Tuesday, July 31, 2007

Get Ready.....

Something interesting is going happen in tomorrow's market session

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ES down 16, NQ down 17, YM down 133, ER2 down 13 as I type this. Every market is down 1%, with ER2 leading the way of course. The culprit? Probably this rather grim piece of news about the troubles facing one of America's biggest mortgage lenders, AHM.
We are going to gap down tomorrow. Huge gap downs tend not to get filled (at least not within the first few days), but if they do, that is a rather bullish sign.

How, when and how much that gap gets filled will speak to the conviction of the bulls. We should see the PPT make an appearance tomorrow.
It will be interesting, make sure to wear your crash helmets !

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Friday, July 27, 2007

Stick a Fork In It

The Uranium market is toast for at least the next 4 months, maybe even longer.

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Regardless of all the cheerleading news about how uranium stocks are the next best thing since sliced bread, the chart says it all, and the chart does not lie. My uranium index is in a downtrend, and has been in a downtrend ever since that fateful day in April2007. I do not plan on touching any uranium stock, not even with a 10foot pole.

Gold is acting weak, and the Loonie is in a correction. This just means no one is interested in buying uranium stocks for the next little while. Stick a fork in her, she's done.

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Wednesday, July 25, 2007

Trend Days

Some of my own observations of trend days.

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I have an archive of the eMini S&P500 Futures intraday charts from the past three and a half months. I went back to review the charts to see how many of them were trend days.

Before I share the results of that research, I want to first qualify what makes a trend day. The Market Wizard Linda B. Raschke wrote an article about it. She characterizes trend days as follows:

  • open and close are near opposite extremes
  • the opening half hour makes up a small portion of the day's range
  • intraday price retracements are minimal and shallow
  • daily trading range has expanded
To that, I would add the following additional characteristics:

- typically, either the 10 or the 20MA has not been breached for more than 2 bars during the life of the trend. At a minimum, it must follow a manually drawn trendline. This is paraphrasing LBR's point about minimal and shallow retracements.
- trends typically take 3 to 6 hours to run its full course, although I have seen nice trends start and finish within 90 minutes. From this we can infer that as the trading session progresses without any signs of a trend, then it becomes more and more unlikely that a trend will develop. The absolute last chance for a trend to develop would be around 2pm EST.

Anyways, my own review of the daily ES charts reveal 26 trend days out of the 86 trading sessions that I have archived. That means a trend day will occur 29% of the time. Just to be real conservative and unbiased, let's throw out the worst 10 of those trend days. Then that will reduce the frequency of trend days down to about 18.6% of the time. Well, guess what, that means on average, a trend day will occur (almost) once per week !!! Yes, believe it or not, a trend day occurs more often than you think. So, the implication of this is that each trading session that occurs with out a significant trend taking place actually increases the odds of trend day happening in the subsequent trading sessions.

So, starting from the acknowledgment that we will never truly be able to predict with 100% accuracy whether today will be a trend day or not, we can still gather pieces of information which will help give us an edge in identifying trend days.
In that same article, LBR outlines some tips to help identify which days will be a trend day. I want to increase the odds even more. Here are some additional things which I think will help me identify a trend day.

- economic reports. Nothing moves the markets better than a better or worse than expected economic report. Sometimes, these economic reports can trigger a trend day, especially reports that are released at the 530am or 7am(EST) times. Some of the more significant ones that are known to move the markets include the CPI, PPI, retail sales, and of course, the Federal interest rate announcements.

- breach of a significant support/resistance level. Breakouts fail as often as they succeed, but the ones that do actually succeed tend to set the tone for the day, and thus more likely to produce a trend day.

Ok, that's what's in my head at the moment, hopefully I can use this knowledge going forward to take advantage of upcoming trend days.

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Tuesday, July 24, 2007

Still a Noob

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For the past month or two, I have been working hard on cutting down on my overtrading habits, developing a trading plan for the day and cultivating enough discipline to stick to the plan, and of course, improving upon my patience.

I thought I had improved in these areas, and up until today, revelled in that illusion. But today, I discovered that I am still a noob stuck at the beginners level when it comes to trading futures.
Today was a trend day in the indicies. Of course, no one knew that at the beginning of the session, but as the morning progressed, it became more and more clear that it would be a trend day.

I had two chances to partake in this trend day. In the first opportunity, I went short based on the double top formation. The call was correct, even though the entry may have been a bit early. Unfortunately, as soon as the trade went in my favour, I basically wanted to protect my profits.

In the second opportunity, I was impatient with letting the trade develop. It dropped down to a support level @1538, and ran back up to my short entry @1540, but never took out my initial stop, or even my revised stop, for that matter.

So had I left the trade in place, with the original stops, I would be sitting pretty. Instead, now I have to write about what I did wrong, think about what I could do differently the next time, and try to accept the bitterness of this pill that I have to swallow. I don't know what it is about me that makes me want to take profits so soon. I really thought I had progressed past the noob stage, but apparently I have not.

This market has absolutely no room for self-pity, so I'll probably spend the rest of tonight accepting the fact that I am still a noob. I might take tomorrow off to regroup, and refresh my mind (unless we get another big trend day).

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Thursday, July 19, 2007

Tape Reading Books

There's not much out there....

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Yes, I have entered the tape reading phase of my trading career. I mentioned before that there just isn't that many books on tape reading. A search on Amazon yielded the following books:

"Studies in Tape Reading", by Richard Wyckoff.
This book was originally published in 1910, but it seems to be popular enough to have lasted until today. I've come across a couple good reviews of this book from various trading websites. I think any trading methodology book that can stand the test of time and still have decent reviews is worthwhile to take a look at.

"Tape Reading & Market Tactics", by Humphrey B. Neill.
This book was published in the mid-1930's, and it also has received favourable reviews from various trading websites. And at a cost of less than $10 on, it might be worth a shot even if it turns out to be a mediocre book.

"Techniques of Tape Reading", by Vadym Graifer
This is the newest book on tape reading, published just a few years back. It has received mostly positive reviews on Amazon. TraderGav also has it on his virtual library, but I don't know whether he has actually read it or not. If anyone has read this book, please leave a comment on whether you liked it or not.

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Wednesday, July 11, 2007

Tape Reading Video

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At TradersLab, there is a 3-part video of a trader showing how he's using the tape (and the TICK) to enter a trade in the YM. Interesting and educational to follow along his trade.
I think I will have to start using QT's T&S window more.

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Tuesday, July 10, 2007

Peeking at The Loonie

Taking a closer look at Canadian Dollar Futures

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Just in case you didn't know, the USD$ is hurting big time. All of the major currencies (Yen, Euro, GBP, and the CAD futures) were up today. But for me, I've been tracking the Canadian dollar for a couple of weeks now, and wondered how it would react to today's announcement by the Bank of Canada that interest rates would increase by 25 bps (0.25%). It turns out that the past week was a buy the rumour style run-up, and today was a sell the news day.

The Canadian Feds actually indicated that there maybe even more interest rate increases in store before the end of the year is up. Nonetheless, despite this bullish news and outlook for the currency, it sold off. But, it was not a blow-off type of sell off, and in fact, the current uptrend in the CAD is still intact. I think it could drop as low as 0.9450 and still not violate the current uptrend.

I came across this interesting site which provides comprehensive analysis on the Euro, GBP, Yen and the Canadian Dollar ForEx. It is also forecasting a continued uptrend for the Canadian dollar.

I will be watching the CAD futures for upcoming trading opportunities.

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Today's Trades

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In that first trade I made, I moved my stop, which was a mistake which led me to take a larger loss than usual. But after that, I took a quick break, and regained my composure, and went right back at it.

The biggest difference in today's trading was that I didn't feel frustrated after starting off the session with that loss. Yes, it was a mistake, but I didn't dwell on it. The other difference was that I ended today's session with a win, rather than ending it with a losing trade. It's these little things that help me to get back my confidence.

The vertical lines represent signals which had I been alert enough at the time to take them, would have led to some tidy profits. I also read somewhere that 1536 was a support level (from last week), which would mean it is now resistance. But I forgot to write that into my notebook, and missed out on a great trade (short @1536).

The Keltner channels identify low risk trade opps, but not necessarily high probability trade opps. To increase the probability of a profitable trade, you would need to combine the Keltner with a TICK extreme, and even the MACD divergence. But again, this requires being alert at all times to what the indicators are doing, and sometimes, I get too bored to pay attention.

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