The Trading Dilemma Zone.

Imagine you are driving in a car, talking on the phone or pondering about something.
You are doing 50 miles an hour in a 40mph road. You are about 100 yards or so from the traffic light just as it turns yellow. Do you speed up or do you hit the brakes... that was a scenario I heard on NPR about a month ago on the program on the traffic dilemma zone. It was referred to as the dilemma zone for brain where it has to make a split second decision whether to make it or stop. I caught maybe 5 minutes of it so I cannot elaborate much. I cant find the recording either. I suspect at that moment the motor cortex takes over control on the decision. It calculates if you are going to make it or not, based on the visual information it is receiving. I think this is much simpler primal process but a good comparison to what we encounter everyday in trading.

Now imagine you are about to enter a long position today in the E period today. You have been waiting for a retrace all morning so you could get on the train. However, instead of a normal retrace, the market makes a steep dive down to approximately your level. You have been analyzing the rest of the markets, news and parameters to see if anything has changed to the long bias - it hasn't. But at the moment the price makes a steep dive to your entry location, you are in a dilemma zone, I suspect. I have fear that the momentum may take it further through me, perhaps the next major level. I have greed to be on the train.



I wrote my premise of my trades and bias today in my last blog. Again to recap. The market makes a strong open drive during A period opening above POC, value, range and the previous levels of resistances. The opening price is bought up on subsequent periods. Strong delta, strong big money delta as well. Price has stopped at strong resting bids @ 6:55, 7:11, & 7:28. Dominant flow is the first 2 bars (reversal of selling pressure). Then we have another at 7:56.

I entered my bid at 1289 at the 8:44 bar after it ticked up from the low just as I notice selling pressure subside significantly and a big block of order trade on the ask (confirming the show of hands @ 7:56) . It was VWAP as well. But by the time my bid was on the dome the market was at bid 1289, I was fighting the market already. I did'nt take the ask. I had maybe less than two or three seconds to take it. I wanted that tick. One of the main reason was that I wanted to stay at the bottom edge of the initial balance and give it a 2 point stop intially, then switch to a mental stop. But I think the bigger reason was because I was mentally in fight mode already. It is what I am calling the trading dilemma zone - when you make a decision to enter a trade. However I think there is a lot more involved to it than that. I don't remember being afraid so much as unwilling to take a higher price and then soon enough my unwillingness to chase (self trained) kicked in. In a matter of couple of seconds the time place opportunity was gone.

I would pose this question to Dr. Steenbarger and see what has to add on how to deal with this zone mentally. His blogs on trading psychology has been of great help. On the managed exit side of things there are couple of good articles
They are similar in nature I suppose yet need different strategies.

I did end up buying the 1st standard deviation of VWAP at 1294 in the J period for a much smaller trade. I thought I was lucky to get that retrace ( see prior midday update) because on days like this retraces can be very shallow. I did end up taking profit earlier because I caught myself dozing from the flu medication at one point (that much action today). I figured they don't let u drive (a much simpler activity) under medication, I might as well as preserve the profit towards trading costs and stop trading.

It is important to me to get the first great opportunity so I don't have to take a make up trade. I would rather be adding than initiating. I hope nobody took the short side of the market today. I posted the advise against shorting today from my well ingrained traumatic memories stored in permanent memory in my brain.

Trend day

I wanted to post the chart above last night. Unfortunately, I passed out after a good dose of Flu medicine. Thanks to my kids daycare we get it from time to time. Thats a part of parenthood. Lots of ginger water, citrus and coffee and a wait out period.

Trend day so far. Open way above value and range (big gap open). And support to the bottom of open range. Notice the 4 point IB. These days are dangerous on the wrong side. We still have some shorts caught. The afternoon may bring further range extendsion if we can hold the 92 level. I put in an order long at 1289 after the E period low. At the same time I noticed a large block trade at ask. Never came to my bid again. I hope some of you caught that. That was the trade of the day to scale out the rest of the day. Good trading. Whatever u do. Never, never try fade the expanding edge of a trend day. The day looks dull on the surface. But days like this has a potential to explode. Did I say never fade this kind of day? I would rather be wrong than hanging upside down.

The day in review - top heavy

Heres the Profile for today and clearly we have established value higher. However it has a topping formation meaning price rejection as of now above the 85s.

Look at the order flow at 9:53 pst. 1285 had a big amount of resting offers that got reloaded. Then they hit the bids too pretty heavily. There weren't enough timeframes involved to break the level yet. It was a good short opportunity on the second attempt. I did'nt take it though.

How big is the timeframe universe

The buying at the 60s should not be confused as a signal for a bull market. In fact the very long timeframe, long, intermediate and short price trends are all down (intermediate/short term value is headed up slightly - see monthly and weekly profile). We do have a price rejection/support level in the short timeframe (although it has become a little porous after yesterdays action). And this support is provided by the participants who are outside the balance area of 1290s to 1260s. At the edges they play depending on their inventory. Now are they the same players every time- no. Are they all long terms - no. Will they bail when the level is broke - yes and no. Will they scale in if get to the 30s - some definitely yes. Some may be short and cover. Some may not until they find another attractive level. In the 30s we will encounter a new set of players some of the old and some new. So the timeframe universe is like a video game where advancing to a new level brings new players and new foes. The short time frame trend is flat lining. But whether its the 1200s, 1230s, or the 1260s the first embryonic conception of a market turn appears in the undercurrents just like so. And while the level is not significant as the turning point, it is the behavior of the market that has transformed in the last several weeks. Whether it will turn at the current level or not the is really not predictable and nobody really knows. What is predictable is that the journey will take us through many mini-balances like last week and this week. It is within those balances is where we play. An awareness of the boundaries and potential behavior there is what is paramount for the day traders to keep ourselves from being sucked out into thin space and our accounts with it. Remember we do not have intermediate and long term initiative buying quite yet which will bring us the volume and perhaps out of the balance. The same thing can be said of the sellers .