Steve's Basic System for Retail Traders

[steve46 12]

and here is another nice opportunity....this is called a clean-up trade...and it takes advantage of the fact that folks who are late to the party, look at this and say, "well Apple is sure to rebound from this very slight miss in revenues...this is an opportunity to buy it"....and they do

 

The mechanism is simple, on the report Apple stops trading...when it re-opens people are moving aggresively to get back into it (talking about folks with the experience and intel to see the opportunity here)...as they transact, the spillover affects the index as well (people transact here as well)...and up we go....

 

In total this opportunity was worth about $1000/contract if you were prepared....still in this one looking for 2640 exit

 

Bye...

Edited October 25, 2012 by steve46

[steve46 12]

and here is the final screen shot for today....as my exit target is hit (notice the reversal candles as price hits 2640)

 

My final comment is as follows....I remember one recent thread where folks complain (as they often do here) about the lack of "quality education"...(it was one of the Pristine "promotional threads"....lol)....and Negotiator comes to post suggesting that the problem is that it is hard to recognize what a good educational program looks like....

 

I think there are two issues...one is the lack of good quality education for traders, but then I have to say it.....even when an opportunity to get quality education exists.....I don't think people are able to recognize it......and even then they don't take action...in the end people make their world what it is......

 

Oh well, I am done

[steve46 12]

Recently I waded through several paragraphs of verbage about "how to know where the reversals are"...the thread was about "catching a falling knife".......LOLOLOLOLOLOLOLOL

 

So I get about three quarters of the way through this multi-chapter novel when I realize that the poor schlub thinks that this is what he has to do to locate reversals.....Uhhhhhhhhh no....

 

There is an easy way to eyeball reversals on any time frame...I'm not going to put on the seminar...but in order for me to tell YOU folks (readers of this thread) that I was getting off the bus at 2840 I had to be able to figure it out quickly and accurately and its not rocket science

 

You need two charts...and thats it...no arrows no calculations, no magic incantations...no ritual sacrifice....(well maybe a couple of virgins if you can find them)....

 

Lets see if anyone can figure it out...

[steve46 12]

Here is a nice example of a pre-position opening trade that occurred prior to the DAX open

 

The NQ (the market I am currently trading) is the chart in the middle of the screen...as can be seen we watch price test our distribution line signaling long entry and from there its a matter of watching periodically, managing risk and holding long enough to obtain a decent (about 10 NQ points so far) profit...

 

On the far left you can see the DAX open and move up strongly "taking out" the distribution line....

[steve46 12]

Very nice short entry today...at 12:15am (shortly after midnight PST)....which is one of our "preferred" entry times...

 

In this case what motivates our entry was data from Bloomberg as a gentleman from Fitch (one of the primary rating agencies) came on to confirm changes in Spain's credit rating and to suggest that Spain was already in proces of coming into compliance with the broad elements of the ESM and other bailout fund resources...I watched part of the interview and as he began to speak about the timing, I decided to get on board, after all it is "time & price" and we saw all three markets (ES, NQ and DAX) start to show signs of rolling over..

 

The extent of the move was a bit of a surprise, however we have come to expect that the NQ will move a bit more briskly than the ES (which we would normally be trading)....7+ points and we are still holding a small piece in reserve in case the position continues to run south..

 

In the next few days, what we have decided to do is to provide training (as mentioned previously) however it will be for the overnight (what we call the "Globex") market....that class will meet shortly before 10pm PST time, trading until just after 3am (a total of 5 hours).

 

What we have found over the course of the last 6 months or so, is that the character of the markets has changed significantly.....we now see Europe as the major driver for trading opportunity (not the ES)....and in our opinion, the NQ futures provide a easier way to capitalize on those opportunities...of necessity we will probaby have to stop trading the RTH session however our P&L should improve, with risk at about the same levels....

 

Anyway back to work

 

Good luck folks

Edited October 26, 2012 by steve46

[robster970 10]

I took that short too - entry at 1400.75, exit at 1397.00. Nice way to start the day.

[steve46 12]

I took that short too - entry at 1400.75, exit at 1397.00. Nice way to start the day.

 

Hello Rob, always nice to hear from you...and brave of you to take that entry...

 

I'd like you to see the new Globex screen that I am preparing for my students....

 

as you can see it has a very minimalist look...only what we need to make a good decison

 

three (3) charts...on the far left the DAX..15 min candles...the horizontal blue bars are my pre-market targets....I will "prefer" to enter on tests of those boundaries...(as long as the entry aligns with the right time)...

 

In the middle, the NQ futures...also 15 min candles and I put my dist lines in place just before 10pm PST....

 

On the right, the ES (for now) ...also with 15 min candles

 

Prior to the open (DAX/London) I check my economic calendar for pending news and report releases....I also check out the news (particularly Bloomberg) to make sure I have a complete picture of what has happened in Asia, and what is happening on the continent....

 

Because I have just a little bit of experience I know to expect a specific kind of price action....Generally I look for a pre-market opportunity just before the DAX opens...if I am lucky I have a profitable position prior to London's bell....

 

At the London open I watch the initial move and try to confirm direction....then I look to enter on the "counter" move at or near 12:15am PST.....today it was picture perfect...12:15 on the button..

 

Looking at my middle chart you can see the trades numbered....the pre-market open was number 1....then the DAX opened and helped me out a bit....London opened and I entered short at 12:15....and finally as price descended to retest the dist line I got a nice bounce back up...number 3.....

[robster970 10]

Hello Rob, always nice to hear from you...and brave of you to take that entry...

 

Hi Steve - it didn't feel brave for me, just business as usual. I've enclosed my ES mark-up and you'll see why I took that trade. Scan left (as you say) and you'll also see why I drew a level between 01.00 and 01.75

 

Supporting this view was:

 

a) Levels were drawn prior to AAPL news.

b) Asia has reacted to news with a push lower

c) I expected DAX to advertise for sellers and test the low of yesterday's range on open.

 

So for me this felt like a good set-up.

 

Your pre-mkt prep isn't materially different to mine, although I have good reason to believe that your trade hypotheses are more accurate than mine.

[steve46 12]

Thanks for the chart Rob....looks better on yours than it did on mine...what I meant to convey was that sometimes these entries are "uncomfortable" at the beginning....

 

Nice job & good luck the rest of the day

[robster970 10]

Thanks for the chart Rob....looks better on yours than it did on mine...what I meant to convey was that sometimes these entries are "uncomfortable" at the beginning....

 

Nice job & good luck the rest of the day

 

All good entries feel uncomfortable for me Steve - LOL

 

I think I might pack up for the week now. Have a good weekend. Take it easy.

[steve46 12]

My Globex traders class will start next week, and at that time I will probably have little or no time to post...I am still in the process of collecting data to confirm that my method of generating a distribution is statistically valid (this is the "walk forward" part of the process). While that is happening...I will post this "quick & dirty" substitute that can be used by folks with basic math skills to approximate the distribution that I am using (multiplication & division is all that is required)...

 

Understand that this is an exercise only...this method will NOT produce the same distribution that I am curently using to trade....but it will come close...

 

In order to calculate the distribution on a daily basis, you will need to obtain volatility data relating to ATM ("at the money") put & call options...I obtain this by going to Ivolatility.com

Currenty you do NOT need to register....all you need to do is scan the top of the home page and type in SPX....we will be using volatility from the S&P cash index to generate our approximation..the attachment provides the necessary detail...

 

We also need a starting point, and for us that will be the previous session "settlement" as determined by the CME exchange....traders can obtain that data by going to the exchange or simply typing "ES settlement" on a search page (like Google for instance) and then scaning the result for the CME settlement page.

 

Follow the directions on the attachment and you will be able to calculate an approximate distribution for each day. Be advised that currently I am using an advanced (different) method, however I would have no problem trading from the approximated distribution generated by this method...

 

I have made this as simple as possible...and will try to answer questions BEFORE I have to commence class...after that you are on your own..

Calculating volatility bands.docx

Edited October 27, 2012 by steve46

[zhaozilong 10]

Hello Steve46,

 

many thanks for the document.

 

for example on 26 Oct 2012, we have CME ES settlement at 1407.50, looking at Ivolatility.com, for SPX we have 1405 and 1410, which should we choose? 1405 ot 1410? shoud we round down or round up in such cases?

 

Best regards.

 

-zhao

[steve46 12]

Just finished posting about the necessity for good trade selection (meaning you follow your system rules)......

 

For our system the rules have not been fully explained...simply put we have two rule sets....one for beginners, and one for those with more experience...

 

The beginners rules set is simple...you only take trades when price tests the extremes of each day's distribution...as can be seen in the attached chart, prior to the open, we produce two sets (two long and two short) "targets"...these stay in effect all day long. As price moves through the day, the trader is free to "take" entries on tests of those horizontal bars, and/or the previous day's open, high and low...

 

As students prove "to themselves" that they have the discipline to follow the rules, and make money....they earn the right to trade additonal entries including 1) Pre-market "globex" entries 2) Continuation (or scale-in entries) and 3) Tests of longer time frame targets...

 

The business is based on making a profit.....if a trader proves that he/she can make money, then the bar goes a bit higher...can they make money consistently...and finally can they scale up to bigger size and still manage risk skillfully....as has been said before, we simply suggest how the game can be played......but in the end each person defines their own success.

[goodoboy 10]

Just finished posting about the necessity for good trade selection (meaning you follow your system rules)......

 

For our system the rules have not been fully explained...simply put we have two rule sets....one for beginners, and one for those with more experience...

 

The beginners rules set is simple...you only take trades when price tests the extremes of each day's distribution...as can be seen in the attached chart, prior to the open, we produce two sets (two long and two short) "targets"...these stay in effect all day long. As price moves through the day, the trader is free to "take" entries on tests of those horizontal bars, and/or the previous day's open, high and low...

 

As students prove "to themselves" that they have the discipline to follow the rules, and make money....they earn the right to trade additonal entries including 1) Pre-market "globex" entries 2) Continuation (or scale-in entries) and 3) Tests of longer time frame targets...

 

The business is based on making a profit.....if a trader proves that he/she can make money, then the bar goes a bit higher...can they make money consistently...and finally can they scale up to bigger size and still manage risk skillfully....as has been said before, we simply suggest how the game can be played......but in the end each person defines their own success.

 

Thanks Steve, I have been following rules so far and last week was my first good week, where I got 16 points. Of course I am still paper trading.

[steve46 12]

Nice to hear of your success GOB...16 pts is pretty damn good....for anyone...keep up the good work...

 

For those interested here is my first Globex entry tonight....just below the midpoint of my distribution (filled at 2648)....initial scale out at 2, next scale out at 5....looking for a test of 2665 (top of the blue rectangle) next...

[steve46 12]

and here is the follow up to that Globex trade....as can be seen this one looks like it has a chance to reach 10 NQ points.....students would be advised (I can't TELL anyone what to do) that this is a good place to consider taking profits....)

 

Students would be "advised" are as follows...stoploss of 2 points.....first profit target at 2, second profit target at 5 points, third target (for those trading 3 contracts) at 10 points....

 

For traders with experience and accounts suitable to accept and manage further risk, I would suggest (again I cannot "TELL" anyone what to do)....that they hold aside one (1) contract in case price runs to the next distribution boundary (this target located at approximately 2665).

 

I hope this helps folks looking at this system...

 

Best of luck

Edited October 29, 2012 by steve46

[steve46 12]

Sorry I should have posted this one earlier....we trade from a screen that displays three (3) markets....DAX, NQ and ES....

 

As can be seen in the attached chart....the DAX isn't open when the Globex opens on Sunday afternoon...so we monitor the NQ and the ES....and you can see the value of having both screens open....as both entries take place at the same time (providing nice confirmation)...

Edited October 29, 2012 by steve46

[steve46 12]

Hard to keep focused tonight because of the news about Hurricane "Sandy" approaching the Eastern Seaboard....What we understand as of this point in time, is that the exchanges have decided to close tomorrow....

 

As far as the Globex, we saw our initial trade go positive then reverse turning into a probe to find sellers....We've seen this several times previously so on retest of our original entry we closed the trade and waited....as price retested we took another long (#2 on our chart) and we are monitoring this one.....in our experience if a probe to find sellers is unsuccessful the reversal is often a significant move...lets hope so...so far we have a small profit (we call it "buying a stop").

Edited October 29, 2012 by steve46

[robster970 10]

I would be interested to know whether you trade tomorrow with the absence of US equities/Globex sessions.

 

Personally I won't but am curious whether you carry over Friday's RTH and augment with today's ON session.

[steve46 12]

I'll take a day or two off....catch up on my sleep....the opportunity doesn't come along often...

 

The attached chart shows the Globex trades last night.....Three trades all profitable and I attribute that to the discipline enforced by the system....I took the first test, banked some money and then stayed with the rules as price continued to retest the distribution line...

 

As mentioned in previous posts, in my experience that second retest often results in a significant move.....this time it didn't and that telegraphs a message...it tells me that the market might roll over (and it did) moving down to 2635...nice successful evening..too bad it had to happen on a night where they decide not to continue trading.....oh well thats life...

 

As usual the distribution works well IF you follow the guidelines...but it doesn't trade itself...

 

Hope everyone enjoys a bit of holiday...and for my friends on the east coast...stay inside and stay safe...

 

Edit

 

By the way, there was one more trade at the end of the evening....I wasn't going to take it however because I was unsure when the session would end....didn't want to get stuck holding a position overnight (or for several nights if they extend the closure)....that last trade was worth another $140 bucks per contract.

Edited October 29, 2012 by steve46

[steve46 12]

With "Sandy" continuing to cause damage to the East Coast, markets will be closed tomorrow

 

The Globex however is open this afternoon and as chance would have it, we saw several nice entry opportunities....I am posting this because it is an excellent example of how to use a correlated market to signal trades in the NQ Futures....in this case I am referring to the ES and as you can see it provides a nice clear signal to get long 12 minutes after the Globex market opened....

 

The long taken off that signal didn't quite provide the 5 NQ points we want to see, however we get a second signal (and a third in case students missed that one) all marked by green up arrows.

 

As mentioned in my previous post, I like to take "retest" signals even though they may be uncomfortable for traders to act on....in my experience those retests often provide significant profit opportunities (as this chart shows)....

[steve46 12]

Another very nice setup and its trader's choice....you get to use the ES chart to provide the primary signal (green arrow) or you can simply trade the NQ chart and this time you have two (2) signals....the primary as price tests 2626.25 and then as it comes up through the Blue Rectangle, it closes inside and then you have my classic setup as it retests the lower boundary....pretty...

 

HEY GOB this one is right up your alley...take a look at the NQ chart...notice how price moves down to test a distribution line, then takes off to the north...tests the next higher distribution line, closes above it, then retests...do the odds favor price going higher.....uhhhhhhh yeah...

Edited October 30, 2012 by steve46

[steve46 12]

and a follow up to the previous chart showing how that entry (in whatever market you chose) would have worked out had you simply held the position until the London Open...A process that we call "pre-positioning"....

 

For some, waiting until the formal open of any market is your choice....so be it....I've used this method for years...and while it isn't foolproof it does have its obvious advantages...when you are right, you really make a few dollars and it is relatively low stress trading...

[steve46 12]

and I think I will post this and then call it quits for the evening

 

As you can see, if you had the education, and the discipline to position yourself, and just hold while price moved....you really made a nice profit...all because you recognized the opportunity presented when a market gets oversold...

 

What else can I say....these charts are posted for the few folks out there who really understand the potential this system provides...top to bottom this was a 20 pt (NQ) move.

 

Good night folks

Edited October 30, 2012 by steve46

[robster970 10]

Interesting for me is that towards the end of each ON session for the last 2 days, there has been a flurry of buying taking price to marked areas of interest on ES.