Ideas for Struggling Traders

[steve46 12]

Hello Minoo

 

I believe the chart you posted is from 1/05/09.

 

For me the important details are as follows.

 

First, you can see that the 80 period EMA has dropped below the 200 EMA. It did this prior to the first and second test of the price point that you identify as a "double top".

 

Second, on my screen I see that the $DVOL shows me increasing down volume (see attached chart)

 

Third, you can see that $ADD is also dropping. This shows me that participants are selling into this market.

 

Both indicators are telling me that people are selling the broader market.

 

In addition I keep a small quote screen that shows me what the Naz, the bond, and other market bellweathers are doing. Unfortunately I can't show you that screen (because the data for that day is no longer available to me). I assume that they would have confirmed my decision.

 

Basically you are taking a poll of the various data elements on your screen and making a decision based on what you see.

[smwinc 20]

 

And keep in mind that this thread is titled "Ideas for struggling traders," not "Steve's winning system".

 

Give this guy a gold star. Exactly.

 

An interesting assumption often made is that for a trader's ideas to be taken seriously, he needs to be a profitable trader or we shouldn't listen to him.

 

I don't tend to agree with that.

 

Taken a step further, what does this imply? That if you earn more than someone, you shouldn't listen to their ideas?

 

When someone is selling something, or providing one of those general "this is what trading is really about etc etc" speeches, then trading statements are in my opinion required.

 

When someone, like Steve, is sitting here providing detailed explanations for various trade setups - what difference does it matter how much, if any, profit he is making from them?

 

Anyone who DOES trade knows that entry is only a small part of the plan. Taking your setups, having the balls to hold on, managing your risk, using appropriate position sizing, etc. is what makes a living from this business - not your entries.

[steve46 12]

Another person who "gets it". Its nice to see. THATS what makes it worthwhile for me....

[steve46 12]

Minoo (and everyone else)

 

If you are still hanging around check this out. I see this "condition" often enough that I am in process of testing it (I test setups on a spreadsheet before using them).

 

What you have is a pre-existing down trend punctuated by a double bottom, marked on the chart.

 

I notice that the 80 curls up toward the 200 and then price tests (in this instance it doesn't actually touch) the 80 period EMA before it runs up and takes out the 200.

 

I am testing this as a long setup with entry on the first open above the 200 with a tight stop right below the 200 period EMA.

 

Of course individual instances mean nothing, but in this example it was a nice winner, and it didn't look back.

 

As you can see this is on a 16807v chart. I have seen this repeatedly on the 2401v and on the 729v charts.

 

I will report my findings when I have enough data to make a comment. By the way, this is an important part of the game. Finding new sources of revenue. So basically what I do is I monitor and document instances where this setup occurs. When I have 100 instances I look to see what the success rate is but also I look at the losers, to try to determine if those losers have a characteristic that I can identify. A setup that has a nice success rate after 100 instances gets backtested (I have a third party do that for me so that I get an unbiased opinion). That test goes back several years and covers several market conditions. I look at this much the same way the drug companies look at developing a medication. They know that most of the investigative work will end up in the trash, but if they can find one good candidate, it can mean significant profit. I follow a similar plan to find profitable setups.

 

Hope this helps

 

Attachement below

Edited March 8, 2009 by steve46

[brownsfan019 17]

 

Anyone who is interested in real-time calls and real-time observations and real-time trading is welcome to log in to the TL chatroom. Those who can't be there during the trading day are unlikely to derive any benefit from results that are posted in hindsight.

 

 

Excellent idea DB - I will see you there Monday and will be looking forward to seeing the 'real-time calls' on Monday!

 

Thanks for the suggestion! You are right, much better to see your calls live and in real-time.

 

I'll see you Monday!

[great1one 10]

Sorry, you are incorrect....again

 

 

Not at all, in fact a new trader would be merely exercising due diligence in questioning your results and ascertaining if they translate to the real world before following your advice, curiosity wouldn't come into it.. and subsuquently they would be perfectly justified in feeling suspicious if they found you defensive about such a request.. if it looks like a duck and quacks like a duck as they say.

Edited March 9, 2009 by great1one

[minoo 11]

Hi Steve & Team

 

Some thoughts and feedback the way I use your system

 

I use the 55EMA as my fast line; this setup gives many excellent opportunities of retracement and pullbacks than 80MA & is more visual about its slope than the 80

 

I have done very well out of trading the continuation signals in direction of the slope

 

I would sum it up simply as 'BOB off the Slopes' ( but the slope has to be evident)

Mental routine which helps me with your system is

'Crunch, Cross, Test / reTest' ( ofcourse with BOB of the Slopes)

This routine helps to keep me on the right side with trade anticipation in the prevalent direction

 

In absense of the Slope-Evidence (or opposing slope lines) I mostly wait for the price to get in the crunch zone (narrow channel between MA's) and bracket it. This way the market gets to decide the direction and may get an good ride with it, (watchout for the peekaboo if you have jumped ahead of the cross)

 

Your last post was very interesting and I am working on mean reversion plays when the Channel between the lines are wide

And

The difference between the recent Price low or high and the fast line is greater than the wide-chanell (between the MA's)

Here the premise is Direction Exhaution may create pullbacks, retracements or even trend change with supporting TL's (simple wave count may help)

 

If I find a pattern with the above condition than will play the double-bottoms, Victor Vic 2B signals, Opportunities of Higher Lows or Lower Highs from confluence of areas, etc

 

I also auto-plot measured alternates as the lady quite often takes the steps of same size for pullbacks or retracement to 55EMA

 

Steve what I have found from your charts that, the minimum you put on it the more & easily one can derive from it. Many thanks for showing us a good way which works and one which I will always use; When & where I fall is the moment, my mind skips belief in Simple Solutions

 

 

Regards Minoo

http://greatday.com/v.html?2229h07MRpn8

[avalanch 10]

Steve46,

I read most of your thread on ET, but have not read through this entire thread.

 

Sorry if I'm asking a question that may be answered within this thread, but do you utilize $TICK in your trading?

Thanks.

[tapovan 10]

thanks for your help. my question is 1. you do hold the es contracts over night as i see your trades based of a daily chart? Do you sleep well if holding 10 contracts?

Did you work as a floor trader before? Thanks

 

TAPOVAN

[youngesttrader 10]

Hello Steve,

 

New here 20 years old really passionate about trading been trading the E-MINI for about a year and a bit now making money then losing it all back , always managing to just come back right before blowing up my account :helloooo: . When you are talking about learning to read the tape how would i go on about doing that? Is this watching the number of contracts at each level on my trading platform and making some assumptions through those?

Any input would be helpful thanks alot

[Tams 20]

why don't you read the thread first?

[MadMarketScientist 11]

youngestrader,

 

A few comments from me. Personally I have never quite understood "reading the tape" at least as an off the floor trader --- I can understand perhaps how it can be done in a pit with others. Not sure it's something I see someone being able to do really well from the off the floor but I'm sure that's a matter of debate -- and also defining what we all mean by reading the tape -- maybe it's just something technical such as volume. I'm not sure you can take a lot of meaning from watching the bid/ask and order flow on the ES.

 

I would also suggest you think long and hard what is changing in your behavior and trading practices that seems like you trade one way when down, and another way when back to even or slightly ahead. I would almost bet your action/reaction to the markets is completely different in those different stages of equity. Maybe when you finally get back to even you get too aggressive wanting the profits, or maybe you even do the opposite and suddenly stop taking controlled risks or miss out because of fear to be back in the same hole.

 

I would try to journal, document or anything you can to try and get to the bottom of what changes as your equity changes. I think you'll find you are trading differently.

[steve46 12]

Hello Folks

 

I have been away from the site for a while and to my surprise people keep referring to this thread. I would have thought otherwise, but I will try to answer some questions and then unfortunately I have to step away. I retired from the business some months ago, but found that I got restless. I suppose it gets into you blood so to speak, anyway I took a job maintaining a presence in the Euro and Bond markets, and I it seems to suit me. My day starts at 2:00am on the west coast USA. I monitor a "book" of inventory through the US session and then handoff to my colleagues overseas at the close of the US markets. This is partial answer to a previous question asking if I am able to hold overnight and still "sleep well". The answer is that in this business we view volatility "shocks" primarily as opportunities to get long or short. Broadly speaking we use options to protect existing positions (sorry I can't say more about that), and so yes I do sleep just fine.

 

In answer to the question about using the $TICK I have to take a step back and explain, that these days, I use CQG for charts and while I do use a version of Esignal's $TICK, it isn't really the same as you see on your screen.

 

And finally the more recent comments about "tape reading"...I am a tape reader, and for me that means that I use price (the raw numbers) to visualize the markets. By "raw numbers" I include volume, options open interest, and market breadth. I no longer use "indicators" like moving avereages, MACD, RSI and such....I also look at seasonal influences and by that I mean that I take into consideration the impact of economic reports and earnings season reports. In terms of details sorry but I am very limited in what I can say.... I look at the markets based on what I call "key reference times". During these times (which correspond roughly to the open of various markets) I monitor how each market acts and I try to put the puzzle pieces together. That means that I try to determine what the market "wants to do" and If I feel I have it solved I put on a position.

 

During my short tenure here I notice that many if not most of my colleagues are tape readers, and do not use TA. Many of them monitor only the opening hour or so of the markets they trade, then using that data, they establish or modify positions. Since these are institutional traders, they usually wait for price to get to extremes before acting, and it takes a while for them to build or liquidate a position. After that the emphasis is on risk management and achieving profit objectives (the bottom line). Clearly this is very different from the experience of a small retail trader, so it may not offer much help.

 

To make sure I offer a balanced comment I want to say that I do know traders who use indicators and technical analysis effectively. I think its a matter of finding a method that fits your personality and offers a mathematical edge. Clearly it takes time and expertise and the profession isn't for everyone.

 

Since I can't comment on the markets I trade, it probably doesn't make sense for me to continue to post. I will stop here and wish everyone the best of luck in the markets.

[nmtdoc 10]

Greeting,

I started following this post at it's inception and learned a lot of valuable things, some of which I eventually incorporated into my current trading methodology. I never had a good conceptual grasp of "reading the tape" nor the tools to do it. I've since found a good 3rd party provider for this which has helped a lot. Part of the problem with tape reading is that most data feeds that we have access to only show a fraction of the bid/ask.

[daedalus 10]

A simple strategy...

 

This should work on any pit traded contract but you'll need to monitor the OPENING price. Thats the key. This is not my idea, but an adaptation of something I found on youtube one day and I simplified. Kind of makes sense as the opening price determines the bias for the day... this simple idea looks for initial direction to reverse, and to ride the wave of those protective stops getting hit.

 

Use: 10 minute bar. Buy/Sell stops for entry. Opening price off 8:30 candle +/- 1 tick.

 

1. Wait for price to make a push in a certain direction (typically wait at least 1 bar can't use opening bar as entry).

2. Note the opening price.

3. Wait for price to trade back THROUGH the opening price by >1 tick, cent. This is your entry.

4. Stop placement depends on the market but place them logically outside of the previous swing low/high for starters or a few bar back from the trigger bar.

5. Make your own take profit rules to manage trades.

 

I've attached a few examples using GOOG and the YM. I would hesitate to use this as much on the currencies because there is no pit traded time (not really at least) and your looking for volatility during the open to define the trend which 8x's out of 10 isn't present prior to the asian open in the currencies.

 

Just thought this basic idea could be utilized by many. As you can see its barebones idiot proof and it has EXCELLENT risk:reward. Not all of them are created equal but I think it would beyond easy for everyone to walk through a few charts and note what makes the best patterns and which to avoid. I leave that to you.

 

Hope this helps!

[MadMarketScientist 11]

Daedalus,

 

Maybe I missed it but any thought of what you go for with the profit target? Are you trying something fixed or more dynamic?

 

I would probably think about using an ATR and depending upon the timeframe I'm using maybe somewhere like 3x to 5x that ATR.

 

Also, a trailing stop as well in case you catch a flyer off the open. Maybe a 3 bar stop strategy - trailing the stop for example on each new high (on a long) count back three bars looking for lower lows and trailing below that.

 

MMS

[daedalus 10]

Any and all of your suggestions would be good ones. I personally think it might be conducive to trail stops with either an ATR strategy or with some kind of bar count. Gotta win big with a strategy like this.

[MadMarketScientist 11]

I've always been a proponent of using a target that is dynamic to the market -- when I try to force the market to bend around my will of a preset target like "1.50 points" it seems to be ineffective after a while. When I base targets on ATR I do much better.

 

I'm also changing my thoughts on trailing more - lately I've been doing more exiting half the position at a preset target and trailing the second half. While the second half tends to be more erratic on the equity curve it is enabling me to recover quite a bit quicker when I hit some prior losses because it seems like a big runner almost always follows some chop that I get caught in.

[Kiwi 16]

I've always been a proponent of using a target that is dynamic to the market -- when I try to force the market to bend around my will of a preset target like "1.50 points" it seems to be ineffective after a while. When I base targets on ATR I do much better.

 

It is interesting that you say that MMS. I think that one of the keys to a discretionary systematic approach (or is it a sda) lies in that statement: "a preset target like "1.50 points" it seems to be ineffective after a while."

 

In my years of watching a number of markets I find that for some of them actual numbers matter. But that they morph. Why do they matter? Because, say, the testers of prior S&R build a consensus of how far they need to go to collect the majority of free liquidity without signalling reversal to each other. Why does it change? Because you can't have the suckers catch on (or you can but then you take their money again).

 

When I was trading HSI it was a fast morph (I visualized a bunch of guys meeting for tea in the HK towers before open) and I'd watch the first couple of trades to get a read on what today's market would be like and then apply rules based on what happened there. Sometimes stops and patterns would stay the same for a week or weeks but sometimes they'd switch from day to day.

 

You could use ATR and make the stops big enough to cover the variations ... but where would the fun be in that - or the high expectancies.

 

 

 

As a historical note: HSI went crazy a few Augusts back when the Chinese were thinking about opening a mainland futures market so some guys in Shanghai were given big big money and used the HSI as a playground. Spreads went nuts and slippage could be amazing even for those used to the HSI. I retired from it to trade STW and SPI. A year later the locals in HK had continuously adapted these guys into their financial graves and the market was back to normal.

 

Darwin's theory was about survival of the most adaptable not the strongest and the boys in HK are the fittest. The big money, even Chinese, isn't always the smart money.

[EminiTradingCoach 10]

If I were to list two things that struggling or new traders to master, the first would be who they are as a trader. You will not be able to effectively utilize external trading factors like indicators, trading systems or trading setups if you dont know who you are as a trader. These external factors may ask you to do things that make you uncomfortable, like to big of a stop or too many traders in a day.

 

The second thing is have a firm understanding of the type of day it is. Now this is probably more for day traders than investors, but most ES traders are day traders. Understanding if it's a Narrow Range day or an Expanding Trend day will help filter out certain types of trades.

[MadMarketScientist 11]

I'm with you on determining what type of trader you are. I'd argue that the majority of the people trading are totally mismatched -- meaning what they've chosen to trade does not fit their personality, the time they really have, the expectations, personality or even capitalization.

 

It's why so many seem to blindly trade forex - not saying forex isn't a great choice for some but it's that crowd mentality that's wrong.

 

Get this part right, match yourself to really the style and market that fits you best and you infinitely raise your chances for success.

 

MMS

 

 

If I were to list two things that struggling or new traders to master, the first would be who they are as a trader. You will not be able to effectively utilize external trading factors like indicators, trading systems or trading setups if you dont know who you are as a trader. These external factors may ask you to do things that make you uncomfortable, like to big of a stop or too many traders in a day.

 

The second thing is have a firm understanding of the type of day it is. Now this is probably more for day traders than investors, but most ES traders are day traders. Understanding if it's a Narrow Range day or an Expanding Trend day will help filter out certain types of trades.

[TheNegotiator 13]

I agree with the last 2 posts. Very important to recognise how your personality will best fit the different styles of trading and different markets. Understanding the type of day that is unfolding is pretty critical imo as so many get done by fading trend days and the like.

 

I'd also add that if you are struggling, deconstruct your charts and your workspace. How many markets do you actually need to be monitoring and exactly why have you got a EMA of momentum as an indicator?

 

TheNegotiator.

[TimRacette 11]

To prevent the dreaded “blow up” of your account you must place a max daily loss limit on your account. Don’t just write it down on a post it. I'd recommend no more than 5% of your total account balance setting a hard loss limit with your broker to ensure this rule will be followed.