May 172010

Not much going on today. I was mentioning the other day in a discussion with one of our members that the levels that everyone is looking at and are too obvious are never the best setups. Why? Because you don’t have a chance to still win if you are wrong so to speak. You want the levels to be hotly contested but not so absolute which is why the obvious OH/OL levels with lots of previous activity are never our favorites. On those the market never hangs around and they either just bounce off hard or crash through. That said one could build a whole “do or die” method around those I suppose but I think the probabilities for success are not so high as you have to get the macro stuff to dead on. What we are seeing today is an extension of what I talked about pre-market. Too many conflicts not the least of which is the Euro which is the only reason in my view we haven’t sold off hard. The shorts in the EU had gotten crowded and we are seeing so covering which is propping us up a bit. The VIX is relatively flat now and has erased most of the big pop off the open but at 31 and change I would look for more weakness still. We only had one real set up that we liked today which was a little Mousetrap that ran out of gas around the weak 33 level I mentioned pre-market. Retail did get trapped up there but overall volume wasn’t enough to attract as many suckers as we would like so it started to stall quickly. If you were nimble and caught it you could have gotten 3 ticks out of it which made us happy but even two or one or a breakeven still constitutes a good trade n our eyes. Volume is pretty light so we have officially lost interest. Happy hunting guys and girls…

 Posted by at 10:50 am

  8 Responses to “5/17/2010 Post Trading Analysis”

  1. So you guys did not go short at 41? I wanted to but actually got suckered early. I thought I was seeing buyers get trapped at the 38.50 level. Interesting that you find the OH/OL areas too obvious…something to remember. I have learned a great deal from your blog, and your Market Delta seminars. Thanks for help out a struggling retail traderLOL.

    • I meant at 41.00 Sorry for the typs. Thx

    • No short at the OH. There was no set up as it was too much of a line in the sand. Were it not for the short covering rally in the Euro pulling the Spoos up off the open and the bid in the 10s coming off a bit I would have shorted it blind. But as you can see the market was totally directionless all day so my fears about the opposing forces pulling the market in opposite directions. Our world is all about directional and systemic risk as they relate to probabilities around levels. Like I always say we really don’t ever want to have to call a level for direction. We are trying to trade the levels that are likely to consolidate for at least a half rotation. I want to have a chance to win even if I am wrong about what I think the most likely direction is. 40/41 was just too visible to everyone in the world and as such I lost interest in it when it only got hit once and sold off hard with no retest. Without a trap setup or a some rotational activity it was just too risky. Whoever shorted it and won a bunch of points no doubt felt like a hero but I don’t like being lucky. Our levels, how we handicap them, and how we orchestrate and choose which order flow elements to focus on, how to incorporate macro and correlated market pressures is very dynamic, To be real honest a good deal of it is 20+ years worth of feel. I have gotten so when stuff is weird or I just kind of “know” I don’t have the nuts I sit it out. I’m kind of like that annoying poker player who never plays the televised glory tournaments, sits at mid limit tables with minimal rake, and grinds other players down by refusing to give anyone any action until I’m really favored and they basically have no chance to win. Those are the quality of setups we seek. Plus, we only trade the first hour or so and only when volume is fairly strong for liquidity reasons so that limits us more. The only setup we really had at a key level is the one we snapped. It was a trap trade which we knew was a hair weak – both the level and the relative volume in the trap were actually. Because of this you could use no hard target in our view. The trade had to be managed by feel and it stalled at 4-5 ticks or so affording only 3. Make sense?

      • Thanks for the feedback. Makes a lot of sense. I can see how the guy that shorted that, would have felt great, but it really was a low probability trade. I trade for the first 1.5 hours, which can limit the damage. Just trying to learn what it high probability or not. I am struggling with the handicapping part. Do you also find when the market opens so close to settlement, that it is more difficult to find good/high probability opportunities?

      • Not really. Especially since there was so much motion beyond the close prior. But even on tight overnight range days it doesn’t matter. I would say the tigher the ON range the less likely we will fade the edges, but the more likely there will be a good fade op at our level(s) farther out. Handicapping takes a lot of practice. Hopefully you are running playback on our levels and seeing what other markets/internals are doing. Our pre-market commentary gives a lot away as to how we feel about things if you happen to be one of the premium members. Any level marked scalp is a clue right away that I have my doubts it will hold for a full rotation.

  2. Your premarket commentary identified a potential short fade at 1140. After price hit that level, it looks to me that the subsequent bar had little prints and some big lot volume. What did you see that stopped you from takling the trade?

    • As noted in the pre-market commentary, we were not confident in the 1140 level which is a requirement for little prints. I remember stalking that big lots trade, hoping price would move up just a few more ticks. It was just a few ticks too far from the 1140 price level for us to take the short. UPDATE: However I must add that it’s a judgement call as to how and why you feel price is moving and the big lots trade could be a valid trade setup based on your own interpretation of how price was behaving.

    • NJ beat me to it. Yes, we had little confidence in the level for macro and congruent market reasons which were well warranted. The market had no sense of direction. See my previous post and that should explain it better…

Sorry, the comment form is closed at this time.