8-3-10

This day started quite bearishly but showed a nice bounce around 7am. This can be a nice reversal setup.

First trade of the day: 7:38am

Entered a long contract on the NQ after a nice continuation confirmation bar.

Entry: 1886:50

Target: 100% replacement of morning down move to yesterday's close @ 1894.75.

Stop: 1882.75

Update: Trade closed.

Exit: 1889.75 at the 61.8% retracement. This was my mental stop once price pushed to the 78% level.

Result: up 13 ticks.

Daily analysis:

While the one trade I took today was profitable I am disappointed that I was shaken out of the trade. It turned out that the price moved to my original target quite nicely, with just two minor pullbacks. I should have moved the stop to break even and just let it go. Mistakes like this seem harmless considering the profitable outcome, however, over the long run missing 10 ticks on each winning trade can mean the difference between success and failure. I have found that often my targets are good- I just need to stick to my guns and ride through the turbulence that is expected with each trade.

8-2-10

Crazy bullish day but not a whole lot of tradable opportunities. The market gapped up big in the morning but has chattered around for most of the day.

First trade of the day, 12:04pm

Entered a long on the NQ after a nice 512 tick reversal bar.

Entry: 1899.25

Target: trailing stop to swing lows.

Stop: 1897

Result: Stopped out for a 9 tick loss.

Daily analysis:

Unfortunately for me I missed the 7am move this morning. That was about the only trade-able move today. The trade I attempted was only attractive because it offered minimal risk with a whole lot of market internals in my favor. The market just didn't follow through and continued in chop mode, eventually stopping me out.

7-30-10

The day is trending nicely to the upside with weak breadth, and strong ticks- kind of odd.

First trade of the day, 8:03am

This is a pullback/continuation pattern entry just above the daily pivot level.

Entry: 10433

Stop: 10410

Target: R1 with trailing stop to swing lows.

I just need to hope that I didn't enter into a chop zone which is quite likely considering the proximity to the daily pivot level. I can't say that this was a strong entry setup, but I would not call it a mistake.

Result: Stopped out.

7-29-10

First trade of the day:

Long on a bullish breakout.

Entry: 10435

Stop: 10422

Target: 10460, 2 ticks below the pivot.

Result: Stopped out for a 13 tick loss.

Disgusting. What was I thinking with that stop. It was way too tight, I knew it, but I did it anyway. I just watched price tag my target but I wasn't a part of the trade because of that stupid stop.

Daily analysis:

There was a ton of money to be made in the market today but no great setups. These days are remarkably tricky and dangerous. When I see this much money moving around the market beckons me to participate, often to my own detriment. That is exactly what happened today. I took a trade on a non-setup and payed for it. It is tough to watch thousands of dollars move back and forth in front of me without trying to reach out and grab it. This is an urge I must resist. I can only trade on proven setups regardless of what the market is doing.

It really amazes me how when I make a trading mistake by initiating a trade on a bunk setup I seem to always lose. It makes me think that luck has very little to do with success in this business.

Overall results: up 12 ticks or $60.

7-27-10

It is 8:20am and this is what the internals are looking like:

Clearly the market is starting to have a bias to the downside but it lacks the kind of conviction I am always hoping to see.

This may be a good opportunity to breakdown some changes I have made to my internals layout. Internals are a funny thing- they are the tea leaves behind the price action. They can seem like the holy grail- the ultimate indicator- at times, and at others they can betray me with the best of them. Defining a good internals layout is very much a personal preference, and this is the way I am doing it these days. I tend to layout the internals so they read from top to bottom starting at the left.

Starting at the top left and going down we have: NYSE breadth, NASDAQ breadth, NYSE ticks, Cash market VIX. Then middle column we have NYSE A/D line, Oil futures, Bonds (treasuries + junk bonds), and real estate. Finally in the right column I have Euro/Dollar, dollar index, gold, S&P cash market.

I feel this layout gives me a decent picture of the overall macro situation as well as the nuts and bolts of where volume is flowing intra-day. I rely most heavily on the NYSE breadth to determine market direction bias.

Update, ~9am: Here is a great example of a missed opportunity:


At 8:20 this morning the market put in a nice reversal bar- marked by the green rectangle. Because this was a counter trend trade, the Fibonacci extension based on the previous up move offered a perfect price target at the 100% extension. I did not take the trade becasue I am trying to trade with the primary trend these days, but I sure wanted to, and it would have paid off nicely.

9:51am, First trade of the day:

Entered a short YM after a nice reversal bar.
Entry: 10491
Target: 10444, one tick above the low of the day
Stop: 10509, one tick above recent high. I will trail the stop to fibo levels as it breaches them.

I am taking on some added risk on this trade by trading before 10:00am. I consider 9-10am the doldrums to be avoided. This is technically a breach of my rules, but I have found that time periods, like price levels, should be treated as a zone more than an exact thing. The reversal bar in this case was very strong, overweighting the added risk of trading before 10am.

Update: 10:32

The trade is progressing nicely. Up 24 ticks, stop moved to one tick above the 38.2% fib level at 10484.

Trade closed: 10:48am for +13 ticks.

The market put in a very abrupt reversal bar signaling a quick exit.

Daily analysis:

This day is turning into what looks to be a chop-fest mean reversion inside day so I am going to call it for the day. Thanks to my quick reaction today I was able to pull some profit out of the market. The exit I pulled off today is my newest tool in the arsenal. I have only recently accepted that when in a trade, if a reversal bar goes against me, I must exit immediately. This is exactly what happened today and the technique saved my ass.

This is yet another confidence inspiring day. I have put together a few nice trades in a row now and it feels great. While I have yet to capitalize on a big move if I keep trading like this it is only a matter of time before I cash in on a $500+ move. Patience is my weapon and I hope to use it with deadly effect.

Result: Up 13 ticks, or $65.

Overall results: Up 25 ticks, or $125

Addendum:

I wanted to take a moment to share my primary screen layout. Considering I went over my internals layout earlier in the day it only makes sense to show you how I have had my primary screen setup as well. Without further ado, here it is:

Starting from the top, the layout is divided into 3 sections. The first upper left quadrant is the 5 minute chart of the YM (since I have been trading the YM lately). It has 4 simple moving averages, the 8, 30, 50, 200, in dashed lines, and it has 2 exponential moving averages, the 5 and 34 in solid lines. I believe the 5/34 crossover is significant on the 5 minute chart and often indicates an excellent exit for a large trade. There is also the daily VWAP (volume weighted average price) in pink. VWAP is a fantastic mean reversion measure. I have the moving averages on the screen because I believe in mean reversion tendencies of the market. On days where market biasness is weak, the VWAP acts like a magnet to price. I don't base entries and exits off of moving averages or VWAP but they often confirm a setup for enrty or exit, making a trade more credible. Usually I use moving averages to give me and indication of market biasness ie, if overall supply/demand is skewed to one side driving market price in a certain direction over the span of the day. If all moving averages are, for example, moving up, I think there is a probabilistic edge that long trades will have an advantage, thus I will look for long setups. However, as will all indicators, I use this information in conjunction with other information before making any trade decisions.

Beside the 5 minute chart is the 512 tick chart. The 512 tick chart offers what I believe to be the best entry/exit signals in the form of confirmation bars. A confirmation bar is a single candle that indicates a rapid and significant change in supply/demand dynamics. For example, if there is a solid downtrend leading to a run of 8 red, wide bodied candles, followed by a doji, then a green candle that closes above the previous 4 candles, this would be a confirmation bar of a reversal- also known as a reversal bar. Mathematically speaking it represents that the price action in the last 512 ticks has more than canceled all the downward price action of the last 2048 ticks. This is evidence of a significant and rapid change in market behavior- often the sign of a new wave of price action. This is the kind of entry I look for on days that are not heavily biased.

To the right of the tick chart is time & sales data, also known as "The Tape". This shows raw orders being filled either at the bid price (red) or at the offer price (green). I can not say that I am effective in reading the tape at this point in my education, however, in theory it makes a lot of sense to watch the tape, as it is yet another view of market behavior in it's most raw form. I do check the tape throughout key points in the day to see what sized orders are printing, as well as the frequency of the orders. This seems to give me some idea of the type of participant who is active at a given time. Larger lots are obviously institutional players or professional traders, a clue that the market is active and attracting big players. Some traders use the tape as their primary indicator. I basically have it on the screen so by osmosis, at some point it may offer me some valuable insight.

Now across the bottom, from left to right you will notice some internals that I use on my main internals screen. They are: NSYE breadth, NYSE ticks, VIX, EUR/USD, and /ES. Having breadth and ticks right on the trade screen is great. It allows me to keep my eyes on price and those key indicators without shifting my eyes more than a few inches. The EUR/USD in known to a be a good leading indicator for futures, but I see it more a a confirmation tool. the ES is watched just to see if there are any strange divergences between the DOW and the S&P 500.

You will see that I use no oscillators. Over the years I have tried them but the truth is, all oscillators are just lagging reflections of price. I prefer moving averages for my lagging indicators.

7-26-10

The market has a fairly positive bias today reflected by breadth and moving averages. I am looking for trades to the long side with defined targets.

First trade of the day, 12 noon.

Entry: /YM long entry at 10439 on a nice reversal bar.

Target: R1, R2 midpoint at 10468

Stop: 10418

Target hit, trade closed:

Exit: 10468
Result: Gain 29 ticks or $145
Overall results: up 12 ticks or $60

Daily analysis:

Yea baby! This is what I am talking about. I got to the trade desk at about 7:45 this morning, and proceeded to watch the market all day, waiting for a legitimate entry signal. I was content with not taking a trade today if an entry did not present itself (a perfect mindset). Around 11:45 I was thinking about shutting down the software and looking elsewhere for entertainment, when, all of a sudden I saw a nice reversal bar developing to the long side, which I had determined was the only side to be on today. The bar closed strong and the signal was in. I took it with little hesitation and it worked like clockwork. The tricky part of this trade was having it push through the R1 pivot level. This level had been tough resistance all day, so there were no guarantees (like there ever are?) that price would push through with any level of confidence. It turns out that the shorts got squeezed and price powered through R1 nicely.

Not only was my entry near perfect, but so was my exit, using the old Jonny Carter* inspired pivot-midpoint exit to perfection. (*Master the Trade, John Carter's book)

This was a confidence inspiring day. Rock solid trade. Tons of patience. Only one trade on the day- which is awesome. And a healthy profit easily eclipsing my largest losing trade by 45%. Bam!

7-23-2010

This is the kind of day I feel is fairly dangerous to trade. Internals are all bouncing around the zero line indicating no clear path of least resistance. One thing I have been noticing about market behavior lately is the 10:30am period has been producing a lot of good moves. Today is no different. As of 10:15 the market started popping to the upside. I waited for a pullback/continuation pattern on this move and found it at 10:52am.

10:52, First and only trade of the day. /YM

Entry: 10362 on a 400 tick two bar continuation

Target: 2 ticks below R1-R2 midpoint, 10427, or greater by moving a mental stop to the R1 pivot once R1 is breached.

Exit: 10374 at the pivot level as it crossed back down through it.

Results: Gain of 12 ticks.

Overall results: -17 ticks, or -$85

Daily analysis:

Thank you self, for finally picking a legitimate entry, however tiny your profit was. This was an example of a clean bull flag continuation pattern and it worked.

7-14-10.

First trade of the day, 10:15am, /YM.

I entered on a minor reversal candle on a bounce off VWAP.

Entry: 10318

Stop: 10306, one tick under VWAP

Target: 10343, 2 ticks under the day's high.

Update: Stopped out.

Results: Loss of 12 ticks

Overall results: -29 ticks, that is -$145

Daily analysis:

God help me I did it again. Since when is a "minor reversal bar" a legitimate entry signal? There is no such thing as a minor reversal bar! There either is or isn't a reversal bar, period. In this case there was not, so I should not have entered the trade.

The bottom line is this- trading is a hard enough business even with a plan, but to self-sabotage myself like this is just plain disgusting. This blog is great- it is showing me so clearly why I have been losing! Thank you blog.

(Beginners, please learn from this- log your trades. It doesn't have to be on a public blog, but is does have to happen.)

7:24am, First trade of the day on the /YM. Took a long in a consolidation zone during a very bullish morning. Internals are all firing up and the Dow is up 140. Stop is at 283.

Trade closed, stopped out.

This was a painful loss. The bottom line is I did not wait for a confimation candle and it cost me the trade. In the chart below you can see where the market has gone since I got stopped out. There was a clear entry candle that should have been my signal:

Please forgive the change in chart colors. I switched it up to keep things interesting.

Results: 17 tick loss.

Daily analysis:

This is a prime example of not following my plan. Since when do I enter in a consolidation zone? I'll tell you when- NEVER! What was I thinking?! This was classic amateur trading. It is a good reminder of why I have been losing lately and how I can not let my guard down as far as sticking to very specific entry/exit rules. The painful part of this failed trade was that if I had the patience to wait for a proper entry I would have cashed in nicely. Very often in trading it is easy to be right about the direction of the market but have some lame entry turn a good idea into a losing trade- which is exactly what happened. I deserved this loss.

Monday 7-12-10

I missed a nice opportunity at 8:10am this morning in what has turned out to be a choppy day. No trades today.

Hello 2010! Live Money Trading Starts Now!

All right, now we are talking. It is midway through 2010 and I am back on the blog, ready to pick up where I left off. I have some news to report then we will get to the trading come Monday.

First, I finally found the best futures broker. It took me literally years to figure this out so I hope you noobies out there appreciate this info. Through the Stockguy22 chatroom- a tremendous value in its own right, I was approached by Anthony, a representative of Infinity Futures. It turns out Infinity is an introducing broker, meaning they match up traders with institutions to meet their needs. After chatting for a few minutes about my situation Anthony knew exactly what I needed and set me up with Transact Futures with the AT platform. This works out perfectly for the setup I have been using. I can continue to use ThinkorSwim for charting, which is great because it is what I am most comfortable with, and I combine that with the AT execution platform, which is just a functional trading ladder, or DOM interface, for the order entry. The AT platform allows for single click order entry, easy to use stop/limit management, OCO bracket orders, multi bracket orders for multiple contracts, and trailing stops (if I were to ever want to use them). The bottom line is the commissions are dirt cheap- $4.30 round trip and the execution/data is lightning fast. The best part is- this all costs... nothing! Plus, $500 intra-day margins so I don't have to have all my cash tied up in a futures account. So far I love the platform, however I have been losing money lately, which reminded me that I need to log my trading activities- and that is why I am back here writing.

Since getting back into futures trading after a long hiatus where I experimented with stock and option trading I have taken quite a beating. It felt like the old days of trying to trade the market freely only to wind up with a string of painful losers, which is exactly what has happened over the last few weeks. So to hit the reset button and hopefully get back on track I will once again be posting my trades to this blog using the same strategy I had before, with a slight improvement in risk management.

One rather good lesson I have learned over the last year is the skill of taking small losses. I seem to have become an expert in taking small losses, as it seems like that is all I do. While the ability to keep stops in place and take losses with grace is an essential asset in this business, this losing streak I am on is really starting to disgust me. I ran the numbers and it is clear that whatever I am doing has given me a statistically significant method of picking losers. Obviously this is not what I want. After reading my past entries of the blog I think I know why I am losing and it comes down to basic strategy. Over this last year I had been exposed to a variety of strategies that, for some reason, I believed were better than the one I had been using effectively right here on this blog. The bottom line is that I am getting killed trying to implement new ideas. What I need to do is continue down the path I started using confirmation candles as entry signals instead of what I have been doing lately- using key levels to try to pick a move in the very beginning. Picking tops and bottoms is not possible- I need to remind myself of that. Greed is the emotion that tries to pick key inflection points instead of letting price show me that an inflection has occurred.

At any rate, it is good to be back in the futures game. Let the game begin.

For the purpose of tracking information I will reset my starting balance to zero.

Most importantly, I am now trading live money because I was consistently profitable on the simulator. All future trades logged here are real money trades!

Here are a few great videos on trading that are sure to fire up almost anyone. This Peter Millman guy is great.

Much to report

Well it has been over a month since I have posted, and the truth is I have not been trading futures. Over the last month I took on two new challenges:

• I began managing my girlfriend's retirement account.
• I did research on finding the best broker to set up a live futures account with.

On the first point I know most of you reading this would think- bad idea. I am not licensed to manage money, I should not be risking my gf's money, etc. But if there is one thing I have learned about licensed brokers it is this- they usually don't do anything special. When was the last time you heard about someone's broker saving their ass in a market downturn? Yea I didn't think so- if fact, I have never heard of a broker saving someone's ass. Brokers are trained in "buy and hold" being the only legitimate strategy. The reality is, in the age of bubble and bust, buy and hold is a recipe for disaster. As sad as it is, I feel that I am more qualified to manage a retirement account than most brokers because I understand the fundamentals of trading and I am trained in portfolio management, which brokers typically are not. What's fun about managing a retirement account is that is a much longer time frame than I am used too. I have found it too be a satisfying and educational experience so far.

And for some good news on this subject- my girlfriends retirement account is up 10.42% since I began managing the account while the S&P is up only 7.04%. That's right- that means a 3.38% abnormal return in 52 days. Annualized on a non compounding basis that would be a 23.7% market adjusted return. Suck on that brokers. Of course the real tests will be when I trade out of certain positions- a task that I have not yet had to do. Lets just say- so far, so good.

On the second point- researching the best futures broker- that has been one hell of a challenge. The charts that you have seen on the blog have been from Thinkorswim. They have an awesome platform, but for live futures trading, there is no nice way to put this- they suck. Their commissions are high, at $7 per round trip per contract. This is just plain and simple, not competitive. My research quickly revealed that no futures trader should be paying more than $5 round trip. Beyond high commissions the data feed sucks as well. After comparing the data stream of TOS with other respected data feeds like Zenfire or TT it is clear that TOS data is slow and filtered. This represents a serious disadvantage in the super fast, tick by tick, world of intra-day futures trading. The final point that is extremely important are the margin requirements. TOS requires over $6,000 in an account to trade one mini dow contract. This is just bloody ridiculous when other brokers offer as low as $400 intra-day margins per contract. Clearly TOS is not the way to go what it comes to trading futures on a live account.

After extensively combing the industry for the best combination of cost, platform, data feed, and margin requirements two brokers were left standing: Amp Futures, and Mirus Futures. Both offer low commissions (<$5 rt) with the best data and trading platform available to retail traders today: Zenfire and Ninja Trader. They also do $500 intra-day margins.

Back to Work!

Wow, it has been a while since I have had the time to post. Working a full time job and trading is a tricky thing to pull off. These last few weeks have just been too chaotic to be able to put together good trades. The time off has been good. It has given me a chance to do some thinking about the health and future direction of the financial markets. Unfortunately for the "buy and holders", I think the market is gonna be shaky at best.

Why would I think somewhat bearishly about the market? Well, it is pretty simple really. Over the last few months we have seen an incredible rally in the markets... but why? What, fundamentaly has changed? The nation is continuing to lose jobs. The GDP is only showing signs of improvement because of increased government spending. These facts should not be fueling a bull run. So what is fueling this bull run? Traders. But traders are not enough to prop up a market indefinitely. Eventually traders take profit, and when they do, the markets will be making a nasty move down.

Trading day, 7-30-09

So far the morning has produced a nice run up, but the internals are not as solid as they could be. I am going to cautiously observe this market and see if there is a good entry in the near future.

First trade of the day, 8:05am

Because the internals were showing some strange twitchiness I decided to fade this market with a short play. I have a target of a recent swing low and a stop of a few ticks under the recent high.

Update: 8:36am

Stop moved to 2 ticks above break even.

Update: 8:40am

Trade closed for a win.

Trade summary:

Entry: 991.75

Exit: 989

Entry type: Ledge breakdown

Exit type: Initial target hit

Net gain: $132.50

This trade was a great example of how internals can help let a trader know when to go with the market or against it. If I had only been looking at the chart of the future itself I would have thought it was time to buy a contract and ride it all day. The ticks, breadth, and A/D line showed a very different story, and let me know the market was in for a pull back. My target was within one point of the full move, so all in all, this was a good trade.

Update: After hours

I ended up too busy through out the day to stay current on the blog. I made one other trade, which was a loser. I wound up ahead $40 for the day.

Daily Analysis & Results.

I missed the only tradable move in the early part of the morning. On weeks like this, primarily composed of consolidation, I would have to trade early to have any chance of making some good trades. Sometimes it sucks to live in California. Waking up at 6am or earlier has never been much fun.