Apr 132010

The market fell short of the 93 level at 92.5 which we would still consider to be in the 93 level area, however  using order flow to wait for the sellers to step in, the only entry would have been at 91.75 which was our first target.  So I did not get a short trade off the top.  The market started selling off hard around 10:20am EST towards our first long fade area of 88.  The order flow on the delta chart showed the sellers where in control as price crashed through the 88 price level.  This is a situation where you don’t want to try and catch a falling knife (unless you’re scalping the momentum exhaustions).  It did appear that the market was trying to get some support just below 88, but buyers never took control.  With price in our 87.25 short break-out area and sellers in control, I took a short on a pull back into 86.75 and rode it into the first target of 85.50.

RG was unavailable this morning for our usual pre-market analysis debrief.  In fact, he’ll probably be out for the next day or two.  I had a long discussion with him about my trade and the potential trades I listed in the pre-market commentary after I finished trading.  During that discussion, I came to realize that the 87.25 break out trade I listed in the pre-market commentary was not one of our usual high probability setups since it was trading into the large volume cluster of April 11.  However given the price action we saw moving into the 88 level (i.e. the falling knife), the short 87.25 breakout trade turned into a viable trade.  Price had to meet resistance somewhere and below 85.5 was the next logical area where low volume started again.  Luckily my pre-market commentary mistake turned into a decent trade.

RG will post a chart a little later today after he gets back to the office.

Post market comment: The 93 level became very significant this afternoon, where  the market worked for nearly 2 hours.  The 93 to 91.75 short fade trade was there, it just took a long time to unfold.

 Posted by at 11:51 am

  6 Responses to “4/13/2010 Post Trading Analysis”

  1. I got that 93 short but got greedy waiting for 91.50 to break, which it didnt. Tough sledding for me earlier today as well, I got long at 86.25 after the push down to 85 but bad stop placement on the way up saw me get out at 86.50 instead of taking that nice ride back to the top. Live and learn I guess.

  2. My fear this morning was that many traders would not recognize the strength of the sellers as price entered the 88 fade area and would try to take a long into all that downside pressure. Trailing stops, especially tight stops is always a tricky game. There were several volume price levels between 86 and 93 so I personally would have little confidence that it would have made it all the way back to the top. I try not to predict where price will go, just try to ride it between the price levels. Our weekly goal is net 3 ES points. Thus I’m better off targeting price levels 3 to 8 ticks away with a 75% probability trade then giving up 4 to 8 ticks on a trailing stop trying to hit a home run 35% probability trade. So in general, my only stop movement is to break-even or break-even plus 1 tick depending on what price is doing. Sometimes I’ll move a stop to outside a price swing if I’m far enough in the money and price has already broken through a consolidation area. There are special cases like this morning’s drop where if I was short and I recognized the momentum, I would move my targets out of the way and possibly target beyond the 88 price area for a 4 or 5 point trade. Now RG trades a little differently. He’s very good at recognizing shifts between the buyers and sellers on the real-time delta charts and usually exits at the first sign of trouble once he’s in the money. This means he often ends up with a tick or two, but his win rate is in the 90s. The great thing about trading between key price levels is that it can work with almost any day-trading style. Every trader has to find the style that works best for themselves.

  3. Thanks for your insights about the weekly goal, that really resonates with me..I need to get away from p/l and just make the trades for the points, the rest will take care of itself.

  4. Hi Guys,

    Thanks for your pre and post comments. One of the problems us small lot traders face is the cost of trading when it comes to scalping. When you trade 2 or 3 lots and commissions are over $4.00 a round turn, it’s practically and psychologically difficult to scalp for a tic or two. I’ve also lost count of the times I’ve let a 3 or 4 tic winner go back to breakeven. Risk/reward is challenging at times.
    Hoping you can cover this/offer guidance in one of the webinars.


    • Jess,

      You’re right. It is difficult to be a profitable scalper when your cost of business is so high. Even if you get really good at it with a win rate of 90%, if your average win is 1 tick and your average loss is 3 ticks, then your expectation is 0.6 ticks per contract. At $12.5 per tick, that’s $7.5 per contract. If your transaction cost is $4, that’s more than 50% leaving you only $3.5 net per contract. You would need a whole lot of contracts if trading is to be more than a hobby. If scalping fits your personality, then I would suggest a CME electronic exchange membership. I think the minimum requirement is 25 RTs per day average and it will bring your commissions down to (I think) under $1.75 depending on your IB. I once saw an interesting chart about the savings. Here I googled it: http://tinyurl.com/y2stvtn

      Scalping is a timing skill requiring a lot of practice, like learning to hit baseballs against major league pitchers.

      • Thanks for your reply NJ. The savings are really good when you can trade size. Definite food for thought.


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