Archive for March, 2010

Case Study 3/22

March 22, 2010 Leave a comment

So, what happens after you get an “almost” signal.  I’m often paranoid that when I get an “almost” signal, that was often the true signal.  Whatever signal that follows is usually bogus.  Well today is a reminder to keep everything in context.  The market consolidated on the “almost” signal and then moved up.  There is nothing yet to make me fearful of a reversal.  The market again consolidates and finally gives the legitimate signal.  When it does this, there is still nothing apparent that says we’re not about to resume the trend.  So just always keep things in context:

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Patience Really a Virtue?

March 22, 2010 Leave a comment

It is but doesn’t feel like it.  Patience seems to bite me on a day like today, where I practiced patience and waited for a legit signal to get long.  In doing so I passed up the following great trade  below.  However, on Friday I lost my patience and cost myself big time.  The market is always there to punish you and show you your biggest flaws.  If you want consistent profits, I think the best thing to do is be consistent in your approach.  Want to be aggressive?  Be consistently aggressive.  Want to be patient?  Be consistently patient.   Had I been consistently patient, I missed today’s trade but got paid Friday and vice versa for the aggressive approach.

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Percent R Epiphany??

March 22, 2010 Leave a comment

After spending some time this weekend reviewing all of the percent r setups that occurred in March, I had something important occur to me.  One of the things that started to stick out like a sore thumb was the fact that many of the losers often didn’t even get +2 ticks of unrealized profit.  So, I will have to do some research on this, but right now I’m thinking instead of placing a market or limit order as I do now, I may now add a little time before I enter the trade.  I think the best approach is if I wait a bit to confirm that the price action does indeed  want to resume the trend.  Also, as part of the same theme, I realized that the best signals seemed to work after some form of consolidation (not after a hard reversal).  These are all things I need to continue to research to see if I can effectively exploit in the market.

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Discretionary Trading Vs Mechanical Trading

March 15, 2010 Leave a comment

This is something I’ve obviously struggled with in my career as a trader.  I first entered this path believing that I would be analyzing the markets and  picking tops and bottoms and profiting handsomely.  I quickly got my head handed to me.  I then did research and developed my mechanical approach.  Although not perfect, I have enough research to show if I take it blindly, I can be profitable.  I’ve decided to list out some of the pros and cons of these styles of trading.  First the pros of discretionary:

  1. So much more fun.  There is nothing comparable to analyzing the mkts looking for buy and sell pts.  There is nothing more exhilarating than nailing a perfect trade you called yourself.
  2. Not everyday is going to fit my particular mechanical strategy.  By using discretion, I can turn the system on or off
  3. I know there are pure mechanical traders out there, but have to believe this is where the great pros are making their living.

Now the cons:

  1. I’ve only been profitable trading my mechanical system.  This was not just a blip either.  It was a 5 month stretch of consistent profits.
  2. Mechanical Trading can be extremely boring.  When only watching 1 mechanical system on a 5 min chart, signals don’t come often.  Also, could teach a monkey to execute the system, so not much fun in the actual execution either.
  3. Can be psychologically draining.  When not adding discretion, although it will most be likely profitable for any given 12 month stretch, my system can lose money for 4-5 weeks straight.

I definitely believe I have to ask myself “Why am I doing this, for fun or to make a living?”  Although, the mechanical approach seems clearly profitable for me, I also believe you do have to take into acct the human element.  Maybe executing a system a monkey could do is not my idea fun.  Maybe I can’t execute a system that I would lose 4-5 weeks in row on.

If I do conclude I can’t take the mechanical approach, then what?  I’m obviously not profitable doing that.  Can I really figure out a way to merge the two worlds?  Can I figure out a way to only take the “winners” and skip all the “losers”?  All things to be considered if I’m really going to try to support a family on this.

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3/11 Trade

March 11, 2010 Leave a comment

After a break from trading due to Rob and Jay visiting Chicago, it was nice to get back in my new office for only the second time.  Today was an interesting day as we started out in a range day, but with surge in afternoon volume, broke out. I took 2 trades.

I entered long the first trade at 1135.50 and exited at 1138.50.  I took the trade because

  1. The market was oversold according to Percent R (the primary indicator I watch) and there was a divergence (Percent R made higher low, while ES made lower low)
  2. Although, the TF and ES broke to new lows, the NQ did not
  3. The TICK was displaying extreme negative signals (-800)
  4. Price pierced the globex low setting up a potential 2b pattern
  5. I exited because extreme positive TICK readings and prior resistance.  (I had an initial goal of 1141 which was the gap close….but got out a little early)

The second trade (also long) I entered at 1139.25 and exited at 1141.25

  1. Got a Percent R long “signal” that has a researched edge (by me) except on extremely choppy days
  2. Also pullback coincided with previous support
  3. Exited on extreme TICK reading
  4. Got trigger happy due to holding it through lots of chop

I definitely need to research more about scaling out of my positions.  I feel like I had pretty good entries, but would have benefited if I had held each trade longer.  Although I left some on the table, still a great day for me as I netted 5 ES pts.  I also notice I tend to be conservative after the morning session because I believe that’s where I excel.  I have given back profits in the lunch and afternoon sessions many times.

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3/5/10 Trade

Well, today we had a confirmed gap and go.  The market gapped up and essentially rallied and consolidated all day.  It wasnt until 1:30 EST that the TF gave the first percent r buy.  It was tough to take as the market essentially had been going straight up.  I did pull the trigger and got in at 1134.25.  This left my target at 1139.25.   I got a little conservative by taking the trade off at 1138.50.  The trade was a struggle to hold even until there.  I was tempted multiple times to pull it off for BE and then extremely tempted to at least pull half of at +2.5 pts.  For a pt I was somewhat convince the trade was a loser because it seemed like it was struggling to break the IB high.  Glad I stuck to the plan and held for at least +4.25 pts.

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Future Trading Signals

Everyone knows that one of the best ways to use indicators, is to have it identify buy pts by highlighting oversold conditions in an uptrend.  The problem with indicators though, is you definitely have to confirm that you are in an uptrend or the indicator can become worthless.  This morning we had the NFP job number published.  The market was waiting on this all week (spent most of time chopping all week).  On the news we made an aggressive move up during pre-mkt trade.  When the mkt opened, we had a clear gap up.  The mkt immediately started to closing it.  The thing here is you just don’t know how far it’s going to go.  Will it close 50%?  Will it close 100%?  On the chart below, you’ll see the TF crossed into oversold after the close of the first 5 min bar.  If I wanted to trade long here are some options:

  1. Immediately go long hoping the uptrend holds and that we are truly “oversold”
  2. Wait for confirmation.  Does the next bar go down.  When it doesn’t, immediately go long with price not showing conviction on a down move.


  1. Go back and look at different gaps.  See how the mkt responds when percent r crosses to oversold/overbought but has not closed the gap.

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