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 ranges...so 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.

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.

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.

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.

End of B period

There a lot of paper buying today. 50K positive delta on the big size lots. We do need to hold this vwap area within this area. Lot of volatility and risk of getting chopped. We havent seen any strength until today after the break down of the 1140 area. Still a very weak market in the near term.

Delta positive at the top of the hour

Just like yesterday we have additional buying at these levels. Rarely you see a positive delta near the lower 2nd deviation of VWAP as seen in the B & C period today.
Remember that yesterday was an inside day. Finally we have some semblance of normal trading. However the volatility is in wait and come in at anytime a significant break in news surfaces. So the key is to be careful. Prior sessions has been very choppy on the profitability front. I remember a short that stopped me out at entry by 2 ticks and dropped like a rock and then Doc posts the perfect post.

Dips can be bought today if the financials continues strengthen. The inside day breakout is a small small possibility but until the end of lunch time we might not see the volume. Currently, it is not supportive of that bias. we could simply rotate and balance inside until the news (higher probability).

A different mood

Todays market mood is opposite of yesterday before the failure of the bailout vote.
Note that the market had a bid delta negative. Today we are the opposite: 52K positive delta indicating covering and over 30K positive on the big delta. Financials are balancing as well and the PNF chart is not trying to make new directions. Market is comfortable here for today until the next directional news. VWAP provided two small buying opputunities and the price action is not too volatile. Careful of any whipsaws if there are any political comments or consensus. Time is running out.

Bailout woes

Market tanks on possibility of a rejected bailout package. DJ down 700 points.
Rescue plan fails vote.

Bottom of the hour

Lunch time! The S&P emini has indeed mananged a flush move to the downside. And we are at the support level of the 1160s. There were some buy response that came in at 9:28 and 9:33 PST in the chart below. Selling pressure has subsided and at the POC of the day we have a 2 way auction with some shorts covering. Note the delta is at -55K.

The 1180 area is key as it is VWAP, Dev VAH as well as a minor resistance today. This flush move to the downside gobbles up any long position from the 1160s from last week and prior session. An action market makers and locals love to orchestrate. Financials are still drag until now. We need financials to turn around significantly less than 2 hours for a true reversal. Regardless of indented direction there is a high likelyhood of price whipsaws. Given the negative delta we are at. We need a significant amount of covering and buying for a reversal. Currently, odds favour resistance at VWAP. If we get to VWAP it will be the nature of the buying or covering that determines the conviction. A significant volume in covering may change the game. So far though the big contracts are still -18k negative.

White house announces that they have enough votes for the bailout.

A market in wait

The last two sessions has been balancing in a 20 point value area which is a break from the volatility. The 1225 level in the S&P 500 Emini is holding as a price rejection level. The market spent a lot of fuel yesterday on the buy side without getting much liftoff early on. That is a sign of temporary price acceptance of multi-time frames. Everybody is waiting on the word from the Hill on the bailout package. The market is preoccupied. There is still sign of mild accumulation as we entered the mid morning net delta positive. A moderate sign of price getting some responsive buyers. We are building additional TPO count in the upper distribution of the 3 day profile. Key area to watch is again- the 1225 and the 1187-1191 area overnight. Key to trading days like these is not to get killed by a thousand pricks. Taking very selective 2-3 trades and living with it. I was biased to the upside based on the delta but we did not test the 1225 level although we rotated through yesterday's value. The market just does not have the ammo quite yet. As we have seen in the past few sessions, any strong move in either direction will be preceded by a strong flushing move in the opposite direction. Sometimes small time players like us need to stay out.

A Trend following the Balance

A trend following yesterdays balance. We are 83K net positive on the Big contracts and 93K in general. Indicating a strong potential for more upside.

A balanced day so far. No sign of upward rotation as the big contracts are net negative and the general market is neutral. Good trading oppurtunity in the K period on the weakness of the test of the I period high. Having seen the late afternoon liquidations so far and the distribution yesterday, which was an multitimeframe liquidation as evident in the distribution, one should be poised in the direction of todays balance. The market is probably not going to commit until the bailout is clear. The direction from this distribution today may set the direction. You want to in that direction.

Day type in trading plan

Here's todays profile. Notice the sharp downturn in IB both in the profile and in volume of the dominant flow as well in the direction. The PNF chart also had a down sloping angle through the morning. It was profitable day turned into a loser. I write this blog to bring up the point of incorporating the day type into the trading plan. And outside of value analysis, one needs to set aside days like the sessions we have had - then have a playbook for it. Did you notice the financial's steep down trend. I dont remember it turning around. So you can call it - special exception session - open below value etc. Price never closed above VWAP or the volume weighted moving average. The important sectors to watch were the commodities, the financials, the uncertainty of the bail out program. And how that played in the traders minds. The big contracts actually were buying below VWAP and net positive. The day intended to balance today - but capitulated in the L period. The mistakes in trading are made when one fails to recognize that the opposite flow has won out. It does seem like an excess low, however. An inevitable rotation down when price spends so much time below the POC at the bottom. Tommorows open and the price behavior at the settlement will determine the type of day. Look for long term players to be responsive at the settlement or todays (as well as overnight) LOD.

Clearly, financials and the bailout program needs to be watched intently.

A day to remember

Palpitating fear in the market after initial balance. Great deal of volume. The Market structure (normal variation) we had yesterday extended with the range extension to the down side in the morning. It is an important detail to note that we had a buying tail in the G & H period. An important level for the future.

Markets rebounded first with the British Financial Services Authority put a temporary ban on betting on the short side. Wide speculations of a cross -border effort with many centralbanks. Then we had news of Paulson talking to lawmakers on a proposal to deal with the bad debt losses:

The U.S. Treasury Department and Federal Reserve declined to comment on Thursday on any discussions Treasury Secretary Henry Paulson may have had with lawmakers about a Resolution Trust Corporation-style fix for a financial market crisis.

"We're not going to comment on rumors," Treasury spokeswoman Jennifer Zuccarelli said.

A congressional aide told Reuters that Paulson has been discussing with lawmakers a proposal to create an entity to deal with bad debt that would be similar to the institution established in 1989 to clean up massive losses in the savings and loan industry. (Reporting by Mark Felsenthal; Editing by Dan Grebler)

A great trading day. Cutting losses quick (or breakeven) and letting runners run
works like a holy grail on days like these. One could rake in a huge profit with less than 50% win rate.

We ended up with a net negative delta of -50K in the genenral chart which indicates that short covering led the rally and some of the long term longs that were liquidated today were not put back on. The big contracts ended up with a positive delta and is in line with the last 3 days action by the big money.

Moment of truth

We are here at the moment of truth whether this probe is going to hold. Many attempts to break the downside has not garnered the interest of big initiative sellers. The bigs delta is now net negative which led to the break down of the structure. So far the 60s are still holding. A failure of this probe will be significant for the strength of rotation upwards. Heres the PNF. If this probe does fail we need a big buy response to confirm the support. The buy response did not follow through during the prior probe of the 80 level. We need a much bigger volume than the prior upmove.

At the bottom of the hour

Its 10:24 PST. Traders are getting back from lunch. We have turned from a net negative -15K to +13K in the big contracts. I am concerned a little bit about the market structure. After the C period extension, we havent traded into IB and we are forming a distribution in the bottom, indicating that the auction has brought more timeframes in play. The AIG bailout did not have much play today, at least not much that is visible. Lots of trading oppurtunities and nice fluid moves. The range extension to the downside has been consolidating with some buying interest in the 60s till now.

A day like this, a change of trading style is needed imo. Using shorter time frames in the extremes and looking for conviction in the direction of the moves.

Mood of the market

Floor traders often talk about the mood in the pit. It is gauge of what the intended direction of the market is. An invaluable barometer in trying to understand what might unfold. In probability terms it is a bias in the dice. If you have been watching the last two sessions, you are aware of the overwhelming negative news that has come out of the financials . What has been surprising to me is that an analysis of the big contracts is yielding a bias on accumulation. It does not mean that this is the floor of the downleg. However it is clear that these levels are of interest to some long timeframe investors. There are buyers who are willing to be responsive players at these levels. That I think has been a small bias in the dice.

What did not happen yesterday? Yesterdays market structure was an even distribution. No broad based selloff. The big contracts were delta positive through the day. The imminent selling came as a tail in the M& N periods. The bias of the dice caused the structure to be balanced yesterday.

Today the dominant flow from the 60s found intense buying interest at these levels. However later in the day, these buyers did not initiate trades above certain level (mild initiative buying and mostly short covering only)

Yesterday and today are fairly similar in sense of mood. Gloomy but bottom feeding for another day in the future. Currently the 70s and 80s are valuable commodities. If you do not have volume analysis, you can get similar sense of buying with VWAP.

While the general market had been negative, look at the big contracts. A very different picture indeed emerges. A valuable clue in placing trades, making you alert of a possible surprise around the bend.

At some point soon in the future. I intend to post the market bias comments earlier in the morning. Hopefully that will help other traders.

Surviving the market cycle and profiting from it.

Heres the daily market profile for the S&P 500. Trading the ES emini is probably the hardest job in the world. It is also the best job. Besides being heir to an oil field today. Dare I say that. But if you bought anywhere in the A, B or C period and held it till the N period or overnight, trading 5 contracts or less, I will officially award you the "tradersteetime knighthood" of trading. I have looked up the definition of day trading to see if they include holding a runner for a swing trade. They don't yet. But the market does not give very many opportunities like today for a swing trade.

Today was one of the easiest map and the probability played in our favor. However it was also one of the hardest to hold the winner. Now with 10 contracts and above, I would say it is possible to ride it out with runners. The contract rollover split the volume and that played havoc in volume analysis too. We did get the short squeeze in the end and the ride through the neck of the distribution was really nice. You should have seen the tape.

Now that we are finally in the upper distribution the test of the support below is the key event to observe for any clue where it finds value. Keep in mind the strength of the dollar is reaching forcing points of many inventories. Anybody held the gold short? - you are knighted.

Finally the squeeze - a pictures worth a thousand words. Before I forget, congratulations we survived doomsday.



Prayers and remembrance on September the 11th. Jupiter -may you rest in peace and always in our hearts.