Prop Trader Journal

Quote from atlTrader666:

When a stock has earnings, especially such a large cap as Pepsi, it's usually difficult to trade because the order flow will be all over the place... institutions such as pension funds/mutual funds have to make decisions... their capital dwarfs HF, day traders, momentum trades, etc. Some institutions investing on value will buy, others will dump. Small cap stocks tend to trend better then the bigger ones. You can short bounces of shitty companies like Radioshack or whatnot (never hold them overnight as shitty companies can be bought out). It's all about learning the personalities of certain stocks. WMT, TGT, PEP, KO are fades when down/up a lot... Commodity stocks, small/mid caps, are more conducive for momentum and riding trends.

Another note about big caps, you have better risk reward fading/going against the trend when their down 5% to 10% around the open. Don't trade on momentum on conservative stocks such as Pepsi. For example, if PEP was down around 5% on the open, let some holders puke it for the first 30 minutes. Around 10:00am look for entries to fade the stock and get long. Never ever apply this strategy to Nasdaq, small cap or even mid cap stocks. These stocks can open down 15% and finish down 25 or worse. Big caps with lower P/Es on the other hand are fine.

My recommendation for earnings plays would be trade sister stocks. The only stock that historically trades with PEP is KO. KO already had earnings so this would be a hypothetical example... I would basically use PEP as a leading indicator for KO (same industry/business)... If PEP is down 5% around the open then I would expect KO to be down perhaps 2.5%. I would shadow KO with PEP... If PEP rallies buy KO... The market is dominated by algos that trade sectors and that's why the market is so correlated. It's tough being a stock picker in any stock above 5B in mkt cap.

I don't know if you can hold positions overnight but there may be a good pair trade in Long PEP/ Short KO. These stocks are historically correlated and I would beat on a divergence. Since the both had earnings I would give about a two-week period for they emotions to die down... Don't go against momentum on the daily charts. I'm seriously considering doing a pairs trade mid/end August, again when momentum/emotions fade.

If you're really into trading off price action then watch AIG. That stock trades off patterns like crazy. It's a day traders stock. If you decide to trade it be careful about placing stop orders at obvious price targets as traders will run the stock to trigger orders. But yea, AIG is a price action name. Never hold it over night. Go to shortsqueeze.com and check the short interest %. Never hold short names with a large short interest % overnight because the shares may be called one random morning :)

If you want to trade on momentum then trade commodity stocks... steel and coal may be the best. Oil stocks are difficult because there's too many diff sectors (drillers, refiners, oil, gas, rigs, etc.). XOM, COP, etc big caps are impossible to trade imo. If you're going to trade gold then I like the small caps. Gold stocks are okay if their ADRs (Australian, Canadian) but for other commodities make sure their American and not ADRs... MT ()ADR) is a whore... X (choppy) is tough... AKS/STLD are my babies. Never fade commodity names. Don't chase but buy pullpacks, short bounces... don't look at % up/down for the day. These are not reversion to the mean personalities.
More...

You know what Im reading back through your post and you are giving some good techincal adivce(from what I see). These are things that I may have noticed in the back of my mind, but I wasn't the most "conscious" of them. If I am trying to ride the trend in some of these stocks...then it would be privy of me to know which ones behave more conducive to that pattern. I'll take some of this into consideration going forward.
 
Quote from ksmetana:

It really depends on the earnings and the significance of the level.

Did the company's earnings shock to the downside? Was it a slight miss? How bad is the guidance? I feel that to have edge off the open, you need to know more about the company. When there are so many companies out there, it is tough, unless the numbers are clearly going to cause people to bail from positions.

If the level is a major level on the daily chart, it can absolutely cause some bigger players to bail out. However, if it is just one bad quarter, and the larger players are holding for a longer term thesis, you may not get the panic you expect, and in fact the dip can be aggressively bought.

I've seen, time and time again, aggressive selling off the open as weaker hands bail, and shorts attack, only to have the price quickly reverse and squeeze the hell out of everyone.

I personally feel if you are going to get involved off the open, you need to have some type of edge in the company's fundamentals. You almost always have people on the wrong side of the trade, you'll enter, get a snap against you, stop out, and then the trade works. Price can jig around violently off the open.

I tend to ONLY enter trades in the first few minutes if I see some sort of price stability in the level 2. Perhaps a huge offer / bid, or refreshers holding the price.

Never, short lows or buy highs, don't chase, wait for the pull-in, or for the consolidation.

I feel trading off the open requires risk that is simply too much for new traders. It takes conviction.
---------------

Take a look at NCR on July 22.

It closed above 20, a significant level. The gap was immediately sold into. Once the morning profit takers finished, and the gap fillers lost momentum, those buying the news took over, and the stock trended higher all day long.

It is nothing but chance. NCR could have easily blasted higher from the open. There is no way of knowing. If NCR would have traded above 20.50 off the open, it probably would have squeezed all the gap fillers and began the trend higher, as those looking to buy the NCR news would now have to chase the price to get better fills.
However, even larger players may be looking to take profits at 21, as that is their price target from the buys down at 18.

You never know for sure. This is why I stress the importance of box reading. It is the only way to gauge the strength and power behind price movement. If you see very little resistance at 20.50, it tells you no one is looking to sell here, the stock is going higher. The chart does not tell you anything about resistance. There could have been huge size at 20.50, and NCR may have blasted right through, putting no consolidation on the chart. You could look at volume bars, but that tells you little about what actually took place.

----------------------------

On the 2 min in PEP, you start with a red candle, and unless the box shows something, you have no tells as to where the thing can bounce. If you wait just a while longer, the price bounce from 66.11 to 66.49, which is great. It found resistance as the half dollar, typical of in-play stocks. You can immediately enter as it fails at the 66.50 level, with a stop above 66.50. Your next entry is consolidation at 66, with a stop above consolidation.

If you had shorted the open, lets say you got filled at 66.30 on the first red candle. What if it broke 66.50? Where is your stop. Are you risking to the open price? In my opinion, you need to know where buyers / sellers exist in order to day trade. Guys who trade opens using nothing but hope and probability are nothing but gamblers in my opinion. Guys who trade the open with good fundamental knowledge of the company and proper analysis of the earnings are the winners, and they are also often the ones with the most money, they're the guys I want to join, so I wait to see they're move.

People do it, but it's not my game. I wait for the chaos to settle down unless something in the level 2 tells me its safe to enter.

I was able to trade SWKS the other day because the level 2 gave me a cushion.

However, even an edgeless proprietary day trader can make a good decision. It is often not too difficult to predict whether the circumstances involved will create a gap n go situation, or a gap fill. ACN gapped up one day because it was being added to an index, not any actual news related to the business. You immediately expect some profit taking on the gap. It happened. In SWKS the other day, they beat earnings, and the stock had been sold for some time. You break the downtrend, and you know shorts will cover and legit buyers will chase price to get filled before it takes off. Classic gap n go scenario.

--------------------

The real crazy game begins when the stock gaps down 10% or more. Then, due to the new rules, shorts can't attack the bid. It adds a whole new level of analysis. I was very successful when the change first happened, but now things are changing, I haven't been doing well in the +10% gap downs.

However, I've noticed that stocks that gap down like 6-7% are often sold hard off the open. I think a lot more shorts pound the bids in order to get filled before the 10% mark.

I've seen these things gap at 7%, trade to 10%, and find support, for that reason alone lol. Then the question becomes, are there enough buyers to pay all the shorts waiting on the offers.

Lately, I've seen selling dry up at the 10% mark, buyers gain temporary control. Shorts sellers get filled on the offer. Later, volume comes back in and drives the stock price down, putting all the shorts in the money.

I am very weary of all this. I don't like the new rule one bit. I get the feeling / speculate the big shorts are working in tandem with stock holders. Perhaps the same people shorting, have stock to sell in order to later force price in their direction. I don't know, I'm probably dead wrong, but I have my eye on these bastards.

I suppose those looking to sell could easily anticipate a price bounce once the bids can not be hit. They wait for price to bounce, and bids to follow, so that they can slam them again in the afternoon. They create a fake "all-clear" signal. This could only be the case where there are less players selling, and there are less shares to sell. If there are a grip of shares looking to get dumped by many players, they are going to have to chase price, eventually causing price capitulation, and buyers get stopped out. Eventually price gets so low, so fast that NO ONE wants those prices.
More...

Kurt,

Thanks for the in-depth analysis and insight. How would you recommend someone attempt to trade the open in some of these in play names? I have been keeping up a watch-list of different earning related names near key areas. Watching them off of the open and looking for things to setup in a nice way. Looking for a breakout one way or the other and enter into the pullbacks in the trend. I look for the first shallow pullback and then look for more deeper pullbacks. I look at climax patterns in the PA and volume. Also watching the level 2 to see if something reaches a level and cant continue to hit the bids or lift offers. Keeping in mind key levels on the daily and longer-term charts for R:R and targets.

What do you think of this approach?
 
Hey everyone...I am still keeping away from this journal for a bit. Just thought I'd post a little update and this should help to clear some issues for me as I write them out.

So did trade today and did decent. Was up a little bit. Today I opened up a little and traded based off of PA, vol, S/R...all that good stuff! I tried to balance using my gut feel with the above variables...with entries with good setups and near good levels. I did well...the trades that I put on worked for the most part.

One thing that was missing to a certain extent was trade management. There were a few instances where I moved my stop to BE, because I was in the money 10-12 cents. This would make sense if I was playing a shallow pullback where there was significant momentum etc. where if momentum did not continue I would be wrong and the trade would return to my entry! I did this a couple times where I was playing pullbacks...and I was stopped out. Another trade where I was getting chopped up but still risking a very small amount and stood to gain quite a bit! I'll have to keep this in mind going forward so it doesn't become a habit. Do not exit a trade or give yourself an excuse if you haven't been proven wrong! BE stops should be put in when well in the money or when it is expected that price moves away and stays away from your entry price within a short period of time.

A screenshot of two of the scratches that I did this on.
 

Attachments

So just wanted to post an update since the last time I posted my pnl

7/21= +26

7/25= +30

7/26= +117

7/27= -34

7/28=+81

7/29= -110

So...have not been doing bad since the last time I posted in this log. One thing to note is that before this I was trying a variety of things and not having alot of success. Today... was a massacre. lol. Right off of the open had a stop that didn't trigger in a trade and I exited well away from it. Another trade gapped through my area where I had my out and got out at a loss. Had 1 winner on the open...the rest I just got grinded up. By 9:30 was down close to 80 bucks and had to fight to comeback with only 1 trade since my daily stop out is $100. Didn't get any good setups into the close and was stopped out.

One constant that I have noticed is that a majority of my losing trades are on the open when I attempt to trade the first 30 minutes or so. I have been attempting to trade based off of tape reading and I am finding it hard to trade! However, I grinded back on most of these days by having good trades into the close and mid-morning. Price action, volume, shorting weak stocks and buying strong ones, trading when they setup and things feel right. Today was one day where I couldn't because I was so close to my loss limit.

Now I have a choice here...I have found an approach that I trade and I have had success with. But, there is so much money(volatility) that can be made off of the open that I continually return there because I know it will eventually pay off. However, I trade much better into the close and mid- morning. The only success I have had in the morning is not paying alot of attention to the level 1/2 and trading based off of just the chart. Looking for pullbacks in the breakouts and strong trends in the morning. I think if I combine these two I will be on the road to profitability(mid-morning and close). If I do this I will have to neglect the tape reading aspect, which I think may be helpful in the future.

Does anybody have any advice to my current situation. Continue to trade with the tape in the morning, or stick with what I have had success with and neglect the level 1 and the first 30-45 minutes of the day. I know many traders make most of their money right off of the open, but it's different for everyone right?
 
Quote from Shanb:

Hey everyone...I am still keeping away from this journal for a bit. Just thought I'd post a little update and this should help to clear some issues for me as I write them out.

So did trade today and did decent. Was up a little bit. Today I opened up a little and traded based off of PA, vol, S/R...all that good stuff! I tried to balance using my gut feel with the above variables...with entries with good setups and near good levels. I did well...the trades that I put on worked for the most part.

One thing that was missing to a certain extent was trade management. There were a few instances where I moved my stop to BE, because I was in the money 10-12 cents. This would make sense if I was playing a shallow pullback where there was significant momentum etc. where if momentum did not continue I would be wrong and the trade would return to my entry! I did this a couple times where I was playing pullbacks...and I was stopped out. Another trade where I was getting chopped up but still risking a very small amount and stood to gain quite a bit! I'll have to keep this in mind going forward so it doesn't become a habit. Do not exit a trade or give yourself an excuse if you haven't been proven wrong! BE stops should be put in when well in the money or when it is expected that price moves away and stays away from your entry price within a short period of time.

A screenshot of two of the scratches that I did this on.
More...

gut feeling--what a strange vocabulary for traders to use and to incorporate into their trading system geared toward making donations to whatever products they are trading....

bring on a trader who also trades with gut feeling and you'll see a trader with progressively depleted trading acct.... HUMAN EMOTIONS ARE VERY ELASTIC AND THEY ARE VERY POOR GUIDES IN TRADING AS WELL.... :)

confound it.... trader friends.... use your stats, strats and risk/reward money management objectives.... TO PRACTISE AND TO TRADE LIVE....

pls do leave your gut feeling out of your trading.... :mad:
 
Quote from nakachalet:

gut feeling--what a strange vocabulary for traders to use and to incorporate into their trading system geared toward making donations to whatever products they are trading....

bring on a trader who also trades with gut feeling and you'll see a trader with progressively depleted trading acct.... HUMAN EMOTIONS ARE VERY ELASTIC AND THEY ARE VERY POOR GUIDES IN TRADING AS WELL.... :)

confound it.... trader friends.... use your stats, strats and risk/reward money management objectives.... TO PRACTISE AND TO TRADE LIVE....

pls do leave your gut feeling out of your trading.... :mad:
More...

You may be taking my words out of context, the "feel" is just the discretion involved in "discretionary" trading. Brett Steenberger summarized it nicely to me in his article about "learning to trade" and implicit learning!

Also I talked alot about balance between a plan and "feel" or whatever you want to call it...maybe read the whole post next time ;)

http://www.marketedu.com/articles.cfm?t=4&d=12&id=17
 
You can trade from your "gut" after a decade or so of experience. You've been doing this for a few months, so regardless the subjectivity of the word, you should have a discrete trading plan. I wasn't a fan of the guys' "Trading Coach" book but it's great for a beginner to help with developing a trading plan, regardless if discretionary.

But yes, when you have enough experience you develop intuition, an unconscious thought process that is arguably more robust then anything modeled and/or automated. Aside Jim Simons, the top long-term hedge fund managers (George Soros, Paul Tudor Jones, Stanley Druckenmiller, Michael Steinhardt, etc.) traded with their instincts.

For another thought, every strong down open is a lay-up fade... not just in hindsight but in the near future. The risk-reward is great. Risk .50% on the S&P 500 to try to bring it near flat (1% - 1.5%). If the market is down more than 2.5% then don't fade.

With all the failed US debt plan talks and mediocre GDP numbers AND THE MARKET STILL WON'T GO DOWN... quite resilient. If you don't recognize the market strength among the negatives then you shouldn't be trading. You also have to consider equities as a hedge against inflation... finishing flat is actually a real loss. There's no way the US "officially" defaults but they can still "default" by going to the printing press. Stocks can't go down because inflation seems inevitable. It would take quite a punch to crush stock prices... (Google Weimer Germany in, I believe, 1924 where stocks soared to a worthless currency). If you have enough capital you can always be long equities, short USD/commodity currency (e.g. Brazilian Real, CAD, etc.) Whatever the current CPI is, it's bullsh1t... the CPI isnt showing as much because a lot of companies are hedged in the short term against currency risk with swaps. Look up commodity prices and we obviously have much more inflation. Stocks should only be going higher or staying flat even with bad news in the short-term. Point... every decent down open is a fade. Have a stop at 2%+ down on the day and don't fade too much volume.
 
Quote from Shanb:

You may be taking my words out of context, the "feel" is just the discretion involved in "discretionary" trading. Brett Steenberger summarized it nicely to me in his article about "learning to trade" and implicit learning!

Also I talked alot about balance between a plan and "feel" or whatever you want to call it...maybe read the whole post next time ;)

http://www.marketedu.com/articles.cfm?t=4&d=12&id=17
More...

sorry, my trader friend....

if anyone wants to become profitable in trading....

it is best to base each trigger on your own trading plan, your very own stats, your personal strategy and most importantly your tested out money management application plan....;

human feelings in trading will only breed more uncertainty, self doubt and.... allow a good trade according to your trading plan.... to quickly slip by your fingers....

if a trade setup according to your trading plan, stats, strategy shows up on your screen.... by all means.... pull your trigger and enter the trade.... without any feeling or doubt....

at least that is how i trade live.... but then it may not be your style at all which is perfectly alright too, you know.... all traders do trade and see each trade differently according to one's experience and target objective.... K? i'll cheer for your trading success too.... :cool:
 
The open is hard and not good for new traders imo. Use the open to identify the right stocks to watch. There is too much volatility, let the stocks / market show its hand and make an informed decision, not a gamble.

I also agree that your gut will fail you because you haven't seen enough scenarios. Trades can progress in many, many ways.

I think I read you are a member of Trading Raw or something. I didn't know what that was until I looked it up. I watched some of his youtube videos, and while the guy is obviously profitable, he takes some pretty big risks. He is able to do so because he has a gut for pain and lots of experience and conviction. You can probably learn good stuff from him, but it will be hard for a new guy to implement in my opinion. I was watching the videos and telling myself that this guy would have blown my account up quick if I was new.

My advice is to choose setups you are comfortable trading, and stick to them. Starting trading new setups as time goes on with light size. At this stage in the game, you're watching and developing your skill set. I tell you this because when I began, I traded all sorts of stuff, used my gut, and I paid for it. If I could do it all over again, I would have written out a clear plan and started trading only certain setups. Doing so teaches you to be selective and patient.

Market action and office activity will draw you in. You need to learn to shut it out, remain calm and rational, and maintain your focus on your plan. The market and office hype has sucked me in time and time again.
 
You must log in or register to reply here.
Back
Top