Techniques for Day Trading the ES, NQ, YM, MES, MNQ, and MYM

[volpri]

I want to discuss PB's.

Why are PB's (pullbacks) important? Because they tell you the previous trend is probably going to continue. This gives a trader a chance to get in at a better price before, or right after, the previous trend starts back up. They also give a trader a chance to average down as the PB is taking place, thus building a position at cheaper prices as it moves against him.

Why is averaging down in PB's important? Averaging down is important because a trader doesn't know for certain (and cannot know for certain) when the PB will end and the trend resume. Even a resumption can fail and price meander around a bit.

Averaging down in PB's is important (in my view) because each time a trader averages down it lowers or raises the BE point (depending if a bull trend or a bear trend). This means if a PB continues for a bit the trader is getting his BE point closer to actual price at the moment, as he adds to his losing position.

Averaging down is also important because once the trend resumes the trader only as to see price get above the closer BE point just a little bit to be in profit.

Averaging down is helpful because a trader can actually lose on his initial entry (or even first 2 entries) but make money on all the other entries thus the trade ends up a successful trade. A side note is it makes for a high win rate which is of paramount importance to a scalper of 1 to 8 points in the ES or MES. It is a play upon high probabilities that the trend will continue.

Averaging down is useful because IF the previous trend were NOT to continue but rather the PB turns into a reversal, the fact that the BE point was brought closer to the actual price, the probability is actually pretty good, that the trader will see at least another pop up or down (bull or bear) during the beginning of the reversal. That pop that will at least give him a small profit or chance to get out at BE. Once exiting his averaged down position he can then reverse direction going with the market in the new direction.

In addition, the PB affords the trader the capacity to deal with the uncertainty of the market psychologically and to not focus so much on an EXACT PRECISE best entry (which by the way can only be seen after the fact). In other words, instead of waiting around for all the confirmation signals to align up the trader can simply take a position knowing that the probabilities favor this being a PB, and that his entry, anywhere, will likely result in a profit. Thus pullbacks help a trader enter, without so much stress, on the correct, pinpointed, precise execution, at a precise moment, in live trading. In actuality because of the uncertainty of the markets the previous sentence is almost a joke or minimum a false belief. So averaging down facilitates reducing the stress of trying to find and execute precise entries, especially, if one is a discretionary trader. Of course allowing the computer to do the trading can too alleviate this stress however, there is NO WAY a computer has the capacity and ability to adapt and change on the fly like a discretionary trader can. The computer can only do what it is programmed to do. The human brain can adapt..change..see new things..make new observations and adapt to them on the fly. But there is psychological stress that comes with discretionary trading. Stress that can result in sweaty palms...heart palpitations...periods of rage...screaming...broken moniters..smashed mouses...dogs kicked out..cats bewildered as they are thrown out the window..and such other nonsense.

Finally PB's simply get a trader IN THE MARKET. Often the market will take off in his favor immediately after his first entry. And he will be in the money immediately seconds or minutes later. Had he waited for all his indicators to line up he would miss out on that preemptive strike.

I understand that what I write above about averaging down goes against the grain of most traders and at minimum contradicts the expressed opinions of the trading sages we traders put our trust in. The word "trader" and "his" in the above writeup refers to ME. Although I have never smashed a monitor ...kicked a dog out of the house..nor threw a cat out of the window. I have screamed a few times and had some sweaty palms and heart palpitations. The other descriptions were hyperbole to drive home a point! It is a literary technique. ROFLMAO.

I am not telling anyone here to average down. I am just telling what I do a lot in my daily trading. I am simply expressing my views. You are free to dump them in the nearest garbage can and declare them to be malarkey. I just ask you not to rail on me too much. A little bit I can handle. I may be too fragile and old for too much railing!

There are many more things to discuss about PB's. Things such as; how to you recognize a PB. Or, the probabilities of a PB being a PB and not the beginning of a reversal. Or why do PB's happen? What to do when a PB fails and becomes a reversal. These are all important concepts connected to PB's and they are not exhaustive but I hope to touch upon them and maybe some others not mentioned in the lists.

However, in my next post I want to touch upon the concepts of actual PB's as related to implied PB's and vice versa. And give an example from today's session.

 

[tradeking007yahoo]

I find it very easy to averge down in a DEMO account as do most! no offense volpri but you hve never shared one iota if REAL TRADES and real evidence. if this is all theory then cool but people will lose their shirts averaging down in futures and you said it yourself that you trade a lot in demo.

Again not coming at you but i do what i say in real time in real trades in real life otheriwse it is really just fake

 

[volpri]

Actual PB's and Implied PB's

Why are PB's important? Because they facilitate a trader putting on a position in a present trend that has a good chance of said trader making a profit, even if just a scalp of 1 to 8 points in the ES or an equivalent move (in terms of $$) in NQ or YM or in terms of points related to dollars in the micros in those same instruments.

So, what is a actual PB? A pullback is when in a trend a bar goes below or above the present bar. Below in a bull trend. Above in a bear trend.

That leads us to what is a trend? A trend is a continuing move in a certain direction. There are other definitions but this one will suffice for what I want to show here. It should be noted that this move (or trend) can appear as strong or as weak.

Considering that definition of trends above it is useful to label all large bull bars as a strong bullish trend. All large bear bars as a strong bearish trend. You may only see the one large bull bar on a 5 minute chart and just consider it be a BO but if you dial down to say a 2 min or 1 min chart you will "see" the trend. That single large bull bar on a 5 min chart is an actual visible trend on a 1 min chart. Now apply that to bear trends and you will understand that too. Smaller bull bars and smaller bear bars on a 5 min are simply weaker bull or bear trends. So, it is helpful, in scalping, to view every bull bar as won by the bulls and every bear bar as won by the bears. In other words, there are bullish and bearish pressure working on EVERY bar on a 5 minute chart. This pressure can be seen clearer on smaller TF charts. Note: you could use 15 min charts and "see" the trend on 5 min charts.

However, when scalping it is best to try and stay focused on one TF (time frame) for trading i.e. the entries and exits. Scalping requires enormous focus and lots of concentration. It does get easier as one learns more about it. Trying to stay focused on one TF is where understanding implied PB's are useful.

What is an implied PB? It is a move in price action that indicates a PB has take place when on the TF one is looking at on the screen no actual PB has really taken place, per the above definition of actual PB's. But nevertheless, a PB did happen. An implied PB.

Here is an example of an implied PB and actual PB in a BULL trend on a 5 min chart. The five min chart is the implied and a the 1 minute chart shows the actual PB. Keep in mind the example below are descriptive of when price is in a bull trend and the context supports entry to an implied PB.

The concept for this example is: "In a bullish move a doji bar that closes in the middle or lower and has a big tail on top is a pb EVEN if the doji's low does not go below the low of the previous bar. It is an implied PB"

The tactic or technique: "Buy the close of the doji." Why? the odds favor a resumption of the bull trend. So a trader is effectively getting in early and may very well see a scalping profit on the very next bar or two.

Now what do I do if the next bar after the doji continues down and the previous trend back up doesn't start? Well I see it as a deeper PB that gives me the opportunity to average down. But before averaging down I need to look at the larger context. Does the larger context on the 5 minute chart support the probability that a deeper PB will be just that and not a reversal? What has the overall trend been on the larger context? Also, if averaging down on this deeper PB I need to have a established a "give up point". A place where I will dump my averaged down position should a reversal evolve from this PB. I can even take a quick peek at a 15 min chart or 30 min chart to see the context on a larger TF before deciding to average down on a deep PB on a 5 min TF.

Ok enough said. I think. Here is an implied PB and an actual PB. The former is on the 5 min chart and the latter is on the 1 min chart of the SAME PA on the same instrument.

Notice on the 5 min chart of MES above (could be ES for all that matters as they track together). Context: Open gap down the bears try to make a bear trend on the first bar and they succeed in a ONE bar bear trend on the 5 min chart that can be seen as a bear trend on the 1 min chart below). But bulls push back hard and with one bar (second bar on 5 min chart) almost succeed in closing the entire opening gap. Five bars from the open (on the 5 min chart) the entire opening gap is closed. Who is winning this opening battle?

But let me digress a bit. Look at that third bar after the open. It closed a bear doji. But it's low came no where near the low of the previous strong bull bar. This is an implied PB. That is, bull trend then...doji...tail on top...close near low on the doji and the low is way above the close of the previous bar. What is the tactic? Go long in the waning seconds of the doji bar as close to it's low as you can get in at.

Look at the arrows. They both refer to the doji bar. The close of the second bar (on the 5 min chart) was at it's very highest tick. Then the doji opens... goes down just a tiny bit... and immediately trades up. See the left arrow. But before the close of the doji it traded back down (see the right arrow). This PA is a PB price action. Market goes up, then market goes down, closing lower. While it is not an actual PB on this 5 min TF but instead is an implied PB on the 5 min TF, it is an actual PB on the 1 min TF. Lets look at the one min chart below to see this and a few other things.

First of all you see that bear trend down from the open on the 1 min chart? That is the 1 bar opening bear trend bar on the 5 min chart. See all single bear bar are in essence a bear trend. Even if it was just 1 bear bar like on the 5 min chart. You could even dial down to a 30 second or 15 second chart and even see a larger bear trend that the one bear bar opening bar is composed of on the 5 min chart. Now look at that second bull bar on the 5 min chart above. Compare it with the bullish move up on the 1 min chart. That one bull bar (second bar) on the 5 min chart is composed of 4 bull bars on the 1 min chart and 1 small implied PB bear bar on the one minute chart. See how that second bar on the 5 min chart is actually a bull trend on the 1 min chart?

Ok what about that implied PB on the 5 min chart. Where is it at on the 1 min chart. The PB actually begins on bar 8:40 (even though it closed a bull bar but it has a tail on top signifying UP then Down). Bar 8:41 and 8:42 on the 1 min chart are all part of the implied PB on the 5 min chart. By bars 8:42 and 8:43 (on the 1 min chart) the implied PB on the 5 min chart has now become an actual PB on this one min chart. That is, in a bull trend the low of a bar has gone below the low of a previous bar.

Finally take a peek again at the IMPLIED PB on the 5 min chart. If a trader entered on the low of the doji on the very next bar he has made several points profit. By the second bull bar after the doji entry the entire opening gap has closed and the trader now has an even greater profit. By the third bull bar after entry ….well....he is calling home telling his wife to get the angus ribeye steak ready for supper. A BIG one for him and whatever she desires for her.

This is one implied type of PB. It is applicable on all TF's.

Study the charts. Meditate deeply on them. Look at them again. Closed your eyes. See them in your mind. Take a mental picture....clik clik it is now yours!

Now watch for these opportunities on a chart. Trade them on a SIM. Do not forget context...context..context. The context has to be right and supportive to apply this. Good luck!

 

[volpri]

I find it very easy to averge down in a DEMO account as do most! no offense volpri but you hve never shared one iota if REAL TRADES and real evidence. if this is all theory then cool but people will lose their shirts averaging down in futures and you said it yourself that you trade a lot in demo.

Again not coming at you but i do what i say in real time in real trades in real life otheriwse it is really just fake

Ok James Bond. Thanks for the enlightenment I will have to keep that in mind! Trade on 007! I think you have a journal going? Hope you are crushing the market!

 

[themickey]

That is a GREAT themickey! I know you spend a lot of time in the coffee shops in your beloved country as you are awaiting your investments to put you over the top but......at this rate them coffee shops are making a ton of money off you eating up your profits.

No room in coffin

 

[tiddlywinks]

I'm just skimming some of your recent posts @volpri ...
Perhaps this has mentioned before...

Using the term Scale In instead of the term Average Down may be better suited to your audience.

The latter has a "perceived" notion involving longer term trading, where the term Scale In is perceived more to a particular plan of a specific trade. Your explanations highlight the structure(s) where scaling in does/would occur, rather than pricing, pointing to the short-term nature of your trading as the structure changes bar to bar, aka constantly. Some here don't yet understand that.

Myself, I'm all-in, all-out, sometimes exit, sometimes reverse, for my bread and butter intraday trading. As you know, there is no one size fits all traders... and there is noone with a monopoly on knowledge and/or nuggets.

Carry On!

 

[volpri]

No room in coffin
View attachment 246173

LOL yellow painted coffee beans coming from central America to themickey! Vaccum packed in 16 oz bags.

 

[NoahA]

@volpri

Quick question. If you get into a trade and it goes in your favor right away, you take the profit and get out, correct? Your scaling technique seems to always be when price goes against your first entry. I am familiar with your excellent write-up about how low risk and high reward doesn't happen, so if already in profit, you just take it on the first entry, correct?

 

[NoahA]

I find it very easy to averge down in a DEMO account as do most! no offense volpri but you hve never shared one iota if REAL TRADES and real evidence. if this is all theory then cool but people will lose their shirts averaging down in futures and you said it yourself that you trade a lot in demo.

Again not coming at you but i do what i say in real time in real trades in real life otheriwse it is really just fake

Volpri clearly stated where his stop was and likely reversing his trade. What you seemed to have done is not have an exit plan. Now don't get me wrong, I appreciated your honesty in your journal, but after reading volpri's threads for a while, I can see it's not just blind averaging down. Being prepared for another entry when price goes against you is an excellent tactic because it's very difficult to get a perfect and precise entry.

He has shown charts in the past where he did puke out all the contracts and reversed direction. He does seem to get it right most of the time, but even he probably won't claim the 90% winrate you were claiming.

 

[volpri]

@volpri

Quick question. If you get into a trade and it goes in your favor right away, you take the profit and get out, correct? Your scaling technique seems to always be when price goes against your first entry. I am familiar with your excellent write-up about how low risk and high reward doesn't happen, so if already in profit, you just take it on the first entry, correct?

That is correct. If it goes my way out of the gate then I focus on my exit strategy. I usually don’t scale out of a multiple contract winning position nor do I like adding to a trade that goes my way. I will sometimes scale out if my initial entry was big enough such as in multiple contracts and the move is strong. Say for instance, if I went long 6 contracts of ES and price moved in my favor immediately then I will likely, if the moves is fast and strong, exit 3 contracts at a profit locking that in and if keeps going my way I will then likely exit 2 contracts with more profit. I will then likely hold the last contract until the move stops.

However depending how the dynamics of the move I may exit the entire 6 lots at one wack on decent profit. The reason is generally if I enter and get very little adverse move after my entry then that means I had little actual risk. I know I usually can’t follow the move too far because generally the market will not give me a low risk, high probability, big reward trade.

But there are times I will scale out as I mention above, locking in profit, if the move is strong and appears to be continuing. But more often than not, I am out the entire position at one wack on any decent profit. The way I look at it I can always jump back in. And often at a better price than my previous exit. Thus compounding my profits.

Rarely do I ever scale up. That is, rarely will I add to a winning position. I am a scalper so I go for quick 1 to 8 point profits in the ES. Scaling up can hurt if it flip flops on me after I have built a position scaling up. I can find myself with a loss by adding to a winner...as a scalper. For instance, I buy 2 contracts ES. It goes 2 points in my favor. I add 2 more contracts. It goes up 2 more points but I don’t add nor do I exit. I hold. So I have 4 contracts. It drops 6 points. Now I am out 4 points on one contract and 2 points on the other. Scaling up is ok for longer term trading But not too good for scalping. In scalping you grab the profits. I could have had 4 points profit on 1 contract and 2 point profits on the other contract.