Approach to trading the ES contract

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Quote from stevesbg:

Alright, I think I understand your comment and questions

I have asigned a value to what I call "wiggle room"..Lets say for example, that I will hold a position while it oscillates up and down for about 2 points, depending on what lines up above or below my entry. This "wiggle room" is based on an estimate of local volatility.

ENTERING IN INCREMENTS INSTEAD OF "ALL IN"

The way you enter can affect your ability to stay in a trade as it "wiggles around". For instance, in times of increasing volatility a trader COULD enter in increments (depending on the position size). For instance, if you normally put on a position of 12 contracts all at once, in times of increasing volatility you might instead put on only 3 contracts initially. If your wiggle room was 2 points, you might wait and add 6 more if the position went against you (up to your 2 point stop). One of two possibilities will happen at that point. Either the position moves in your favor, in which case you would scale out your initial 3 contracts, or the position would continue against you resulting in a stopped out trade

If the position moves in your favor, you have established a position slightly smaller than normal but at slightly "better prices"

If the position continues to move against you to your stop out point, you take a loss, however the loss is smaller than normal because your position is slightly smaller AND a portion of that position was established at "better" prices.

Modifying your method of entry is one way of managing changes in local volatility.

FRAMING MARKET ACTION

I watch the markets reaction to events including economic reports. If the market reacts favorably to negative events I take notice. Conversely if the market reacts negatively to events that normally one would see as positive, I take notice. The way the market reacts informs me of a bias. I look to trade that bias or tendency.

When the market opens "in value" despite potentially negative economic news it tells me that the market is discounting that news. If this view is correct, confirmation of that bias will come when the market tests the previous day's value area low and bounces off it to the upside. If my opinion was incorrect, I would have taken a loss on my first trade and reset my strategy looking for an appropriate place to get short.
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Ok...while I have a moment this morning....

I understand your example, however what I was trying elicit from you is how you use the 2,3,5 , 7 and 10 fading function related to the Friday trade, if in fact it would apply....or any other example you could offer.

I don't have a clear understanding of "fading" and that is why I don't use it other than in my example if it is in fact "fading" by definition
:confused:

NiN
 
Quote from operator:

I agree. You should have your biggest position size on when you are right and your smallest position size on when you are wrong.

Unfortunately most traders have it the other way around.....
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Yeah you're right.

1. But it means you have to take the initial loss when you're wrong, and most traders are adverse to doing that.

2. It also means you have to let your winners run for a bit, and once again, the money management style expoused in this thread doesn't allow for that. It scales out of winners while scaling into losers, not exactly what I would call the optimal way of doing things.

3. Last but not least, the way a trader really makes money in the game is to scale-up in size (which happens naturally when you follow the first two principles I wrote and put in bold).
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Thanks for pointing this out and enabling further discussion on the topic. Hopefully the OP won't get too offended, take his ball home, and stop playing.
 
When the previous poster finds a way to have big size on only when they are right, please post that solution.....

When the previous poster finds a way to have small size on only when they are wrong, again please post it.

I am always glad to learn something new.

Averaging into trades keeps a trader in the market long enough for his or her edge to kick in. It is an unfortunate necessity in markets that are noisy (like index futures). If like many newbies you have no real edge, then this method won't help you....and it is probably wiser just to stand aside until you develop a tradeable system.

Scaling out of trades works very well in markets that cycle back and forth through price ranges (like the S&P). Scaling works particularly well at the beginning of a trade because it allows the newbie to ring the register and develop some confidence. As always there are tradeoffs, but generally speaking I would suggest that new traders scale out of winners when trading a mean reverting market on an intraday basis.

Finally, this is simply my approach to trading the ES contract. I have done my own testing of various elements of the work and find that these ideas work for me at least. I want to suggest that traders become good researchers of their own markets and trade ideas. Ultimately it will serve you best to arrive at your own conclusions.
 
Thank you Stevesbg for an intelligent discussion of volatility and scaling in.

I have two additional questions.

How have you been able to keep the flamers away?

Two years ago we began an educational series of articles on ET and got obscene reactions by newbies who obviously had little trading experience, or worse lots of experience but a long period of losing.

Second, we have done lots of studies with value areas and found that over the long run with real cash, they lead to large drawdowns.

Have you traded cash with some of the previous described methods, and what has been your experience?

Thanks,

Successfully,

Alex L. Wasilewski
Co-Founder & Head Trader
Trades That Work
www.puretick.com
1-877-GOLONG1 ( 1-877-465-6641 )
 
I have no idea why the local trolls have stayed away. Perhaps they have been learning something new?

As for your comment about value areas, my experience has been quite different, and although I do trade the value areas as well as many other market profile derived numbers, I am pretty sure that my approach is different from most. Although I am not willing to give the details what I can say is simple.

Index futures markets are very noisy. Most retail traders do not fully appreciate how that noise affects them and their attempts to make money. Rather than go through the tedious math, I will sum it up as follows. No matter what single system a trader develops....no matter how carefully he or she "tunes" and tests their approach, their edge, their indicator blah, blah blah....no matter what...the market is going to cycle in and out of alignment with that strategy.....I don't care how smart a trader is, how much data they test on, how crafty they are with indicators...ITS GOING TO HAPPEN.

So I don't trade single use systems. Instead I monitor a range of data elements and use the principle of confluence. In other words I look for areas to trade where multiple "signals" exist either in the same place or in proximity to each other. Doesn't eliminate the problem, but it does minimize its impact on my P&L.

Have I ever traded with cash?....except for options positions, in our office we trade on margin.

Thanks for your questions.
 
Okay a quick briefing

First, prior to the pre-market check I calc'd my basic Market Profile numbers as follows;

VAH = 907.50
VAL = 895.50

We expected poor reports today as follows

Building Permits
Housing Starts

Both were below expectation and as a result the market moved as follows;

At 5:21am PST just prior to the release the Globex moved to a high of 912.25. As the data came out the market dropped on selling, testing yesterday's high at 908.75. We saw a pullback to 910.25 and then the primary move down resumed. We took out the VAH at 907.50 and that move is still in progress.

We have a "single" at 904.25 that should stop the move and provide a springboard for a possible retest on the open. If that single does not stop the move down, the pivot at 897 likely will, and below that we have the obvious obstacle (VAL) at 895. At this point it looks like we will once again open "in value"..

Looking at the 60 min $DJX chart we can see that the cash bounced off our lowest support level and trended up all day. It will be interesting to see what happens on the open. check out the last candle and then scan left. You can see that the high of the day in the cash tested the midpoint of the wide range bar way over to the left. This happens quite often.

Best of luck to everyone.
 

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and intraday volume is down (below 2.6)

To our eye this indicates that size is "in the market" and that we have a healthy trending process in place.

To sum it up, yesterday the market moved up significantly on lower than average volume and slightly higher than average open interest
 

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On the open we would be looking to trade a test of a value extreme.

We would be watching for strength or weakness in the Dow as evidenced by early readings in the $VOLD and $ADD

Also we would be monitoring the $TICKI watching for evidence of early program execution. To suppport a continuing move up, we would like to see significant size programs hit the tape within the first 10 minutes.
 
Quote from stevesbg:

On the open we would be looking to trade a test of a value extreme.

We would be watching for strength or weakness in the Dow as evidenced by early readings in the $VOLD and $ADD

Also we would be monitoring the $TICKI watching for evidence of early program execution. To suppport a continuing move up, we would like to see significant size programs hit the tape within the first 10 minutes.
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Thanks for providing all this info, and giving us your view of each tradig day!

One question:
When you mention you will watch the $TICK for evidence of early program execution, does this mean strong values in the $TICK? Like 800+, early in the day?

Thanks again,

veggen
 
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