Steve's Basic System for Retail Traders

[steve46 12]

Taking the day off tomorrow.....because I am going to interview caregivers for an elderly parent....and for those few who may be in the same boat, I recommend ResCare (nationwide company) to find decent caregivers....and for those who haven't yet had to deal with this, you are in for a real experience...it will literally grind you into the earth....emotionally and physically so be forewarned.....

 

Out of habit I have prepared tomorrow's charts and I have changed things around a bit to take advantage of the fact that many (if not most) of the big moves originate in the overnight market (typically starting with the London open). knowing this I have re-aligned my charts so that my I can get on board early and have a favorable position in place prior to the RTH open at 6:30 PST....

[MightyMouse 12]

Taking the day off tomorrow.....because I am going to interview caregivers for an elderly parent....and for those few who may be in the same boat, I recommend ResCare (nationwide company) to find decent caregivers....and for those who haven't yet had to deal with this, you are in for a real experience...it will literally grind you into the earth....emotionally and physically so be forewarned.....

 

Out of habit I have prepared tomorrow's charts and I have changed things around a bit to take advantage of the fact that many (if not most) of the big moves originate in the overnight market (typically starting with the London open). knowing this I have re-aligned my charts so that my I can get on board early and have a favorable position in place prior to the RTH open at 6:30 PST....

 

It is horrible and humbling when your parents are reduced to dependent children.

[DbPhoenix 42]

It is horrible and humbling when your parents are reduced to dependent children.

 

It'll happen to most of us eventually. But few want to think about it.

[Gringo 10]

It'll happen to most of us eventually. But few want to think about it.

 

I am feeling a bit of fear creeping up my spine. The thought had been lurking somewhere at the back of my mind. There is no hiding from ravages of time.

 

Gringo

[steve46 12]

Couple of thoughts for those of you who decided to comment

 

Knowing what I know now, I have two suggestions....First, try to get ahead of the process...find a insurance professional (that you can trust) and start to evaluate long term care policies as early as possible (if your parents are relatively young, ask them to start the process for themselves)....keep in mind that the longer you/they wait, the more expensive this option becomes....Second, prepare YOURSELF emotionally....understanding that your parents are (at some point) going to require you or someone in your family to take the reins...if you have a trusted family attorney, spend some money to get things taken care of (get a power of attorney in place or at the very least get the paperwork in order) and think about getting a trust document so as to avoid the problems (probate) associated with execution of a will upon their passing....believe me if you wait and events overtake you, it can be overwhelming....remember that everyone goes through this at least once in their lives, so your not alone...and it really helps to have other family members or good friends to talk to.....

 

Sorry about straying from the main topic

 

Good luck

[steve46 12]

Exceptional day, very simple trade

 

I stayed with a 30 min chart....using a process that I've have refined over the last few months

 

I start by establishing a general context for the day....that tends to be news associated with Europe

 

With that in mind we know that traders are referencing the Cypriot bank problem and looking at bond spreads to determine where to trade (what product) and and whether to be long or short. Our primary or key reference point is the European open (London)...we watch the DAX and Eurstoxx to determine how they are going to play (mark it up, stand aside or mark it down)

 

Look at the attached DAX chart....as can be seen the market opened and tested up briefly during the discovery process, then trended down throughout the morning session (primarily on news)....there were three (3) economic reports and they were generally weak, providing a negative influence on the markets. At the bottom of the chart you see the US open and the probe down to determine whether we (the US investor, banks, commercial interests) would continue the selloff, move sideways (stand aside) or buy the market....the "buying wick" shows where buyers (primarily the institutions) came in to mark it up.

 

This is what I do each evening during my prep process (evaluate the overnight market) and in the morning I am at my desk by 5am and from that vantage point I make the decision to either A) get an early entry in place or B) watch until I see a possible trend develop and get on board.

 

When I teach this process, what I try to convey is that today's financial markets consist primarily of educated commercial interests....they tend to move markets back and forth through pre-established ranges based on several basic criteria (one of which is relative value)

once you have a way of knowing how they think (how commercial interests evaluate opprotunity), it is relatively simple to see where (and when) to put money to work.

 

By the way, this is why there is no need for indicators, footprint charts, etc....its about getting aligned with the folks who have the money (and the motivation) to move markets. Sorry to have to say it this way, but most of that is about folks trying to make money off your (newbies and retail traders in general) ignorance....

 

Good luck folks

[steve46 12]

In another thread I posted a comment that might help folks looking to A) organize themselves and B) for a way to recognize opportunity in the markets

 

http://www.traderslaboratory.com/forums/market-analysis/15926-s-p-500-dow-jones-mar.html#post177437

 

The reason I bring it up is that what happened today fits that description. First, (to review) we consider three (3) data sets pre-market...the first is the seasonal, and for us the seasonal influences are taken from historical record. To obtain that data, using daily, and weekly charts go back to the previous year at this time and observe price action. Next we take into consideration intraday tendencies...and we know from experience that commercial participants will look to do two things, first they will look for liquidity, and second based on the most recent price action they will try to identify imbalances (long or short inventory) and try to "squeeze" those participants, at or near the open AND at or near (on a test of) a previous extreme. Finally we consider the news and/or pending economic reports that may have significant impact on market volatility. With this analysis completed we develop a game plan that usually consists of A) an entry price or range of prices, B) an acceptable risk amount in points) and a series of profit targets based on a scale out protocol...

 

Today's price action followed the basic protocol that we were taught and that we teach

 

Previous action was "trend up"....and the seasonal influence was neutral to positive domestically, net positive for Asia and net negative for Europe. This means that foreign investors are likely to look to the US open to try to obtain profits (usually on the long side)

 

Intraday, we see that the imbalance is long (long inventory) and throughout the globex session we stayed near to previous RTH session highs...based on this we expect price to retest the highs then probe lower as commercial interests try to apply pressure to the longs

 

Two (2) news events...both PMI....and likely to be either neutral or slightly negative....

 

Based on this we assume that the market will probe up to retest the prior high, then roll over as commercial interests mark it down (selling previous long inventory) and in the process moving the market to a position where they might re-acquire inventory at a discount, or at the very least take profit hold shorts into the close if they see promise of continuation to the downside.

 

The chart tells the rest and so that we understand each other, there are two arrows showing two opportunities in today's market. The first (short) is a high probability trade and given the data, we take it at or as close as possible to "the mark" (the boundary of previous RTH...the second is at each trader's discretion....we didn't take it....unfortunately our time is limited so we try to get in and out as quickly as possible and go on to other responsibilities. Taking the short off the opening probe up (and holding it) you would have been "done" by about 8am PST. This for us it the end of what we call the high vol time period and it offers the best opprotunity to profit...

 

 

Best Regards

Steve

Edited April 1, 2013 by steve46

[steve46 12]

Here's today's chart.....another very nice day...

 

I have a small group of folks watching me today (small so that I can answer as many questions as possible) and as usual, none of them showed up for the prep process the night before, which always makes me smile since that's where the real value lies...but hey, no problem....I have already provided one example of how I prepare....

 

Starting with the Globex open, notice that I place an up and down arrow to show the hi - lo range that occurred just prior to the London open. That range and its position relative to the previous day tells me whether an imbalance exists and on which side. it also tells me whether we are going to have a gap open, which is significant.

 

Germany opened up and London followed suit...several reports (pertaining to the Euro) and the results were mixed. From a value standpoint, during the Globex price stayed above previous value area low, suggesting that participants continue see value higher up the ladder. This makes sense because the particpants we are talking about during the overnight session are Asia and Europe and because their own markets are doing poorly they are motivated to look to the US market for opportunity....as long as the news is not significantly negative, clearly they (European institutional participants) will want to mark the market up....

 

At the London open, seeing the opportunity to get favorable position, I am long at the bell. Happily that results in a position that I can hold into the US open, taking profit as price probes up and fails (from 8 to 10am PST).....this is what we call the "primary" or high probability position. It is also the safest position that we can take because whatever happens we are guaranteed profit and we are out of the way of any volatility that may occur just prior (the hour preceding) the US open.

 

After that, all entries are discretionary meaning we either play defense or we stand aside.

 

At the top of the "magic hour" (our nickname for the period from the open to close of Euro cash) we use a framing technique that allows us to visualize how European traders will handle the close. Most of the time they choose to get flat, however in some instances they (like the rest of us) will notice that the market is holding a bid, and they may then elect to A) stay with a position, or B) take partial profit and leave a piece of the trade on looking for continuation.

Most often, commercial participants will get flat and in the process provide a nice closing trade opportunity from 12:00 or 12:30 to the bell.

 

As with so many things in life I wish I had the time to elaborate on some of these details. Unfortunately I have to prep for tonight's "open house" so that's it for me...

 

Best Regards

Steve

Edited April 2, 2013 by steve46

[steve46 12]

Just a bit of time before we start our Globex open house.....

 

Seasonal influences remain the same (refer to the daily and weekly ES chart to see what happened last year at this time)

 

Intraday, the tendency has been to trade within a relatively condensed range during the Asian and German opens. Then at the London open we expect to see a probe down to test value, a move in response to two (2) scheduled reports (Construction PMI & flash CPI)...then if the reports are only mildly negative (as is expected) we may see a thrust move up to test the previous day's range boundary at 1568....if we get through that price point, expect price to clear briefly then fail bringing price back into the previous range in time for the US open....

 

On the long side, entry opportunities should present themselves at or near 63.50 with enough momentum to bring us back to the 68 area (about 5 points positive excursion)

 

On the short side, if we see a negative report, or negative news surfaces regarding Cypriot banks, we could see price take out previous value low and then proceed to retest 1550.....long inventory has been equalized a bit but remains vulnerable to a squeeze on negative news.

Edited April 3, 2013 by steve46

[steve46 12]

Today's chart (s)....as usual very low turnout for the open house prep session....which is hilarious since it is the meat of the method I use....but hey it confirms what I have known for a while about human behavior...

 

I'll go over the price action as follows. Asia and Europe both having problems, so they look to the US markets as a safe haven. They have to put money to work and find a decent returns, and they can't do it domestically so they look for opportunity in bonds, the few undervalued stocks that remain, and in the futures markets. Because these are professional markets, the participants know that it is best to wait until specific economic reports (and other events) take place. That is why this overnight market was relatively quiet, establishing a small trading range

 

What is important is A) the position of that trading range (near the top of the previous range) as well as B) the price action just prior to the each release. If one is patient and knows what to look for, you can obtain what poker players call a "tell" which simply put is an action that tips us off to future price movement.

 

As mentioned in my previous post, we envisioned two scenarios, one for a long move up to test the alltime highs at or near 1576, the other to visit the 1550 area....

 

We use a simple setup consisting of two charts...the DAX and the ES both using 30 minute candles....We also evaluate additional data to provide what is called a "lookback"...and that is important because it allows us to 1) obtain additional favorable entry opportunities and 2) to make the most of what could be a volatile day. In other words it permits us to trade over a larger range of prices with very little increase in risk...

 

The primary entries for this system are always in the overnight session, and they are marked as follows, the first green arrow shows the London open and the probe up to find buyers. That probe tested the top of the previous range and failed. The second entry was (for us) based on the failure to take out that previous range extreme....depending on skill level on could simply take that entry or wait for the break down entry that follows. As can be seen the rest is very straightforward.....the market opens weak and sells of right away. Those who had pre-existing positions simply hold and scale out. As can be seen it is simply a matter of watching and taking profit when your targets get hit....Our general practice is to stop at the close of Euro cash around 8:30

 

Good luck

Edited April 3, 2013 by steve46

[steve46 12]

One last comment and then I am going to close this down for a while

 

I want to start another class (a small class) in an effort to try to help struggling traders

 

I say this because after the last class opened I had requests and complaints from folks who wanted to know why they couldn't get into the class....so this is "for the record"

 

1.) I don't do this for the money, yes I charge a fee, no I don't take anyone with a checkbook..instead I try to find people who I think I can help, and to that end I interview folks prior to the start of class, to determine whether they are A) responsible adults and B) have some background that might help them to get to their goals.

 

2.)I'm not the right person for everyone....I know this and I try to make sure the folks who get into the class are the right fit for this environment...If I see that we are not "working out" I tell them right away that I have doubts, and I try to provide alternative resources....its the least I can do...

 

3) Over the recent past I have learned that life is short, so the people I work with have to matter to me, and that means that I have to have a sense that the folks I invest my precious time with are going to put forth an honest effort...I'm not willing to tell people when to buy and sell, instead I want to (as DBphoenix has referenced) show folks "how to fish"...

 

I hope people who did not apply or can't get into the class find some value in the thread.

 

Best of luck

Steve

[steve46 12]

Here's tonights chart for the London open at 1am PST

[steve46 12]

Another easy day....life is good....so many opportunities right there in front of us.

[robster970 10]

Steve - are you literally just trading in and around the 1,2,3 Deviation levels now off the 30min and timing entry based upon price action off the 3min?

 

Also, had a look over on Stocktwits and all was quiet over there

[steve46 12]

Hello Rob

 

What I've tried to do is to adapt to a more challenging personal life, by making my professional life simpler....to that end I have made a few changes....

 

First, changed my orientation from US to Europe....my charts now start at midnight local time and go "round the clock"...and I focus on longer time frames (120 down to 30 minutes) in order to make basic decisions (trend identification, and positioning)..

 

In doing so, what I have found is that the trades, some of which start at or near 1am local time, are often significantly big winners, while the losers remain about the same (couple of points max) as when I traded the US market only...the bottom line is I make more money without taking on increased risk....its really quite simple...

 

I started to post the system and then thought the better of it...you see once a person finds out what is required in terms of commitment (time spent at the screen)....these days folks want to watch reality shows on the TV and frankly many have been burned by the scam artists who used to (and still do) populate theses websites......so they tend to be suspicious and unwilling to get into it....not a problem really as I simply continue to go about my business. I do intend to start on more class if I see sufficient interest.

 

Lets see what else is new.....ah well just for kicks I developed a very simple (it seems to me anyway) system for the US market...using a framing technique that I was taught quite a long time ago....based on specific times of the day (a variation of my "time based pivots") I frame the opening moments of each time period and enter on a break above or below. It provides at least seven (7) opportunities per day, and seems to work very well in the S&P market....

 

So there you have it...I hope you are well and finding good fortune in the markets

 

Best Regards

Steve

 

PS I did start Stocktwits and may continue if I can find enough time..

[steve46 12]

I thought I would post this chart showing the DAX open and then the European open (London)

 

As can be seen, price tested down to the previous low. This is an obvious long (for quite a few reasons) In my profession this kind of setup is known as a "layup". In fact there were two (2) opportunities to get long, as shown on the shorter time frame chart....

 

I mentioned this now to a couple of folks, but it needs to be put on record....I offered to teach a Globex class and only one person expressed an interest....now....given the complaints people express about the difficulties they have trying to obtain help (trying to obtain decent education) this really made me shake my head.....

 

Good luck folks

[robster970 10]

Hi Steve,

 

Good to here your work/life balance is tipping towards 'life' although the fact you are looking at an intraday possibility on ES with up to 7 trades a day tells me that might disappear quite quickly :haha:

 

That aside, an observation from me. I have been looking at FESX rather than DAX and two things I note, one general, one specific:

 

1) FESX responds incredibly well to S/R off the an hourly

 

2) There was a confluence this morning as ES tested to 1 SD lower whilst FESX looked like it got itself into a pre-positioning at around 7am - the result being it went for a nice little ride up to the gap close.

 

So even more reason for the long IMO.

 

Take it easy Steve and Good Trading To You.

 

I thought I would post this chart showing the DAX open and then the European open (London)

 

As can be seen, price tested down to the previous low. This is an obvious long (for quite a few reasons) In my profession this kind of setup is known as a "layup". In fact there were two (2) opportunities to get long, as shown on the shorter time frame chart....

 

I mentioned this now to a couple of folks, but it needs to be put on record....I offered to teach a Globex class and only one person expressed an interest....now....given the complaints people express about the difficulties they have trying to obtain help (trying to obtain decent education) this really made me shake my head.....

 

Good luck folks

[Enigmatics 10]

I thought I would post this chart showing the DAX open and then the European open (London)

 

As can be seen, price tested down to the previous low. This is an obvious long (for quite a few reasons) In my profession this kind of setup is known as a "layup". In fact there were two (2) opportunities to get long, as shown on the shorter time frame chart....

 

Would you mind expanding on what the "obvious" cues were for you?

 

I put on a long trade today on the SPY today after my 60min chart had shown 2 "buying wicks" in early going, but things got nasty on me.

Edited April 15, 2013 by Enigmatics

[steve46 12]

Buying wicks are important however they don't trump news...and that's what you had today

 

A layup occurs when price penetrates a significant level (the previous low) in a specific manner (we call this a peekaboo)....then because the SD is right there and we know that other professionals are seeing what I am seeing, I switch to the shorter time frame and read the tape.....as buyers come in to purchase at wholesale levels, it quickly establishes the trade as low risk. As I have said several times previously, in these circumstances when price retests that level, I will continue to re-charge the position until they "make me pay".....

[Enigmatics 10]

Buying wicks are important however they don't trump news...and that's what you had today

 

Which news though? If you're referring to the bombing incident, that news happened an hour or so after we had already taken out the early session 157.46 low.

 

A layup occurs when price penetrates a significant level (the previous low) in a specific manner (we call this a peekaboo)....then because the SD is right there and we know that other professionals are seeing what I am seeing, I switch to the shorter time frame and read the tape.....as buyers come in to purchase at wholesale levels, it quickly establishes the trade as low risk. As I have said several times previously, in these circumstances when price retests that level, I will continue to re-charge the position until they "make me pay".....

 

Got it. :thumbs up:

[steve46 12]

Really don't have time to say much about this....it should be pretty clear....when the markets are choppy or indecisive, unless you have an edge that works in those conditions, you wait for things to clear up

 

On the attached charts you see price test the 1st SD....if your crystal ball is working, fine take the trade, however the other way to do this is to wait and let the market show you (display) both "interest" (in this case buying interest) and then momentum. You have to have both in order to have a profitable trade

 

As mentioned several times previous, the Bollinger bands are what I call "training wheels"...I use them to show students one way of figuring out where the line is between wholesale and retail value (among other things)....after a while most "get it" and don't need the crutch...

 

Arrows show the possible entries. One is risky the other low risk...figure it out..

[steve46 12]

Here's how the trade shown above worked out

 

Relatively easy day (if you had the patience to wait for it)

[steve46 12]

Its the pre-market analysis that allows us to do this

 

The analysis is all about framing the markets action, during the pre-open period

 

The result is another easy open and a quick exit (one of the ways we manage risk)

 

Now to get some sleep.

[Enigmatics 10]

Its the pre-market analysis that allows us to do this

 

The analysis is all about framing the markets action, during the pre-open period

 

The result is another easy open and a quick exit (one of the ways we manage risk)

 

Now to get some sleep.

 

Describe the pro-open period today if you don't mind. I'm also not clear on why the second 3min candle was the go ahead to get short on the day.

[steve46 12]

Actually I do mind...to really do the material justice takes time....time I don't have...sorry

 

With regard to the 3 min candles....after a hell of a lot of testing, I found that the 3 min time frame provides the right amount of granularity (detail)...so that looking at candles on that time frame and reading the tape....it all makes sense....and I can see pretty clearly when there is real interest in moving price up or down and can see momentum as it ramps up (as participants start to jump on board the train just before it leaves the station). I've explained before that its difficult to show anyone how to do it on a discussion forum....so it should come to no surprise that I have to draw the line right about here....

 

Good luck folks.

steve