Posts Tagged ‘price patterns’

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 Rallied on Queue, so far…

Tuesday, March 2nd, 2010

Today is Monday March 1st and the market rallied on cue.

We did see the rally on Wall Street that I was mentioning, but it did not have all the bells and whistles that I was looking for, like increased volume and conviction behind it. It still counts and maybe its a warm up for tomorrow? All the index’s closed at the high of the day with the S&P +11 points about 1 %. The Nasdaq was the big mover at + 1.5% on the index.

If you look at a chart of the S&P 500, the Dow Jones Industrial and the NASDAQ, you will see that the NASDAQ is in the lead right now. With one more day like today, it will be right at its old highs. I did see this previous outperforming as a sign of internal strength, giving me one clue to a market rally. The other was the low sentiment numbers, which are coming off quickly, but still a bullish scenario and lastly price action itself. The position of the bars themselves, tells a lot if you know how to read it. For many, it may just look like lines on a chart, swinging up and down, seemingly without order, but that is not the case.

I don’t want to build up any false confidence in the current price patterns. Every trader needs to be careful at all times and expect the unexpected. Let me point out a surprise scenario as the market is not out of the woods yet. I have seen many times patterns in the daily charts that look just like the one we have now, that draw the unsuspecting in, only to quickly pull the plug and take it down hard. There could be bad news looming and that could be a catalyst for just a scenario. The idea of being a day trader is as the word describes, we follow the action of the day. I know there may be position traders that out there that will hold several days and they may find many of my past market calls helpful to see the possibilities, but as day traders, we look inside each day and should attempt to read the price action charts to determine if we are in an uptrend or downtrend. Then, you will be well served to find a low risk entry in the direction of the dominant trend for the time frame you are in to capture a piece of the move.

It is best not to try and pick tops and bottoms. It really might feel good to do that when you can, but this really only feeds our ego’s and does not bring us closer to becoming professionals but more like amateurs, so try and not do that. If the market is not trending up or down, but range bound, you will have to find your way to catch a piece of those moves and take what the market gives you. You can’t take what the market does not offer, so, keep your expectation in line with the current price action. That is important and it should be remembered to keep yourself from getting frustrated and controlling the greed factor. If those two emotions come out of the bag, you could be toast for the session. So, keep a lid on it and one way to do that is keep your trading expectation in line.

Once you get good at catching 2-4 points and it could just be 2+, that is often enough on average to do very well. To average that, it is best to catch a bit more now and then, to cover any future loosing days you might have. The key is, having in mind the ability to capture two small points for the session. If you have in your mind that you are going to crush it today, with high expectations, often that will work against you. Stay calm, be realistic and quietly take what the market gives you and move on.

Long term readers of my blog know that I have a 4 S&P point stop for the day (Dow=40 points) That is when you have to throw in the towel. If you don’t have a point where you stop for the day, you only open yourself up for a possible whip out day, which you cannot allow under any circumstance. Controlling your loses is mandatory, it is not an option. Success will depend on it. Even if it means having a losing day, that can be a victory, because you stood your ground and stopped trading when you were supposed to. It is only one day and you can make it up down the line, just put it past you and keep your focus on trading properly.

Don’t trade against the market in the acceleration phase, (while the market is driving forward ). You will see a shift in power or a transfer in momentum as the market rolls over. At that point, you need to use your entry skills to get in and risk little. My Emini Trading Method, will teach those traders who need structure and a method to follow, that is clear with rules to identify which direction you should be trading and how to enter and risk no more than one S&P Emini point while doing so.

If you have your own trading method that shows promise, you may want to consider adopting some of the idea’s above, it could increase your bottom line.

In today’s trading a few trades only. I could only take what the market gave me, and it wasn’t a lot, but enough.

I wish all my readers the best,

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Fear & Day Trading – continued

Wednesday, January 20th, 2010

Today is Tuesday, January 19th and the market moved right on time, S&P up 14 points and Dow up 114.

We were on that critical support and other traders knew that too, that is why I feel they stepped up to the plate and bid the market up. When you have trend days, where direction is mostly one way, price action is and looks different.

You won’t have that back and forth price moves that are usually present, but shallow pull backs with continuation moves in the direction of the trend.

If you came late to the party, after the first hour, there were really only 3 moves of any significance for the rest of the day and they were all up, but not anything large, maybe a couple of points each. There was a dead spot today from 10:00 am to 12:30 pm West Coast, that probably killed a lot of traders. There was no movement, even after the New York lunch, there was absolutely nothing. I had not seen it that slow during that time, as far as price range is concerned, in a long time.

I quite trading around 12:00 and hour before the close and did not hit my trading goal for the day. It is really alright, I was not worried about that part, I can make it up later this week, but I was getting a little frustrated. My entries were not very good today and ended the day flat with 4 small gains, 4 small loses, and 3 break even. The commission cost for the transactions put me under just a little. I did had my chances but it was one of those days. I did see the market move out for one more push at the end of the day, but I had stopped.

I did not want any more of my emotions to work negatively against me, so I just stopped. I was really OK with that. This is a little lesson for me. Can I stop trading if I don’t like the price action. The answer is ”Yes”. When the conditions are more favorable for me, I can step it up. So, for the things just mentioned I still felt good over all. Staying in control is so much apart of being successful, it can be the breaking point for many traders. Frustration sets in and then you begin to make reckless trades, “don’t do that”.

OK, back to where I left off yesterday; I was laying out fears that traders often experience and commenting.

Fear;  Afraid of being wrong. This is a common one and I will expose it. When you trade, non of us know if the trade is going to work out or not. At that point we are all on a level playing ground. The difference is, one trader knows what he is looking for and when he see’s it, feels comfortable enough to put the trade on. He has a high degree of confidence, only because he has seen it work out before when the conditions were the same. On the other hand, the trader that does not have screen time and does not know what he is looking for, is like a guy poking around in the dark looking for the light switch. If you are that guy, then it is normal and understandable that you will experience fear and or be afraid as you put a trade on. You may not have the screen time you really need to go forward, but you decide to push the envelope and start trading anyway. The result is, you place trades out of fear and uncertainty. Your results are going to suffer and eventually, the market will drain your funds. Traders tend to increase their mistakes and exhibit poor judgment when faced with this emotion running through them. Dont’ let that be you. Get educated, trade your plan and stick with in. Stay in control. If you feel you are starting to lose it, STOP. There is always tomorrow.

Fear; Fear of failure before friends. This is something I learned a long time ago. If you are telling your friends and people you know about your trading venture, it is a big mistake. Let me say that again. I feel if you talk much about your trading to others, it is only going to hurt you form getting to the very place you want to go. There are many reasons for this. One is, we tend to build ourselves up greater than we should and when we don’t live up to what we have spoken, we feel like a failure and this increases pressure. If you are under increased pressure, your trading is going to suffer. When your friends ask you how is it going, you will feel compelled to either tell the truth or lie. If you tell the truth, you make yourself out to look foolish, since all they heard about for months was how you were going to make it big. If you tell a lie and make yourself look better than it actually is, that will only add to many more problems down the road and stretching the truth like this, is not good for anyone. So, either way, you loose. Don’t put yourself under more pressure than you have to. If people know what you are doing, you can tell them, but keep it real simple, don’t get into details and play it all down. You will be better off in the long run to meet your real goal, steady profitability.

Fear; Afraid of never making it as a day trader. If you are not ready to compete in the ring, don’t enter yet. If you are afraid of not making it, it may just be a nice early warning signal for you to do more study on price action.  How and why prices move up and down, support and resistance, pivot points, price patterns, etc. To often, traders look for the “Holy Grail”, whether it is an indicator or automated system or what have ya. Traders should learn the things above and know them like the back of their hand. The market is not going to hand everyone victory. We need to stay humble in our trading and keep learning. It is not easy, but for those dedicated and have the right direction it is possible.

I offer such direction for those seeking. Email me, with your questions and get the trading edge.

vinnie@sniperdaytrading.com

http://www.screencast.com/t/NjdiMTk3

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Where does the market go from here

Sunday, May 24th, 2009

This is for Friday’s post May 22nd, which I did not write.

In Friday’s trading, I did not have a very good connection, I was traveling and not in my home office and my data was freezing because of that, so I elected to just make a few calls on direction but not trade at that time. Later in the session, I was able to link into a faster data connection and took a few trades to a get double daily goal.

I was trading small, but picked up my points with no problems. I remember taking 9 trades and only had one very small loss of  1/2 point. I had some split trades in there, half the order comes off first and the other half later (T-2) , usually at a better gain.

The market sold off on Friday during the last 15 minutes of the day, another close at the lows of the day after trading higher through out the session. That again should have an impact on Tuesday’s opening market.

Trading Lesson:    Generally, when the market sells off early in the session while it is in an uptrend on the daily, you can often see the market come back and close at the highs of the day. The same is true when we are technically in a down market. You will see the market rally early in the session, only to close at its low of the day. We have been seeing exactly that the last three trading sessions. It happens all the time, so it’s one of those things to keep in mind. If you don’t know if we are in an no trend or downtrend, you have work to do.

Where do we go from here?  Since last week, we had broken the wedge that was forming to the upside, that I had been talking about for weeks, but we do not yet have a lower low from our most recent pivot point. Some of my daily indicators are pointing down and some have yet to turn down. From the price action that has recently taken place over the last three trading sessions, I had become bearish on the daily, but with caution.

On Wednesday I stated in my blog, the short term top was in and lower prices were coming off of the price rejection I saw that day and hitting the adjusted outside purple line that I had talked about for a month. All of that has happened and now we will have to see if the last pivot low is going to hold. There are things happening that say it can hold and at the same time, there are things that say it will drop down and break the low, which will bring in more selling. I don’t know which one it will be yet. Pure price action says there is no violation yet, while momentum says it should break. I am going to have to let the market decide and you should too at this point.

We have come off 50 S&P points from the top at 930 to Thursdays low of 879. A month ago I had said 940 or so would be the top of this little run and was off about 10 points. I just needed to re-adjust my lines and last Wednesday I saw that.

Anyway, let’s just let the market decide. If it does break the low, we could see a move down to 847 to 850 on the S&P. It’s not too steep but it would naturally find initial support there at a parallel channel taken from the most recent tops. That lower end of the channel comes in at around the level I just mentioned. Again, we will have to see what happens first. It would appear that is what is going to happen, but if price action changes to reflect something different, I will look to re-asses. With the Gov looking to take control of GM, that could tip the scales south for now.

The financial networks always try and come up with a reason why the market did this or that, but fail to realize that much of the price action would happen that way regardless of the news – just a personal observation.

Last week I was talking about “Price Action”. I wanted to clarify one thing, the difference between price action and price patterns. I believe I was pointing out a “Head & Shoulders” formation that developed in a 5 minute cash chart of the S&P from Wednesday’s sell off. Anyway, there is a difference between the two and I wanted to make that clear.

Price Action is a collection of price movements based mostly on support and resistance. Prices are pushed above and below their mid point.  While price pattern is the collection of price movements that cluster to form identifiable patterns. When those patterns are broken, you can draw a conclusion that will yield a highly predictable outcome. Price action is what takes you to the point where you can see the formations coming together. It is almost like, which came first, the chicken or the egg?

In this case, price action comes first, then comes price patterns from the price action. I hope that helps clear up any questions you may have had about that. If you were not even aware of the difference, you now have it explained.

http://www.screencast.com/t/lcQ9oHq5q Friday’s equity chart

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