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

tiddlywinks said:
If I may, something else to be looked at...

With the initial risk and a scale-in game plan under control, BO trade or not,
where would the long trade that was taken be closed/exited had it not been stopped?

From a scalping and confidence viewpoint, the concept of R:R may not be applicable. For some, the R:R concept is ingrained, to the point of presenting still more trading issues that need to be tackled.

If not applicable to the discussion or the traders involved, my apologies for mentioning and please continue.
More...
That point was not under discussion but it is a reasonable point to bring up. It may mean a difference between a trip to Dillards or the dollar store! LOL.

The main issue we were discussing was getting in late on a BO then getting stopped out on a too tight of a SL. While PT is certainly worthy of discussing it was not the focus in this case. I would have been happy in this case to grab a 2, 3, or 4 point scalp. And if I had averaged down I might be sending my wife on her merry way to Dillards!

As concern R:R I never count it until after the trade. And I only count it from the MAE that the trade actually went against me. In other words, I only count my actual risk I had to endure, plus 1 tick, for together they (for myself anyways) make up my actual risk once the exit is over with. I generally, upon entry do not initially care about actual R:R numbers. I am more concerned with making at least a 1 point scalp. I like to be asking myself more than once after my entry is made and the dynamics unfolding: Is price likely to give me at a least a 1 point scalp or any PT I have in mind BEFORE it would hit my SL. One point is one point. 5 ES contracts x 1 point is $500.00. I don't care what happens afterwards. I can get back in. There are plenty of opportunities, generally all day long.

Not everyone sees trading this way and that is OK. One has to find their own way and do whatever floats their boat. "We create our own reality in the markets."

Regardless, of what my initial SL is. I do not use my initial SL to figure any R:R. It is there, and wide enough, to basically keep me in a trade for averaging down purposes and to avoid a catastrophic event.

Too tight of SL's results in too many losing trades to make recovery possible in a single session. Of course there are exceptions but I speak in general. I want SL's there but I don't want them so close and tight they lower my possibility of making a profit on the trade.

WILL THIS TRADE LIKELY RESULT IN MY PT BEING HIT OR AT LEAST A 1 POINT PROFIT BEING MADE BEFORE MY SL WOULD BE HIT? That is the question I want to be asking myself even after my entry and PA is unfolding.

I generally don't ask myself about R:R just before entering a trade. Especially in BO's I know that SL has to be far away and the R:R is gonna be a doozy with a risk much bigger than a reward. In channels or Ranges I do like to see a 1:1 ratio as a min sort of goal, but I don't hold myself to that. Because I may use a wider SL betting than any BO top or bottom of the channel or range will fail and I will be ok with a wider SL. But that depends upon the broadness of the range. I it is real broad I don't want such a huge SL.

Besides it is harder to figure beforehand R:R when I am making 3 or 4 averaging down entries live. Exiting. Then right back into another trade. I figure that mess out afterwards if I am in the mood to do so and want to pat myself on the back.

IN GENERAL:

If I am averaging down in say a bull move, that has a bear PB (and I am averaging down in that bear PB) once the bull move resumes I like to "grab" a profit once all my averaged down entries are in the money, preferably with the initial entry having at least a 1 point profit. The rest of the entries of course will have more points. However, there are times when I will take a profit on my latter entries and a BE or tiny loss on my initial. As long as the trade gives me an OVERALL profit I am happy. But then I am a scalper of 1 to 8 points in the ES. I want a high win rate and I want to lock in profits. If I marry a R:R before entering the trade the mind fights me when the dynamics change and doesn't want to let me take a profit until my PT (with a previously deemed sufficient R:R) is reached. So, because that was my plan i.e. I feel pressured to wait for the planned R:R to be made and I miss out on a perfect opportunity to lock in a paper profit.

See I can structure a R:R before my entry but that generally would probably be outside the probing area of price that gives me high win rates. That isn't something I want to do.

It often would result in missing a paper profits that I could have locked in because price had not reached my structured PT on the R:R equation.

I lock in profits over and over, and quickly, because of the tendency for price to probe back and forth. I want to take advantage of that probing action. That affords me many more scalping opportunities during the session.

I have said it before and I will say it again; Money can be made on most any bar during the session. Think of that! And I have also said; a lot more can be made compounding small gains than a hold and wait approach for a bigger profit. If one knows how to take advantage of the price probing that the institutions do all day long. Why? because the constant probing allows one to exit on a profit locking it in then entering again usually very quickly when price drops below your previous exit (or goes above) in a shorting scenario.
 
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I am not against having a R:R structure for trading but I do think the need of it can be overblown. While I know math can be relentless having predefined R:R may theoretically and mathematically can seem like a good thing. I just don't fret too much about it. Not that I never use it.

At least for the way I trade it can be more of a hinderance than a help, and the tendency to achieve it can often cause me to not take a perfectly decent profit, just because PA has not met my R:R ratio. I would think it is PERHAPS more necessary in straight scalps. To keep one on the right side of the math.

Since I average down on probably 60% or even more on my trades, it makes things just get too complicated. I do not know before hand each point I will average down at. I have a general idea but the actual execution to add more to a losing position depends much on the dynamic of PA at the moment. It is not something I know exactly before hand. I play it by ear.
 
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Ok it is the weekend. I am feeling better so I want to make some comments on the two charts of my post #1341 like I said I would do.

I want to drive home some points.

A Routine to Follow:

Before I begin trading in the morning I have a little routine. Once my lazy carcass has crawled out of bed and my dear wife brings me a cup of steaming hot fresh columbian coffee and I have propped my eyes open with toothpicks..just kidding… I first want to look at what happened overnight. Why? Well I want some idea of where we are in the larger context i.e. what phase of the market cycle. If I happened to crawl out of bed before the open of the RTH’s I will take the time (usually takes about 5 min to 10 minutes or so) to market up the chart with lines boxes..rectangles… depicting channels…ranges…BO’s..(larger context). Next I like to look for intermediate context i.e. any price action patterns within that larger context ..things such as triangles..wedges…reversals…flags..pennants…trends…DT ..DB…I don’t market up every single instance of every pattern but only what stands out to my sleepy eyes…like oh! “There is an expanding triangle” sort of thing. I am especially keen to know about these things that took place from the 1:30 a.m. time period to just before the open of the RTH’s. Finally, I take a quick look at the immediate context just before the open of the RTH’s. What price pattern is the present bar in (a trend?a triangle?…a wedge? Is price at a DT…that sort of thing etc. That is the sum of my pre market RTH’s open analysis. It is my preparation for trading, I could care less about the news or the pundits screaming their heads off on TV. There is ALWAYS a bullish and a bearish interpretation of the news. The PA of the chart will show me which interpretation is winning!

This little routine is important. It serves as orientation to market direction and what it has been doing while I was snoozing. It helps me to anticipate what is likely to happen right after the open of the RTH’s or at least the most probable, of the possible, scenarios. Are we gonna have a gap open? An open in a middle of a range. Is the open gonna be at the apex of a triangle?

Now on the open anything can happen but remember the three contexts before the 8:30 a.m. open (chicago time) formed BECAUSE of pressures in the market so they do have a story to tell. NEVERTHELESS, a lot of more pressure is gonna pop in at the open. But a least I have some idea what may likely happen, initially. With this in mind lets look at the first chart below.

1) Not all the bars are there from 1:30 a.m. but enough are to show the larger context i.e. the phase of the cycle. So what is the phase? It is a rectangle. It clearly shows price meandering back and forth generally, mostly, within the rectangle. The range as shown on the chart is around 60 bars long (of the 5 min chart). It was actually probably longer but that is what is on the chart. Now what follows a range in the market cycle? The next phase will likely be a BO. In can come in the form of a spike or it can come in the form of a series of smaller bars. So, what am I going to be looking out for at the open? A possible BO of the range. See the prime area for range trading is usually between 20 and 50 bars. After 50 one has to be thinking “likely BO coming”. The goal of markets is to move price where the most transactions will take place. Transactions, of course, are simply volume. When price is in a range both the bears and the bulls are about equal and that is why a range develops. It is an area where both sides deem fair value. There will be bullish pressures to move price higher forcing a successful bull BO and there will be bearish pressures trying to force a bearish BO. Price generally won’t stay in this tight range like this the entire RTH’s session. The range may broaden. The range may convert into a BO. The range may become simply a SPBL or SPBR trend. Institutions are going to exert pressure to move price to where more transactions will take place. This range has been going on a long time. At the open of the RTH’s I am leaning towards a BO.

2) What price patterns do I see in the pre market? The intermediate context. I see about 32 bull bars in the range. So, that leaves about 28 bear bars. I see trends back and forth within the range. I see multiple BO’s attempts top and bottom that all failed. I see it is a tight range. Price is not going to stay in the tight range at the open of the RTH’S. There won’t be enough transactions taking place. The range is narrow and it can’t stay that way and also meet the goal of the markets which is to take price to levels where more transactions take place.

I also see in the last 2 hours before the open price within the range has been hugging the upper side of the range and actually kept 3 bars out side the range. Bars 8:05, 8:10, and 8:15.

3) The immediate context. Price is in an actual PB bar 8:20, prior to that a slight trend up starting at bar 7:50 6 bars..1 bear and 5 bull bars. The bear PB of 8:20 has a low right at the EMA. The next bar before the open (8:25 bar) is a bull doji that could be read as bullish or bearish. Bearish if seen as an implied PB from the 8:20 bar, but bullish if viewed within the context it is found (from bar 6:45 to bar 6:20). While the ensuing BO at the open that is likely to happen, it could happen in either direction, ..north..or south, but the 3 contexts slightly favor a bull BO. So, that is what my heavy eyelids will be looking for; a possible bull BO but I know anything is possible, so it doesn’t really matter, south or north, I will still be trading it as a BO, if one occurs, and the odds favor that one will occur right at the open. So I get ready (with $$$ signs in my sleepy eyes) to employ BO techniques as I await the RTH’s open.

4) ok we get to the open. On the 24 hour chart (top one) we see a big BO spike. The opening bar (spike) closed high. Nothing doing but to get in long and for ANY reason. Market order ..limit order. Just get in long! The market is going somewhere in a hurry. Urgency. So, I go long in that trade#1. Where is my SL? It has to be around the low of that spike (the opening bar). It is unlikely price will never get there, but it could. All things are possible! I have to give some room for averaging down and I don’t want to get stopped out on some quick move back down towards the lower end of the bar. The probability is high we will see, at least a second leg up, on such a 7 or 8 point spike BO. Notice it is the BIGGEST bar in the last 60 bars and has broken above the highs of the last 60 bars. It is unlikely we won’t see this BO morph into a bull channel so I get cognitively ready to do some subsequent channel trading, using channel trading techniques, AFTER any BO trading.

So, afterwards, the BO will likely morph into another phase of the cycle. What phase? You got it! The Channel phase. When does the channel phase start? At the first actual PB, not at any implied PB.

I only got a little bit of adverse reaction after my entry of trade#1 which was, in what I call, my “prime averaging down” territory. I just didn’t feel inclined to average down or missed doing it, so I didn’t, but I could have! Now my goal is a scalp of 1 to 8 points locking in profits and entering again if the trend continues. Remember, the trend is composed of two things; a BO plus a channel. Well two bars later I exit with a 4.25 point scalp.

Notice the initial spike had FT (follow through) ..bar 8:35…another bull bar. This even more so indicates more bullish action is likely to come, in the form of a channel. Then we get a little bit of sideways action bars 8:40 to 9:20. What is this? It is two things. Some profit taking by the bulls after the BO and an attempt by the bears to make the BO fail. BEARS WILL ALWAYS TRY TO MAKE A BULL BO FAIL. BULLS WILL ALWAYS TO TO MAKE A BEAR BO FAIL. It is the nature of the markets. Bears want to probe south for more transactions and bulls want to probe north for more transactions. Now mind you they (the institutions) are not ALL sitting there looking at 5 min charts and probing ROFLMAO. Some are just filling orders. Others are not even looking at a chart. However, whatever they are doing, and however they are trading it shows up as probing to get the market to more transactions and fair value. And it makes for a good story to explain things! ROFLMAO. I GOT TO HAVE A NARRATIVE OR NO ONE WILL UNDERSTAND WHAT I AM SAYING. LOL

In a range both sides deem value about equal. In BO’s one side deems value is no longer fair and price needs to move to another level. The other side deems price was probably fair and wants to make the BO fail or they want the BO to be south for more transactions to take place. Maybe they are short and want a trip to the steakhouse! In their excitement they drive the markets up or down.

Your SL may be in their way but they are not gunning for your SL, contrary to what a lot of traders think. Yes, their actions may cause your SL to get hit but it ain’t like they are saying “lets get all the SL’s of those retail traders on ET.” Lol. No no no! The market is “made” by one institution trying to take money from another institution (day trading institutions) and just plain long term buying and selling by other institutions. Sorry to bust our bubble but they ain’t interested in our soda pop money. They ain’t interested in the little doe deer they are going for the big bucks! It is a intra day war of the algo’s.

5) We got an actual PB on bar 8:45. An ACTUAL PB is when one bar goes below the low of the previous bar in a bull trend or above the high of the previous bar in a bear trend and the trend then resumes, or tries to resume. What phase starts when we get the first PB in a BO trend? A channel! In this case a bull channel. Look at the top chart. See the first actual PB since the open? See the channel beginning? Now in real time you won’t see the channel evolve until several bars latter but the identifying factor that we are leaving a BO and going into a possible channel is the first PB. Or we could be leaving a BO, skipping the channel, and going into a range. For instance, if that rectangle labeled a flag were to continue sideways it would become a range once it grew 20 bars or so. It would no longer be a bull flag with a continuation of the bull BO.

However for scalping purposes it does not matter which phase the cycle is in (BO…Channel…Range) as there are techniques for trading each phase. The important thing IS NOT that the order of the phases be strictly RANGE to BO to CHANNEL. That is just the tendency of the market, as it moves. What IS important is to develop the skill to recognize “what” phase of the cycle the market is presently in and use appropriate trading techniques for that phase.

6) Notice the second chart which is the RTH’s of the same price action. Notice the gap up open. That gap is the overnight action and can only represent a minimum of two phases, and maybe three. We know the last part of that gap was the range in the 24 hour chart. Therefore, prior to the range there must have been a bull BO or a bull channel in the market overnight action. Or a combination of one or more BO’s and channels/ranges to finish making that gap up we see on the open of the RTH’s chart.

However, the phase that is most important as RTH’s open is approaching is that last phase before the open of RTH’s and we know it was a range, from the 24 hour chart above. Notice the green vertical rectangle. It represents one bar consisting of both the opening gap and the first two bull bars of the open. By creating one bar it is easier to take note of the pressures involved in the open.

First we had bullish pressures in the overnight that created the gap on the RTH’s chart. Then we had a continuation of those pressures on the actual opening of the RTH’s first two bars. So, together it is useful to see that green rectangle as ONE big bull bar. That give us a better picture of the bullish pressures on the RTH’s open and indicates the likelihood of the BO being followed by a bull channel instead of a range or reversal. Therefore, I get ready to trade a channel after any BO trading.

Look at the RTH chart again. The channel starts at the pb in the form of a bull flag. Two bars after the PB we have an H1. An H1 is the first time a bar has a higher high than the previous bar, AFTER a PB. An H2 would be the second time….etc.

This High 1 is happening in the middle of the “now” bull channel. Since it is a bull channel with a strong bullish background (green rectangle) I place a trade betting that the sideways motion starting at bar 8:40 will just be a bull flag and price will continue on up in a bull channel. On bar 9:00 I add averaging down as we are in the bottom 1/3 of the channel and price is still forming the bull flag. I then wait for a move towards the middle that will give me a profit on all my entries. I exit my long entries on bar 9:25 in the middle of the bull channel. I don’t concern myself with what may happen after my exit. I just “lock” those profits. I can always enter again.

7) Notice where price is staying in relationship to the EMA and the SMA and the slope of those two moving averages.

You can look at the entries and in particular the averaging down entries to get some idea of how many points I tend to utilize when using averaging down techniques and my exit prices will indicate my areas I tend to take my profits. Price probing is what gives me my averaging down entries and exits. I grab those profits quickly as I don’t know how far the probe will reach. I prefer locking in profits.


Hope these comments give some understanding as to how I see and trade price action.




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volpri said:
Money can be made on most any bar during the session. Think of that! And I have also said; a lot more can be made compounding small gains than a hold and wait approach for a bigger profit. If one knows how to take advantage of the price probing that the institutions do all day long. Why? because the constant probing allows one to exit on a profit locking it in then entering again
More...

This thought is profound! I currently trade 30 shares of Apple live at least a portion of almost every day. July was profitable but not consistent enough for me to increase trading size. Some of the sudden moves baffle me and now that I understand that "institutions are probing all day long" it helps put this in perspective. I believe knowing this will improve my trading.

Also, your idea that "more can be made compounding small gains" really resonates with me. That is what I believe, and am trying to do in AAPL. I make an insane number of trades and my confidence wans a little because I have thought all on ET would call me insane as well. It is great to have an ally in this belief and one who is successfully implementing it in his own trading.

volpri, you express yourself so very well that I give you many kudos for taking the time put your thoughts online for us to see.
 
If you are interested to see how the morning advanced, after my charts in my post #1424 above, then here are the same charts with more info as the session advanced. I stopped trading shortly after noon but one can clearly see the cycles as the session advanced. Look at the second chart below. See the opening BO (green vertical rectangle) with high odds of going into a bull channel as I mentioned in my post #1424, and it did. Why? Because of the strength of the opening bar plus strength of the overnight PA creating the opening gap. And looking at that together as one big bull bar. Look at the second chart as a bit of a review of this concept of judging strength by the bars and that it would likely become a bull channel as opposed to a reversal, or bear channel.

Again as a review. Far left overnight session pre-RTH's session = RANGE. RTH's open=BO. Then BO goes into a bull Channel. Then as the channel starts to flatten out a RANGE starts again. This is the market cycle! I did take 1 more trade (trade#3) before stopping for the day. Trade#3 is on the chart.

See how price basically stayed in the channel all the way to 11:45. But prior to that we could see the channel flattening out into what eventually became a range. I see the range forming way before bar 11:40. It actually started forming around bar 9:55 to bar 10:00 but at that time, looking at it live, we could only see a channel. Now, once that flattening out of the channel has 20 bars sideways movement in it, then we can begin trading it as a range, with range trading technique. Until then I trade it as a channel. I can start drawing the range rectangle before 20 bars but I don't start trading as a range until it gets 15 to 20 bars in it (sometimes I fudge a little and may starts around 15 bars LOL) Why do I wait? Because the sideways move , when less than 20 bars, could just be a bull flag with a continuation of the bull channel trend. However, once 20 bars go by it is now an established range. Once the channel ends and there 20 bars sideways movement it is easy to complete the range rectangle and clearly see where the range actually began and the channel ended (bar 9:55 or bar 10:00). The phase almost always overlap but one may not see that until the next phase becomes apparent.

Or one could have just traded this price action as a BO leading to a SPBL trend day. See the third chart. There are a number of ways to extract profits.

These snapshots were taken as the morning advanced.

MESLAST.jpg


ES RTH 5 MIN FOUR.jpg


SPBL.jpg
 
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I probably won't be posting next week Monday through Friday in the journal but if this way of trading appeals to you then you might wish to print this journal out and study up on it. I realize I have not always organized stuff in a clear categorized way because much of the time I presented the concepts, as they occurred live. Kind of like a story from day to day. Or trading session to trading session. But the concepts are embedded therein with the narrative.

HAPPY AND SUCCESSFUL TRADING!
 
@volpri

After reading some of the recent entries in your journal, I’m looking at your way of trading more closely – even though it violates, not only the first rule of holes, but also the basic tenets of trading that we all learned in the very beginning of this journey.

In fact, I sim-traded one MES contract on the initial entry last Friday (two trades) and all day today (four trades). Out of those six trades, I went 6-0 for a gain of 31.75 contract points. Only one trade required averaging in and I’m counting the four entries on that trade as one completed trade, one of the six. And just for the hell of it, I Martingale’d that one trade (1-2-4-8) -- doubt I would have done that had I been trading real money. And since I was in so deep, as soon as I was up one point on my average entry, I took profits.

Probably beginner’s luck, but that success rate got me to thinking. If a trader got this figured out to where most of the trades were successful on the first entry, that would suggest trading bigger size on the first entry in order to make more money.

However, Murphy’s Law says that if you traded bigger size on the first entry, you would almost instantly have to average in multiple times, leading to significantly more risk, and that trade would end up being the trade that didn’t work out leaving you in a pretty deep hole.

Since you seem to have this figured out, how do you handle that? Do you always start small, just in case, no matter what, meaning only one contract on the first entry in case you do have to average in? And whenever your first entry works out, you just accept the fact that you won’t make as much money as you could had you traded multiple contracts?
 
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