Nov 302010

The ES session was pretty boring but I traded well so I’m happy about that.  My bias was to the downside and I was quite surprised that ES went up.  Having forced myself to come up with a bullish scenario in my pre-market hypotheses really helped.  Even more surprising is that the market closes down towards where it all began!  How’s that for month end!

Here are my trades:

The first circled area I did not trade because it happened fast and I was expecting more movement to the downside.  Also the PMI was due.  It turned out to be the low of the day.

The next trade I took was at yday VPOC (naked).  I only entered 1/2 position because I didn’t have confirmation from the order flow and I expected it to test 79 which was the CHVN.  I dropped down but stalled twice at the open swing high so I got out with 1 pt.  Had I had 2 contracts I would have scaled out one and held the other for another pt.

The next two trades were on sim.  I did them on sim because they’re experimental.  For one I don’t want to trade near the CHVN at 79.  Second, they’re buying pullbacks in a move up.  This is new to me, before I was fading anything that moved.  Now I try to go with the move when possible.  This is a new addition to my trading plan so I want to collect some stats on it before trading it with real money.

Then price chopped around the CHVN so I worked on other things.  I took one trade on Euro that hit my first target and stopped out of the second.  I also went over my trading plan and some other things.  No sense watching ES and being tempted to do something stupid, even on sim.

ES closed the gap during my dinner break.  I think in the future I’ll set price alerts for major targets so that I won’t miss them.

I took two more shorts, first scratched out as it went up against me (+1 tick).  Then took a second entry but it was lingering around so I scratched it too (+1).  It eventually would have made a pt but I’m really going after 2-3 pts now so my scratch was good.  I didn’t trade after that, being month end FT71 was warning about a strong move into the close.

So as I’m writing this I look down at X_Trader and realize that I’m long!!  WTF!!!  ES just dropped 5 pts and I’m long????  Fortunately I just happend to notice it as soon as it happened.  I guess I left a long order on the DOM.  Another reason to like the Ninja DOM as it cancels all orders once your target or stop is hit.  So I scratched that trade breakeven.  I wasn’t going to mess around with it.  I’m really lucky because that could have been much worse.  I must always make sure I don’t have any open orders on the DOM.

I think X_Trader is great for scalping and it’s much more readable than Ninja.  And I like seeing my place in the queue.  Often this lets me be patient for a fill rather than hitting the bid or ask, which can save me 1 tick.  That can add up.  I feel like I can really read the order flow better with X_Trader and enter “with the edge” just as price ticks up or down.  However the ATM strategies on Ninja are very nice.  If I were trading a lot of contracts there would be cheaper commissions with X_Trader but if I use Ninjatrader with Velocity I could get $3.80 which is a bit cheaper.  Even if it’s the same price I’m still not sure which I prefer.  Maybe I will try CQG Trader which seems to have some features of the X_Trader DOM and the ATM type strategy of Ninjatrader.  It’d just be easier if I always hit the “delete all” button when finished so that it deletes any open orders.

Here’s the PL for real money trades:

The sim results were very impressive.  Hopefully I can continue that because it will greatly increase my results:

The quantities need explaining because my usual size is 2.  The second trade I thought I entered with half position so I added at the next level which was planned ahead of time.  I didn’t realize I had a full position on.

The third trade I had two levels I wanted to enter and the stop for the first one (6 ticks) was exactly at the second.  I was not going to stop out and enter again so I held it.  5 pts MAE / 4 = 1.25 pts MAE per contract so I didn’t have much risk on this trade.

So overall I get an A.  I traded my plan which was to take a shot at a short at the CHVN and if price went up get long on pullbacks.  I traded it exactly as I planned.

I’ll post the month to date results soon.   Also my spreadsheet that I use for the P/L is now available.

Nov 302010

Yesterday was a bullish reversal day and then overnight we drop back down near yesterday’s low. That doesn’t seem bullish to me.

One hypothesis is that ES may try to break below the multi-day trading range (green arrows). If we poke down then I’ll be interested in going long near yesterday’s low & CLVN at 71.75 with a target of CHVN 1179. If we rotate around CHVN 70 then I’ll look to trade both sides if balanced and if imbalanced (strong selling) then short only from CLVN 71.75. I’m not sure we can break out without a pullback back into the range so that’s why I’ll look for longs if I don’t see strong selling.

Now I force myself to come up with a bullish scenario. If 71.75 holds then I’ll should be long until 79 (dark blue arrows). If we continue higher then I’ll look for a pullback to get long. If we stay balanced then trading will be limited as that’s a very high volume area on the composite and likely to be choppy.

There are some news releases today at 12 minutes & 30 minutes after the open.  The PMI has screwed me before, I always forget it’s released early to subscribers.  Someone just mentioned it on Twitter or else I would have forgotten again.  Forex Factory should use the subscriber time for the news release.

A note on avoiding CHVN’s.  This morning I took a trade there.  My plan is I can fade the first move to the CHVN but after that I avoid it.  The first move can be rejected but if it isn’t or if it returns then acceptance & rotation (chop) is likely.

Forgot to mention we have a Gap down of 10 pts.  That’s a nice sized gap.  What’s interesting is there were no sellers there leading into the close, they came after.  A gap fill is always a possibility but my bias is still down until I see strong buying.

Nov 302010

Benkotrader posted an excellent comment the other day and it deserves its down post.  I’m not very good at chess, sometimes when I trade it’s like I’m playing AntiChess but the analogy is great.  And the summary of the open types is excellent.  I use this thought process before every open.

Here’s his comment:

Hi Michael,

Thanks for mentioning me on your blog. Let me start by saying that I really like your trading approach. I too am constantly working on my trading in the hope to be able to trade full-time one day.

I think that you are absolutely right in waiting with creating hypotheses when we are closer to the open. These days the Globex moves and ranges have become substantial so that the market’s position in relation to prior day(s) value(s) and range(s) can change within a few hours. Also, I totally agree that it is crucial to think of opposite scenarios. I see strong analogies between trading and chess and I very much like to think in these analogies.

In chess, you have two forces fighting for control on the board at any given time, whereby there is always one single “best move” for White just as there is one “best” move for Black. Though they are there, very often the players will not see them due to the complexity of the position, or maybe even see them but for some reason still not take them, just like we do not always take the best trades. However, in chess, like in trading, a position will generally give the players many other good or at least acceptable moves which will keep them in the game.

Next, in chess White and Black always have a plan which they must adapt in accordance with the last move that occurred on the board – just like in trading, where we have to “flow” with the market and change plans to reflect constantly changing configurations. Finally, and this is something which I think is crucial, a professional chess player will not make a move unless he has fully understood the position on the board – this is left to amateurs who make moves because they “look” good (only to find out that they cost them the game). The professional chess player’s understanding of the current position is a function of a deep, computer-like analysis or intuition (mostly both), it can come within hours, minutes, or seconds – sometimes a chess player won’t see the “right” move for a long time, sometimes it will just jump out immediately. The same holds true in trading where all our decisions are made at some point between complex calculations and intuition.

Finally, a chess player’s understanding always includes the opponent’s position and the opponent’s options. And this is why you are 100 % right – we must always think of opposite scenarios. That day, when we opened out of range, I was expecting responsive selling which would bring us nearer back to prior day’s value, however the Open Drive which occurred immediately made me abandon this hypothesis very early. Like Dalton often stresses – much more important than “what took place” is what “should have taken place but didn’t!!!” In this case the expected responsive behaviour did not occur, opening a new scenario.

One more word in relation to openings and how I approach them. In an attempt to make life easier for myself I have structured the opening types by the place they occur relative to prior range and value. One result of this classification is the following:

Basically, when we open out of prior day’s range, I already know that OTF will most likely step in at some point (as the perception of value has changed positions must be reassessed, closed, opened, defended, etc.). So, the immediate question is for me: “Can I see a drive by OTF?” If yes, I MUST expect an OD and in fact a Trend Day until proven wrong – there is really no other logical conclusion at that point. If no drive occurs immediately, the market might have to commit itself first before OTF decides to move it in one direction or another. This could happen through a test of a level, giving us an OTD, or a failure resulting in a ORR which will probably lead us back to value. Should neither occur, we are likely to stay out of range and have and OAOR which tends to be rotational while OTF buyer and seller are fighting for control.

This classification greatly helps me to see both sides of the board, to use the chess analogy, and to keep my expectations within a logical framework. You are a programmer so you will see that the last paragraph could even be translated into a flow chart and thus serve as a quick “what to expect”-reference. In fact, I might even do this for myself :)

I hope this helps!


Looking forward to a flowchart type reference for the open type.  And one for day type too.  Thanks for sharing.