GOT IT: Thanks for the information and I will correct for easier reading. Thanks Again @ph1l
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Techniques for Day Trading the ES, NQ, YM, MES, MNQ, and MYM
- Thread starter volpri
- Start date
"I've always thought traders should have a healthy fear of the markets."
Again, this is a perfectly logical and reasonable assumption.
But when it comes to trading, your fears will act against you, in such a way that you will cause the very thing you are afraid of -- to actually happen.
If you're afraid of being wrong, your fear will act upon your perception of market information in a way that will cause you to do something that ends up making you wrong. When you are fearful, no other possibilities exist. You can't perceive other possibilities or act on them properly, even if you did manage to perceive them, because fear is immobilizing.
Physically, Fear, causes us to freeze or run. Mentally, it causes us to narrow our focus of attention to the object of our fear. This means that thoughts about other possibilities, as well as other available information from the market, get blocked.
You won't think about all the rational things you've learned about the market until you are no longer afraid and the event is over. Then you will think to yourself, "I knew that. Why didn't I think of it then?" or, "Why couldn't I act on it then?" It's extremely difficult to perceive that the source of these problems is our own inappropriate attitudes. That's what makes fear so insidious.
Many of the thinking patterns that adversely affect our trading are a function of the natural ways in which we were brought up to think and see the world. These thinking patterns are so deeply ingrained that it rarely occurs to us that the source of our trading difficulties is internal -- derived from our state of mind. Indeed, it seems much more natural, to see the source of a problem as external, in the market, because it feels like the market is causing our pain, frustration, and dissatisfaction."
("Context, Context,Context")
Again, this is a perfectly logical and reasonable assumption.
But when it comes to trading, your fears will act against you, in such a way that you will cause the very thing you are afraid of -- to actually happen.
If you're afraid of being wrong, your fear will act upon your perception of market information in a way that will cause you to do something that ends up making you wrong. When you are fearful, no other possibilities exist. You can't perceive other possibilities or act on them properly, even if you did manage to perceive them, because fear is immobilizing.
Physically, Fear, causes us to freeze or run. Mentally, it causes us to narrow our focus of attention to the object of our fear. This means that thoughts about other possibilities, as well as other available information from the market, get blocked.
You won't think about all the rational things you've learned about the market until you are no longer afraid and the event is over. Then you will think to yourself, "I knew that. Why didn't I think of it then?" or, "Why couldn't I act on it then?" It's extremely difficult to perceive that the source of these problems is our own inappropriate attitudes. That's what makes fear so insidious.
Many of the thinking patterns that adversely affect our trading are a function of the natural ways in which we were brought up to think and see the world. These thinking patterns are so deeply ingrained that it rarely occurs to us that the source of our trading difficulties is internal -- derived from our state of mind. Indeed, it seems much more natural, to see the source of a problem as external, in the market, because it feels like the market is causing our pain, frustration, and dissatisfaction."
("Context, Context,Context")
Thank you for this amazing post, a lot to learn from your experience and even more from your generous personality.
There is no reason to fear the markets, respect yes fear no. Fear comes from such as fear of failure, lack of confidence in one's competence or inability to behave as needed or validity of trade plan or non-acceptance of the probabilistic nature of the markets. There is no way to know what will happen next, what we can do is have an edge and trade that edge with the necessary disciplines.
Fear is a common emotion when one begins to trade for the above reasons but the development and application of appropriate behavior within a viable trade plan will render fear largely inert over time but it's not the market to be feared, it's the trader, his or her behavior and preparation or lack thereof.
Fear is a common emotion when one begins to trade for the above reasons but the development and application of appropriate behavior within a viable trade plan will render fear largely inert over time but it's not the market to be feared, it's the trader, his or her behavior and preparation or lack thereof.
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I decided to take a look at the market this morning since I crawled out of bed before the open. LOL. I took a trade right after the open a 2 point scalp. And then a second trade. Thought I would make a few quick comments as these two trades illustrate some points I have been talking about. This is a 5 minute chart of MES.
First notice the larger context. Channel in overnight session. That channel morphs into a range around 4:00 a.m. or thereabouts. At 4:00 a.m. a trader would not be able to yet see that the upper part of the channel was going to become the first part of the range. But by 5:55 a.m. it was clear we had sideways movement and the channel was now likely morphed into a range. A tight range, but nevertheless a range. Counting the transition area from channel to range we have around 20 bars or so of sideways movement. 4:05 to 5:55.
A word about my channel lines. They could have been tighter thus making for a smaller channel in terms of width but what I often do is draw one side between two points then I copy that line and paste in the next side at the widest point of the channel excluding any tails on the bar that forms the widest point. I consider the tail just an overshoot.
OK so we got the larger context. A channel that went into a range. Markets have inertia and tend to resist change. Change will come at some point but until that happens markets stay in an area of value with constant probing up and down. Understand that the goal of markets is to move price around where the most transactions will take place. So there is constant tug and pull. Like an auction, sort of. So what do I do in ranges? There are several different techniques to play. One is to play the outer edges. The other is to play previous bars lows and highs. This morning's PA offered an example of both techniques. Remember the general rule that a range must have a height of at least 3X the size of a minimum scalp. I consider a min scalp to be 1 point. Is the range at least 3 times that size? YES, it is close to 5 points wide. So there is enough movement in the range to potentially capture 1 or 2 points.
So, we have seen the larger context; channel into range. Now what is the intermediate context? The intermediate context is the price patterns that are within the range. What is that price pattern? Bar 8:00 a.m. to the high of bar 8:30 we have a bull mini trend within the trading range (TR). Bar 8:30 of course is the opening bar of the RTH's (Regular Trading Hours).
What is the immediate context. The 8:30 bar (that is the bar labeled 2) trades to the top area of the range and eventually trades down to the bottom of the range. So, a BO south of the mini bull trend.
What is the setup? The technique? It is to trade the outer limits of the range by going long in the bottom 1/3 and adding, if necessary, then exiting on moves towards the middle, or the top of the range. My stop loss must be fairly wide and outside the range. Rationale for the trade is that 80% of BO attempts top or bottom of a range fail and within 5 bars price has reversed and heading back towards the range.
So, for trade#1 I go long on bar 2 (the opening bar of RTH's) and I exit on the same bar once it trades back towards the middle or top. I grab 2 points profit.
Now let us look at the second technique that of trading previous bars lows or highs. Look at the low of bar I have labeled 1. Now look at bar 3. It went below the low of bar 1. In fact bar 2 did also. Look at bar 3. I decided to trade the gap formed when bar 3 went below the low of bar 1. I had just exited a 2 point scalp on bar 2 and now here is another opportunity to take another trade. So, I enter long on bar 3 at my entry labeled entry#1. By entry #1 price also was close at going into the bottom 1/3 of the range which is good, but not necessary, for this sort of technique. This technique can be traded anywhere in the range. I don't like to use it in strong trends. Only in ranges or slightly sloped broad channels. So, I make my first entry long. Price continues against me. I add entries 2 and 3. The 3rd entry was made outside the range. But remember, most BO attempts fail with 5 bars and price heads back towards the range and often all the way to the top of the range. Now notice the red box. It extends from the low of bar 1 to my first entry long. That is the GAP of which I speak. Once I have my position on (i.e. long entry #3 is complete) I then wait for price to close the gap, at least enough for a profit on my last two entries and BE on my first entry.
Often times there is no averaging down. That is, after my first entry the market then trades up closing the gap and immediately gives me a scalpers profit. So, that is why I want at least a position on, but I also willing to average down in the bottom area of the range if need be.
As it turns out two bars after my long entries the gap closed and I exited with a profit on ALL three entries. So, what exactly did I capitalize on here by using this latter technique?
1) The pressures in the larger context, namely that of inertia. Price had been in an established range (20 bars or more) and markets resist change.
2) The fact that most Bo's fail. The BO pattern of the intermediate context (the BO south on bar 2 of the previous mini trend) would likely fail too as it too is taking place in a range.
3) The setup. The race south within the range on bar 2 put price in the bottom 1/3 of the range. Of course, by the time of my first entry I didn't know that price would go there, BUT I knew there was a good chance of it getting there followed by reversing back up, simply because we are in a range. And the previous bar (i.e. bar 2) had shown that sort of range behavior.
4) Finally, the tendency of the market to probe back and forth as it searches for the area of the most transactions. It had been going up and down and would likely continue so at least for some time. So, because of the fact that the markets probes I was willing to bet that the gap would be filled. I have to be cognizant that there will come a BO of the range sooner, or later, and once we reach 40..50..60 or more bars that BO has a 50/50 chance of being a bullish BO or a bearish BO.
I have posted a RTH's chart of the same price action (ES but they track together) so you can see it was a gap up open on the RTH's chart. The channel of the 24 hour chart IS that gap up open. If the gap up doesn't fill with an hour or two we are likely headed up for more bullish action for the rest of the session.
Gotta run. Things to do.
First notice the larger context. Channel in overnight session. That channel morphs into a range around 4:00 a.m. or thereabouts. At 4:00 a.m. a trader would not be able to yet see that the upper part of the channel was going to become the first part of the range. But by 5:55 a.m. it was clear we had sideways movement and the channel was now likely morphed into a range. A tight range, but nevertheless a range. Counting the transition area from channel to range we have around 20 bars or so of sideways movement. 4:05 to 5:55.
A word about my channel lines. They could have been tighter thus making for a smaller channel in terms of width but what I often do is draw one side between two points then I copy that line and paste in the next side at the widest point of the channel excluding any tails on the bar that forms the widest point. I consider the tail just an overshoot.
OK so we got the larger context. A channel that went into a range. Markets have inertia and tend to resist change. Change will come at some point but until that happens markets stay in an area of value with constant probing up and down. Understand that the goal of markets is to move price around where the most transactions will take place. So there is constant tug and pull. Like an auction, sort of. So what do I do in ranges? There are several different techniques to play. One is to play the outer edges. The other is to play previous bars lows and highs. This morning's PA offered an example of both techniques. Remember the general rule that a range must have a height of at least 3X the size of a minimum scalp. I consider a min scalp to be 1 point. Is the range at least 3 times that size? YES, it is close to 5 points wide. So there is enough movement in the range to potentially capture 1 or 2 points.
So, we have seen the larger context; channel into range. Now what is the intermediate context? The intermediate context is the price patterns that are within the range. What is that price pattern? Bar 8:00 a.m. to the high of bar 8:30 we have a bull mini trend within the trading range (TR). Bar 8:30 of course is the opening bar of the RTH's (Regular Trading Hours).
What is the immediate context. The 8:30 bar (that is the bar labeled 2) trades to the top area of the range and eventually trades down to the bottom of the range. So, a BO south of the mini bull trend.
What is the setup? The technique? It is to trade the outer limits of the range by going long in the bottom 1/3 and adding, if necessary, then exiting on moves towards the middle, or the top of the range. My stop loss must be fairly wide and outside the range. Rationale for the trade is that 80% of BO attempts top or bottom of a range fail and within 5 bars price has reversed and heading back towards the range.
So, for trade#1 I go long on bar 2 (the opening bar of RTH's) and I exit on the same bar once it trades back towards the middle or top. I grab 2 points profit.
Now let us look at the second technique that of trading previous bars lows or highs. Look at the low of bar I have labeled 1. Now look at bar 3. It went below the low of bar 1. In fact bar 2 did also. Look at bar 3. I decided to trade the gap formed when bar 3 went below the low of bar 1. I had just exited a 2 point scalp on bar 2 and now here is another opportunity to take another trade. So, I enter long on bar 3 at my entry labeled entry#1. By entry #1 price also was close at going into the bottom 1/3 of the range which is good, but not necessary, for this sort of technique. This technique can be traded anywhere in the range. I don't like to use it in strong trends. Only in ranges or slightly sloped broad channels. So, I make my first entry long. Price continues against me. I add entries 2 and 3. The 3rd entry was made outside the range. But remember, most BO attempts fail with 5 bars and price heads back towards the range and often all the way to the top of the range. Now notice the red box. It extends from the low of bar 1 to my first entry long. That is the GAP of which I speak. Once I have my position on (i.e. long entry #3 is complete) I then wait for price to close the gap, at least enough for a profit on my last two entries and BE on my first entry.
Often times there is no averaging down. That is, after my first entry the market then trades up closing the gap and immediately gives me a scalpers profit. So, that is why I want at least a position on, but I also willing to average down in the bottom area of the range if need be.
As it turns out two bars after my long entries the gap closed and I exited with a profit on ALL three entries. So, what exactly did I capitalize on here by using this latter technique?
1) The pressures in the larger context, namely that of inertia. Price had been in an established range (20 bars or more) and markets resist change.
2) The fact that most Bo's fail. The BO pattern of the intermediate context (the BO south on bar 2 of the previous mini trend) would likely fail too as it too is taking place in a range.
3) The setup. The race south within the range on bar 2 put price in the bottom 1/3 of the range. Of course, by the time of my first entry I didn't know that price would go there, BUT I knew there was a good chance of it getting there followed by reversing back up, simply because we are in a range. And the previous bar (i.e. bar 2) had shown that sort of range behavior.
4) Finally, the tendency of the market to probe back and forth as it searches for the area of the most transactions. It had been going up and down and would likely continue so at least for some time. So, because of the fact that the markets probes I was willing to bet that the gap would be filled. I have to be cognizant that there will come a BO of the range sooner, or later, and once we reach 40..50..60 or more bars that BO has a 50/50 chance of being a bullish BO or a bearish BO.
I have posted a RTH's chart of the same price action (ES but they track together) so you can see it was a gap up open on the RTH's chart. The channel of the 24 hour chart IS that gap up open. If the gap up doesn't fill with an hour or two we are likely headed up for more bullish action for the rest of the session.
Gotta run. Things to do.
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Well well. Just got done typing my post 1297 followed by eating breakfast and decided to check the market. A dandy intraday BO. I could not trade it for typing and eating so I see I missed it all together. I gotta stop typing here at this point but I do want to make a few comments.
Remember that darn cycle i.e. the larger context happening over and over?
Well here it is graphically or magically ROFLMAO. Channel to range to BO. What will likely come next is:
1) a channel as trend continues up. A BO ends and a channel starts with the first actual PB of a BO on the same TF.
2) On occasion the phase BO phase may morph into a range barely making a channel visible if heavy profit taking takes place and price goes into a reversal thus forming a broad range again.
What do I think? I think we will see a channel forming that will then be followed by a range of some sort. That is how I would look at playing the price action from this point, at 11:10 Chicago time. That is how I would be betting at this point and time. We will know shortly if it is going to be a channel or a reversal.
While I think we will see a channel phase getting longer vs a reversal I still am willing to trade either way. Odds just favor a channel evolving. If so, then I would use channel trading techniques. But I can't, as I have other things to do today, and I am not getting much brain rest..LOL
I should soon be able to start drawing channel lines if I were watching this chart followed by trading it as a channel, using channel tactics. I won't be trading it but wanted to drive home the points. Maybe I will have time to draw in the whatever happens and make some comments this afternoon. I am just saying what I think will happen from 11:10 a.m. Chicago time onward.
bye for now.
Remember that darn cycle i.e. the larger context happening over and over?
Well here it is graphically or magically ROFLMAO. Channel to range to BO. What will likely come next is:
1) a channel as trend continues up. A BO ends and a channel starts with the first actual PB of a BO on the same TF.
2) On occasion the phase BO phase may morph into a range barely making a channel visible if heavy profit taking takes place and price goes into a reversal thus forming a broad range again.
What do I think? I think we will see a channel forming that will then be followed by a range of some sort. That is how I would look at playing the price action from this point, at 11:10 Chicago time. That is how I would be betting at this point and time. We will know shortly if it is going to be a channel or a reversal.
While I think we will see a channel phase getting longer vs a reversal I still am willing to trade either way. Odds just favor a channel evolving. If so, then I would use channel trading techniques. But I can't, as I have other things to do today, and I am not getting much brain rest..LOL
I should soon be able to start drawing channel lines if I were watching this chart followed by trading it as a channel, using channel tactics. I won't be trading it but wanted to drive home the points. Maybe I will have time to draw in the whatever happens and make some comments this afternoon. I am just saying what I think will happen from 11:10 a.m. Chicago time onward.
bye for now.
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Yes a no brainer. By bar 9:45 I would be long at the close of that bar not waiting to see if price goes back into the range within 5 bars. Why would I not wait? Well in this case we have three consecutive bull bars all closing above the previous bars high therefore gaps between the high of the previous bar and the gaps between the low of one bar and the low of the previous bar. Plus gaps between the low of a bar and the high 2 bars back. In addition, the BO bar is the largest bar for many many bars. Price is going somewhere fast. Urgency.