Dec 072011

The recent move in ES has been a huge surprise to me, but it goes to show the power of one-timeframing on the daily chart.  I’ve taken several shorts that “normally” would go to the prior low of day but have not.  Shorts have not been paying up for me.  I get a good short and then give it back with a few losses.  My brain remembers the good short and I keep trying.  If I had just traded the long side I would have done much better.  “Now that’s hindsight” you say, but is it?  If we make a strict rule no shorting a market that is one-timeframing higher, many shorts could have been avoided.

What really surprises me about the move is I don’t see much bullishness in the news.  France and other European countries are about the lose their AAA.  The Greek deficit reductions are falling short.  A recession looms that will ruin all the currently overly optimistic budget plans.  The list goes on and on.  The Euro has not been as strong as ES and that’s unusual.  It seems where in a really special situation here where normal statistics and setups may not apply.

Last week was my 2nd losing week in 7 months.  As usual, I let a few losses get too big and unusually, that happened several days in a row.  This week I’m at my average but several trades that would have made lots of money just didn’t pan out and those that did had me on the sidelines.  I find the past 2 weeks has been difficult.

So here’s what I’m working on:

I continue to try and limit losses to 5 pts total which means 2.5 pts trading 2 contracts and if I need a bigger stop I trade 1.  I’ve pretty much kept to that the past 4 days and I’m encouraged as I don’t want a repeat of the large losses from last week.

I need to improve on trading with the trend.  Yesterday I had a good short after the open and was targetting the prior low of day.  What I didn’t realize is that ES fell right into a buy setup for higher timeframes.  I exited my short based on the order flow but I saw the long setup but for some reason I didn’t take it.  Well not “some reason” I know exactly the “reason”, I was not nimble enough to abandon my short bias and I did give the higher timeframe setup priority.  Even worse I re-shorted on the pullback to 54.25 (as I planned, written in my tweets yesterday) and took a loss, giving back half the winnings on the short.

I’m yet again refining my plan.  This has been an ongoing process that will definitely continue.

The advantage to all this is I’m learning a ton.  With the volatility I’m making more trades and that means more opportunities to learn from what worked and what didn’t work.  If we can survive this I think we’ll be much better traders.

Here’s what I’m seeing on the daily chart:

I think we test 1275.25 and I’ll be aggressive on shorts there, and if I can manage it, I would hold a profitable short overnight.  I see us pulling back from 1275.25 and possibly testing the gap area which corresponds to the bottom of my micro-composite.  We may make it to 89.25 but I’d be surprised if we do that without a pullback.  But a lot of this depends on the news out of Europe and the spin they give it.  We’re nearly the top of the micr-composite.

Here in France there is talk of cutting budgets even more.  France is determined to keep its AAA but the reality is France may have already lost it.  France is a very socialist country (as most European countries) and the healthcare and unemployment benefits are taking its toll.  France can’t afford it.  And France can’t afford to rack up more debt.  So something is going to have to give.  The French take to their “rights” so if they do reduce benefits we’ll see lots of protests.

All of this has me thinking this is playing out exactly as those in charge want.  The idea is simple:  Lend a country so much that it can never pay it back and then you own that country.  The problem is this could spiral out of control and there may not be anything left to own.  And they don’t want that.


  5 Responses to “Learning from mistakes & the power of one-timeframing”

  1. Hi Michael,

    A good post, thank you. “What really surprises me about the move is I don’t see much bullishness in the news.” Remember a few weeks ago we had a similar conversation. Somebody know something, they always do!

    I am curious as to what setup for higher timeframes you are referring to which went against your short from the open. Was there something specific or just the general idea that the daily timeframe was trending up (higher up and lows). Again, just curious – thanks.


  2. Benko – it pulled back to the [almost] VPOC of Friday, visible on that daily chart as a very thin horizontal line. If you look at that day’s profile (12/2) you can see two HVNs that had almost the same volume, so both could be considered VPOC. That was a good place for buyers to step in.

    PS: When there is a strong up trend we must expect buyers on every support level. If they don’t show up then we know we have potential for a trend reversal, at least a pullback.

  3. Ah, I see, thanks. I had the 52.25 level as potential area too but mainly because it was an intraday LVN sepatating distributions on the previous day and also a (very) long term CLVN. Funny how we have same levels for different reasons. This is OK, as long as we see that we have a higher probability of something happening there.

    And I have to say I like your PS very much – a simple yet very powerful thought.

    Good luck today!

  4. Seasons Greetings Michael,

    You mention France and Europe.

    Given you live in France (although I am not sure if you are a French national or an expat) are you concerned about the recent EU decisions on your choosen career – specifically the agreement to introduce a Financial Transaction Tax.

    I assume this would apply to you while living in France even if you were to trade on an exchange where that country had not imposed the tax.

    The way I see it, the different tax rates being talked about would kill day trading.

    I am very interested in this risk as I still have a very well paying full time job, but I am a profitable trader (for the 1 hour a day I get to trade). I would love to throw in my job, but am nervous that no sooner I do the FTT will be imposed killing my income.

  5. This is a very valid concern but I don’t think it will happen. I even wonder if it’s just being used as a bargaining chip and they’re bluffing. Sweden tried it and it failed miserably, they lost all their trading business as it moved to London and it didn’t come back when the tax was repealed. So London is very much against it and Europe can’t do it without London. And London won’t do it without the US. And the US is the financial trading capital of the world so they’re not going to do it. All it’d take is a country like Singapore to refuse it and they’d get all the business. So I can’t see this happening globally.

    However, if Europe is stupid enough to do it (and judging by the handling of the eurozone crisis, I believe they might be), then we’d move to either the UK, Canada, or the US. If it happened globally then I think there would be much bigger opportunities in longer timeframe trading. The HFT would stop and volatility would greatly increase. So mini-swing trading would be the new day trading and it’s possible that one could do it profitably even with the tax. It would require a large account though, so start building it now.

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