Week 3 Trades- Spookywill

[wshahan 10]

We have a great entry Sunday night at 7. Go long off consolidation on the 30 min chart. Unfortunately it has already risen to 1374.50, the idea area would be 1373-1374.

Long at 1373.50 at 7:05, sorry for the delay, but look for a pull back. stop is 1371.

 

This is an aggressive trade with a only a reasonable probability of success but a great risk reward ratio.

Edited April 23, 2012 by wshahan
typo,original entry 7:19

[wshahan 10]

I am looking for a break above 1376 and then 1379-1380.

 

Will have more coments later, but we have a four day consolidation pattern with Friday being an inside day. So we have a mature profile and will likely get a sharp break off this formation in this session or the next. Our downside key reference area is 1351, and our mature balance area is from 1359 to 1390. We currently are in the middle of the balance area, near the high volume node, and will go with whatever volume migration we get. This is pretty straight forward auction market methodology with a Spookywill twist.

[gosu 10]

* * *

 

This is an aggressive trade with a only a reasonable probability of success but a great risk reward ratio.

 

I hear statements like this a lot and I always wonder what it means.

[wshahan 10]

My entry was at Friday's day session low and the trade was to see if prices could retrace into Friday's range. If prices don't retrace and fail at Friday's low, which is what looks likely at this moment, then I will reverse and go short..

[wshahan 10]

Reply to gosu:

 

 

I got stopped out of my original long trade by 2 ticks, and now prices are attempting to move higher and are back to my entry.

 

When I say it was an aggrssive trade, it clearly was a risky trade, and I stated " This is an aggressive trade with a only a reasonable probability of success but a great risk reward ratio." So it was a risky trade, but it was successful, it offered a 5 to 1 or more return over the risk, and that is a trade I will take all day.

 

The single most important element in entering a trade is defining risk. Then the potential reward is approximated. Risk can be defined exactly, Reward may or may not definable, particularly if you are attempting an initiating trade through a high volume point. Tonight the current high volume point 1372.25, and prices are consolidating above there.

 

Once I have defined my risk, in this case 2 points, and I have a potential reward to risk basis of 3 to 1, I will take the trade. This means that I only have to be right 1 out of 3 trades in order to be profitable over time. That is why I took the trade tonight, it's probability of success was, at best, 50-50, but if it was successful I was looking at a 5 to 1 or better return.

 

My guess is that the long side is the place to be, but prices are at 1373 and the stop would have to be placed below 1370.50. I want to go long near the high volume node so I will wait for prices drop, or for value to migrate higher.

 

The importance of having a three to one ratio of risk reward cannot be overemphasized.

I haven't added up last weeks results yet, but I think I only had a few more winners than breakeven plus scratches plus losers. I will add them up tomorrow for an accurate report.

 

But I had 36.50 points of profit versus about 12 (Have to add up Thursday to get an exact account) of losses. And I misplayed 3 out of 5 days. Yet I netted 24.50 in profits per contract.

 

The previous Thursday and Friday which started this odyssey. I believe I made over 30 points in the S&P as well as 26 points in the NASDAQ. I will get an exact count tomorrow.

 

So defining risk and being willing to get stopped out is part of the cost of doing business. I like getting stopped out because it means I can return to looking for good risk to reward trades.

 

I hope this reply makes sense to you, and is clear. Risk defination is so imporant.

 

The other critical element of risk defination is that stop placement must be defined by market structure and not by a fixed dollar amount or a fixed percentage of the equity in the account. This means there are many trades that should not be taken by small accounts regardless of the potential in the trade.

 

Hope this is helpful,

Spookywill.

[gosu 10]

I do not subscribe to your premises but I appreciate you putting in some effort in your response. Carry on.

[MightyMouse 12]

I hear statements like this a lot and I always wonder what it means.

 

I have made statements like that in the past. It provides me with a mental hedge. If the trade makes money, I was brilliant for taking it. If it loses, then that was the expected outcome. Either way my mind is hedged from psychological damage of taking a bad trade that I knew I would get stopped out of.

 

No need to hedge though, it seems that Will is doing a good job and I give him credit for doing this publicly. Mistakes, bad decisions, etc are part of the landscape. The markets will give a perfectionist slow stomach cancer.

[wshahan 10]

I just entered short at 1360.75, stop at 1363.

[wshahan 10]

We had our sharp move, unfortunately in the middle of the night, and now we are in a position to test the lows of our mature balance area to the downside. The over night hight volume point is now 1361.25 and we are trading below that. We have a consolidation/small balance area on the 30 min chart between 1363 and 1369, and I am going with the migration of value to lower prices.

 

Today is liable to be interesting,

 

Only time will.

Spookywill

[wshahan 10]

Reply to MightyMouse:

 

I have made statements like that in the past. It provides me with a mental hedge. If the trade makes money, I was brilliant for taking it. If it loses, then that was the expected outcome. Either way my mind is hedged from psychological damage of taking a bad trade that I knew I would get stopped out of.

 

The markets will give a perfectionist slow stomach cancer

 

I really liked your comment. In particular about the mental stress of having to be right. And having an emotional stake in the outcome of a tradeis very taxing psychologically. It is so nice being able to put a trade on and then relax and see what develops. And, no matter what happens on theis trade, I have confidence I will be highly profitable over time.

 

In this case, the ES is very difficult to trade, I like trading the NQ and copper better. The 10 year US note is possibly setting up for a good trade today also.

 

The ES is drifting higher and probably will stop me out, oh well, such is life.

 

Spookywill

[wshahan 10]

It appears likely that wewill have a gap down opening in the day session range (profile). If this gap fills, go long. If it doesn't fill in early trading, go short.

[wshahan 10]

The developing pattern looks too bullish to stay short, so I reversed the trade at 1362.25, stop 1359,25

[wshahan 10]

If the overnight lows are taken out, I would want to be short. The prudent play is to digest the 8:30 CST opening before making a trade.

[wshahan 10]

Reverse short at 1359.25

[karoshiman 10]

I appreciate your openness here, Will, and I hope that your 30 day experiment will work out fine for you.

 

But watching your trade calls, a German saying with respect to trading comes to my mind. It is difficult to translate it in English as it rhymes so beautifully in German... but the corresponding translation/meaning of it is: "Back and forth empties your account". It relates to overtrading and switching positions often without waiting for the right spots. Something that makes definitely the brokers rich but most of the times not the traders.

 

I am not saying that this relates to you or your methodology but it just came to my mind and I think it is something beginning traders should be aware of.

 

 

PS: Does anyone know whether there is a corresponding saying in English?

[wshahan 10]

April 10th low 1352.50 is the initial target.

Edited April 23, 2012 by wshahan
typo

[wshahan 10]

sell1 ES june futures contract at 2370.00. stop 1371.75

[wshahan 10]

prices declined to 1367.75, before going to new highs. stopped out at + 1 tick.

[wshahan 10]

we have small balance area between 1367.50 and 1371on the 5 minute chart. Can set up a legitmate, high reward/risk trade in either direction off that structure.

 

I shorted the high of the structure, risking effectively one point looking for 1361 for a 9 to 1 return. We got retest of 1367.50 and that level held. I had lowered my stop to + 1 tick and I got stopped there.

 

The opposite trade was to go long on the retest of 1367.50. Here the risk is also roughly 1 point, but the upside wasn't that attractive to me.

Edited April 24, 2012 by wshahan

[wshahan 10]

entered short at 1370, same trade rationale

[wshahan 10]

reversed and went long at 1368.75

[wshahan 10]

reverse at 1368.75- getting dizzy yet?

[gosu 10]

reverse at 1368.75- getting dizzy yet?

 

Nope. The room spins only for the person doing the spinning. At least you ended up on the right side.

[wshahan 10]

I was fading my market structure so I would be on the right side for a breakout. Effectively I am short from 1370.

 

Target: 1361

Lower stop to 1368.50

 

I am now playing on the house's money and hoping initially for 1363-1361.

 

We now have traded into the overnight structure on the 30 min bar chart. I goes from 1368 to 1363. This high volume area will take a while to trade through, if it can be taken out at all. If prices successfully penetrate this area to the downside, 1361 and 1354 become the next objectives.

Edited April 24, 2012 by wshahan

[wshahan 10]

I am going to place my stop at 1369.75 to give myself some room.