Apr 152010

The ES stayed in a 6 tick range for the first half hour until the 10am EST Philly Fed announcement.  Then it made a move to test the high at 1207.50.  Price movement stalled and I waited for sellers to overtake the buyers and entered a short at 7.25 with an initial target of 1206.  The ES then spent a good 15 minutes in a 4 tick range before touching and bouncing off 1208.  I knew that if price headed towards 08 again, that it would probably break to new highs.  I tried to get out at 1207.25 but could not get filled and finally decided to take the hit and exit at 1208 for a 3 tick loss.  About 2 minutes later, the ES broke 1208 and started moving higher which setup a long breakout trade.  After the quick pullback, I entered at 1208.50 with an initial target of 2010.50.  The ES tagged 1210.50, but I did not get filled.  It tagged it again, but I ran out of patience after spending more time than usual on trading this morning.  I exited at 1210 for 6 ticks.

The market continues to defy all logic as it grinds upward.  All shorts near tops need to be done with caution.  After 15 minutes in my short trade this morning, I knew this market just did not want to go down.  However there was just enough downside and seller action to keep me in the trade.  It’s a pretty good rule of thumb if you get two failures at a major price (e.g. a double top), there’s a high probability it will not hold the third time.

UPDATE: RG triumphantly returns to the ring today, although I had to leave in the middle for another medical thing. Other than NJs trades which I marked, I tick scalped 5.75 which you will note I had pre-market as a key little volatility play level. Then I tried to scalp 7.50 as I knew NJ was trading there for a “real” position, but I too got run over on the scalp and came out with a 1T loss. Then as you see we ripped right up to my 10.50 level which I shorted practically blind. If I were here I would have been able to manage the position and probably trade all the way back to 5.75 – the order flow was SUCH a no brainer there. But since I was goinf to be away, I “set it and forget it” with a stop outside the failure and an easy high probability target in the mid 8 handle. So the whole ball of wax for today for NJ and I is a heck of a lot more trades than usual:

1T win

1T loss

3T loss

6T win

6T win

5 Trades, 3 wins, net 9 ticks

 Posted by at 11:22 am

  9 Responses to “4/15/2010 Post Trading Analysis”

  1. I have been learning Market Profile for about 4 months, so I really appreciate a blog like this where I can take on board a professionals take on the market. My analysis before the market opened was to enter at one of my levels for a long. I had one at 1205 the VAH of one of my composite profiles and a POC at 1201.75. Correct me if I am wrong but yesterday was a 3I day (initiative tail, VA and range extension) which meant that the first 90 mins of the open had a 94% chance of trading higher than yesterdays VA. On top of that I did a fib extension from yesterdays low to high which gave a 1210.75 target at 76%. The retracement fib also from low to high of yesterday nailed the low of the globex at 1201. Which would have been perfect trade location for a long. However what did I actually do? I watched and waited for any sign of retracement at the open to my lower level and instead price initially never looked back and I didnt take the trade. I had a target of 5 points which the market reached easily. I know you scalp the open but
    I have been pretty accurate with my method so far, the only problem is judging when to enter.

    • Stewart,

      You’ve got the right framework for successful trading. You plan your trades, but you just need to trust and follow your plan. Hopefully the trades that you identify have a favorable risk/reward ratio so that if you are wrong, you lose little compared to if you were right. I’m personally not familiar with a 3I day and I’ve not tried to use MP day structures as part of my trading plan for several years. I’m also unfamiliar with historical probabilities associated with MP patterns. However I can tell you that market structures which can be identified by MP provide a good trading framework. I also rarely use fib extensions (except for the case when I do not have volume profile visibility beyond the current market). However, several of our colleagues do use fibs in their analysis and they seem to work quite well for them (especially when congruent with other indicators).

      Using MarketDelta and watching the order flow between buyers and sellers is a good way to judge how to enter. We’ll be doing a webinar on that subject at sometime in the near future after our introductory webinar.


  2. Hi NJ and RG,
    Many thanks for the education you are providing.

    How do you define your risk/reward and set your stops?

    I notice your methodology generates a good winning trade to losing trade ratio. On the few losing trades that you’ve discussed, you mentioned having a 6 tick maximum stop (March 8, March 9) but usually use order flow to guide your exit before the stop is hit. Is the 6 tick value something you’ve set based on analysis of your previous trades?

    I’m curious because I also shorted the 7.25 level this morning and scratched it based on order flow. I’ve just recently become more rigorous about tracking the maximum heat taken on each trade to better tune my stop setting.

    • ctrader,

      6 ticks is usually my maximum initial stop loss for a fade trades. For breakout trades, the stop sometimes has to be a little bigger to get out of the immediate market noise. I don’t really like anything bigger than 8 ticks. The risk is defined by the initial stop loss relative to the average entry price. The reward is defined by the target. Most of the time I target the first acceptance area (listed as target1 on the pre-market sheet) unless it’s too close to the entry price relative to the stop price. In that case, I have to make a judgement call as to whether or not I think price can reach the second target (which could be an acceptance or rejection area). Along the same lines, if price is moving well directionally, I’ll target the second acceptance area (i.e. target2).

      We generally like at least a 1:1 risk/reward ratio and try to get higher risk to reward ratios if we can.


    • Good question Ctrader. In the fund product just launching most similar to the ES proprietary trading seen here, we always take one trade a day only in the first hour which really defines the risk model from a handicapping standpoint. But on a trade by trade basis we have no minimum or maximum stop or target. All based on market structure. Since we are mostly contrarian trading (i.e fading the market), stops tend to not exceeed 6 ticks though. The risk model is set up like this. Once we see where the stop needs to be to give the trade the room we think it needs, we then look to see if our proposed target is at least 1: on the risk. If it isn’t we generally pass on the trade. The exception is my scalping and I am the only one that does this, but I rarely lose and if I do I come out at even or 1T loser. Technically thugh I will risk 3T to won 1T scalping. So once we deterimine the trade meets the 1:1 minimum we move on to determining position size based on keeping single trade risk to a max of 1% of equity. We also have congruence models between the traders that determine whether we take a full 1% position because we all agree or a fractional one because we don’t. So assuming we trade a maximum of 100 contracts for every 1M account size, here is how it is adjusted based on volatility: If a trade has a 2 point stop at 100 contracts per $IM, the risk is 1%. But if volatility increases and now the market structure dictates a 4 point stop, we would only trade 50 cars per million on that trade. If the stop only needs to be 1 point, 200 cars. We are always holding the 1% single trade risk constant. This will be in the webinar and is a big reason smaller traders have trouble. Regardless of account size you must do this even as a one lot trader. With a 10K account we advocate trading 1 contract with 2 point stops. But everyone should set stops my market structure. We can’t undertstand why anyone would ever use some fixed meaningless number – plus that is what everyone does and it is never a good idea to do what the crowd does. So if you have a 1 point stop set up, trade cars and if you have a 4 point stop set up don’t take the trade. In October 2008 when we had 100 point S&P trades we have market structures that dictated 16 and 20 point stops. We were trading 4 to 5 times fewer contracts in all of our strategies including discretionary and algorithmic. Hope that makes sense.

      • Thanks to both of you for the detailed responses.

        It helps my confidence to know that you pros use the standard basic ideas for risk/reward, position sizing and risk as % of equity.

        I found it interesting that you use your group’s congruence as one parameter for sizing. For us retail traders, we can “quantify” our confidence based on other indicators and/or our historical track record with particular types of trades.

  3. Hi guys. I’m back. I uploaded a chart for today and don’t forget to check out the other post of September 08 detail. Nice to be among the living and be able to trade some today…

  4. Hi all I had 2 trades today for a net +2 ticks. I had a quick loss shorting 4.75 at 12:10, then quickly realized the error of my ways, covered, and got long at 6.50 a few minutes later and rode it back up, and just got our a few minutes ago..talk about a grind..

    Any comment on the sell volume between 11:13 and 12:10….it seemed significant at the time…but again no real flush as you guys say.

    • caljr,

      The 1205 area on your volume profile was a good low volume area. The first trade you should be looking for when approaching a LVN is a fade trade. I was not watching the charts at 11:13 (I assume CST), so I cannot comment on how it unfolded. Looking at the historical delta chart, I can see that the high volume price never really shifted down to near 1205, so I can see why it would have been difficult to commit to a long trade. You cannot always get a clean volume setup for trade entry which can cause missed trades. On breakout trades (i.e. short somewhere below 4.75), in general you want to allow some time for head fakes unless the market momentum is so strong it ignores the LVN area by moving quickly through it. A good trade entry for breakout trades is to wait for the first pullback after the breakout which should be below the LVN price area.


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