Friday, June 24, 2011

REVERSAL SIGNS YOU MUST SEE PRIOR TO ENTERING!!

Be Very Patient on Reversals and Trades Against The Daily Trend....
MAKING THE MARKET PROOVE ITSELF - Preferrably we want to see multiple signs of Accumulation/Distribution prior to entering any reversal trades.
 
The Signs To Look For :
#1 Price peaks at 7-8:30 bar Hi/Lo (Only take after 7&9bar zones ) 
#2 4500 Probars, at Hi/Lo - Volume must show its hand at extremes. Preferrably before the bottom/Top and at the botton/Top.

# 3 Exhaustion and/or Flush Signals on 1500 tick and/or 5 minute (multiples, usually 2-3)

#4 Divergence in the directing of intended move- I want them to show up on higher time frame, 13,500, 4500, 1500, 5minute.
#5 BB EXTREMES or HALF LINES CONFIRMATIONS - Look at the whole shape of the BB, this will show the current trend but If the shape begans to flatten (move sideways) we can assume Accumulation/Distribution taking place. 
Confirm Price Break above/below 4500 1/2 line BB. usually on high volume. Price Must then test the line.(this is Very Important)

#6 5 minute test of rising/falling market - This is usually the last sign prior to the train leaving the station, when we get a break above/below this test bar price may consolidate or trend slightly prior to being marked up on high or low volume.
(The UP arrows point out test of higher low as price trend up)

Friday, June 3, 2011

Timing EXIT SIGNALS & The Quest for when to REVERSING a TRADE

In Recent Post have been focusing my attention on a very inportant skill that will be the determining factor in deciding when to EXIT a position, Win Lose or Draw. In previous Post I covered the different STOP Loss techniques and clues to Close out trades that may not be performing as expected.

THIS post builds on some those concepts and concentrates on what i feel is a breakthru discovery for me regarding EXITS.

The Skill of Knowing when to EXIT,  is very subtle and rarely spoken of in books, maybe becuase traders dont realize that they either posess or are blocking or ignoring this ability. The typical 2% STOP or x POINT Target is the common theme when discussing Exiting a postion. Very Few people speak of allowing the market to TELL YOU WHEN TO EXIT. And even fewer can offer ways in which to go about it.

EXITING skill is arguably more important than ENTRY skill and can tip the scales to consistent profits. Many people focus most of their attention to proper entry and assume that their target or stop will be there EXIT. As discussed in previous post, A stop will more than likely be your exit if its too close, if you trail the position or move to breakeven.
The Ah-hA moment of clearity was when I discovered that Continued Focus on bar progression is the Key. The more trust and confidence we have in what we understand about market action, the faster and easier it will be to ACT ON MARKET INFORMATION.

FOCUSING ON EACH AND EVERY BAR for tells and clues. This will help me to feel the pulse of the market.

Allowing EMOTIONS and NERVES to SPEAK to you - this means possibly doing the opposite or just letting them give you a feeling of the market pulse.

FEELING THE PULSE OF THE MARKET- means not only following every move but feeling the result of each move. This is what our focus aims to manifest.

ACTING ON WHAT THE MARKET IS TELLING YOU - This is the hard part and the most crucial aspect of trading, actually executing what we see and trusting in our knowledge and ability.
This skill is DISCRESSIONARY and is DEVELOPED with repetition and Focus. This is where my Focused intention should be directed at all times. Ironically trading often leads us to NOT trust our eyes, BUT trusting our eyes is critical to trading success once we have a solide Understanding of Price, Time and Volume.
Trust and Confidence - will eliminate Hesitation which can be the enemy of consistent profits.

Subtle Exit clues and tells
- For Strong Trends we see Vix, INDU and SPX.X consistently at Extremes early. Volume Profile Reacting and Bouncing off POC's.
-On Range Days - The 4500 Swings and clusters and are safe clues to Enter and Exit Positions.

Friday, May 20, 2011

Quickly Sratching Losses.. Major Clues that Say GET OUT NOW!!!

Using CYCLE STOPS to exit trade is great way to manage losses, But many times we get a very poor entry or are wrong on our bias all together. In this case the trade may never make it to the 2nd cycle.

A Major Note Regarding trades that should be Scratched immediately. When we are wrong about a position price may NEVER make it to the 2nd cycle at all. In these cases we should be aware of the clues that say GET OUT!!!!

The MAJOR CLUES to scratch or Reverse position.
#1 Price moves away from entry immediately and stays. (ie. After Entry price moves a few ticks away from entry (2-4) and never breaks your entry price.) and simply doesn't feel right

#2 Price spends little or NO TIME in favor. ( ie when you enter price stay in opposition, rarely moving more than a few ticks in favor or consolidating in a tight range and fell wrong.

#3 Price breaks S/R plots on 500, 1500 or 4500 tick charts. (ie. When we enter and price starts fighting the cycle by not moving in favor or actually moving into the plot cycle line. This is our Clue to EXIT or REVERSE position)
click here for more on fighting cycles.


If ANY of the above signs are present. EXIT your position and re confirm your bias. If price then starts to move in favor consider re-entering in the direction of the trend.

CYCLE STOP RULES
What I do is use the 2nd 500 tick cycle after entry to determine the potential for price to move in my favor. 
  • If price has moved in my favor after the 2nd cycle I focus on signs that may indicate Target potential or a price reversal for a good exit. (ie. 1500 Exhaustion, Probars Etc.)
  • If price Does NOT move in my favor after the 2nd 500 tick cycle I EXIT the trade win, lose or draw.

Thursday, May 19, 2011

The STOP LOSS Conspiracy - Finding a Happy Medium For Managing losses


Finding The happy medium with MANAGING LOSSES is the key to tipping the scales. 
Listed are the main techniques used to manage losses, they all have there pros and cons some more than others. The struggle is when to use which of the listed methods.
Quickly Cutting Loses: 
The pros: it can prevent large draw downs and allow you to re analyse the market without the pressure of committing to one direction. Perfecting this can be the Defense needed to protect your End Game.
The cons: This can lead to balking or unnecessary losses in trades that would have played out in our favor had we just allowed it room to move. If we Balk Excessively it implies that we are not committed and even confused or unsure in our analysis. Unless this is perfected The consequence is OVER TRADING and losses in commission and points.

Moving to Break Even/Trailing Stop- 
Pros: This can lock in profit when we get a move in our favor and insure that we are profitable on the trade, it is a good feeling knowing that your are in profit with more room to the upside. Theoretically this is very appealing. This method was used by Richard Wykoff and is mentioned often by VSA traders Sabastion and Gavin Holmes (Wykoff Followers). However I think we need to consider the time in which Wykoff Traded the markets. Wykoff started trading at age 15 in 1888 and published writing during the 1930's. An icon to be respected but we are no longer in the old days and we must be up to speed with the current conditions.
Cons: When we move to break even, often times we got stopped out on the TICK, and price then continues in the intended direction. When this happens it cost us time, energy, opportunities, and money and can also lead to over trading if this continues to happen. Also when we get taking out by stops we lose in slippage as price is market against your direction.
Consequence: In my experience, more often than not, Break Even Stops sabotages Profits and is self defeating in today's markets. 

Hard Stops (less than 4pts): 
Pros: Stops are the most necessary means of preserving your account. This is known fact and truth that must be adhered to. However I think that day traders are overly obsessed with the technical side of "placing a stop" after all this is what EVERY book teaches and All trading preachers preach. But like much of the information we receive in daily life there is rarely any real life practical standards set to follow, thus leading to the literal application of a very general and ambiguous rule. Not to mention this information is Known and can be acted upon by specialist and market makers taking advantage of what is commonly practiced by new and small traders. 

Cons: Stops almost guarantee that you will suffer a loss of the specified amount regardless of your analyses. More importantly they are a primary source of weakness used to MANIPULATE the very market you stand to profit from. Unless you can afford the major swings it is wise to use them but.... 
I think we need to put the STOP thing into perspective!! Proper analysis will usually provide you with a general direction so nailing a perfect price is too much to ask from any trader, thus looking to enter within a reasonable range that allows price room to play out is a more reasonable approach.
Many have figured techniques that will allow for minimum $ loss when incorrect, and others have sworn by strict money management in the form of stops set at a % of overall balance. 
BUT the key concept regarding STOPS that I feel is deliberately NOT taught is that STOPS are meant to prevent THE MAJOR DRAW DOWN when UNFORESEEN EVENTS happen in the market. NOT to be stopped out at every turn of price.
The consequence: If we HONER stops too Strictly we get hurt in confidence, MAXIMIZE losses and more importantly we set ourselves up to be stopped out by manipulation.

REAL LIFE Notes about Stops:
In the past my most successful runs in the markets came when I abandoned Stops all together!! Yep I went weeks without using stops at all, just placing limit order for exits, over time i saw my account grow substantially. I was essentially managing risk with size. The problem here was i left myself open to unlimited draw downs on any given day, without the proper leverage to sustain. This ultimately lead to the demise of my account when the Forex markets reversed on major time frames. But prior to this discovery I was consistently being stopped out even when my analysis was correct or generally accurate, Before this "NO stop realization" I never had any consistent weeks or month of profit, so there was definitely some lessons to take from the experience. The next step is finding a happy medium. What i found to be a good cue to exit a trade is the use of Time Stops In which i use Price Cycles to determine if the trade playing out. Typically im looking for the 2nd cycle to be in our favor, allowing time for the price run, If the 2nd cycle is against my position then I will exit, win, lose or Draw (in theory??) What i found was that many times my Set stop is triggered in a break of the 1st cycle or prior to the 2nd cycle, suggesting that I needed to widen my stop even when employing this method, This method is helpful in quickly scratching losses when price is given room to move. click here to see details of Timed  Stops.

Proven Trader Don Miller:  Uses Size to manage Risk. He states that markets are imperfect thus your entries should be within respectable ranges. Professionals with high leverage usually leg into positions spread over a rang of points. an excerpt from TAD discussion Of course it’s difficult to get into all of the aspects and nuances of proper trade management in such a short snippet … thus the continuing intention to show a variety of conditions over multiple episodes and the disclaimers throughout the TAD site and early in the video.
Yet to try to clarify and reiterate, I of course believe 100% in risk management (day and career) which is the trader’s and market maker’s life preserver. I also somewhat agree that there’s no single “right way” to trade (“somewhat” meaning there are several asterisks in that certain fundamentals including overall risk management and adding to winning positions at appropriate times simply can’t be ignored) as pointed out in the Jellie program which begins by laying out the various ways to trade trading channels and market inefficiencies from a wholesale perspective.
The Jellie course also describes the effective use of premise-based (NOT some arbitrary point-based stop which ignores the true trade premise) as as one of the ways to accomplish this, and the late July PivotPoint client stops I discussed in last week’s PivotPoint Investment Briefing which allowed clients to completely avoid a subsequent 10% market crash were prime examples.
Another variable in strategy is the single vs. multiple entries and exits, where as a market maker I emphatically choose the latter to make up for market and trader imperfections even as I acknolwedge that some successful speculative traders use the former … which of course ties directly to the choosing an applicable and appropriate stop methodology.
Havng said that, I’ll go to my grave knowing that the topic of “stops” and how/when to use them is so misunderstood by the masses, it borders on ridiculous … one example of many points being if they’re used, they’re more momentary “reassessment points” where a trader should simply reevaluate … possibly with an immediate re-entry … perhaps a reversal … or even a “no immediate action” decision. This concept is especially critical as a professional market maker in the S&P E-Mini Futures which I’ve been doing since 2004.
In terms of providing highly short-term wholesale liquidity at optimal and excessive market points which was the case in the first sequence example, historical statistics (Larry Connors has done some great work in this area) prove that using them to exit trades as the final traders are getting shaken out is flat out wrong and costly over time … even when considering the aspect of variance.
In the first sequence example, which we see over and over again in trading extreme futures markets, clearly using the most recent low or high AFTER the market had already reached an optimal zone (i.e. 3rd or greater push with air galore that shakes the weak) as a complete uncle point is a losing proposition over both the short and long run.
Yet I suppose my main point was to open the eyes of many to looking at risk management in a different light.
For as in chess, one can sacrifice a large number of pawns to protect the queen.
10 points on 5 contracts (the pawn) is the exact same “financial risk” as half a point on 100 contracts (the queen).
And as I’ve said in many public talks, varying bet size for me is undoubtedly THE largest contributing factor to my performance reaching the upper levels of the industry for my asset class in recent years.
Again, great note and stimulating dicussion … hope this helps.
Stay well.
Don

Proven Trader Barry Taylor: uses a 4 point stop and basically preaches NEVER use Trailers or Move to break even. He commonly cuts losses and Reverses trades when signal suggest. Click here to see Barry Taylor's Take on Stops.


The MAJOR CLUES to scratch or Reverse position.

#1 Price moves away from entry immediately and stays
#2 Price spends little or NO TIME in favor.
#3 Price breaks S/R on 500, 1500 or 4500 tick charts.

Sunday, May 15, 2011

Better Indicators Q & A Relative to my Trading


How do you differentiate between turning point overshoots and real trend breaks?
I look for 2 things. First, I check to see if the market is close to a turning point in the higher time frames. If so, the chances are greater that this is just an overshoot. Second, I look for confirmation from my volume pattern indicators. For example, volume momentum divergence patterns and Professional bars are usually a sign that the market is about to change direction.
When are the bullish (red) and bearish (white) divergence signals plotted?
The divergence signals are plotted when the momentum line approaches the zero line. This means that the signals can be plotted retrospectively. The delay is not usually an issue since the divergence signals precede market turning points. On fast charts such as a 500 tick bar chart the delay is inconsequential. With longer day trading time frames, such as 4,500 tick bar charts, the signal can be anticipated and when it arrives is usually confirmation.
How do you know whether Professionals are buying or selling?
The easiest way to answer this is with a video. Around the 6 minute mark I explain how I interpret Professional and Amateur activity and whether it is buying or selling. Go see the Professional buying or selling video here...

What do you recommend for entry after a breakout from consolidation?As the market breaks I enter a trade "at market" – real breakouts will move fast and without a pullback. I anticipate the direction of the breakout by looking at 3 things. First, the breakout is usually in the direction of the trend that preceded the consolidation. Second, I check the trend direction of the next higher time frame. Third, I look for confirmation from my volume pattern indicators
.
Can I edit the indicator code?
No. The code is protected and not able to be edited. However, Functions are included in the downloads so you can program your own systems or indicators using the indicator outputs. Currently, the Better TRIN code is unlocked and able to be edited or translated for another trading platform. But this is likely to change once the next version of Better TRIN is released.

Tuesday, May 10, 2011

Understanding Better Momentum

Understanding Better Momentum explained by the creator Barry Taylor of Emini-Watch. This is one of the better explainations of how to use the Better Momentum Indicator. I t addresses some of the seeming contradictions of Exhaustion and Divergence and how to interpret the signals.

(Click here 1,500 Tick Chart Review from Friday 6 May 2011)

Friday, May 6, 2011

Recognizing Types of Trading Days and how to React

In this article I want to catorgorize the Types of trading days that we often see as the week progresses. Similar to the Spotting Trend Reversals article and the Analysing Gaps articles.

What Types of trading senerios can we expect on any given day? The appearance clues are calibrated for the curent environment as of Feb to present 2011. These are only hints to help clarify a bias for the upcoming day including Pre-open and Open. What i have noticed are that Gap ranges can provide o glimps into overall market consenses.
What im reviewing is the GAP Range Combined with my Daily Market Bias looking to spot ineffeciency in the market, primarily for the first part of the day from the Open to the 7zone. I also take into account big News Days for added momentum potential.

Strong Trend Day & Early Reversal - Continuation of previous days trend or breakout after a consolidation day.
Usually appear after Gaps of 2 to 5pts. The sweet spot being 3pts
Market Bias Signal =  +/- Moderate to Strong Trend
Volatility: HIGH / Moderate
NEWS - RED - FOMC, New Home Sale, Consumer Confidence etc.
Reacting to the Open

Ice Breaker Good - May get 1 shot 1 kill opportunity. Ice Breakers are good here as the range has not been exhaustion in either direction.
Early Reversals & Gap Seals and Gap Test - These days tend to reverse or find S/R very early prior to strong trends. look for Double Bottoms and early reversals off S/R. 
Confluence Syncs - look for 5/15 5/All sync early, If trend find S/R fast and breaks into a rally. look for 500 tick cycles to enter.
Normal Targets - 4pts targets are likely

Live Example:
This 15 minute chart shows 3 Continuation Trend days. Day 1 Gap Up 2.25pts finds Resistance, Day 2 Gap Down 2.75pts and Test Gap and Day 3 Gap less than 1pt Sell off Immediately.

Tight Range Consolidation Day or Tight Trend Drifter -Usually appear after a VERY large Gap of 8-15+ (or 75%> of ATR)
Market Bias Signal =  +/- Moderate to Strong Range or Trend (Many times the Strength or Weakness/Strength shown by the market bias will play out Overnight in the Globex session) so we must recalibrate our bias for the early part of the day. Typically we Horizontal Consolidation or Tight Range Trend.
Volatility: LOW/ Modest
NEWS - White - ORANGE  NONE to Modest
Reacting to the Open
Avoid Ice Breaker - When the Open is consolidated or when the open Bar is WIDE SPREAD UP/DN on High or Block volume. There may be less follow thru as this has already taken place Overnight.
On Trend Drifter Days a Hold till 7bar can be a rough ride but well worth the pain. these days usually start very early and may have low volitility.
Tighten Targets - When we get an ultra large gap we must tighten our targets as much of the move has already played out in the Globex Session.
Consider the Beach - Days like this are great days to take off and Review the charts after the close.

Live Example
13,500 Price Traded Lower in Globex by 14.5 points, Open bar wide spread down Block bar. Price consolidates for the Next few hours.

 4500 View of Large gap. NO Trend for the first few hours

15 minute View (Large Gap = No Trend for the 1st few hours into dead zone)


Wide Horizontal Range Day- Usually after a Gap of 5 - 8pts.
Market Bias Signal = -/+ RANGE DAY or Weak Trend

Volatility: Modest / High
NEWS - Any
Reacting to the Open
Ice Breaker Good - May get 1 shot 1 kill opportunity. Ice Breakers are good here as the range has not been exhaustion in either direction.
Confluence Syncs - Play the Cycle Extremes on the 4500 Tick chart, they will provide the best entry's.
Normal Targets - 4pts targets are likely if Entering at Extremes.