Archive for March, 2010

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Fractal Nature of the Stock Market

Wednesday, March 31st, 2010

Today is Wednesday March 31st and the market bounced off some key support today, 1162, two times.

The S&P market is holding in there. It does not want to go down and not able to move up, for some time now. A big report is coming out on Friday, the unemployment numbers. The last report was the first decrease in unemployment since the recession started and a back to back positive reading is going to send a strong message to Wall Street. There are many traders and investors thinking only one way. That this market was going to go down. That is having tunnel vision and not usually a good idea. You need to stay open to direction and then interpret the price action to properly trade this market.

I know there are traders who are adamant about this market falling and they may be right, but it has made virtually a complete come back from the drop earlier in the year. If the unemployment numbers are good, it may spark a big rally just be ready either way.

The trend is up and holding, but five trading days ago, we traded at 1177 to the next days low of 1157 and we are currently at 1167, right in the middle. We have bounced up and down inside this range for the last 5 days. That is why yesterday I said that we will probably see inside action over the next day or two, “Containment”. This containment is only adding to the fuel that will be expelled once the market gives way outside of this consolidating range. I will show a chart of it tomorrow and explain a thing or two about it, so be sure to come back and get some insight as to the next big move.

In today’s trading I took 8 or 9 trades and did pretty well. I only had two small losses for a few ticks, the rest gains. I scaled out of the early trades and took an all in, all out approach for the last bunch. equity chart below.

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I have been talking in between various topic’s, like trading within your dominant trading personality. If you trade stocks and look at 15 bar charts, your pool or available trades are going to be limited, but your rewards are going to be much bigger than someone trading 5 or 1 minute bars. Your stops are going to automatically be larger based on your time frame, but everything about trading is still the same and is relative to the time frame you are trading.

That is because the stock market is fractal in nature. Some may not know what that means so I will explain. If you trade daily charts and follow a set trading method, you will have to wait for days as the bars line up to a desired formation or condition as per your method or system. Again, your rewards will be much greater than someone trading hourly bars, but your risk will be greater as well. The stock market shows consistent patterns inside of every time frame and can virtually be traded exactly the same in any time frame producing the same type of results, but with relative returns. I have an example of this fractal nature found in nature itself below.

This is the reason why it is important to trade within the time frame that best serves you and your personality and situation. With the leverage available through trading futures contracts, a trader does not have to trade for very large moves to make a good daily return, but he needs to be able to keep risks small and exploit market moves as they are given to him. Just as the price moves are relative to the time frame you trade, the returns are as well relative. By using leverage in the market you magnify your moves, positively and negatively or you could say, for you or against you.

It has been said, that the smaller the time frame you trade the harder it is. Now, why do you think that is?  I think the reason is, traders are not conditioned enough to react as new patterns are presented to them. They are pron to make more mistakes and to over-trade. What can be done to change this. Practice and get the conditioning you need by knowing what to do and when to do it. Get the knowledge you need to exploit these price imbalances and live your dreams of trading for a living. There is rarely any way around paying your dues if you are going to attain this goal. Many forgo training and leave there results to a combination of idea’s, but never having a complete trading method, and road map to follow. If you are going to trade, you need knowledge and support.

If you become proactive in learning how to trade, you can trade stocks, commodities, forex or any trade-able investment instrument and speed up your learning by trading the smaller time frames. You will be forces to interpret the price action and follow what ever indicators you have if any, to gain the trading edge.  After doing this, you will see that when you go back to higher time frame instruments, you will see, feel and know so much more than when you traded daily, hourly or 15 minute bar charts. In addition, you may find that this smaller time frame type trading is what you are best suited for all along. That is how it was for me, but it took years to figure it out on my own. I am just presenting the idea’s to those who have not thought about it.

Consider it a training boot camp as you get dozens of market conditions reads per session, capturing the trading edge.

Give it some thought, trade on and trade safe.               Video of today’s turning points using tick charts, take a look.

http://www.screencast.com/t/NGJlNTJi                     Equity chart of today’s trades

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Trading With A Business Plan

Tuesday, March 30th, 2010

Today is Tuesday, March 30th and the markets are marking a little time.

We are almost running out of room on the market here, maybe one more day or two max to see what the market has in store for us. There are some key unemployment numbers coming out on Friday and it would not surprise me to see the market wait for those numbers to trade off of.

In the market sentiment area, we moved up again last week, about +2%, getting closer to that 55% area, currently 49%,  where we will likely see a reversal of this move up. It all depends in how the market handles the move up. Originally, when the market got to the 1120 area a place where I was looking at, we backed off, but only to come back up off that. I could see that this market had a little more left in it a few weeks back. I did call for a reversal rally, but I did get a little weak in the knees so to speak. Non the less, the market did continue to rally and here we are.It would appear that the market has more to move up, so don’t take any strong stands on market direction short just yet. Let it do its work and assess it on the way.

In today’s market action, we saw a slow market, below average on the futures contract volume. I have not traded the last few days as I was taking some time off traveling with my wife. I did get into it late today for two trades. The first one was for 1.25 & 2.00 points, first trade and the second one was for +1.00, 1.25 points and .25 points. All gains for session. I took only one tick of heat on the first trade and two ticks of heat on the second trade. I usually only run a 4 tick stop on all trades, which gives me the ability to keep my losses small and at times get some pretty good little runs.

As I was talking about trading within your dominant personality in my last post, it took me a long time to find out that I am a scalper by nature. That is my dominant personality while trading. I do not have a great amount of patients, so I make that work for me, instead of fighting it. Trading the way that I do, works great for me. I only see myself getting better and some time this year I will set off on a journey to live a large part of my dream. I have been holding back on taking this journey for a few reasons and in future posts I will explain more, but I am preparing to do what I have posted on my website in the business plan section. Top right hand corner, home page. It shows a possible scenario of gradually increasing your contract size to bring in the equivalent of 1 million dollars in a year trading for only two points most days as a base target goal.

I am not in a hurry to start this, but I will set off on my journey some time this year. I find it very rewarding  in helping a few traders meet there goals in the mean time, while I continue to get my own personal act together. All of the things I write in my blog are really for me and I learn each day I write and am exposed to new experiences in the market. This is all in preparation for me to take this million dollar journey, but to do so, a trader needs experience, screen time as well as all of the mental conditioning that comes with the trip. Teaching, explaining, showing and talking about my personal trading method, gives me the floor to refine and execute my strategies. It has proven to be a winner as I have seen while sharing it with others.

So, as the days and weeks unfold, I am in training so to speak for my own personal market journey and dream. It is easier to trade with small size as I am currently doing, but this is only temporary. Trading three to five contracts is a lot easier than trading 20, 30 or 40 contracts. Being well capitalized makes this venture a little easier and another reason for my delay. When the time is right, some time this year, I will do just what I am saying. Starting with only one contract and increasing my size to reflect what I talk about on my website. If I can do it as I write, others can do it too. To make a million dollars a year trading is not easy, but I do believe deep inside that I can do it. It really is no different than what I do every day that I trade now, pick up 2-4 points a day. Doing it with large size is something I have yet to prove.

It is a lot of fun and I do enjoy teaching and exposing myself to new reads, patterns and market conditions. I don’t think I have shared this before, but this gives you a little insight into my large overall plan within “Sniper Day Trading”.

I hope to bring value to my readers and members all along the way, so stay tuned, it is going to be a great year.

Two Scalp Trades – Market Awaiting Unemplyment Data

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Trading in line with your Personality and without Struggle

Sunday, March 28th, 2010

This post is for Fridays session and will be going over a few key trading points to help bring clarity for those who are searching.

To be successful at trading, each trader needs to trade in-line with his or her dominant personality. To trade counter to this, is only trying to swim upstream, it will be a struggle. There is no need to make day trading harder than it actually is. One way to ensure this, is again, trade in line with your personality.

What I mean by this is, every trader has a dominant trading personality, but many are not aware of it and do not trade in harmony with it. To be successful, you must find this information first. It is like putting a round peg into a square hole. You can try and try, but that does not mean that it is going to fit naturally. If you insist on forcing the issue, you can pound it in the hole, but this is only going to happen by exercising; 1) Force, 2) Effort, 3) Straining,  4) Struggling, 5) Trying.

Those are all the things that you do not want to do while you are trading. If you find that you are naturally drawn to short term trading and it fits your personality, because you seem to not have the patients to wait one or two hours for the setups that best fits that style of trading, you are better served to shorten your time frame and get many more market reads in front of you. This will keep your own personal struggle with patients down to a minimum. Rather than fighting the need to wait out the trade for the proper set up, by shortening your time frame, you make that decision  easier by getting more legitimate opportunities in front of you. The rewards are generally smaller because of the shortened time frame, but the benefit is more potential trades that line up with your dominant personality. This is just one example of this.

Since I mentioned the 5 things that you should not be doing above, I see the need to go over that again, but put a different way.

Successful trading should not have any of those 5 negative attributes associated with them. Let me spell it out for ya.

Trading should be without force when identifying your trade selections, without effort, without straining, struggle or trying. The same is true for your exits. This is a profound statement and is very important to examine yourself while you are going through the trade selection process.

This exercise, will make a big impact on your results if you are conscious of your emotions while you are engaged. Here is an exercise that will help you see where you are in this process. Get a recorder and just speak out what you are seeing and or feeling as the process is unfolding.  If you record how you are feeling and what you are seeing while it is happening you are that much better equipped to make changes and adjustments as your performance dictates.

Every trader needs to continue working on themselves, based on where they are at. Do, not waste the opportunity to learn and grow into the trader that you aspire to be. Each day brings valuable lessons to us and we should be taking advantage of them as unfolded. Money is only the rewards we see when we do the right things, so doing the right things are just as important as the money. In the future, if we know why we are doing what it is that we do, it can be repeated and that is of great value. It can be turned into an endless stream of income, but only if we are doing the right things often enough.

So, my two main points today are trading in line with your dominant personality and trading without struggle. If you find yourself struggling, you are doing something wrong. It is best to stop and find a few things out first. If you do, you will be preserving your capital, the life-blood of your trading venture and you will be providing yourself with the time to better know what it is you need to be doing. If that part is unclear, you need to take the time to make it clear. If you don’t, you will loose your capital and really hurt yourself by creating financial pressure when and if you start to trade again. This will only work against you overall and make the whole thing that much harder, in addition create bad habits and damage your confidence. It makes much more sense to get it right first.

So, many traders just want to get in there and do it already. That kind of thinking will only produce a costly trading exercise for you. Very expensive tuition. No one likes to think about it that way, but when all the dust settles, that is exactly what it is and how it has to be viewed. Any other view, is only seeing what you want to see and it will work against you. Facing facts and fears are a start to recovery. Protect your trading capital, be sure you have a solid trading plan and or method that will work in any trading environment and be sure that you have the discipline to follow it. If you have one of these missing, it will result in expensive tuition. The thing is, at the end of the expensive lesson, you will only be worst off, not better off than when you started. Give it some thought.

If you need help in figuring all of this out, send me an email and share your struggle. At a minimum, I will give you some specific steps you could take to straighten yourself out. If you want more than that, you can sign up for my trading course and mentoring program. I wish all my readers the very best in reaching your trading goals.

Good Trading !

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Risk Management – Part two

Thursday, March 25th, 2010

Today is Thursday March 25th and what wild ride on Wall Street today.

It is to bad I did not have or allocate more time to trade today. This is one of those days that my T-2 trade model would have cleaned up, if you had traded it for any length of time. A trending market is great to catch up in any daily trading goals you may have come up short on in past trading days. If a trader could work a trending market a couple of days a month, you can make more than your daily goal by 5 or 10 times.

Yesterday, I suggested that if your trading is flat, to decrease your contract size until more favorable conditions open up, or to just wait it out. The idea is do not increase your size if you are under-performing. If you do, you are being influenced by outside forces, MONEY. That is not a good idea in the long run. The worst thing that can happen is you increase your size when trading poorly and you hit a few good trades to make up for it quickly. I am tempted to do this myself now and then, but it is really not a good idea. You will build precedence for doing this the next time and you may not be so luck then. Doubling up when you are underwater is a form of being impatient. You want what you want and you want it now. Resist the temptation and talk it out, to yourself if you have no one to listen to you, most likely. It is to easy to go only deeper underwater and this is where those dreaded wipe out days come from two or three times a month. You may say to yourself, if I could only remove those really bad days, I would have come out pretty good for the month. Well, there is hope.

First, you need to be strong mentally and not let yourself loose control. Again,resist the temptation and tell yourself  “focus on what is before you at that moment in time” and do not become anxious. Tell yourself, “my moment will come”, just wait and you will see the open door you were looking for. Take each trade one at a time. If it is a choppy market, take it a piece at a time, just use good judgment and take the high probability trades, assuming that you know what those are. (If you don’t, then maybe you should email me get some training & mentoring)  If the market is showing signs of trending, then you should adopt that type of strategy to make the most of it.

This brings me to my main point for today. If you have the time, feeling good and the market is co-operating, that is the day you want to take advantage of the conditions. All three of those need to be present, if you are not feeling great, then it is better to get your daily goal and wrap it up. It is to easy to make mistakes if you are not all mentally there. You may have not gotten enough sleep the night before and or what have ya.

Back to the point, if all three of the above conditions are present, I feel a traders has a green light to clean up. There are several ways to approach that.  A conservative way is to gradually decrease your size as the day goes on, but keep trading. That way, if you have draw downs, as the day comes closer to the close you will ensure that you are going to close well in the green even if you have loses near the close. Try and remember that, it could serve you well. There is nothing wrong with being conservative, you will ensure your survival.

Another way and it is an alternative that can pay big if you have discipline and feel well grounded. As mentioned, with the above conditions met, adding on to positions or “scaling in”, as the market is moving in your favor at key spots. This is a form of “Trade Management”.

I don’t do this that often myself, but I do know how to and could if I want to, for sure. Take a day like today. You need to trade what you see and not what you think to start. Next, in a strong moving market instead of scaling out of your trades, you scale into them, at key spots.

If your first entry is wrong, you have a smaller more manageable loss. If you entry is good, you scale in along the way at key low risk spots. Each add on has its own independent stop and as the trade moves your way, you clean up. This is an advanced strategy and you really need to feel comfortable with the basic all in all out approach first. This is risk management to the upside. The opposite of those big loosing days to the downside. If you get just two days like this per month, you can make up a lot of ground and or you can forge ahead into new equity territory.

If you try and get what you want from the market but do it at the wrong time, you will not only get what you want, but loose what you could have had and then some. Think about it. This is “Risk Management and Trade Management”.

Trade more aggressively when the market tells you to, not when you want to. Again, you will be glad you did.

Trade on and be safe.        P.S. will show two small winning trades I took today in tomorrow post.

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Trading & Risk Management

Wednesday, March 24th, 2010

Today is Wednesday March 24th and we had a little pull back in the major index’s, -5 points on the S&P, -52 on the Dow and -16 on the NASDAQ.

Today’s action was quite normal given the large run up over the past weeks. The market still has plenty of room to move sideways and rest. We saw an inside day for the S&P  futures from yesterdays range. This will build a bit of pressure for Thursdays session. A break out above 1166 should bring us higher prices and a break below 1161 should produce lower prices. Those are pretty key area’s as of now going into tomorrows session. Currently we are right in the middle at 1164.50.

Today I am going to talk about managing risk. This is a question that comes up all the time and I will go over a few points here on the subject.

Risk management is essential to surviving the trading game. I have mentioned recently in my previous posts this last week that a 1 to 1 risk ratio is alright as long as you are right more than you are wrong, sounds pretty simple and it is. I know many traders trade only the same amount on every trade and if that works for them, I guess that is fine. But let me give you an alternative idea. If you are trading poorly and have gone back and forth with no progress, I would suggest to decrease your size if possible, until the best opportunities come along. Waiting the market out, for favorable price pattern opportunities is the best, but if you continue, it is better to decrease your size until you start to see the best opportunities come to you.

There are definitely better trade conditions on some days over others. On the days things do not seem clear, you are better off to trade very small and or wait. I recommend waiting until you are sure you have the edge. If you jump into the market and expect things to fall your way, when you have not done the work necessary to give yourself the trading edge, in this case, “Waiting”, which is a trade position, you can not expect to come out on top.

Waiting the market out, for the trading edge, is as I mentioned “a trade position”. It is a “no position” and that is just as important as putting on a position. Try and let that sink in just a bit. Often, traders will expect, hope, wish and want the conditions that they seek to make there trading goal for the day.

I have to watch this myself and I do, if it does not posses the qualities that gives me the edge, you have to wait. Most of the time if you are a scalper, looking to take a point or more from the S&P futures, you wont have to wait long. By waiting 10-20 minutes, especially in the morning open, you will get a whole new set of reads and new opportunities that will jump out at you or it should.  If it doesn’t, I will use an over used term, but it applies, “Just say No”. You are not under any obligation to take a trade, after all, we are traders and we trade market not the other way around.  The market does not make us trade, we trade against the market and other professionals.

If we are going to have money on the line, we need to be sure that we have the trading edge. Some traders may be saying, what is that and how do I get it? You need to have a model, method or approach that is consistent. Many struggle trying to find this and there are no easy answers. It needs to something that will always work and I would say based on price and its predictable movements. This is the best in my estimation. In addition, once you have that, you will need to get familiar with it and practice. The practice is going to bring the confidence you need to give you the results you are looking for.

If you are going to control your risk, you will have to look to exit the trade if you start to loose the advantage. That is what I do, if I don’t get the results I am looking for after entering a new position. Order placement is going to be the key. If you place your order to buy or sell and you overpay for that position, you run the risk of getting taken out, if you run a small stop. There is a way to do this and keep your risk down. Most traders are not able to find the “Sweet Spot”, in there order placement, but that is what is needed to make this work.

Trade selection and order placement are key components to risk management. Don’t look to trade every twist and turn. If you have a modest trading goal for the day and I think traders should, you only need to break this down into a few  trades. If they are the right trades using method trade selection and you trade multiple contracts, you always have the option to scale out. I know for a fact that lots of traders do not like doing this. The reasoning, if I can get two points on 4 contracts, why not take it all instead of half. The point is, you don’t always know if you are going to see the 2 points in the first place. What started out as a nice gain turns into a loss and creates frustration. “Trade by exception, you will be glad you did”

No trading for me today, I was traveling to the S.F. bay area.  I may continue with this line of reasoning in tomorrows post, so until then.  Good Trading and be Safe ! GMR62JYPQ7EG

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Reading Price Action gives you the edge

Tuesday, March 23rd, 2010

Today is Tuesday, March 23rd and the market is still running strong +8 points on the S&P, +102 on the Dow and +22 on the NASDAQ.

Another nice showing for those on the long side of the market. Today the market did something that it does about once per month. I call it “Search and Destroy”. That is, the market makes a slightly new high, followed by a slightly new low, then a slightly higher high, followed by a slightly lower low and yet again the same. The price is taking out players just above new highs, hitting there stops and at the same time making those who play breakouts go long and taking  them down. Both players long and shorts are getting killed when this happens, thus the term “Search & Destroy”. It is searching for stops and causing breakouts players to go long only to make them both loose. This is pretty brutal if you don’t know how to handle yourself. This was just a quick easy observation.

The market in general is designed to keep you guessing or it seems like that for most players, but there is a consistent element that runs through each day and those traders who know what to look for can take advantage of this.

By getting comfortable with this new language that I was talking about yesterday, traders will know when to enter long and or short with a high degree of accuracy. Trading for one to one (1 to 1) ratio is alright as long as you are right more often than not. In addition, when you have 2 or 3 to 1 returns, it makes it nice and keeps things simple. But two or three trades for 3-4 ticks each is “A OK” in my book, always has been and always will be. I only run a 4 tick stop on 95% of my trades and my average stop out is really only about 2 or 3 ticks. This is not an accident and can be learned.

There were a lot of nice easy trades today that could have been taken by those who know where to place there buy orders and where and when to get out. It all happens at the pressure points, like an acupuncturist at work.  They find the points on you body that will release the built up pressure on the nerves and muscles. As they apply pressure to a very small defined area, the toxic build up is released and body feels better by the release of energy in that area. This is exactly how to read the price action as it relates to day trading. This is best I can do without going into it further, but the most important thing I have said about this topic since I started a couple of days ago.

In today’s trading, I only put on a couple of trades and was in the market for only a few minutes. In fact, I came onto the screen, looked at few things for a minute, went to my my scalp screen and waited for just a few moments, took a trade long for a nice quick gain and walked away. I was coming up into the New York lunch time, so I just left and said that I would return for a trade in the afternoon session. I did just that, looked at my screen for just a moment to see where we were at and place a trade short for another easy trade. I had in my mind that was enough, no struggle, just a quick small scalp trade and done for the day. I definitely could have taken several more trades and could have picked up 3-5 points more at least for the session if I continued to trade the afternoon.  But what I had was enough for today. If I start early and traded the morning and afternoon session, I feel I could have picked up 6-10 points net almost any day. As I said yesterday, it is not about being over confident or cocky, but knowing how to read that trading language that could do it. I definitely need to respect the markets, for sure. The day I don’t is the day I will see a stop out day for myself of -4 S&P points if I take it that far.

Trading for most people is very difficult, but it does not have to be that way. Traders need to trade the easy and obvious. If it is not easy and obvious, then you should wait until you see a trade that fits that description. Don’t underestimate that last statement. That could be the second most important thing I have said the last three days, certainly in this post anyway. To often, traders want to live up to the scenario  that I laid out above and it can hurt them. I can see the charts and read the language very well, and you can do it too, but it will take you some time to learn it. If you spend your time only following indicators, then you will miss out on valuable life changing skills, where money and earning a living are not as important because you have enough from the trading markets. That is only going to come when you understand the trading language and can read the daily price action with confidence.

If anyone is interested into learning this trading language and posses within them the ability to trade any market with confidence, then I would say, send me an email and we can talk about it. I have the time to pour my knowledge into those who are willing to learn. If this is something you are interested in, this is a good place to do it. You only go around this life once, fulfill your dreams, you will be glad you did.

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Price Action Trading Defined

Monday, March 22nd, 2010

Today is Monday February 22nd and the markets pulled out another day of gains.

We saw a  6 point advance on the S&P, 44 points on the Dow and 22 points on the NASDAQ, pretty good. Overall the last four trading days have been contained and we have a consolidating market at this point. A period of rest is normal and expected after the previous advance of the last few weeks. There is room for the market to pull back inside of today’s low and Fridays high.  A breakout from Fridays highs of 1165 could send us higher yet again while at the same time we could easily trade inside of today range and possibly retest it? This part is unsure, but those are the major points of interest for long and short.

Traders will have opportunities which ever way the market moves, but we will have to read it. Just like reading the newspaper or even reading this blog. You were not born knowing how to read, but with practice and persistence you were able to do better and better and with time you could quickly pick up any piece of literature and just read it, to then see what it is saying. From that information, you are able to take action on your understanding of what you just read. That understanding can lead you to many rewards in the your field of interest.

The same is true with the trading markets, we need to be able to look at a chart and just read it as in the above example. By doing so, you are not dependent on indicators or any other outside influence. The markets have a rhythm to themselves and it is best to try and pick up on that trading rhythm and get in sync with it. Trade with the path of least of resistance and you will maximize your returns.

The trading markets advance and then they rest, advance and rest. This cycle is repeated over and over and is the basis for us to read the market. All of this is called “Reading the Price Action”. That is what I call it anyway. Other traders may call it something else, I don’t know, but this is how I see it and trade it. Let me give it to one more time, what exactly is price action.

“Price action day trading happens every day the markets are open. This is the study of price movement or price bars in any time frame and that alone, no indicators or anything else. Most traders use indicators to help them see what the charts are saying, but a pure play is in reading the chart alone in this manner.” That is my definition.

I believe traders are best served to learn how to read the market in this manner. I know I have said this before, but trading indicators only reflect what the price is saying. That is really important to understand and should be the basis for us to learn to trade in this way.

I can go pretty deep in this area and break down all of the points that make up the process in learning how to read the market this way, but that is reserved for my trading subscribers. I don’t often talk a lot about how I do what I do, but try and show what I can here and there for traders to see and understand that trading for a living can be mastered.

I talk a lot about trading psychology because that is an area that gets overlooked by many traders and many times is the determining factor for them becoming profitable.

Learning how to read a price chart and trade off of it successfully with nothing else on it, with a very low risk per trade is something that is not going to be picked up overnight. You will not read about it in books and you rarely see it used and talked about. It is the same if you tried to pick up a foreign language and master it in a couple of months. You may learn some of the words and phrases and get some of its structure down but it is going to take time. Are you willing to stay the course and learn this language? It takes focused energy and commitment, but you need to keep your life balanced at the same time.

The traders that want to achieve this skill are the ones you will not give up. The key is, do not put the things that are important to you at risk while pursuing your goals. We always need to maintain control when we are pursuing any dream. If not, the cost can become excessive and all we hope to achieve has gone in the wrong direction. Don’t let your passions blind you from maintaining balance and patience in your life. Again, if not, you only push off that dream farther into the distance.

Getting back on point, reading the market is where traders need to go. Price action is the study of price and its movement. Become an expert in this study of price movement and the emotions that are tied to it by the majority of those who trade it and you will always be moving in the right direction of your goals and dreams, because with that knowledge you can position yourself to take what you want from the markets almost at will. That is not meant to seem like a cocky statement but one of confidence and expectancy, all the while staying humble and balance.

Today’s trading I started later than I am used to, but picked up the low side of my daily goal on a little smaller size. The smaller size is because I started late. I will often do that if I trade late in the day because I do not have time left to come back if I have draw downs. My results below.

Trade On, and be safe !

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Price Action Day Trading

Friday, March 19th, 2010

Today is March 19th and the markets saw some nice price action from the start of the session.

That is where it began today, with a slight rise just after the open. It was like someone pulled the plug and down she went. The market was just in a continuation off the lows of yesterday where it put in a bottom and worked its way up to a double top formation just after the open. Sellers were there in force and the market dropped 15 S&P points top to bottom, 1165 to 1150 where it pulled up at the close to end the session 1156.

The market will be working against this selling pressure on Monday morning with a few more S&P points left to the upside before initial resistance comes in. So, we shall see. As day traders we need to read the market and interpret what we see. But trading is a little like chess, in that you always want to look out ahead and anticipate what your opponent will do next. That is fine, but just don’t be to convinced about every move. If something different happens than you projected, it can be very difficult to trade against an anchored believe, so hold your opinions loosely and interpret what you see as it unfolds.

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Traders, investors, institutions, move to position themselves in the stock market every day so that they are able to take advantage of price appreciation. Basically they want to make money for themselves and there clients, a worthy goal. Every investor or trader can not make money so there have to be people that come up short. How do we consistently become the ones that come out on top and  pull this off ?

Study the price patterns and behavior of other traders. Since most traders and investors loose money, we don’t want to do what most of them are doing, that is clear. So how do we ultimately know when to buy and sell ?

The answers to those questions as stated is in studying the price. Price action is, first “price” and “action”, or price movement. Successful traders need to focus on price movement and that seems obvious to most, but this is not what often times happen. Trading indicators often take center stage, but it should be the other way around. Indicators are good, but not at the expense of studying the price patterns and behavior of the underlying issue.

It boils down to when to buy and when to sell, another obvious conclusion. The question is how much risk can you take to see your desired outcome? Traders to often take on more risk than they can absorb as there entries are far to lose. You need precision entries that are virtually spot on. Some may say, that is not possible and I beg to differ. There is always a small window of tolerance on any trade, but it should be kept down to a minimum if you expect to keep your loses under control.

For me, while I day trade the price action on the S&P 500 emini’s I rarely ever risk more than 1 S&P point. There is 4 ticks to a point each broken up into $12.50 incriments per contract. A trader needs only to find a few points per day to make a  nice living, but you need to be able to really read the price movement, formations and tendencies all while keeping your stops to a minimum.

Being successful is also about knowing how to manage the trade after your order is filled. In a choppy market, you can not let the market move in your favor by several points and because you want more, hold out, only to see all of the gains that you had, suddenly evaporated and then some. A trader who expects to either supplement his income or make a living from day trading can not let something like that happen.

Today’s trading was a good example. I put on four trades towards the end of the day and the last one was at 12:30 pm West Coast. The market dropped off a ledge it was holding onto for several hours. It looked like a possible rally was at hand but things changed and down she went very quickly. I did go short at exactly the spot I wanted and scaled out at +2 ticks, +6 ticks and +12 ticks at the very bottom. I was in scalp mode and prepared to ride the momentum on that trade down. I was buying into weakness (to cover my short position at a profit) and held out until there was no more left in the move.

The point is, I am sure there were traders who did not cover and watched in just a few moments the move completely reverse, forcing them to cover at a lose. If you are day trading the price action you will not let that happen to you. I feel if you have good gains in any trade, there is no way you can let that trade turn into a lose. If you struggle to take your stops, you have other issues at hand which can be discussed in another post.

Price Action Day Trading happens every day the markets are open. This is the study of price movement or price bars in any time frame and that alone, no indicators or anything else. Most traders use indicators to help them see what the charts are saying, but a pure play is in reading the chart alone in this manner.

To day trade successfully you need to understand the key components of support and resistance, price action is apart of that at its core, learn this and you will be moving forward.

If traders have questions about this topic or any other trading topic, feel free to email me. I will be glad to answer your trading questions. Until next time, trade on and be safe

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Market Sentiment as a Trading Indicator

Thursday, March 18th, 2010

Today is Thursday March 18th and the S&P futures ended the day flat, but the Dow outperforms for a change.

That is exactly what happened in today’s session the Dow was up 45 points, the S&P flat and the NASDAQ +2 points. The new numbers are out today on the Investors Intelligence market survey of newsletter writers and another week of increased sentiment by 1.2% to 46.1%. At the start of this rally it was in the mid 30’s area and a typical trigger point for a rally. The market has made it back up to its January highs and then some. At that time, the market sentiment for this timing tool was hitting close to the mid 50’s. A reading in this area, typically forecasts a market sell off and it did, just after the high in those numbers were posted. The point is, we are at a slightly higher high in price and the indicator is still 9% away from getting into the danger zone.

This indicator works in the opposite direction, as more professional newsletter writers become bullish, this will signal a top. I have been following this barometer or indicator since the mid 1980’s, a long time and I have seen it work what seems like magic over and over again at market extremes.

This is fitting since I have been talking about trading indicators the last few days. This is a different kind of overall market direction indicator for me anyway.

Back to the point at hand, if the market were to increase over the coming weeks this reading will then likely get to that over exuberance level of bullishness. The question is, how high will it go, before all of this happens. The possibility exists that the market sells off a little to let out a little of the mounting optimism. As day traders, we will just read the market for now.

The reason, stock market newsletter writers are really no better by and large than any one else when calling the market. The are overly bullish at market tops and extremely bearish at market bottoms. It is at those times that market goes the other way. Funny how that works.

Don’t be caught up in the emotion like most. It usually pays to think contrary to the conventional wisdom on the street.

I have a few charts below of yesterdays equity chart and today’s trades. I will have more to say tomorrow and will show today’s turning points in a Saturday post. Until then, “Trade on and be safe”.


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Trading Indicators – Part Three

Wednesday, March 17th, 2010

Today is Wednesday and the S&P 500 had some legs to yesterdays run up.

The Dow Jones finally caught up to the other index’s today. Initially it saw resistance, which can be expected, but it came back and moved up 25 points over its January highs, 10,767 and then sold off. This is so very typical.  Now that the Dow reached what the other index’s did a week ago, it is going to be pretty interesting how it reacts from here.

Last weeks sentiment number were up a bit +3% to 45% bullish. That is pretty much what one can expect after coming off an extreme reading like we had a couple of weeks ago and currently is a neutral reading.  Once it reaches an extreme on the bullish side, you can look to lighten the load as more significant selling will come in. The thing is, we at this time don’t know how far it is going to advance.

With oil prices increasing that is sending a message to America that the economy is strengthening, at least from where it was before. I have been hearing things on the street about commodity prices in general. It is very possible that we will see large run ups in commodity prices in the coming months.  That is not usually how it goes for a struggling economy. My hope is that everything keeps moving along and any significant drop is put off until a later time, like next year or after, would be nice. Lets give America a break, not “break them”.

This patch work is only going to be temporary, but I guess I welcome it, for everyone’s sake. If you want to see the real state of the economy, go to my website front page and I have a link on the right side which shows an ongoing tally of the National Debt, but under that is a warning. “Expanded View” – “Click here at your own risk”.  I give the warning for real, its not a joke, because if you look at all the spinning numbers and totals associated with the items just on that one page, you will be filled with many emotions, I will just leave it at that. The bottom line is the real shocker, well, all of it really is, but if you would rather not know, “Don’t look under that Link“.

The last couple of days I have been showing a limited view of one of the trading screens I use during the day. I call this my T-2 Trading Screen. This screen is showing just one chart of two that I have up and is designed to find the turning points of the day, but give you a zoomed in view of it, so a trader is able to zero in on the exact point the balance of power has shifted.

The trading indicators I use help to show just that, as you have seen over the last two days. I will show yet another day today for those who think it is luck, that the turns are shown with such precision, almost magical. When the market is on the move, this is so very typical. When it is not (on the move) and we seem to be range bound, up and down, small or choppy moves with no follow through, all one has to do is just trade out of my T-1 trade screen for scalp trades of 1 point or more at a time. This part is just that simple. The market is moving, trade the T-2 for larger trending moves, with the possibility of pyramiding your position for maximum gain. When it seems range bound, trade out of the T-1 screen and take what the market gives you. If you get it wrong and are trading out of the T-2 screen and the market is not trending, you can still make a nice return trading the turning points, its just that they do not have extended moves to them, which will limit your total point return on that one trade. If you scale out of some of your position, you will always make a profit even if the market comes back against you. At some point, you will see that taking trades out of the other screen may be better and a “All in All out approach” would be best. Either way, it comes out in your favor.

Take another look below at the short video and see for yourself if you think you can place an order in the circled area’s I call turning points. I have placed a number above those turning point area’s which represents the amount of time you have once a turning point area takes hold, to when it moves out of the circle in the desired direction. The circle represents your window of opportunity and the amount of time you have to make a decision. You will see 3, 2, 5, 1, and so on. Again, ask yourself, do you think you can place an order to buy or sell inside of that window and take advantage of the trend. Your exit can come from several different way, with a couple of them shown. The first way could be a price bar color change and the next could be a reverse signal as indicated on the screen. There are a three other ways which are not shown, all similar in results, but non related, still all very visual and easy to interpret.

With all of that said, trading takes practice and your confidence needs to be high. If you give yourself the tools it takes to build that confidence, you can put it together. If your tools are shaky and inconsistent, you really don’t have much.

Just think what you could do in $ returns if you can buy and sell in the circled turning points area as  indicated in the video’s. This will always work because this is a reflection of price action trading. I teach how to get the exact same turning points without the trading indicators and it matches perfectly. If you have questions, email me, I will be happy to answer them.

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