One Trade Today in ES: Sometimes You Are Just Wrong

I took a trade in ES this morning based on what I thought was an imminent breakdown of a channel boundary. I stayed out until after 10:00 ET for the new home sales to come out. I was watching a 1600 tick chart and a real-time plot of the Advance-Decline of the S&P from my CAT tool. We touched the lower channel boundary and stalled. The A-D chart was pressing towards a new low, so I went short, expecting a quick move out of the channel towards the daily pivot. Here’s the charts:

Price:

A-D Zoom showing time of Trade:

And overall A-D plot:

Bada bing, bada boom. Quick 2 point loss. On this one I was just wrong. This highlights the fact that you can’t know for sure what will happen in advance. You always take a risk when you put on a trade. If I would have gone long instead of short, I would have won. And then about 10 minutes later, a channel breakout was the right trade.

I still struggle at my entries. I have discipline to stop trading, ability to accept a loss and be wrong, and discipline to stick to the pre-trade plan. My entry timing is just plain wrong. That adds up to net losses.

Complex Analysis Tool (CAT): Analyzing and Recording Think or Swim DDE Data in Excel

Donors rejoice: It’s finally here! My Complex Analysis Tool (CAT) for Think or Swim. This tool is an extension of my TOS_Excel_DDE tools, with the addition of macros that record the data at time intervals you choose. I covered the full how-to on DDE linking in a previous post. An earlier version is what I used to create the plots in these two posts.

The CAT tool comes pre-configured to take the S&P 500 and calculate an Advancing / Declining Volume for the index in real time. You can get data as often as every second. If the price of a stock now is above the price at the last time step, then the volume for that stock since the last step is positive. Vice versa for down. The result is summed for the whole list and then plotted. Here’s an example plot:

You could adapt this tool to other calculations or stock watch lists. Instructions are in the file; hopefully it’s self explanatory, but I can answer any questions you may have as you try to modify it to your needs.

The CAT tool is for donors only. You can download the file “CAT_TOS_DDE_Recorder.zip” from the Donors Only folder under the “Released Tools” section on my Google Site. If you haven’t yet become a blog donor, you can do so now by clicking the donate button. Donate an amount you feel my tools are worth to you.

If you want me to make you a custom version of the CAT tool, you can also email me for a price quote. Thanks for your support!

S&P E-mini Futures (ES) Trades: 7-28-09

I took two trades today off the open in ES. Here’s the chart:

I used a 133 tick chart of ES. You can see my Shaded Opening Range Indicator on there (set from 0930 to 0931), as well as my Volatility-Based Trailing Stop. I’ve also got two exponential moving averages: one is a 5 period and the other a 20 period. But instead of using the close in the EMA calculations, I’m using the pivot point of each bar, or (H + L + C) / 3. I got the idea from John Person’s book, Candlestick and Pivot Point Trading Triggers + CD-ROM: Setups for Stock, Forex, and Futures Markets. Finally, you see a study I called PACD (Pivot-based Average Convergence Divergence). Nothing too exciting–just the MACD using hlc3 to compute the EMA’s instead of close, but I changed the inputs to match the EMA’s (5, 20, and an arbitrarily chosen 5 signal line). This is showing if the 5 EMA is above the 20 EMA or vice versa, and could be used in place of the EMA’s eventually. None of this is set in stone, and it is a bit discretionary, but it’s working for me.

The first trade was a short on a pullback inside the 1min OR. The Volatility Stop was pointing short, and the NYSE A-D ratio and Tick were down and going lower. The market was fading the A-D line, but I expected the futures to fall, and 969 was the overnight low, 2 points below my target. Soon after entry, everything switched directions, but I still waited to see if it would go my way. I was within one tick of being stopped out for a bit, and then got a push back lower. I stayed with it, but in hindsight, the Volatility Stop switched directions and the 5/20 hlc3 EMA’s had crossed over (or equivalently, the PACD went above zero). I should have bailed out there for a smaller 1 or 2 tick loss, but I stayed with the original stop and it was hit, -5 ticks. Then I went long on a bounce off the OR high, stop under the OR low. This time the internals were with me, and the PACD and Volatility Stop were as well. I set a profit target for 8 ticks, and was filled. If I had margin for multiple contracts, I could have traded two, sold one at this first target and let the other go with a trailing stop, and I could have had a point or two more, but I’m happy to stop with a net positive day at +3 ticks or 0.75 points. For my personality and where I’m at as a trader, I’d rather be net positive by a fraction every day than be up big some days and down big some others. That will change down the road as I pursue net profit over time as the primary goal, but consistency and confidence is what I want to gain right now, not bags of money. Consistency first, moneybags afterwards.

My strategy lately has been to play for smaller profits, and keep wider stop losses–the exact opposite of the 1:5 Risk:Reward home run trades I have historically tried. I never would hit my targets, and I often got stopped out. So I’m bringing the two closer together, and it’s working. I intend on watching the tape and getting out in a controlled manner (like I should have on the first trade) if things aren’t shaping up as planned. The stop loss is just in case of disaster. I also don’t get greedy and take the money when it’s there at a closer target, which is different than in my past. So far so good!

A Monumental Day: The Eagle and the ES

Today was the 40th anniversary of the Apollo 11 landing. What an incredible feat of engineering, daring and national will! Lots of great coverage out there on the web if you are interested. The Eagle has landed! Here’s Neil at Tranquility Base from a camera on the top of the LM:

It was also a monumental day because I took my first trade since January. I played the open on the ES futures. I was watching a 133 tick chart on Think or Swim. My plan was to play a quick 2 point move off the earliest opening range balance, whether long or short. I also wanted to follow the direction of the internals. I wanted to be exposed to the market for as short a time as possible, so I would either have immediate follow-through (within a minute or two) or I would get out.

Here’s what my chart looked like when I made my move:

I saw that we were pausing near the upper end of the initial range (grey lines) and that there was about 2 points to run from there to the 944.75 pre-market highs. I was also watching these charts of the $TICK and the $ADVN-$DECN for confirmation:

You can see that as of 8:32 CT (9:32 ET) we were in the green on both internals and rising. I got long at 942.50, target 944.50, initial stop 941, just under R1 (red line w/dots). Here’s how the trade played out:

Just a quick hesitation and then off we went. As we thrashed near 942.50 for the first bar or three, I was sorely tempted to just bail out to lock in a tick of profit for my first trade back in the markets, for psychological reasons. I sat on my hands and made myself just watch–stick with the plan; I got my immediate follow through, and I was in the green. When we hit 943.75, I thought we would make it to my target, and as I went to move my stop up to breakeven, I was filled for +2 points. Mission accomplished in around two minutes.

I’m a better trader than I give myself credit for, and my years of watching the markets are starting to give me some “tape sense”. While I’m happy for a win (of course), I’m happier that I made myself follow the plan and stick with it, and that I got my feet back in the water at all. I’ve been avoiding it for far too long.

So break out a beverage today in celebration of Neil Armstrong, Buzz Aldrin, Mike Collins, and me. 🙂