The 3-2-1 Approach: A Simplified Method for Trading Any Market

Recognizing A Trend Day

After a slow start, not unusual for a Monday in summer, the market got moving in A period (8 to 8:30am EST). The breakout from the overnight range trade worked with a 0 MAE. This was the first clue that a trend day could be developing.

Technically, a trend day is characterized by a long, narrow distribution with no more than 5 TPO's at any price. This is, of course, easily seen at the end of the day, but how do you recognize it as it is happening, so you can benefit.

The fast breakout from the OVN range is the first clue. Today, the second clue was only a 1 TPO overlap between the A and B periods. The next clue was the first pullback - 6 ticks and then a steep drop in E period.

E period traded through the extremely high volume area at 115.27 like a hot knife through butter. This is quite unusual, as high volume areas almost always slow the market down, and this was the highest of the high volume areas for two basis points.

The 6 tick pullback was your second possible trade (the breakout from the OVN being the first). The ES trading through 1300 and holding the gains should have kept you looking short for the entire day.

F2 Comments: The market sold as the ES rallied. The inverse relationship continues. Tomorrow’s direction will probably be determined by the ES’s direction given the lack of market moving news. Retail Sales followed by Wednesday’s CPI #’s should tell this week’s story. Trade Deficit is expected at -62.0B and usually doesn’t impact t the market one way or the other. If the ES is sideways to higher, want to sell the Bond and see if 115-00/04 can be taken out. If it holds, I will cover and look to the long side of the market. If the ES is lower, will look to be a buyer tomorrow. 1st sell zone is 115-23/27. Back up sell is 115-31/116-03. Cover, if 115-00/04 holds.

F2PM8-11.jpg
 
>>worked with a 0 MAE >>
0 ticks in maximum adverse excursion?


do you mean that if you were long, there were no ways to exit since the market trade all the way down and instead short positions have been rewarded constantly?
 
Resopnse to Bernard111

By 0 ticks MAE I mean that once filled, your position was never negative. In this case, the fill was, I believe, 116.14. Your profit objective of 4 ticks was filled before there was any pullback which could have threatened a loss.

There was a pullback from 116.10 to 116.13, but never higher than 116.14. From 116.13 the market traded to 116.08 before another minor pullback. By then your profit objective was achieved.
 
Quote from bthomas:

Resopnse to Bernard111

By 0 ticks MAE I mean that once filled, your position was never negative.
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Ok, clearly as I thought. Thanks for the confirmation.
 
Here's How It Worked Today Bernard111

The breakout from the overnight range occurred at 116.015 in y period. It moved up and actually traded 116.055, but with no fill. Personally I chickened out and took 3 ticks when the market stalled.

The market then pulled back to 115.30, 3 1/2 ticks below my entry. It then proceeded up to 116.13. If I had been more nimble, I could have re-entered and completed my business plan. Someone else, with more patience and a cast iron stomach, could have ridden the pullback out for a nice profit.

Both were possibilities, but the point is that the breakout from the overnight range is a solid trade that deserves attention every day. Utilizing two or three basic trades that recur most every day is the key to your success - not trying to grind it out for six hours.
 

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Sell After CPI

Yes I did, Bernard111. And I was fortunate to get out with a 1 tick profit. I have my trading program set to move my stop from 4 ticks to B/E+1 once the market gives me 3 ticks profit. The rest of the day was much more profitable.
 
Looking For An Early Buy On Friday

F2 Comments: Another up day in the Bond with a positive close. The market is pointed higher w/some help from the news, and perhaps the ES. While both markets did trade higher today, this is an anomaly, given the recent history. There is also a seasonal bias that takes the Bond higher from late spring till early fall. Tomorrow’s news: NY Empire Index is expected at -5.0; Net Foreign Purchases at ?????/67.0 Byn last month; Capacity Utilization at 79.8; Industrial Production at Unch’d; and Michigan Sentiment Preliminary at 62.0. Want to buy early weakness in the Bond and see if 117-08/10 can be taken out. Will look to the short side of the market, if 117-08/10 is rejected. First buy zone is 116-17/21. Back up buy is 116-09/13.

F2PM8-14.jpg
 
A Different Look At A Basic Trade

Friday morning again offered the opportunity to take the basic "news day" trade. As you'll remember, the trade works like this - see the reaction to the news announcement, wait for the first pullback of 6 to 12 ticks, and enter the trade in the direction the market took after the news announcement, with the appropriate signals.

In this case, the market ran up 22 ticks and pulled back 7 1/2 ticks (yes I know that technically a tick is 1/64th in the Bond, but I still refer to a tick as 1/32nd).

The chart I am posting today shows the volume traded at each price level. The chart is a 2500v chart. The numbers along the bottom of panel 1 are the cumulative delta that is also reflected in the histogram below the chart.

You can see that even as price was making a new low, the cumulative delta was rising a bit. The intensity of the buying and selling is reflected in the depth of the color red (selling) or blue (buying). The normal Trademaven indicators are utilized on this chart, as you regularly see on the F3 chart.

So what tells you its ok to buy at this point? The pullback is in the 6 to 12 tick range, the delta is increasing even as price is decreasing, there is a deceleration square indicating the selling has dried up, there is a rotational arrow, there is a B indicator, and price has declined from the second standard deviation (which encompasses 95% of volume traded) to the volume weighted mean.

If you need more evidence than this, you'll probably never take a trade. Trading is an exercise in probability, and these indicators put probability squarely on your side.
 

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Slow Summer Trading

Monday August 18th offered only limited high probability opportunities for entry. I could take the verbiage from the previous post and copy it here, for the trade is the same. Heck, even the indicators are the same.

So what does this mean to you? It means that this trade, properly identified by the Trademaven software, occurs with regularity. It means that you only need a couple of high percentage set-ups to make your business plan day in and day out.

Examine it carefully. Commit it to memory. Use it over and over.
 

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