Tight Stops
- Thread starter WaveTrader2004
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Well, the ES is not what I usually trade intraday, but I can give you a recent example from that market if you'd like.
I agree that S/R is often taking out by a few ticks, however I find that you can still place close stops at support or resistance levels, you just have to take into account the tendency of the market to go a few ticks beyond the level, even when it is subsequently going to reverse. So instead of shorting the level, you would wait for it to get hit, then see how the market behaves. If it stalls after taking out the level by a few ticks, then starts to reverse, you can generally enter and place a close stop just beyond the level the market went to before you entered.
One example is from Nov 18th in the morning session. There was an initial selloff of about 4 points, then the market reversed back and took out the high of the day by a couple of ticks, at 1185.50. However it stalled there instead of generating further momentum, making it likely that this was a "fakeout" move triggering stops slightly beyond the high of the day, rather than something likely to build into a further rally to new highs. When the market started to reverse, I considered it a reasonable trade to go short with a close stop just above the 1185.50 level. I sold 1185.00 and placed my stop at 1186.00 (although I may have exited earlier if the market did not start selling off within a certain period of time, or if strong buying suddenly came in). There was a recent support low at 1183.50, so I bid 1183.75 to cover, and indeed got filled there a few minutes later, without any meaningful move against my position.
Magna
Administrator
Thanks for your description, nice trade. After carefully re-examing that brief runup to 1185.50 on both the 1-min and 100-tick charts I have a question. You say it "stalled" there after the runup, but the very next 1-min bar (and only one following) topped out at 1185.00, your entry. So if you decided that it stalled the very next minute you would have had a very difficult (impossible?) time getting short at the high of the bar. And there were slightly different but similar results on the 100-tick chart. After running up to 1185.50 the next couple of ticks (which occurred during the same minute that price hit its peak) topped out at 1185.25, same as 4 ticks immediately prior to the 1185.50 top, so tough to really call that an actionable "stall" being only one tick below the high and matching multiple tick-bars prior to the high. If you waited until price actually dropped just a little bit more to confirm the "stall", which it subsequently did trading at 1184.50 x 1184.75 for a few tick-bars, it then only popped up to touch 1185.00 one time, trading less than 100 cars total there, again making entry at 1185.00 difficult to impossible. After that price ran down to 1183.50 where I presume you covered at 1183.75 since you said that after your entry price made no "meaningful move" against you. So I'm curious....
- at exactly what point did you consider price to be "stalling" at the top, and
- exactly when did you enter your sell-order of 1185.00 (as best as you can remember), and
- exactly when did you get filled on your short.
Hi. I was basically watching the market depth and size traded on each tick, as the price approached the high - I guess you could call it tape reading. Normally if the market is going to go significantly above the prior high of the day (e.g. 4 ticks+), then there will be a flurry of buying as it goes into new high territory (in which case I would wait for this "pop" to finish before thinking of shorting). In this case though, rather than seeing that, the market action at 1185.00-50 just seemed to be a bit of a non-event. This made me think that a close stop would not be as vulnerable as normal. With hindsight I am not sure if it was because the rally actually "slowed down" on a tick by tick basis, or simply that it did not speed up as I would expect if it were going to move higher. I might have had a mental bias, viewing it as "slow" simply because it did not speed up - if you see what I'm saying.
I would not have been able to take that trade just by looking at the chart, or certainly not with the same degree of confidence. The behaviour of the bids and offers and size traded at that level definitely had an big impact on my decision.
Well I can clarify the timing very accurately, because I was actually on the offer at 1185.25 trying to short there. However, I did not get a fill and then the 85.00 bid started trading out so I hit the bid down a tick and got filled before it traded out. I was getting my info mostly from the market depth and last traded volume, rather than the 1 minute chart.
As for feeling it had "stalled", see my reply to britefire above, hopefully that gives a bit of a better picture. I would just add that I would not have considered going short below the high, if the price action had "stalled" to the same extent. So it was not just the price action, but the action in conjunction with having gone 1-2 ticks above the prior high of the day.
Regarding the exit, I covered on the first move down to 1183.75, yes.
Magna
Administrator
Thanks Cutten. After posting my note I realized it must have been traded on "tape" reading, not chart reading as such (at least as far as entry was concerned), since even on a micro-level the latter would have probably gotten you in at a worse price. Appreciate the detailed explanation of your thinking, or more accurately your "seeing". Take care and continued good trading.
Hi Cutten. Thanks for answering.
What I am imagining you are saying is:
After the stops above 85.00 were absorbed:
--the market backed off a tick
rather than driving on
--the bid side was light
with little buildup
--there were no large lots being bought
--the offer depth, perhaps, well outweighed the bid depth
--the offers were increasing
--offer disappearances were slow.
You recognized the stall on the way up
as a waning of the move.
Is this correct?
Is there anything else I should be looking for?
Also, if you are looking at Time & Sales,
do you filter out lots below a certain quantity
like 50 or 100?
If so, what software are you looking at?
Magna, thanks for taking the trouble
in your question,
to explain the circumstances of the 1185.50 high.
Cutten talks about signs of the stall on the way up,
you talk about an 'actionable stall' on the way back.
I understand you to be saying
it is not actionable on falling back one tick only
especially if there were trades at that level immediately prior.
In ES, how many ticks fallback would be needed to confirm?
Would you give the characteristics of an actionable stall?
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