ES Journal Archive (2006 - 2008)

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I love the smell of running buy-stops in the morning! :)

Raising my sell stop to 1542.00 (+3) while I go take a shower and get dressed. I've got a doctor's appt, so I'll have to close down early for the day around 3:30 PM EDT.

We are about to challenge the 1545.75 level here...
 
Quote from mbusch:

B1S2, your post strikes me as a mixture of items that are clearly true and items that are quite controversial.

First, the clearly-true ones:

- Yes, there is a strong urge to overtrade, and most traders would do well to learn the art of patience and sitting on their hands for hours at a time. Tough to do, but crucial.

- Yes, trading not to lose money is self-defeating, and acceptable of losses as part of the game is essential. There's no reward without risk, and taking risk means accepting losses.

- Yes, trying to guess what's moving the markets can make you crazy. You have to make up your mind whether you're a technical trader or a fundamental investor. If you're a technician, then you need to turn off CNBC and Bloomberg and focus on the charts and the price action.

But then there are the controversial ones:

- Never trade counter-trend.

- Use wide stops to stay out of the noise.

- Don't scale in or scale out.

- It's difficult to lose large sums if you've correctly identified the trend (so you don't really need tight stops).

These recommendations are predicated on a model of the market in which there is a dominant trend and the trend is accurately identifiable prospectively (not just retrospectively). If the market always behaved that way, these recommendations would be valid and even self-evident. The question is, does the market really conform to this model?

It seems to me that there's a different model that many here subscribe to, with Apex82 being a prominent example. That model says:

- The market moves briskly from one S/R zone to another, and then consolidates in the S/R zone before making another brisk move.

- Through dilligent research, we can often identify where those S/R zones are.

- However, we're not smart enough to know in which direction the market will move between S/R zones. Whenver the price action is consolidating within a zone, there are always two possibilities: it will move sharply higher to the next R zone, or it will move sharply lower to the next S zone. But nobody is sufficiently prescient to know which of those two things will happen, or exactly when.

- Trends can only be identified retrospectively (e.g., since February, more upward zone transitions occurred than downward ones), but not prospectively (we're not smart enough to predict the future).

Think of a stink bug walking around on a corrugated washboard. He spends most of his time stuck in a valley, and occasionally musters the strength to surmount one of the corrugations and wind up in the next adjacent valley, but it's a coin-toss whether he winds up moving higher or lower on the washboard.

If you trade with this kind of mental market model in mind, then tight stops are essential because each trade you enter has a non-trivial probability being in the wrong direction, so it's essential to "stay with the winners and cut the losers short" via tight stops. In such a model, a scaling-type money management approach makes perfect sense, because it modulates the size of your bets to be commensurate with the risk of each bet. (I'm willing to bet $3 that the bug moves one corrugation higher by the end of today, but only $1 that he moves three corrugations higher by then because that's far less likely.)

On ES Journal, we clearly have some extremely successful adherents of each of these camps. (We also have some folks who trade without any mental model and their trades are unpredictable.)

I'm just trying to point out that neither model is right or wrong, any more than Catholicism or Judaism is right or wrong. The market is far too complex to model accurately. To trade successfully, you need to have a simplified mental model of the market that, while inherently inaccurate, correlates sufficiently well with market behavior to be useful. Then you must develop a trading plan consistent with that model, and stick with it.

There are multiple useful models, and multiple successful trading plans. The diversity is one of the things that makes ES Journal such a fascinating place.
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i was thinking the exact same thing, but you said it in a more coherent manner than i could have. bravo!

i agree that scaling out as useful, particularly as used by apex. and i agree that diversity of trading model is evident and is one of the things makes this thread great to read.

again, bravo mbusch. thanks for articulating what i was thinking and providing another point of view.
 
The game being what it is, the market needs all kinds of participants to provide liquidity. I've known traders who make a few ticks on 100 cars a few times a day. I would agree they do exploit the trend on a much shorter time frame, but would not question their success.

Short term outcomes are much more predictable than longer term. It's like handicapping collegiate ball or real estate investing, different factors, time frames in the equation, just seeking long term positive expectancy that exceeds acceptable benchmarks and opportunity cost.


Quote from Buy1Sell2:

The observations that I made were directed at all time frames. Yesterday, it would have been good to ignore shorts and just take longs as the hourly trend was up. There was potential to make money on the short side, but the bigger probability was for upside movement. I can't say this enough--"To make yourself a huge success in this business requires extended gains, not scalped ones"--This is what I am saying--Trend should be exploited no matter what time frame we are talking about. :)

Trend is long today as well which corresponds with both the daily and weekly trends. Does this mean that a short will not work today or that there won't be an extended short? NO, of course not, but the probabilities are more RIGHT NOW, with the longs.
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... ... tough to watch this after letting go my long yesterday....
.... tough to find another long entry as well.....
.... seems like any will do almost.
 
Quote from dmartin:

Buy1Sell2:

You stated: “Trend-- was clearly long all day based upon the 60 minute charts. Extended gains are what traders should be looking for and thus, shorts should not have been taken at all today.” In hindsight it’s relatively clear and yet let me respectively disagree even with the hindsight. The total ground covered in the S&P futures yesterday, using two points up and down swings as a measure, had to be one of highest in history. From a 1520.25 close the previous day to a 1518.5 open, to 1522.5 at 9:45, 1516 at 9:55, 1527.25 at 11:05, 1524.25 at 12:15 p.m., 1530 at 1:45 p.m., 1522.5 at 2:05 p.m., 1527.5 at 2:25 p.m., 1521.25 at 2:50 p.m., to 1531.5 at the close. That is 102.25 points of movement to make a mistake in — a bit disruptive and yet encouraging.

Granted, the movement of the market ended up but to state the “Trend was clearly long” given the differing movements is a bit of a stretch.

You go on to state: “Overtrading--a trader can actually trade with as little as one trade each day or of course no trades at all.” Now that is an excellent point.

DMartin
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muy bueno DMartin.

If you carry on with this line of thinking applied to the ES then you are in serious danger of making proper money with minimal risk and minimal drawdowns.

Every instrument is in trend at any time providing that you define the period first. How can it not be!

A good trend follower can make money from any instrument including the ES.

That does not make a good trend trader an efficient trader. Just calculate the margin on a 100 - 400+ lots held over a weekend when the drawdown is 100+ tics.

When you bring a momentum trader together with a trend trader over the ES you will wind up with some interesting conversations.
Each trying to push their point of view upon the other.
The trend trader will inevitably resort to quotations of size, quoting the likes of GS who trade with OPM.
This has no relevance to a private trader.
None what so ever.

C'est la vie, viva la difference.
It makes the world go around and that is the wonderful thing about ET.
viviendo la buena vida.
 
Quote from apex82:

mbusch tell me you held some long! gotta love it :)
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Yup, sold 1 unit, kept the other. Gonna start trailing my stop up , but I see air up to 1552.

EDIT: I've recolored the chart line at 1545.75 from magenta (resistance) to cyan (support). If it holds here, we're going a lot higher before the week is finished.
 
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