Corallus Chronicles, ES Journal

C

Corallus

Background: I first started trading full time in April of 1997. In those days, trading was like printing money. All you had to do was buy hot tech stocks on dips and you were virtually assured of making a profit. Although I had only read one book on trading and had no prior experience, I was immediately very successful--and I think that ended up being a bad thing. My ego swelled to the point where I started trading enormous positions, often without even putting in a stop. I made every trading mistake imaginable. As you might have guessed, before one calendar year had passed, I succeeded in nearly blowing out my account.

Well, I returned to the 9-5 grind in an office job that I hated. During those years, I read dozens of trading books, continued to watch the markets, and traded options when the boss wasn't looking. I was anticipating the day when I would be able to trade full-time again. Finally, in January of 2002, my improved financial situation permitted me to return to trading for a living full-time after I was laid off from a Silicon Valley firm.

I have been trading the indexes for about a year now, first in the form of ETFs (QQQ and SPY), and for the last several months in the form of the e-mini S&P futures (ES).

In subsequent posts, I will outline my trading techniques (they're very simple). And, of course, I will be posting my actual trades and my reasoning for each entry and exit.

I am hoping that I will be able to improve my performance and enhance my personal trading discipline through writing this journal. Hopefully this thread will be useful both to myself and to those who read it. Thanks!
 
I have three main types of trades that I take.

The first is the opening 30-minute range breakout/breakdown. This is by no means a new or fancy method, but it works for me when the conditions are right. Best of all, it's easy to implement. You simply mark the high and low that ES makes in the first 30 minutes of trading. If the opening range is narrow (e.g., 6-8 points or less from top to bottom), the breakout or breakdown from this range will tend to be even stronger. After 10:00 EST, you just place a STP order to buy one point above the high of the first 30 minutes and a STP order to sell one point below the low of the first 30 minutes. I like to use a 3-point stop for this trade and target 6-7 points as the profit objective.

Remember, though, that this trade works best when the opening 30 minute range is relatively narrow. If the opening range is very wide, like 15 points or more, then the breakdown/breakout is less likely to follow through. On wide opening days, it is often best not to make the play. Or if you are advanced, you might even consider fading the opening range breakout/breakdown on a wide opening range day.

Also, be aware that important economic data is often released at 10:00 EST. So on these days, wait for the knee-jerk reaction to come and go first before you take a position.
 
Method #2 is playing reversals off of support and resistance levels. I use the traditional system of calculating the daily pivot point, along with the primary and secondary support (S1 and S2), and primary and secondary resistance (R1 and R2) values using the previous day's high, low, and closing prices.

The formula for Pivot is: P=(H+L+C)/3

Primary resistance: R1= 2P-L

Primary support: S1=2P-H

You can find all support, resistance (including secondaries), and pivot values calculated for you at www.vipertrading.com

Although many people say this trading method is outdated, in my experience, it seems that enough traders still use these values to make being aware of them worthwhile.

This trading method is one of my favorites because it allows you to use relatively small stops. You can enter a limit order to buy at S1, for example, and then put in a 2-3 point stop. If the support area is tested and fails, and price goes more than 2-3 points below S1, then, for the purposes of our trade, the support did not hold and the stop takes you out after the entry setup has been invalidated. It's surprising how often price actually turns on a dime at key S and R levels.

My profit target is the next key level. So, for example, if I bought at S1, my initial target would be the pivot. If the market remains strong through the pivot, I may try to go for an exit at R1.
 
Quote from dbphoenix:

Good Luck, Corallus. You've managed to make it through an entire day without being attacked! :p

--Db
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Db, that's only because it wasn't a trading day!! LOL!
 
Quote from Corallus:

I have three main types of trades that I take.

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Good, I like the first two of them, don't know what the third one is. You are right: they are not new and by no means fancy, but I would not use it against them.

I will comment more on them or ask more questions, but right now have to leave.

Keep it up.
 
1. Do you have any statistics showing how these methods work for you?
2. What do you do when the first 30-min breakout happens in the area of S1 and it's downside; you have a little problem here, so which method do you use then?
3. I am sometimes peeved when a reversal happens before S1 is ever hit, sometimes just 2-3 points shy off S1. Do you take trades exactly at S1 or do you take them even before S1 is hit when you sense that the reversal is just around the corner?
4. How often do you get reversals off S1? I have been wondering about it for some time. Do you have any statistics? Including how many of these reversals turned out to be right on the money?
5. Do you take trades between S1 and S2? Sometimes you can get powerful reversals between these two support levels, particularly when the price gets there during the first 30-60 minutes. I guess last time this happened on November 13th. The bottom was almost exactly half way between S1 and S2, and if you entered around that level you would have gotten a nice 15-20 pt bounce in the following 90 minutes.
 
I call Method #3 "The 1:30 Pivot Method." This concept was first brought to my attention by Tom Busby.

It is more discretionary than the previous two techniques, but it offers large profit potential when properly executed on days when the market has a late-day surge or plunge.

Here's what you do. At 1:30 EST, you write down the last price of the S&P futures. This number becomes your pivot, or point of reference, for the remainder of the day. I like to plot a horizontal line on my chart at this price. Now, you observe price trend, if any, relative to this line. Usually, you have to wait until after 2:00 EST before anything definitive starts to show up. In the most general terms, if the price is above the 1:30 line at this point you want to start to look for reasons to be long. Conversely, if the price is below the 1:30 line at this point, you want to look for reasons to be short.

For example, if price is above the 1:30 line at 2:10 EST and TRIN is trending down, you might want to consider a long position to hold until the close. On the other hand, if price has moved below the 1:30 line and TRIN is trending up, you may want to consider a short position. As I mentioned earlier, this technique is more discretionary than the first two I outlined. One thing that I have noticed is that afternoon moves that start later in the day (e.g., 2:30 vs. 1:40) seem to have a higher likelihood of follow-through to the end of the day.

Well, that's that.

I'll post Monday's results after the close.
 
Quote from Corallus:

I call Method #3 "The 1:30 Pivot Method." This concept was first brought to my attention by Tom Busby.

It is more discretionary than the previous two techniques, but it offers large profit potential when properly executed on days when the market has a late-day surge or plunge.


I'll post Monday's results after the close.
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Interesting, I did not know that one.
 
Quote from wally_:

1. Do you have any statistics showing how these methods work for you?
2. What do you do when the first 30-min breakout happens in the area of S1 and it's downside; you have a little problem here, so which method do you use then?
3. I am sometimes peeved when a reversal happens before S1 is ever hit, sometimes just 2-3 points shy off S1. Do you take trades exactly at S1 or do you take them even before S1 is hit when you sense that the reversal is just around the corner?
4. How often do you get reversals off S1? I have been wondering about it for some time. Do you have any statistics? Including how many of these reversals turned out to be right on the money?
5. Do you take trades between S1 and S2? Sometimes you can get powerful reversals between these two support levels, particularly when the price gets there during the first 30-60 minutes. I guess last time this happened on November 13th. The bottom was almost exactly half way between S1 and S2, and if you entered around that level you would have gotten a nice 15-20 pt bounce in the following 90 minutes.
More...

Wally, those are all very good questions. I'll do my best to answer them for you.

1. I will admit that I have not been trading these techniques for a very long period of time, so my results ought to be taken with a grain of salt (afterall, I might just be getting lucky). But here goes: Over the last 23 trading days, which is only as long as I have actually been trading it, the S/R method has captured a total of 57.5 ES points for me, or 2.5 points per day on average. Over the last 14 trading days, which is as long as I've been trading it, the 1:30 method has produced 42 points, or 3 points per day on average. I have not been trading the 30-min breakout long enough to quote any meaningful statistics, but so far the results have been encouraging.

2. My trading philosophy is "When in doubt, Sit Out." If a downside breakout occurs in the area of S1, I do not immediately take any action. However, if the breakdown is strong enough to penetrate S1 by 2-3 points, I consider the S1 level to be broken and I will then go short using S2 as my profit target and using S1 as my stop.

3. I prefer to let the price come to my level rather than try to enter on a reversal that occurs prior to hitting a S/R level. As you might imagine, I miss some good trades this way, but I prefer to miss a trade than to enter at a level I feel uncomfortable with.

4. Well, a full reversal does not always happen, but much more often than not, the price does at least bounce a bit off the S1 or R1 prices. But I find that very often even if I don't get a true reversal, the price temporarily bounces back enough for me to get my stop to breakeven, or close to breakeven. This way, even if a reversal does not follow through, I can often escape with a very small loss (such as 1.5 points, or even at breakeven).*

5. No I don't usually take trades between S1 and S2. However, if the price stops declining somewhere between S1 and S2 and then crosses above S1 I usually take a long position at the S1 level as it's crossing back above it. I will definitely look more closely at the possibility of expanding my entry rules to allow an entry between two support areas.

*General note on stops: once a position moves 1.5 points in my favor, I move my stop 1.5 points from the entry price. Once a position moves 3 points in my favor, I move my stop to breakeven.
 
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