My Chick Goslin "Intelligent Futures Trading" Journal

I sold the natural gas contract at 13.128 for decent profits.

A call to chick on Friday once again left me with some valuable advice that would have saved me a good amount of money last week. As I wrote on friday, using the relative strength rule as a primary indicator instead of a secondary indicator (used to confirm what looks like a good risk reward or one that is borderline) was a costly mistake, resulting in 3 losing trades in the stock market. Ouch!

The true pattern that is emerging is very negative to the downside. Both the SL and ML have been trending downwards which means short and intermediate term price flow, as oscillator values, have been averaging downwards (very negative). Trend is also turning and if I anticipate it by knocking off the last 10 days that are counted, the trend is down a good amount in all indexes.

The issue with shorting is that price is very unattractive at these levels. Price is at 10 week lows. This is actually a good thing because there is no real resistance since any net longs for these last 10 weeks are very negative so there is no resistance level caused by a “wall” of old sell stops. On the other hand the market doesn’t like to make patterns obvious and reverses often so I am always nervous about shorting at levels like these.

Chick tells me this thinking is incorrect and that what I am feeling is what everyone else is feeling also. He believes there is a good case for shorts at this level. Putting my emotions aside, I agree with him. This is not a time to try to catch a rally, this is a solid concurrent mode to the downside and while nothing is certain, odds of downside continuation are high here. I am short 2 ES at 1321, stop 1347.

Chick has also noted that at times like these, being long any other market is dangerous because stocks can sometimes cause a panick that affects every other market. I have seen this myself back on martin luther king day when the stock market dropped around 5% and every other market fell with it. The stock market is the predominant market and when it starts making the news for weakness, the long side of anything is risky. This is why I closed my cocoa positions fully and even the natural gas contract. Sometimes weakness in stocks will have no impact on other markets, I’ve seen a few instances recently where stocks fell and almost all other markets were positive. But there is potential for a big fall now and this is a high risk situation, so I’ll practice some discipline and get out of my beloved NG contract for now.

Picture of ES situation in short/med. term price flow:
 

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Hello AshanD

I like Mr. Goslin. He's good man. With your permission I would like to offer a comment

Clearly we are in a downtrending market. If you look at the chart I have posted you will see that we touched the 200 MA on 5/19 (White Line) and have had a series of lower highs leading up to this point.

I notice a couple of things that may help you as follows

First we have just tested and taken out the monthly support at
1333.50
 

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If you look at this same chart from a slightly different perspective you can see that we are in a trading range.

If we put in a couple of horizontal lines, we can see that the market has tested down to these areas previously

The upper line is 1322, the lower at 1310. Scanning left we can see that on multiple occasions the market has retraced at these points. Also we can see where is has taken out this range recently (once) to the downside.

In red, I have put in the Monthly S2 at 1333.50 and notice how the closely the black line (Weekly Pivot) approaches it.

Finally you should be aware that the Daily Pivot for tomorrow is located nearby at 1335.91

So we have a lot of influences lined up in this area.

Clearly the primary move is down, but the secondary influences say "up" to test some of the pivots. I suggest we may see a move up early to try to find buyers and if no takers show up with size, the real move could be continuation down. I think you may see a test of one of the pivots (likely the daily at 1335-1336).

If you have the option to do so, I would check the overnight market to see how it ranged. Sometimes you can get a clue to the market's intention by looking at how "they" (size players) move the market during this time frame.

I agree with Chiquito's opinion and wish you well on your short trade.
 

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Thank you Steve. Your charts are very interesting to me, I spent some time trying to decipher them.

I definitely see your case for the resistance lines at 1322-1310. How important this resistance is after 10 weeks or so I am not sure. Still it is interesting to see, I'll check my own charts at that level to see if this resistance level is meaningful over a longer timeframe than back to February.

The monthly resistance line (red) looks very arbitrarily drawn. I don't understand that one.

The weekly pivot (black) is the most fascinating one to me, I do not understand how it works but am guessing that is the intraday "pivot point" you assign for determining short term pressure to one side? As in if price reaches that level, then momentum carries price in that direction? If so that is an incredible line.

If that is the case then I definitely need to learn more about pivot points. If they are reasonably accurate I may be able to clear up the issues I've been having with placing entry points for my momentum orders and also more accurate profit targets or stops. If I could have done that just a little more accurately last week I would have posted a substantial profit by successfully executing the cotton and stock trades.

How did you arrive at the monthly resistance and the weekly pivot? Are these lines written by you or some sort of formula?
 
AshanD

The red and black lines are the monthly and weekly pivots

In my post I refer also to the daily pivot, although it is not drawn in.

I use Esignal in this example and it automatically draws them in. I have some flexibility in how they are displayed.

What you are noticing (I think) is that other players use them as well. That is why price often tests these points.

Back when Chick used to teach his method, I believe he used CQG charting. Its an expensive but nice program to use. You have a lot of other options of course. I suggest puting them in and watching for a while to get a sense of how price acts around these points.
 
Update to trading strategy:

I’ve heard of pivot points before but never took them seriously since they seemed to be a primary intraday tool (which I was not interested in) Also they seemed so arbitrarily drawn in other charts I’ve looked at, a mess of technical noise with no regard to true price flow.

However seeing Steve’s chart was a real eye opener. There is clearly a rhyme and rhythm for that black weekly pivot line. Nowadays I do try to time short term price flow sometimes, so learning about these pivots and how they work could fill a great hole in my knowledge of intraday price movements. Mastering pivots could widen my edge and make me a much better trader.

But they could also do harm. By learning about how pivots work and possibly incorporating them in the future, I am once again at risk of deviating from my system. Pivots look quite promising for the problems I have with my trading but I must be careful not to do more harm than good with this new TA tool.

For now the future looks exciting. If I can stay true to my system but also use pivots to allow me to time my moves with greater accuracy than the future looks quite bright. Looks like I won’t be going out tonight, haha :).

Thanks again for posting those charts Steve. Future posts will reflect what I got out of them.
 
AshanD

Well, I suggest you temper your expectations just a little bit.

First it is a good thing in my opinion to know as much as possible relating to your business (your trading). Only you can decide what works for you and how to use the tools you select.

I like Chick's method for many reasons, but I think it works so well for him because it suits his temperment and he has taken the time to learn in great detail how to use his chosen tools.

My suggestion is to "watch" and observe how price acts around pivots. I also suggest you look at specific moving averages like the 200 MA and the 80MA for instance. From my point of view the most important thing is to observe how price acts around these areas. How price tests these areas. I bring up the concept of pivots and MA because in some markets (the ES for instance) one can use these tools to help in finding favorable entries and exits.

Really the challenge of trading is to make judgements based on the way that price tests specific points. At these points, we anticipate either failure or continuation. Chick's method is an excellent way to do this using (as you know) three moving averages. I say keep on learning how to see these, but look at other things to keep your eyes fresh.

Good luck
Steve
 
AshanD

Here is a chart using 5 min candles. It shows the overnight action up to this point in time (about 5am EST USA). As you can see, price has tested the Daily pivot at 1325.91, penetrating it but could not take it out. In fact as can be seen now, it has failed and is falling. My short entry was on the third (unsuccessful) test of the Pivot at 1326.

The next test is 1320.75 (by my own system). That should offer a bounce and from there who knows...(I think we continue down)

Time will tell. What I like about this (at least for my purposes) is that I can obtain favorable short entry early (at 5am) and if I am right I can hold through the day for a possible trend day down.

Alternatively one can take partial profits at any point leaving a piece in the markets in case in runs south..

This is just one example of using Pivots to obtain favorable entry

By the way, I had a 2 point stop set for this trade and am still short

Good luck with your trade

Steve
 

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AshanD

Just checking to see how your doing. I hope your ES trade works out. I am thinking we will continue to see short mixed action tomorrow since summer tends to be more choppy and low vol.

I like Chick's method but have problems with choppy action myself. I have been using both standard candle charts and constant volume charts. I look first at the standard candles to see how the market looks to the "average" trader (whoever that is) and then go to constant volume to filter out the noise and get some idea of the market's rhythym.

Here is a snap of today's action on a 5 min candle chart showing today's price action.
 

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and here is a chart of the same early morning action using a "constant volume" candles (2401V). The chart shows price action from midnight to about 10am EST.

To the left we see the "overnight" or "pre-market" action. Notice the "T" indicating multiple tests of the daily pivot located at 1325.91. As you can see those early attempts to take out the daily pivot all failed.

After the open, the market wiggled around a bit and then created a series of two lower highs (compared to the tests on the left). There were some nice entry areas just to the right of the lower highs from about 9:47am EST to 9:50 am EST or so.

The ES market never traded back to this area (1325)

Entry around 1324, held to close of RTH would have been good for about 8 ES pts.
 

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