Steve's Basic System for Retail Traders

[robster970 10]

Thanks Steve. Some general questions:

 

1) The two candidate entry areas around 48.75 and 47.75 - looking back at trend initiation I can see 46.75 is a candidate but outside of the gap close at 49 I can't see how you derived these levels. I am used to trading around levels and understand that they are not static things, affected by volume, etc but I just can't see how you came up with these - is this proprietary to the way you calculate?

 

2) Are you always looking for a reversal with the exception of the the 2 outer levels that form the high and low set by long term traders which can be played as a breakout?

 

3) Personally I look for confirmation on T&S and DOM as well as another candle and never just enter on a level. I don't mind trading location for a little more confirmation. Is this because you are referencing DOW and DAX? If they don't confirm, do you miss the trade?

 

Appreciate you posting screenshots up BTW.

[steve46 12]

As mentioned there is some "art" to this part of the process...., but it would take a bit of doing to explain...

 

The simple explanation is as follows

 

Prior to the open I identify previous trend moves long & short....based on experience, I find specific prices where I believe institutional and/or automated execution is likely to kick in....

 

As with all things, practice makes perfect, and you can see the result on our NQ charts (which we did trade today).....its very rare that price reverses without touching one of our targets...

 

I miss trades all the time, as you can see in today's posts...what helps me (if I will just trade instead of posting) is to be focused at "preferred" entry times....combining time with price action makes it much easier to separate "valid" entries from borderline entries that are likely to result in a loss..using that framework I tend to trade 3-4 times a day max. On a trend day...once..

Edited October 18, 2012 by steve46

[steve46 12]

From the standpoint of pre-market prep, everything begins with the daily chart

 

We post this one, because A) we are going to stop posting soon, and B) the arrow illustrates why we are (were) able to take long trades with a lot of confidence....hopefully it is obvious to readers that once price lifted and closed above 1419.75, odds favored continuation up to retest the recent high...

 

Of course now the question is, how do we proceed once we get to that retest high in the area of 1466-1468.

 

The general rule (for longs) is you wait for volume to come in off the sidelines....and to do that you need to be able to read volume both historical (which isn't very challenging) then on an intraday basis "the tape" (which IS very challenging)...

[robster970 10]

As mentioned there is some "art" to this part of the process...., but it would take a bit of doing to explain...

 

The simple explanation is as follows

 

Prior to the open I identify previous trend moves long & short....based on experience, I find specific prices where I believe institutional and/or automated execution is likely to kick in....

 

 

I hope you don't mind me asking questions Steve.

 

With regards to this art, I have my own home baked theory on this drift from historic levels.

 

If there is a clear uptrend, buyers/automated execution will come in at a slightly higher price than the previous level. For a downtrend the converse is true, sellers come in at a slightly lower price. This drift might be 1pt or so on ES. The reason for this is that missing a good entry on a trending market is more of a sin than trying to getting a great price, tied to a historic level via limit orders when everybody is piling in with market orders. Basically it is mitigating for missing out on the trade opportunity.

 

For liquidity based levels like NVPOC's and gap closes, the push is further into that level to maximise the cheap liquidity on tap at those levels.

 

Does any of this resonate?

Edited October 18, 2012 by robster970

[robster970 10]

Steve - can you post up one more screenshot of ES like the one you did when you first started the thread before you pack up?

 

http://www.traderslaboratory.com/forums/attachments/32/30794d1345825951-steves-basic-system-retail-traders-daily-130-min-daily-distribution.png

 

Understand if you can't be bothered.

[steve46 12]

Sorry to be late in replying. Here you go.....today's dist lines

[steve46 12]

This chart for the folks over at Wykoff thread....where the prevailing religious dogma is that everything they need is already in the charts...lololol.....except for GOOGLE EARNINGS..........SURPRISE!

 

This little kick in the ass, happened at precisely 9:30am PST....(but, there's no connection between time and price....according to the local guru....lol)

 

I believe William Shakespeare said it best;

 

"There are more things in heaven & earth Horatio, than are dreamt of in your philosophy"

Edited October 18, 2012 by steve46

[robster970 10]

This little kick in the ass, happened at precisely 9:30am PST....(but, there's no connection between time and price....according to the local guru....lol)

 

You're kidding me right? Next you'll be telling me that there is no connection between price and volume.

 

So using your method on ES today, there were three opportunities:

 

1) 14:36 as price was held on open around the second test around 52/53 area which didn't take off but would have scratched

 

2) Test lower to about 51 area (corresponding to the low created around yesterday's open under higher volume) which held and then rallied all the way to 58-60 area which has been the 5d high

 

3) Short from 60 area (5d high) down for at least 5 or possibly 9pts.

 

Nice way of mapping stuff Steve.

 

One piece of feedback - I am currently discretionary and I feel that trade selection and entry benefits significantly from this with the levels being extremely solid guidelines for short and long term institutional participation. That aside, this is excellent work Steve.

Edited October 18, 2012 by robster970

[steve46 12]

Appreciate the kind words Rob

 

Here are my trades...on a day when I focus on business

 

One final piece of advice, that may help you.....I look for 2, 5, and 10 NQ points...I am willing to risk 2 (approximately, depends on how much noise I see).....I have two choices as far as which time frame to operate on.....10 min and 3 min...I like the feel of the 3 min chart but you have to be disciplined about entry with the trend if you use that chart or you will get chopped a bit when you enter "at the lines"...that happened to me once today

 

If you take 10 and you hold at least one in case it runs, be certain to program your stop loss properly so that if it spikes down as it did today (when some idiot released Google's numbers prematurely), you can get out of the way promptly...

 

Otherwise its a walk in park....

 

I think I will call it a day with this post...I will check periodically to answer questions but thats it..I do much better when I pay attention to the market instead of this thread....I'm sure you understand...

 

Good luck

 

Edit

 

With regard to the last entry at 12:00 (just a few minutes after actually)....that is a "preferred time" entry...I know that certain folks are looking to make adjustments to their "book" starting at this time....I also look for price to test specific prices (for this market 2730 is particularly interesting price point)....when I saw that they tried unsuccessfully to find sellers there, I waited for that specific "time" to act......again its "time & price"....

Edited October 18, 2012 by steve46

[robster970 10]

I'm slightly surprised (after the initial commenting) that more people have not asked questions. As the framing is around institutional participation, their profit motivations and differentiation between short term and long term participants I would have thought more retailers would be interested.

 

Ah well. Good trading to you Steve.

[steve46 12]

I'm slightly surprised (after the initial commenting) that more people have not asked questions. As the framing is around institutional participation, their profit motivations and differentiation between short term and long term participants I would have thought more retailers would be interested.

 

Ah well. Good trading to you Steve.

 

Hello Rob

 

Couple of comments regarding "interest" in this concept.....first...I notice there are over 17,000 page views for this thread....in just over a 6 weeks....so "someone" is taking the time to look closely at this idea...and when I am posting, I often notice at the bottom of my page, that there are a significant number of "guests" looking at the thread...to me this means that folks who are not members (yet) are reading the material...

 

I make sense of it this way....as far as I can tell, there isn't anyone else trading this way (and writing about it)....of the few dozen folks I used to work with, I would suggest the majority have moved to concepts based on either Market profile or the statistical analysis of behavior (whats now called behavioral finance)...and those who still use Market Profile have migrated to the "strip method" rather than the traditional display...this in response to what is undeniably a changing market structure...as with all things it takes a while for the retail crowd to "get the news"......which is fine..

 

Finally, for the most part I think people here don't actually trade...or have lost their accounts and are simply on the sidelines trying to keep their heads above water at some day job..given that this has been a terribly difficult market to trade, I can understand it...Go back and read the first few pages....does any of that seem to originate from folks who possess the intelligence to make it in this business? I am thinking no....you see if even if you disagreed with my approach, one thing an intelligent, responsible person would do is to test it for themselves...as you scroll through the thread, notice the comment by WBtrader...who has some math background himself....once you see the potential....what else do you need...sure there are details that some of this is dependent on experience, but really if you saw how this kind of approach could really pay off, wouldn't it be worth a few evenings of work...what you have left are the folks who wouldn't make it no matter what approach they used...because they need someone else to tell them when to buy and when to sell....that group (in my opinion) came in to the thread later, challenging me to "prove" to them that this works....or offering to help me...LOL

 

I would love to show a few folks how to make this work, but to learn it requires an adult emotional mindset (the ability to take responsibility for their actions)...and that isn't as easy to find as one might expect...I still have to make a living myself...so I will simply trade it...

 

Seems you have the basic idea. so best of luck to you

 

Steve

Edited October 19, 2012 by steve46

[steve46 12]

Here is a thirty min view of this evening's Globex market

 

If you had a small account and wanted to manage risk close....one thing you could do is to simply work a day job and at night monitor this market at intervals (because time is critical to successful entries)....and just pick your spots.....and then hold with a reasonable stop in place....

 

I have to think people are missing the real game....which is to get on board and hold for the bigger moves...

 

As you can see tonight we tested a dist line at 17:30 hours (ES Chart on the left) and there was another viable entry one half hour after the London open...on a test of that initial half hour high.....

 

I don't know how much clearer that could be...

Edited October 19, 2012 by steve46

[robster970 10]

I'm already in this move but it was a discretionary entry based upon it distributing down towards 46.25 which if it goes means a clean run to at least 41 area and maybe continue to the gap close around 35.

 

Having said that your methodology more than adequately highlights the trade.

[steve46 12]

Sure, good enough...for what its worth I like to run two scenarios (a long & short) side by side until I see which one prevails (if it gets to that point)...

 

This was illustrated in part when I posted the pre-market prep protocol where I showed two long and two short targets for the open.....

 

My "big picture" view is that I can't know for certain where the market is going....but I can produce two ideas that have merit, and then its a matter of seeing which of the two scenarios looks like a winner.......and since this is a game of "time & price"....the goal is to figure it out as quickly as possible...

 

Today my two scenarios are as follows

 

1. We see price test down until the existing home sales data is released at 7am PST...presumably that data shows an improvement and price retraces up to test the nearest distribution boundary......where it then resumes range bound (sideways) movement...

 

3. We see price test down until existing home sales data is released and that number is negative...markets correct down at that point and short entries would be available on retracements to any of several price points....it becomes a matter of figuring out where to get on board the train....

Edited October 19, 2012 by steve46

[steve46 12]

and here are my long and short targets for the open

 

and I am done posting for the day

 

Good luck folks

[steve46 12]

Attached chart shows my "opening targets" as horizontal blue bars.....arrows show the entries

 

The logic is as follows;

 

Two potential long & two potential short entries....and two choices as to how to make use of them

 

1. If you thought "long" was going to be the winner, today you would have watched as price tested the first short target right at the open...that initial move down would have been missed.....and you would have been left waiting, however if you had common sense to see the error of your ways, there were multiple chances to change your mind and get short

 

2. If you thought the short side was going to prevail, that same target was hit right off the open......psychologically this type of entry is difficult for newbies, so most folks would be apprehensive and miss this one...fortunately (as you can see) there were several valid short entries available as price continued south.

 

As mentioned before, the real contest is within each of us...can we organize the data in such a way as to be quickly and accurately interpreted.....then can we manage our emotions so that we can act on what we see....finally can we muster the courage to hold on long enough for our edge to kick in....I have said these things many times over the past 6 or so years that I have been here, but they continue to apply....

 

By the way...the big winners were the folks who got short last night during the Globex market and held....but then that is nothing new.....

 

Okay. so its just a few minutes after 8am PST and I am sleep deprived, and hungry, so I am going to get something to eat and get some sleep....

 

Once again I am done for the day

 

Good luck everyone...

 

Edit

 

I had a nice week and however I am a bit burnt out from it....so I am going to take Monday off

you all have a nice weekend...see you Tues (or Wed...who knows).

Edited October 19, 2012 by steve46

[robster970 10]

You have a good weekend too Steve.

[steve46 12]

One of the very important issues, especially for new and/or struggling traders is "what to do if you miss an entry"? And the answer is that you need a reliable consistent set of rules that produces what we call "continuation entries"....

 

Our system provides a unique method for trading the open...simply put we are able to accurately identify both long & short entries off the opening bell....(marked by horizontal blue bars)....we realize however that often traders will find these early entries psychologically challenging, and they fail to act, missing that opportunity....

 

Continuation entries depend on accurate characterization of market behavior...and what we have seen is that for the ES and NQ markets, it is possible to locate additonal entries fairly close our primary long and short opportunities..

 

For today's market we show both the primary and continuation entries marked by red arrows

 

"At the Bell"

 

Primary entries are generated by tests of the horizontal blue bars...they are also "time constrained"...that means that we prefer to take our entries at specific times...for our system these "specific times" are 6:30 to 6:36.....6:39.....6:45.....and 6:57 to 7:02am PST....

 

We'll talk about "continuation entries" during our next post...

 

Best Regards

Steve

Edited October 20, 2012 by steve46

[robster970 10]

Steve - do you take trades outside of the US equity session (I mean during Asian and European sessions - like this one - http://www.traderslaboratory.com/forums/attachments/32/32171d1350646603-steves-basic-system-retail-traders-thirty-min-charts.png)

 

I ask because watching DAX and ES shortly after European open often gives additional clues IMO.

 

Do you ever sleep?

[steve46 12]

Steve - do you take trades outside of the US equity session (I mean during Asian and European sessions - like this one - http://www.traderslaboratory.com/forums/attachments/32/32171d1350646603-steves-basic-system-retail-traders-thirty-min-charts.png)

 

I ask because watching DAX and ES shortly after European open often gives additional clues IMO.

 

Do you ever sleep?

 

 

Okay so first questions from Robster

 

Yes, I often pre-position, sometimes I do that during the Asian session, more often I wait for London at midnight local time....because that market offers more profitable entries.

 

I try to get sleep however years of working the overnight markets have taken a bit of a toll

 

Finally, apparently I should not have mentioned that I am nearing the end of my posts here....now I am receiving pms and emails from folk asking for help, and information about my distribution process....so ONCE MORE for the record....I am working on a method that allows me to approximate the very time consuming process of creating distibutions...I need to obtain a minimum of 400 data points to properly evaluate this "approximation"...I am doing that one day at a time....because thats what it takes....now, I am not surprised that folks do not understand that you need to verify these things...this in my opinion is one reason why retail traders lose their accounts...because they throw money at indicators, systems, vendors, and chat room/signal services INSTEAD of doing their own research (correctly).....

 

And for those of you involved with Forex...PLEASE don't ask me to provide training....I don't want to be involved in that market...OK? If some of you decide to go to exchange traded currency markets, THEN you might think about approaching me but not FOREX sorry.....the two markets I am going to trade are the S&P futures and the NAZ futures....because they provide the best returns (in my opinion), AND because this system has proven itself (to me) for both markets..

 

I will answer questions periodically and I am going to start a SMALL class that I expect will last from 3-6 months max...then I am done, because as I have mentioned several times, I don't seem to be able to focus like I should, when I am trying to monitor and respond to student's questions...

 

Good luck

Edited October 22, 2012 by steve46

[goodoboy 10]

One of the very important issues, especially for new and/or struggling traders is "what to do if you miss an entry"? And the answer is that you need a reliable consistent set of rules that produces what we call "continuation entries"....

 

Our system provides a unique method for trading the open...simply put we are able to accurately identify both long & short entries off the opening bell....(marked by horizontal blue bars)....we realize however that often traders will find these early entries psychologically challenging, and they fail to act, missing that opportunity....

 

Continuation entries depend on accurate characterization of market behavior...and what we have seen is that for the ES and NQ markets, it is possible to locate additonal entries fairly close our primary long and short opportunities..

 

For today's market we show both the primary and continuation entries marked by red arrows

 

"At the Bell"

 

Primary entries are generated by tests of the horizontal blue bars...they are also "time constrained"...that means that we prefer to take our entries at specific times...for our system these "specific times" are 6:30 to 6:36.....6:39.....6:45.....and 6:57 to 7:02am PST....

 

We'll talk about "continuation entries" during our next post...

 

Best Regards

Steve

 

Have a good day off Steve. Your daily work is appreciated. I been missing last week due to working late myself. But Friday, I got 4pts of the down spiral. The two days before that was pretty tuff. However, there is always this week:cool:

[robster970 10]

Yes, I often pre-position, sometimes I do that during the Asian session, more often I wait for London at midnight local time....because that market offers more profitable entries.

 

As I thought Steve. ES today, nice tidy test at 08:18GMT with target hit at 10:12GMT for 6pts.

 

From my own perspective this is a lovely way of cleaning up discretionary trading to higher probability entry and exit points.

[steve46 12]

Hello Rob, nice to hear from you

 

This evening's chart shows the London Open (Europe Open actually)...and the entry is really easy to see this time....

 

I am really enjoying trading this.....as long as you are disciplined enough to wait for the tests of the distribution lines, you really have an easy go of it....As can be seen the planets lined up very nicely at the open, so you just take the trade and hold on....I didn't even scale on this one, I just held it until I saw a test of the previous high...

 

You know the real issue for amateurs and experienced players alike is to obtain some kind of reliable point of reference when you trade...once you have a way of doing that, whether it be my distribution lines, or some other method...the real game switches over to managing risk and by that I mean making sure you absolutely never get let a losing trade run...If you can do that consistently and stay in the trade long enough for your edge to kick in, you are golden, and frankly this is the test for my students....this is what I "suggest" each person evaluate when trying to establish long term goals....can you do these things, if "yes"....well go live your life...if "no"....what is holding you back....and how can you get from here to there....?

 

As it turns out, a lot of this is psychological rather than technical....so really what we are often talking about is resolving issues around lifestyle choices, and fear of loss....once you go through those doors the rest is actually pretty much like going to any job on a daily basis, except that now, you make a hell of a lot more money, in a much shorter time....

 

Time to get some sleep...(I hope)

 

Best of luck to everyone

 

Steve

Edited October 25, 2012 by steve46

[robster970 10]

I agree entirely Steve. The most difficult thing I had to overcome (and still have to manage) is my own behaviour, not usually with entry but mainly with exit and letting the edge play out.

 

With regards to your method and the creation of the distribution lines, I have also noted (and not unsuprisingly for me) that the reversal points created by volume should be treated differently to the reversal lines created through orderflow drying up in a certain direction. I don't know whether you have mentioned this elsewhere in the thread but as you know, not all reversal points are created equally.

 

Get some sleep.

[steve46 12]

One very interesting benefit of trading the NQ is that you get a shot at the after hours earnings plays that periodically occur.

 

Today was Apple and the surprise miss on bottom line revenues, which caused a spike down to 2626....that spike down just happened to test one of our distribution lines

 

If you were there waiting for the opportunity, what you did was point & click....although this chart does not show that initial move and reversal....the test of 2626 caused automated programs to buy. The reversal was all the way back to the origin at 2651....a nice windfall of $500 per contract...

 

I think its fascinating that with all the problems folk have making money in this game that no one (and I mean no one) has figured this out (the upside benefits of trading NQ)....

 

Similar opportunities with Facebook earnings by the way...but hey don't let me interrupt your normal schedules.....

 

Seeya