Pete's Place

Goal for resumption of trading: reduce the average number of trades I am willing to take to under three a day. Current status: light years away.... I consistently take five trades before even the lunch hour. The only time I take less is when I start out with winners which run for a awhile.

Notes from today:
(1) First three 5 min bars were notable volume (>10k) and up. Pre-market resistance and R1 broken at the outset. Additionally we opened in zone "A" and hit R1 before the pivot which usually means a close at least in zone A, many times in B or even C. So right away I'm looking for long entries.

(2) Rain on the parade as multi-day resistance at 30 is tested and price driven back several times. Even a big shooting star. So here i'm thinking, *if* we do drive past this 30 level, it's going to take some time.

(3) Critical is the behavior during the rundown after that shooting star. Selloff fizzles out. At this point, shorts should be off the table, without large amounts of future information that make shorts appetizing again (i.e., something on the 2 min chart ain't gonna do it).

(4) Price drifts up towards 30. Spends some time up there, and it's clear to me 30 is no longer a S/R level. There was no beat down as before.

(5) Sideways movement during lunchtime. Resolution of this "springboard" will be important.

(6) A downward move off this springboard is severely *rejected*. Time to go long. *Look at all the evidence* that preceeded this, for the long side.

(7) Rest of the day was a grind up. Success/failure depends on trade management.

Bad ideas for trades during the day:

(A) taking any shorts after that shooting star selloff fizzled. Hell, even that star was kind of risky, given observation #1.

(B) taking a position on the springboard. Better to wait for the resolution of the springboard, then hop in on a pullback. Sure, if there's a wild breakout i'll miss it. But the other 10,000 times there won't be a wild breakout.

past success

I had an in depth look at my past success. It came from taking risky trades near the open. That great week I had was truly great, because every day M-F I guessed correctly. However, in the weeks that followed probability caught up with me and I lost little by little until my money management circuit breaker said "stop, you fool". So that's why i'm focusing now on finding less risky trades. Any NQ trade is risky, but no need to get involved with the higher end of the risk spectrum.
 
You seem to be getting better at setting your ego aside and looking at what's in front of you, whch enables you to make better decisions "on the fly". You also seem better able to take losses in stride, particularly during the session, so that you can go on and try again rather than get all twisted in a knot over the last trade.
 
observations (chart attached):

(1) challenge of premarket high around 28... not much activity

(2) move down is on increased volume

(3) subsequent pullback on decreasing volume.

(4) no buying on increased volume or higher lows till 11:30-12:00 CST

(5) wild volatility, price settle back down into the earlier 15-20 range

(6) low side of the range is tested and rejected on high volume around 13:40 cst. Move down was on decreasing volume

(7) subsequent move up on increasing volume

trading

(a) after (2) trend trader shorts the hell out of pullbacks all morning. He does not stop until (4)

(b) reversal trader goes long after pullback from #4

(c) trend trader goes long after (6)
 

Attachments

note on # of trades

It looks like:

  • Early risk taking trader should try once, e.g., this morning he shorts the stall at pre-market R, tight stop; yesterday he buys the hi vol breakout, tight stop; that's all he needs to do; and he'd be silly to keep trying if it didn't work right away.
  • Reversal trader should try once, maybe twice. Today, he basically had a 10 minute window. after that first increasing volume advance.
  • Trend trader has the most trades, e.g today selling all the way down, closing 33% retrace or something like that, then reshorting the pullback.
 
Observations


  • [1] Pre-market R at 28, also multi day R
    [2] Price falls through pre-market support at the open
    [3] Hammers on 2 min chart but fails to reach pivot (22)
    [4] A choppy move down, on increasing vol, to challenge S1 (12)
    [5] Rangebound 12-17
    [6] Upside breakout, with pullback to top of range then continuation
    [7] Climb on lower, but increasing volume to 28
    [8] Heavy trading with no progress, 11:40 EST 5 min bar
    [9] Trend down for the rest of the day, after lower high at 12:15 EST
 

Attachments

Ideal Traders

  • Early Trader might buy the hammer [3] but might not be such a wise move in view of [2]. If he waits to short the pivot or the pre-market low he's left in the cold. His best move is to short the first high as it forms.
  • Trend trader might try a short on [4] but [5] is a signal for him to stand aside. He gets his chance again in the afternoon, after he sees the higher low [9]. AFter that there is no reason for him to stop shorting pullbacks.
  • Reversal trader gets long on the pullback [6] with a buy limit order and tight stop at the top of the range. Also, after [8] he makes out shorting the up-trend line break.
 
Early Trader

Many times, all you have to do is get on the right side near the open, and that's it... you've got +5-10, more if it turns out to be a trend day. This is Early Trader's objective. Make one trade early on with a tight stop. Once the trade is open, eliminate even that small risk aggressively.

Early trader does not have to be patient. In fact, it's better for him not to be. He gets one or two pieces of information and he acts. He uses time & sales to look at the initial order flow, premarket S/R levels, and maybe a fast (2 min) chart.

Early trader gets exactly one try per day, usually in the first 15 minutes. That's it! Otherwise he'll paper cut himself to death. He is the only trader of the three who has a known, fixed number of traders per day.
 
Trend Trader

My Trend Trader formulation is really an intraday scalper, who waits for suitable conditions to practice his art. He usually will not start trading, if he does trade at all, until the first hour. At a minimum, he needs to see price move one way on strong volume, then pull back on weak volume. He also needs to see higher high and higher low before taking longs, opposite for shorts. At that point, GAME ON: Trend Trader turns into point grabbing machine, fading every single move opposite the trend.

He doesn't take profits with a limit order, but rather with a market order after each thrust. Generally this gets him 2-4 points on a trade, sometimes more. He's got to keep at least 50% of each move.

Trend Trader, after closing, gets right back in on the next retrace. He may make three, four, five, or more trades during a move. He keeps going until the market ends its series of HH/HL, which means trending the other way or getting stuck rangebound.

So Trend trade must be very patient and wait for the proper conditions. Once he sees them, he trades aggresively and often. He is a singles hitter.
 
Reversal Trader

This guy sits back with his cup of coffee and calmly watches the market tear out of the gate. He waits, and waits, and waits. Maybe, he will see two or three clear indications that the move is over. The signs are never the same, but usually include some of the following:

  • A rejection of a move past a prior s/r level
  • A new high or low on very low volume
  • A fury of trading activity with no progress
  • A long (2-3 hour) trendline break
  • A reversal of price trends (HH/HL ---> LH/LL)
  • A reversal of volume trends
  • A second or third gasping attempt (lower vol) to reach a price level, that fails

When and if Reversal Trader sees enough clear evidence, he opens his trade. More than the other traders, he needs to pay careful attention to the market behavior after he gets in. Price needs to move his way without looking back. While he has his stop set, his goal is to get out with a market order before his stop is hit.

Reversal trader averages about one trade per day, but sometimes he has none, and sometimes he has two. He lets the market take him out of the trade, once his trendline is broken or his profit-taking stop is hit.

The key for Reversal Trader is this: when the signs are there, they're as clear as day. There should be at least 2-3 clear signals, on the 5 min or 11 min charts, that the market is reversing.

 
I'll be paper trading these three styles for the next few weeks and keep a careful eye on the results. At some point I will make a decision to take one of them live for real $$.
 
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