Spydertrader's Jack Hershey Futures Trading Journal

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Hi All,

I’ve been quietly following Spyder’s Futures thread since August, and trading Jack’s Equities method off and on since 2003. It is really rewarding that one of the old Paltalk/MSN gang has reached such a level of excellence and generosity. Kudos Spyder, you truly are an accomplished person, and I can’t thank you and Jack enough. A big thank you also goes to the senior posters here whose contributions helped tremendously.

In an attempt to give back what I’ve been so generously given, I’ll share some practical breakthroughs (A-ha moments) that furthered me on the road to consistency. They are intended to assist people with the transition from annotating to live trading. Except for the few who have overcome their psychological issues and have been consistent for a while, most traders have negative associations and bad habits from the past (yours truly included). Therefore, the transition to live trading is not without peril because our particular psychological baggage may hinder proper D and A even if M and A are done flawlessly.

These practical considerations are meant to build confidence and accumulate profits by going for the low hanging fruit. They fall under 4 headings, and I’ll expound on each one over several posts.
1. Volume Pace
2. pt3 / FBO
3. Type of day
4. Execution

Spyder, should something I say go against what you’ve taught here please point it out.

I’ve been working on these posts for a while, but only got around to posting them now, so I wish everyone a Happy, Healthy and Prosperous New Year!
Vorzo
 

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<font size="4" color="red"><b>Volume Pace</b></font> is paramount, it is the <b>driving force</b> behind price movement. This has been said before ad nauseam, but it can’t be stressed enough.
cnms appropriately <a href="http://www.elitetrader.com/vb/showthread.php?s=&postid=1686961">reminded us</a> of Jack’s breakdown of profit available by volume pace:
- extreme for legs
- fast for 2-pointers
- medium for 3 ticks to 2 points
- low for 3 tick
- DU for sidelining

Mak said that, contrary to popular belief, the higher the volume, the easier and less risky it is to make money, and provided us with the invaluable volatility by pace table.
I liken price to a sailboat, and volume pace to the wind in its sails. If the wind isn’t strong enough, the boat won’t get past the breakers, and will roll back to shore. Likewise, if pace isn’t strong enough, price won’t follow through and will fall back towards where it started.
Therefore, when switching from annotating to live trading, in order to build confidence, go for the low hanging fruit: trade <b>forest legs</b> on fast or higher pace.

I made a PRV spreadsheet based on Mak’s screenshots (as a tribute to Mak I used the same colors) – you can use it to update your volume rays - see attached to prior post. Paste 20 days worth of data (I exclude the first bar, and the last 4 bars of the day) in sheet “Data”, delete any leftover data at the bottom, then click button. Use the values in sheet “Output” cells C16-C20 for your volume rays; the graph shows you the distribution of volatility by pace. You can use this spreadsheet for other instruments – make sure to change the volatility increments accordingly in sheet “Output” cells D2-D7. Please PM me if you need assistance. I also have a TradeStation script that draws the volume rays automatically for the current day – let me know if you are interested.
 
<font size="4" color="red"><b> pt3s </b></font>
Why trade pt3s? Firstly because they are very reliable – there will always be a pt3 in every trend. Most tradeable trends will have a pt3 visible on the monitoring fractal, with the exception of tapes, where pt3 is embedded in a faster fractal. Only the fast tapes are of interest because they offer quick, extended moves usually on extreme pace - their embedded pt3 can be detected and traded off the YM.
Secondly because pt3s make for discrete signals that are readily recognizable and leave no room for error: you know by the end of the 2nd bar if what you thought was a pt3 is confirmed; and they provide easily definable lines in the sand, much needed at the beginner level when the mkt moves rapidly against your position.
Thirdly, there are around 10 pt3s per day, of which roughly half are in the dominant direction. Trading only pt3s will prevent you from <b>overtrading</b> and thus will protect your capital until you learn. Moreover, if you only trade pt3s on fast or higher volume, the trade will rapidly move in your favor and traverse to the LTL and beyond, providing you with significant profit potential, fast.

<font size="3" color="blue"><b>Resolution: 123 vs forest pt3</b></font>
<b>123 pt3s</b> are easier to recognize because they occur on a B2B or R2R, usually after an RTL BO. They offer less profit potential than forest pt3s because part of the forest traverse they represent (dominant or non-dominant) is already spent by the pt1-pt2 move, but they are more frequent.
<b>Forest pt3s</b> start out as an FTT of the 123 in the opposite direction, followed by a move on decreasing volume to the 123 RTL, which may or may not result in a BO. While sometimes harder to identify in real time, they offer more profit potential. However this comes at the expense of more patience, required to hold through a retrace for pt3 of the 123.
Whether you trade one or the other is a matter of personal preference. Choose the one more suitable to your personality.

<font size="3" color="blue"><b>pt3 confirmation</b></font>
For <b>123 pt3s</b>, I like to see one bar in the direction of the 123 channel to consider it a pt3, and will enter on next bar if it breaks the end of the pt3 bar (BBO) on <b>rising volume</b> (over prior bar) and <b>fast or extreme PRV</b>. Sometimes the BBO will occur intrabar and you don’t get a separate 5min pt3 bar – YM can be used for confirmation. Waiting for end of bar breakout was inspired by cnms, and my previous experience with equities. I also like to see BO of the pt2-pt3 tape for additional confirmation.
I consider that pt3 has not formed yet, and will wash the trade on:
- significant pace drop on bar close
- lower volume over prior bar on bar close – indicates “retrace of retrace” (make sure to mentally split the intrabar volume if needed)
- reversal bar – bar that closes near its low in opposite direction
- intrabar on pt3/FBO bar BBO in opposite direction

<b>Forest pt3s</b> are confirmed by BO of the non-dominant 123 RTL on rising volume. This usually marks the pt2 of the new 123 channel, or if pt3 already exists, an LTL touch or a VE. Therefore an entry at this point is not advisable, as it almost always results in the market moving against you. If entry at the new dominant 123 pt1 (FTT of non-dominant 123) was missed, it’s wiser to wait for pt3 and enter upon confirmation.

<font size="3" color="blue"><b>Exit</b></font>
Exit should be taken when change is detected on the desired resolution. Change in a dominant traverse of a
- <b>123</b> is indicated firstly by an FTT or LTL bounce, secondly by tape BO, and ultimately by RTL BO
- <b>forest channel</b> is indicated by an FTT of the forest channel, followed by 123 RTL BO and ultimately by forest RTL BO.
Where you choose to exit is again a matter of personal preference. A rule of thumb that I use is: the higher the PACE, the later I tend to exit. I also use YM to assist with the decision.

<font size="3" color="blue"><b>FBOs</b></font>
All of the above can be applied to FBOs, which can be traded in the same way, with the additional benefit that the RTL is already in place.

See today’s chart with some examples – I didn’t trade today, only watched for the last 1.5h.
 

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Quote from cnms2:

I've done my debriefing...
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Thanks so much for sharing your thoughts. I could just cut and paste many of these assessments right into my own debriefs :)

IMHO, Spyder was dead-on when he said we learn so much from our debriefs. I am sure you would agree. I really have grown alot lately by focusing on this portion of the technique and training.

Thanks again for sharing.

P.S. Those first 4-'T' were beauties!
 
<font size="4" color="red"><b> Type of day </b></font>
November 2006 was a good month for trading pt3s because most days had wide high-low ranges, and wide channels that provided plenty of pt3 opportunities. However, the first week of December was particularly difficult because pt3 moves failed soon after they started, and channels were narrower than usual. On such days it is easy to give back a good part of what you made before. How do we avoid this? We look for what was different between the two types of days. As it turns out, <b>VOLUME PACE</b> is again the answer: <b>most of the day</b> it was fast and extreme in November, and medium or less in the first week of December.
An additional clue could be gleaned from the daily chart – Avi8 commented on this <a href="http://www.elitetrader.com/vb/showthread.php?s=&postid=1702306">here</a>.
If volume pace is slower, there is less “wind” in the market’s sails, and price will roll over more easily. If the bar’s high-low volatility for a given pace is greater than indicated by Mak’s pace table, price will sooner rather than later fall back, so look for signs of change. Conversely, on extreme pace days, be cautious when entering on FTTs of a strong move (the old “picking tops/bottoms”) – wait for confirmation such as tape BO or even RTL BO before going in.

In conclusion, on <b>slower pace</b> days, it is wiser to either:
- sideline unless you get fast or higher pace – your safest bet until you acquire more advanced skills
- trade forest level pt3s
- trade 123 FTTs

<font size="4" color="red"><b> Execution </b></font>
Spyder mentioned more than once “blind” execution, or execution without looking at the price or mentally calculating the P&L. Having traded mostly the currency markets over the past few years, my execution was very much “price-oriented” - I was waiting for specific levels to be hit before entering on exiting. I carried this habit to trading the JHM in the ES. There is something hypnotizing about the dance of the quotes that just made me forget about what the charts were telling me, and made me focus entirely on price - I found myself often times waiting for certain levels before hitting T. These levels were either based on P&L, or prior exit in the case of a reentry, or sometimes just arbitrary. The result: late or missed entries, late exits, all of which add up and eat into your profits.

Then I dug up the ol’ Bracket Trader, and started executing “blind”, without looking at quotes. Furthermore, to prevent myself from mentally calculating the P&L, I started executing in SPY (thus becoming a Spydertrader :) ). This also allowed me to trade a smaller size and protect my capital while I learned. Needless to say, I stopped concerning myself with the entry/exit levels and P&L, and began focusing entirely where one should: the market (“the market’s job is to provide signals, and the trader’s job is to push buttons …"), which was promptly reflected in the P&L.

Sorry for the lengthy posts, I hope you will find something useful for your journey.
Regards,
Vorzo
 
cnms2, i also went short on that 3:45 bar. i thought it might be a point 2 so although i was short i took a peek at the 1 min es and saw FBO on increasing volume and reversed at 3:51. same scenario happened on ym around that time. not entirely sure if we're supposed to just sit through the pt. 2 retrace toward point 3 or to trade it, but i figured it's better to anticipate a wash while being in position to hold in case price BO'd the retrace channel and continued down. is this thinking correct or am i trigger happy?
 
Vorzo, thanks so much for the lesson on pace. I think it was Jack who once described pace as being of "Biblical importance" and I've been trying to incorporate it logically into the sweeps document without success. Good to see you in the journal. I've archived many of your posts from years ago and your recent contributions will join the others. Best wishes.
 
I think that the correct answer is: it depends ... on pace. I usually trade the last couple of hours of the day, when the pace is fast, so I reverse at LTL, on decreasing PRV and tape BO, on my trading fractal.
Quote from Padawan:

cnms2, i also went short on that 3:45 bar. i thought it might be a point 2 so although i was short i took a peek at the 1 min es and saw FBO on increasing volume and reversed at 3:51. same scenario happened on ym around that time. not entirely sure if we're supposed to just sit through the pt. 2 retrace toward point 3 or to trade it, but i figured it's better to anticipate a wash while being in position to hold in case price BO'd the retrace channel and continued down. is this thinking correct or am i trigger happy?
More...
 
Some New Years sharing. THank YOU Spyder for making this Journal extremely relevant !

Best Trading book I've read several times _ Dancing with the Lions by Trader X. Very little trading techniques are in this book.

This book is about the personal journey of an extremely successfull trader that wiped out several times and how his thought process and thinking had to go thru radical changes before he was able to consistenlty master himself and the market. The path to successfull traDING IS THE SAME path of learning and mastering yourself.

To paraphase a few of his quotes -

1) If you are not crystal clear on your reasons for entering/exiting a trade then thank you for your money.
2) If a lion is biting your hand then give the lion the leash.
3) Nobody is forcing you to take a trade you dummy.

I know all of this have been mentioned numerous times but the consistent reminders of Spyder, CNMS2 and most recently Vorzo has really reinforced the importance of the meticulous details these traders understand and internalize before taking a trade.
 
Working on making better notes for de-breif. Seeing some other's trades has helped....so thought I'd share.

Trade was Long - FTT to retrace to BO.

Entry Context:
Red tape traverse dn to pt2 followed by retrace up. The pace on the retrace from pt2 to pt3 picked up leading to a Red Ch BO.

Exit Context:
Pace declined causing price to stagnate.

Entry notes:
On the YM the pt2 of the Red Ch formed with a vol surge on the retrace. The beginning of the Red Ch traverse was on decr vol. The YM2M broke the Red Ch RTL on incr vol and before the ES5M.

Exit notes:
Exit on decr vol was okay, but holding for a break of the FTP on the YM2M could have resulted in a more profitable trade. The last possible exit would have then on a break of the YM2M FBP on 10:14 bar.

Result: +9 ticks
<img src=http://www.elitetrader.com/vb/attachment.php?s=&postid=1734684</img>
 

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