Thursday, July 23, 2009

Have the Courage to take big profit - thats how

Thats it. I started writing this post in a techno - psychoanalytical description of the edge that good traders that I know have. 2 paragraphs later it was way too verbose and still didn't explain it - so I shredded it. In one sentence this is what they have - Courage to take big profits and walk away from a loss.

So lets say that you broke even yesterday or took some loss or better had the powder dry. Today, there were opportunities to get in pre-market at the short term balance point or POC around 948-50. Those who trade the eminis for a living do trade pre-market whenever it is the opportunity presents itself. So if some of you are going to say well..Woodie said dont trade before your wife is awake, then tough luck. Keep exploding yourself and your broker will get you that many virgins in heaven.

After today's open some bought the open price and it was never tested. But the IB was another buy point after the show of strength. Talking about entries and exits is not the point of this post though.

The serious trader loads well at any of those entries and puts his stop below a reasonable support which in our case would be the interim balance point. Not 2 points or 1.5 points or 5 ticks whatever bull. But below a reasonable support (supported by objective numbers). Then you calculate your risk/reward. If the support is so far away that it will result in my broker breaking down my front door for a margin call, then its not for me.

Load enough that you can peel like an onion. And let it run. Peel at strategic points with a time decay -- not at 5 ticks or 6 tick. Well, may be you can peel one at 12 ticks or so. But get the 5 points and 10 points 15 and may be 20. 20 pointer today was an achievement today because of the recent congratulations to those who got it. But wasnt that the premise of this trade - the break from balance.

If you miss it though, don't try to get in with some CCI or TTM squeezy late in the game. Walk away if you don't have a trade... not saying you didnt but dont look for trades you did'nt pre-plan. It only looks good in highly edited newsletter videos from the gurus. Have you been to these rooms where they trade like they have a paint shop pro for a trading dome?I have. The guru goes like... "I sold it here " and marks a dot on the excel sheet right on top tick when its already retreated from the entry.. and then " oh shoot..". It blows up again and again and again. BTW if you know who I am talking about, don't ever go to those rooms. It will take you years of electric shock to reverse the brain damage!! seriously! I did for a month I think, many years ago. My damage is permanent.,lol. I have no hope.

Tuesday, July 21, 2009

Are super indicators enough?

This is a topic that I have been preparing a post for. The conclusion though is this - NO.
Market profile by itself in inadequate. If you have an indicator just based on moving averages or candlestick - I think that is a ticking time bomb and you will blow yourself up someday. Volume or orderflow or tape read can kill your trades.

Successful traders have something in addition, thats more important than all the indicators combined. More in the next post. Dinner call.

Pull back but no selloff

The morning weakness had great promise getting into range which did trigger
some block trades but did you notice the volume just died and there was broad
based strength that picked up across the market.

Sellers did not step up and there was little reason to. So at the lows where it lingered
for ages (or so it seemed) there were just no sellers at all. Days like these have not been common at these extremes but it speaks about the true tension in the market.
We need a new balance area but where?

Barring any bad bad news, we might indeed seek a higher balance upwards in the long run. Volume still not impressive which concerns me but clearly inventory is changing hands between timeframes. The likely hood of a new balance area in the 975s is real before we test support in my opinion.

Monday, July 20, 2009

Timeframes and capital

The type of fish question eludes to an assessment of who the opponents are
and who are you swimming with. This week is a great snapshot of a price/value area
where multiple players are involved. If you chart the 3 monthly profile we are at the
top edge of profile. Such areas bring together multiple timeframes. More so then the balance areas. 1st those who are long at the these levels. And by that I mean not just the index but via different instruments or underlying stocks. Ultimately the S&P or Dow is simply an index isnt it?

I have friends, family, and my own portfolio that is long from these levels. How would these institutions behave, will they cover longs, and what about those short. And those who are long from the lows. We can have no idea until the players put their bets on. To some extent thats what volume and orderflow provides and so far it is unimpressive in the s&p index.

If we do open outside the range and trade back in range, orderflow at those levels might provide a clue - both for shorts and longs . But these trades need to there when the price hits it - expect fast rejection or lifting of offers. But the reason I brought this topic up is to highlight the perspective of timeframes.

At edges like this, I think it is a big mistake to trade just a fast chart. Simply because these are high risk and high reward areas. A lot of big fish will be involved whether they like it or not when the market attempts or rejects an important price level.
One big thing I like to look for is whether there is solid evidence of statistically higher, broad based buying. The lack thereof would result in a consolidation back into range initiated by desperate profit taking. The other significant factor is the location and size of the stop. Small stops are inherently at a big disadvantage at the extremes and those setups are better not played.

Sunday, July 19, 2009

What kind of fish are you

It was humbling to learn about accounts of some readers. And, i am quite surprised by the perception of some new traders of what trading really is. Whether stock, futures or forex, I think majority of traders starting out in the field start out wrong. Perhaps thanks to a lot of marketing and sales by gurus selling chatrooms and training and seminars. Some of these gurus have a seminar announcement/sales everyday. I think it is most important to figure out first what kind of fish we are. The most common new trader is out in the high seas with sophisticated software in a 15 foot boat competing with the commercial trawlers. I think just setting this perspective is extremely helpful in the decision whether to set sail on any morning. But does anyone actually teach this? I think the answer is no.

Houston..... do you read

Checking back after a radio silence. There are so many things to update. I have communicated with some of you on the things that are developing that I would like to share at some point. I am still looking for help from a programmer/math guy for some custom analysis. My terminology for this thingie I want to develop is - Boundary Condition Money Velocity. It sounds very complicated - but is a simple concept. Trust me. However the variables and historical data involved is pretty involved. I promise I will explain in a later post.