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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