YM Journal: VITAL

A

Adamned

I'm going to divide my journal into two threads. As I have stated before I really don't like useless information. I'm a firm believer in less is more. If it doesn't help its actually hindering not neutral. I was critical of E.T. for this reason and now my own journal has definitely become a place with to much useless information. In the future if one has questions please post them in the first non vital journal.

For now I'm just going to copy and paste what I think was important from the first journal. Cheers, to all for understanding my crazy tendencies.
 
My working philosophy on the markets are as follows. Trade one market and trade it well. I only trade the YM contract. Don't high frequency day trade if you can't constantly buy on the bid and sell on the ask. If you are not on the floor it very difficult to do this. With that being said it doesn't mean that I don't enter and exit in the same day. On most of my positions I do enter and exit in the same day but many times I hold that position up to three days to meet my objective. I guess the best way to describe my method is a hybrid of daytrading and swingtrading. I base my trades from intra-day charts and volume with an aim to extract 80 dow points in the direction of the daily trend. 30 points if the trade is against the dalily trend. In the event my trade is against the daily trend I will never hold over night. I use a 40 point safety stop and have a chart stop that is usually smaller than that. To make that more clear I will put it in table form

Contract: YM
Trend Target: 80pts
Counter Trend Target: 30 pts
Safety Stop: 40 pts

Well let the journey begin and I'm really looking forward to coming in contact with some genuine students of the markets. Please note that I focus on quality trades so there are many days when I receive no signals. On average I recevive 2-5 trades per week.
 
I'm happy to answer any questions that arise and a few have come up so I shall answer them directly.

The tighter stop I use is really quite simple and is systematic so its always the same. Here it is nothing special. The other side of the swing point will be broken by 10 pts or more. In the instance of the last chart that I posted. The stop would have been at 78. The entry was on limit at 59, the stop at 78, so that equals a stop of 19 plus the b/a spread which is almost half of the 40pt stop I use.

The second entry that bearbelly posted was in fact a very good entry even better than the first one. However, not merely because it worked instantly with out being underwater to much. It was better for various reasons and not only for chart reasons. If one has interest in this setup it would do them a great service to study the differences. If someone really wants to do this I would like to point out first something that has very little significance. The first entry was a trend reversal entry and the second entry was a trend continuation entry. In my experience this has little importance. More often than not the market will struggle more to fulfill the 30 pt objective with a trend continuation than a trend reversal but in the end fulfill the objective anyhow.

Where did the 80,30,40 come from? They came from trial and error operations. In the beginnig I wanted more 1 full pt (1% of the dow cash) for my short term signals and 2.5 full pts (2.5%) for my mid term signals. These were definitely not in touch with the reality of what the market was willing to give on a CONSISTENT basis. The real truth is that these numbers mean nothing to the market they are not special. They only mean a lot to me. They allow me to extract the kind of money I need to make a living from the Dow. Its really nothing more than my comfort levels with the market. I think its a waste of time to take away less than 30 pts per trade. I think its a waste of time to take away 30 pts when I could have taken away 80 pts. And I'm not willing to lose more than 40 pts on any entry no matter what. That simple. I've already had a few questions about the average daily range and how its evolution would effect my exit objectives. It would only effect me if it got drastically smaller and think this is an unlikely event. If it gets larger I don't care that its possible that I can make more pts. I'm happy with my 30-80-40 objectives and I will not change it unless it becomes broken. "If it ain't broke don't fix it." I also think there is an important lesson here. Many people fail in this business because they don't treat it as a business they treat it as a game. Its only a game if you want it to be a game. Nailing the low and buying right at it and holding on till the absolute high and liquidating right there is a game. Hence, the average daily range is very important for this game. Now from a business perspective. The daily range clearly accommodates these profit objectives. Therefore, I will buy at the right time and liquidate right when my objectives are met. I great analogy came to my head when think about this. Think of Walmart in the U.S. over here in Europe its Tescos or Carrefours. Then think of only one product lets say a chocolate bar. To be specific a snickers bar. Back when I was still in the U.S. year 2000 they sold a snickers bar for 35 cents. The average selling price was probably 50 cents at a vending machine. It would sell as high as 75 cents at a conveince store and maybe as high as 1.50 at the airport. Does the most successful retailer in the world (walmart) give a damn about the RANGE of prices? That the same exact product is selling somewhere else for .50,.75, and 1.50. No, they care about selling their product for .35 cents and making a profit on it. This is done by consistency.

How do I define the daily trend? Thats a very good question and I have a very long winded response to that answer. I will save you that reading and by giving the answer first and if you still have interest you can read my reasoning behind it. On a weekly chart a crossover in the MACD by the Dow cash, SP cash, Nasdaq composite, NYSE composite, and the Russell 2000 cash. I would like to point out something very very important. In a bull market I can't sell short and hold over night no matter what the daily trend is. In a bull market heres how my market posture is. I can hold over night on the long side if the weekly macd is on the up and up. I will keep this posture until the MACD crosses to the downside. When the MACD turns down in a bull market I can't hold anything overnight I simply only trade my 30pt objectives from both sides. The whole process is repeated in a bear market just done inversely.

After those long drawn out answers I would like to give some background information regarding all of this. I actually think this is important and why a lot of skilled chart readers fail at trading. They can read the chart like no other but they have little grasp of true strategy. In my opinion its because they lack a thorough understanding in strategy in its truest form the military form. If you were an officer in the armed forces, had a good political science or history program at your university then you may already know most of this. In market books and materials they for some reason never get this right and use all the different forms interchangeably which is a big mistake. First and most important there is grand strategy, then strategy, then tactics. All three are related but distinctly different. To succeed all three subsets must be very clear and support each other, and not cause conflict between each other. If you want learn more about this read the work of B.H. Liddell Hart. (link) http://en.wikipedia.org/wiki/Blitzkrieg
He is my personal favorite. It is mostly his work that created the popular term during WWII blitzkrieg. It was Liddell Hart who inspired Heinz Guderian who went on to apply Hart's work and develop blitzkrieg. A few years back another pop term came from Hart's work "shock and awe" "rapid dominance" This was developed from the work of Hart as well. Any way sorry for the long winded post and good trading to you all.
 
Some people will probably think I'm a real nut job for this post. I agree I probably am. I've been trading to long. In my opinion I think this is the key to success a Winning attitude. You can read all the books that exist on MACD, RSI, bollinger bands, 3/3 DMA, fib numbers, 200 sma, 20 ema, or whatever else. Will it truly help you most likely not.

The real secret is that you must have really bigs balls, a cool head, discipline, and stops. And don't get me wrong some women can have some really big balls. If you don't have these naturally trading will be a very difficult endeavor.

Regarding a winning attitude, big balls, and discipline. This speech sums it the better than any thing I have ever heard. I listen to it every day. This speech is actually an illegitimate speech of Gen. Pattons to his third Army. Its from the film its not real. It serves a great purpose though. One of the best links you will find for your trading on the internet. And listen to speech don't read it. Its works much better that way.

http://www.turtletrader.com/patton.html

Regarding stops this is where I use my imagination. Firstly, I want to define a stop out and a loss. A stop out is a strategic retreat. A loss is a loss of capital with out using a stop, putting on an impulsive trade, or making your stop larger after a trade has been put on. I treat my account balance as individual soldiers. Nowadays I'm in Euros and Crowns but back in the day I used dollars so I still play the game in dollars. Each dollar in my account represents one mans life (George Washington). They are fighting a battle for my freedom and liberty each trade I put on. Not like this bs in Iraq but like the liberation of the Jews in Auschwitz. A truly just cause.

If you are such a degenerate that can't put a stop on and follow it. You have just caused death to your soldiers. Or you couldn't control your impulses that you had to put on a stupid trade, you caused death. You personally must make a house call to his mother, his wife, and his two small children. And tell them that this man had lost his life because I'm such a degenerate that I can't follow the rules. That i personally caused his death. Your daddy is never coming back because I don't have discipline. If you play this game with your self for 60 days you most definetly see dramatic results in your account balance.
 
Enter on limit when price hits the horizontal line I drew.

1. Break of key swing on volume
2. Retest to breakout point on low volume (enter on limit)

You must give benefit of the doubt to the most recent break. And then really watch your volumes at the point of the previous break out.


I'm happy you enjoy the journal that is my intention. Any way I would like to clarify something very important about volume. This is a main reason most non professionals fail. Volume is not the little bars that say volume on the bottom of the chart. volume is not an obv oscillator or money flow oscillator. Volume is volume at price. Also The aggressiveness of the ratio between participants on the bid and on the ask. Kind of like watching size when tape reading or level II analysis. This is the difference what makes one a professional, they know which patterns will work because of the volume. This is where experience pays because you know how to accurately read volume. here is great website that explains these concepts. Steenbarger also has some good articles on this as well. If you google it you bring up something.

www.marketdelta.com/



In my future posts I will attach Mountain charts instead of candles. I had a few a people struggle with why and how I'm drawing the lines. I guess its only easy for me because I've been using this approach for years. By using the mt. chart I think it would improve the accuracy rate of the setup. As you see yesterday it was very clear on the mt. chart that the retest missed my line. This is not as clear when you look at it on a candle chart. This improved accuracy rate and simplicity definetly comes at a cost. You will miss a few valid signals when the shadow retests but the close does not (Candle retests- Mt. doesn't retest). To rectify this shortcoming you could look on both types of charts. It surely can't hurt to look on more than one dimension of price.

If anyone reading this journal has not yet read Reminiscences of a Stock Operator or doesn't have it on e book format you can download it for free on this website.

www.trading-naked.com/Articles_and_Reprints.htm

I personally don't like Livermore the person he lost everything he owned way to many times. This should never happen more than once. But, the principles and fundamentals of successful trading are very clearly dealt with. I think that is the most important thing for the reader and he drives home the fundamentals of this business in a very personal way that somehow I can relate to. The first time i read this book I was so happy about reading it. It was one of those times in life when you read a really really good book. Its really a priceless moment and I can think of only a few other books that made me feel that way



This post is probably going to get a lot of howls, moans and maybe a few death threats.

My setup I keep on posting is a real piece of shit! It means absolutely nothing to the market. The only reason I use it is because I can objectively compare volumes and use a well thought out stop.

Technical analysis is an even bigger piece of shit. If it worked so good all technicians would be very wealthy(some are most aren't). Face it, most of us have all read and know by heart Edwards and Magee, or Murphy, or any one else for that matter. We all know the patterns,oscillators, indicators, fibs, bands, and ma's. We are not retards it should be just a simple execution of the well established rules and we make money. But face the truth its not that simple in the REAL WORLD. I would love the chance to go to a convention of TA's or expo or whatever other bs meeting they go on. And say that all day to everyone there with a mega phone. Now the sad truth I'm an avid technical analyst and use it religiously because nothing better exsists. Like the old saying in politics. I don't remember it word for word but it goes something like this. Democracy is a terrible form of government, but the problem is we tried everything else and they are even worse.

I want you guys to try something. This is based from what police detectives or psychologists use. They ask certain questions and they can tell right away 9 out of 10 what somebody is and what they aren't. If you want this to work and improve your trading play this for real. If you answered wrong put some real deep thought into this. If you do this and really think about it and determine why you answered wrong when all the facts are so readily available. You can improve your trading greatly and shake off your amateur habits.

Here's the stupid question already. What is the market to you? You know when some one said the market went 1 point up or down a point. What does the the word market mean for you. There is only one right answer. Most amateurs will always get this wrong hence one can tell if they are an amateur by simply asking this question. And there is most definitely a right answer here no matter how relative it is to your life. Heres the bloody answer already. Amateurs say the stock market or (Dow-SP-Nasdaq) Professionals say interest rates the 10yr the 5yr, the 2yr and the rest of them. Why is the rates market the true market because the world economy is based on them to some extent. The rates market totally dwarfs the stock market. Its not even close. Institutions, banks, FOMC, and any other big player cares mainly about rates. They almost could care a less about the stock market as long as its not in meltdown or in bubble status.

To answer some questions directly. Stock indexes and rates have a well documented correlation. I'm not going into detail here about this because there are endless sources that talk about it. This can be found on google in a matter of seconds. I have already commented about volume in many of my posts and have recommended a site that uses the same working philosophy that I use. They offer a decent amount of free education on this well established approach. However, involving theory I will give you the rundown. When rates go up equities go down. Break on high volume retest on light volume is a valid entry signal. This is not as simple as it seems. I can tell you how to ride a bicycle. Hold the handle bars and push the pedals. Will that help you not at all you must get a feel for these things yourself from real life experience.


Thats very true. I have no problem riding the trend till the close if I'm comfortably ahead at 3pm. But its important for me that the trend was established clearly before rates closed for the day. So basically I want the trend to be established before 2:45 and I would really prefer it to get going around 1 or 1:30
 
I'm going to post an excerpt from a trading book that I think can help a lot of people. Its from the book Long Term Secrets to Short Term Trading by Larry Williams. I don't think the book is all that great. He doesn't really offer any new original content. On the plus side he does reinforce the principles to to successful speculating very clearly.

The Art of Fly Fishing

Fly fishers and todays commodity traders have much in common that we can all learn from. My daddy taught me the fine art of catching trout long before the fly fishing fad set in. Pops was never much of a fly casting type, but could do an adequate double hall, carefully selected his tippets and knew the difference between front ended weighted line and a double taper.

But he didn't use that stuff very much. fact is he looked down his nose on the L.L. Bean fancy dancer fisherman. As much as they shook their heads at his beloved worms,grubs, and grasshoppers. You'd never catch my dad at a Trout Unlimited meeting. But he could be seen after dark chasing night crawlers around are back yard with a flash light.

I asked him once why he didn't fly fish more often, to which he replied, Son, I came out here to catch fish to take home to eat. Crawlers and Hoppers are the best thing I know of to catch fish with. belive me if those dainty little nymphs caught lots of fish I'd use them. But I sure as hell wouldn't get all dressed up in those fancy vests and pricey waders. This sport is about catching, not dressing.

Maybe thats why I don't have realtime quotes in my office, am pretty computer illiterate,don't read the wall street journal, and hob knob at futures conferences decked out in brooks brothers suits. invariably, successful traders tell me they became winners after they stopped keeping a jillion indicators, watching 3 or 4 monitors and following 5 hot lines every night. Its the simple stuff that works. Is the most common comment winning traders make.

Sure you can get all duded out to trade, but the truth is you'll catch more fish with worms and hoppers on a bent pin than any fly ever tied.
 
There is much to learn from todays action for students of the markets. Todays long entry off the bottom was the perfect example of quality market analysis. It clearly portrays the principle of one of the most important aspects of successful trading. The principle of confluence. Not fibonacci confluence something even better markets confluence. All three major indexes gave a very clear long signal. The volume was near perfect, the offer totally dried up at the bottom. Rates offered a favorable setup. These are the days that I love. A true exercise in the execution strategy and tactics with laser like precision. The end result is a simple reward for the trader who is skilled enough the recognize that "all the engines are firing on all cylinders."
 
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