

Steve

[wshahan 10]

Spookywill to BluHorseshoe

 

Why would you anticipate a test of a distribution extreme to occur at a specific time of the trading day?

 

It depends on the day type. If you don’t a dominate early trend move (15-20 points in the ES), there are generally three intra day moves in the ES.

 

The move on April 10 is an example of a one time frame day as was April 12. You don’t attempt to fade these moves, you buy or sell (go with the trend) whatever reversal opportunities present themselves. The first move is early and in the direction of that day’s trend (not to be confused with the daily trend. The first thrust will, most of the time, contain one extreme or the other and that enables you to make a projection of the day’s range.

 

The second trend can be weak and hard to play like Friday. It generally includes lunch and has low volume and range,

 

That leaves the last 2 hours as a chance to get a good trade. Generally, but not always, the third move is in the morning direction, the half hour bar pattern usually will have some directional clues. Also, you will have volume dry up or dramatically increase as a clue. An example was Friday when the volume dried up at 1374 and triggered our short.

 

I guess the short answer is that there are certain patterns that can be expected to show up each day in a recognizable form. The question is a complex one that is outside the parameters of the Traders Lab. I hope these thoughts have been helpful. Try checking each day and see if you see the same patterns reoccurring on a 30 minute bar chart.

[wshahan 10]

Reply from Spookywill to steve46

 

... as price hits a specific high or low of a distribution....The trademark of automated execution is the quick response as price tests a distribution extreme..

 

...

 

... a test of a distribution extreme usually results in a low risk entry and a profitable trade...those of us who actually do this for a living call this a "layup"...

Steve,

I agree with both of these statements.

 

I don’t use standard deviations in my trading. And specifically l don’t use Daltons Value area concept which is approximately one standard deviation from the high volume point. If you can find the reference, I will address it.

 

Will

[winstonsmith 10]

I don't know much about your system, Spookywill; I will have to read a bit further to fully understand it.

 

What caught my eye though, is you said you've been trading for 28 years...and recently blew out an account as recent as 2008.

 

When you nuked your account in '08 (not casting judgement, here either, torched one account myself before) were you using this same system you're now endorsing here?

 

Or, were you you using a different system alltogether?

[steve46 12]

I'm sure this is just coincidence. My "understanding" is after all, very limited....but in the attached chart you can see price trying to take out 1370, closing above it briefly, then failing...

[phantom 16]

I use 30 minute charts as my primary trading tool. I may go down to a ten minute chart for entries. It is much easier, for me more relaxing, and vastly less noise to watch a longer time frame chart. I also find that the patterns developed in the 30 minute charts offer much better trading.opportunities and bigger moves then shorter ones.

 

Will,

 

I've been preaching the use of 10-30 minute charts as the way to overcome noise for almost a year at this site...Glad to see another trader doing the same and professing it!

 

No matter what others say (Steve 46 loved to try and bash my work as well) you are doing a good job and your are beginning to be appreciated here at TL!!!

 

Thanks again for your contributions.

 

 

Luv,

Phantom

[BlueHorseshoe 10]

Spookywill to BluHorseshoe

 

I hope these thoughts have been helpful. Try checking each day and see if you see the same patterns reoccurring on a 30 minute bar chart.

 

Hi Spookywill,

 

Many thanks for your helpful reply.

 

Bluehorseshoe

[phantom 16]

I'm sure this is just coincidence. My "understanding" is after all, very limited....but in the attached chart you can see price trying to take out 1370, closing above it briefly, then failing...

 

Totally out of context, as most of your comments are... As we speak, just a couple of hours after your chart posting, the market is breaching 1372 and still rising...there's 1373...

 

"My understanding is after all, very limited" -- You said it, not me!!!