Saturday, February 28, 2009

Friday: not too bad....

Background prologue to my "Euro is Bearish" post, Euro meaning the EuroFX Futures for this post.

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Short Euro Futures (6EH9) @1.2704
Short again @1.2714
Frustrated, but was getting ready to cover both my shorts when it broke above 1.272.

Covered both @1.2692

No, I didn't put a stop in place in this trade. My rationale was that the Euro had been trending down all evening, and this was just a pullback in the overall trend. I've been trying to identify the time and place when the odds are in my favour. There is a "shift change", when the Asian traders finish their trading, and the European traders start theirs. Often, the European traders do the opposite of the Asian traders. In this case, the Asian traders were driving the Euro back up after the breakdown at the end of the previous session. Asian traders drive it up, but it didn't go very far up, and the Europeans drove it back down. Also, i was expecting price to continue downwards within a certain time frame, and was prepared to exit the trade if that scenario did not materialize in a certain time frame.
And yes, mental stops are totally dependent on my psychological ability to take a loss, which is why manual stops are used by almost everyone out there. Perhaps I should use a wider manual stop as my insurance policy, just in case my psychological make up for that session fails me.

Everyone talks about taking only trades where there is at least a 2:1 risk to reward ratio. But no one talks about how the probability of winning plays a role in the risk:reward. With the Euro Futures market, i have observed and become familiar with the habits and patterns of the majority of participants in this market, when their buying/selling is exhausted, when/where/how buyers/sellers become more agressive etc. That helps me to identify when the odds are in my favour. So, with my method of wider manual stops, I have more of a 1:2 reward:risk ratio, but my % of winning trades more than high enough to compensate for the occasional loss. Whatever works, right ?

Anyways, Euro continued dropping all the way down to 1.2628 after i exited, so there is definitely room for improving my trade management.

After that, Euro dropped all the way down to 1.2601, but never stayed below 1.2613 for more than 5 min at any given time. Then we saw a real nice retrace:

I never caught this nice move. Note that it started in the 1.2620's, which also happens to be where Euro stopped its down move (see the first chart).
While this was happening, I was playing ES:

740AM: Long ES@741.75, initial stop@740
743AM: moved stop up to 742.5, ES was @745
745AM: stopped out @742.5

This trade happened so quick, which I didn't mind, but it also made a case for holding only the initial thrust, and not to bother with trying to hold out for bigger profits. It also points out why holding out for 5-10pts is not an easy task.

After that, I scalped Visa Inc. (NYSE: V) for a few pennies here and there (not worth recording in the chart). But i did notice a nice box play pattern:

This one was interesting because the box play pattern was resolved to the downside, but with an uptrending VWAP! This points out that the box play pattern works even if it is countertrend.

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Friday, February 27, 2009

Trader personality


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As I have mentioned in previous posts, patience (or lack thereof) is one of my weaknesses. To be more precise, I have the patience to wait for a high probability chart pattern to fully develop. But once I do take a setup, I find myself impatient in waiting for the tape to move and/or continue in my direction. This impatience has often led me to exit the trade early for a small profit/loss. Keeping my losses small is great, but missing out on big profits doesn't feel so good.
What I wind up doing is trade the first thrust, and exit on signs of a pullback. When price pulls back after the initial first thrust, there are only 3 outcomes: continuation (ie. pullback reverses and continues on in the direction of the first thrust), reversal (ie. first thrust fails), or sideways chop. In the current market environment, the probability of a first thrust continuing on after the pullback is not that great.

So what to do about it? Perhaps I need to find a better spot and better time to enter the trade. Which goes back to the point of requiring more patience.
Also, I can also re-start the practice of entering support/resistance levels as alerts in my trading platform. Also wouldn't hurt to read up on what Dr.Brett has to say about this.

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Euro is Bearish


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There are a couple of reasons for the bearish on the Euro:
1) Recession is spreading across Western Europe
2) USD$ is trending up still (surprisingly enough)

As indicated by the chart, we have a series of lower highs. The 1.272 - 1.273 area is where i will be looking for resistance and reversals.

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Tuesday, February 17, 2009



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Path of least resistance is down.
BPSPX has also broken below trendlines.
The most obvious first target is the Nov/08 low @ 750.

Based on the above short term chart of SPY, the price levels for ES where the odds are in my favour are 836-840, and 806-809.
This implies that there will be a gap fill attempt, and where it reverses will go a long way in setting the tone for the session.

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Tuesday, February 10, 2009

Not All Fun 'n Games

Traded the EuroFX futures and S&P500 E-Mini Futures

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Shorted ES @862, initial stop@863.75, target 859, stopped out @863

This was a well planned trade, IMO. Pivot line (@863.56833) to the top of the W-pattern (blue line) was almost the same distance to the bottom of the W-pattern. Even the noise should have been able to take me out. As it turns out, I moved my stop down to 863 too soon, and was taken out by the same noise that would have otherwise worked in my favour. Frustrating as crap.

Short@1.2966, initial stop @1.2976, exited@1.2955
Declining trendline, established pattern of lower highs, profitable trade in less than 3min., unlike that stupid ES trade, where it took me 20min. to be stopped out for 1pt loss.
Note: The Euro plunged 2 cents in the early evening, and that gave me a short bias on the Euro trade. ES was rejected @resistance @872, that made me look for short trade as well.
Started using BracketTrader again. Not sure why I didn't use it last week.

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Sunday, February 08, 2009

Market Review, Feb 8/09


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BPSPX crossed above the 10d and 20d EMA - bullish
Total put/call ratio is at a swing low - bullish
VIX is sideways but still inside the move at the end of jan/09

resistance @871-874
support @846-849

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Weekly Review Feb 7/09

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The good:

  • Made some coin
  • gained better understanding on the difference between predicting market direction, as opposed to knowing when the odds are in my favour for a certain move to happen. Chart analysis should be done with a view towards where the odds are in my favour for a certain move/chart pattern to happen.

The bad:
  • Wasn't aware of trend confirmation after entering a trade
  • If playing a chart pattern, don't switch gears mid-stream, at least not unless I figure out how to do it properly. With the ES Box Play pattern, the only reason to continue holding was if there was a continuation move shortly after the box range. Will need to investigate some time-based stops for this.
The ugly:
  • It didn't take too long for some bad habits to re-surface again. Overtraded ES on friday.
  • Unable to erase bad trades out of my head. Shouldn't be trading after a bad mistake until my head is clear.

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Friday, February 06, 2009

The New Same Old Same Old

Traded S&P500 EMini Futures and DO breakout today.....

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1st Trade: It was near the end of the pre-market run-up, but I just hadn't realized it. Stopped out for a 2pt loss.

2nd Trade: Not being content to take a loss, I tried to play a double top reversal without waiting for confirmation. Took a 1.75pt loss.

At this point, I felt dejected, and needed a way to recover. I was watching
Diamond Offshore Drilling, Inc. (NYSE:DO) this whole time, so I decided to play the breakout @65 with half of the position that I wanted.

Once ES started running up, it was hard to enter any position, long or short. So, I waited for ES to finish its run.
3rd Trade was based on purely watching the tape - it was cycling between micro-resistance and micro-support levels, so I hit the ask @micro resistance, and got out before it hit micro-support

4th Trade of ES was a play of the 7am reversal. Price had been drifting upwards according to the white trendline that I drew. Keltner channel started to roll over, I could tell it wanted to test the trendline again. Shorted on the imminent drop to trendline, and covered when it looked like 856.25 was going to hold up as micro-support.

Today's screw-up was not being able to wipe out the 2pt loss from the first ES trade out of my head. Things went a little bad from there, until I recovered some confidence with the DO breakout trade.

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Thursday, February 05, 2009

Back to the Nickel and Dimes.....

Traded the EuroFX Futures in the overnight session.....

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1 trade of 6EH9:
long @1.2759, initial stop@1.2751, closed@1.2769

The Euro spent all its energy trying to reach 1.2755, so there was low probability of it breaking below 1.2755, at least not on the first attempt. I entered a little too soon, as I should have waited for confirmation of the reversal @1.2755. Nonetheless, i was playing the probability of the reversal, it happened, reaction of 15pts, and I caught 10 of the first thrust of the initial reversal.


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Don't Be a Hero

Tried to trade the S&P500 EMini (ES).... or maybe I was just farting around .....

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Took 1 trade of the S&P500 EMini Futures (ES):
Shorted @821, initial stop@823.

It was a nice and classical Box Play Pattern that developed, and the bias was to the downside as evidenced by declining VWAP, and the struggle to fill the gap down.
When price fell down to 817, my greed led me to decide against following the rules of the Box Play Pattern. In the past few sessions, I mentioned that I always tended to take profits at the end of the buying/selling wave. This time, greed drove me to go against my natural tendencies. I decided to wait around for a second wave of selling. It never came. Lost 4pts of potential profit. That hurt. Luckily I had the sense to move my stops to breakeven to minimize the pain.

UPDATE: Never underestimate the power of the 7am reversal !!!

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Wednesday, February 04, 2009

Bear Trap

Traded British Pound Futures in the overnight session.

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The UK Central Bank was set to lower interest rates down to 1%, so I was looking for a break of the uptrend.

Short @1.4445, stop@1.4455, closed@1.438

Price was wandering sideways between 1.445 and 1.4425. It could have broken out of this range on either side, but again, I was looking for a break of the uptrend. After reviewing the Forex chart which barely showed a series of lower highs (not displayed here), I decided to enter short before it broke out of its trading range. When it rose up to 1.445 after i entered short, I was getting ready to book my loss, but price got rejected @1.445.

Things started to get a little more lively once it broke below 1.4420.
Once it dropped to 1.4370, I had a decision to make: hold on for a 2nd wave of selling, or get out now? I decided I wasn't interested in waiting around for a second wave of selling and it turns out that second wave never came.
In retrospect, that break of 1.4420 for whatever reason, did not attract new sellers, so it was a bear trap. Sort of. Price retraced up to 1.4430, so I wasn't interested in holding thru that massive retrace.

I'm interested in riding the wave, and getting out when the ride is over. I don't have the patience to wait thru chop for the next wave that may or may not materialize. So if I can catch the first thrust, all the better, if not, I wait for the pullback to finish before entering, so then I don't have to wait thru chop.

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Shooting for Nickels


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First and only trade in S&P500 E-Mini (ES):

long@835.5, stop@834.5, closed@839

835.5 was the tag of VWAP and gap fill on the SPY. VWAP was trending up, price did not violate the previous swing low in the pre-market, and Price action did not look like it was going to violate VWAP at that point. Plus a few sectors were bullish (oil, Aggies), which encouraged me to jump into ES right there.
ES ran for another 6pts after pausing at around the 840-841.
That means again, I am exiting my position too soon. But I am ok with shooting for nickels and dimes, and forsaking the dollars, until I feel comfortable that i have built up enough of a wall (capital base to cushion against future inevitable trading losses).

And yeah, I've noticed that the Euro dropped over a penny overnight (see my previous post on my Euro shorts), so my current risk aversion leading to fear deserves the lower profits. I will work on the psychological part of my trading in the coming days.

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Tuesday, February 03, 2009

Fortune Favours the Bold

Traded EuroFX Futures in the overnight session.....

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Two scalps as highlighted by the red arrows:
First short was @1.3055, stop@1.3061, closed @1.305
Second short was @1.3006, stop@1.3014, closed @1.299

First short was a pullback play after a 40pt run-up.
Second short was a volatility squeeze breakdown below VWAP. Closed the second short too soon, which was a mistake, because the breakdown confirmed the downtrend, I should have been more brave and ride the trend down until it was no longer my friend.

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Monday, February 02, 2009

Fortune Favours the Prepared

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While I was scalping 1pt in ES,

I missed out on a great breakout by CF Industries Holdings, Inc. (NYSE:CF) .

Couple of things that I can do different:
1) review the 10d, 15min. chart of stocks that i am stalking
2) put all stocks into QuoteTracker.
3) remove non-essential real-time charts from my display
4) remember to keep using volume charts for stocks !!

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