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Trade analysis: Hope or Good advice

While I'm writing this article I'm in a DAX long position at 6999

I took it from a 500V chart

When I took the trade it looked as if it would form a ZLR (zeroline rejection of the CCI 20) and break that Top put in last Friday .

My standard Stop is 20 ticks, so while I'm writing this I'm still in the trade, even if it went down to -16 and is -10 according to this chart.

One of the trades I often taken is a ZLR plus Sling after the CCI has changed trend (from green to red).

Being long I sure hope this ZLR wont work and turn instead in a Shamu, meaning making an ~ pattern on the zeroline and turn up from then.

Having hope is one thing, but is there reason as well?

I have a few times written about the figure of the external observer. A technique introduced to me by Brett Steenbarger, who recommended it in his book "The Psychology of Trading".

What do you do? You place yourself in a state of mind, where you imagine yourself being a third party, a mentor having the task to council another trader, who is currently in a position and asks your opinion about it from a neutral standpoint.

As mentor you are flat and you have 3 options:

• Stay flat
• Go long
• Go short

If your advice is Go short, you would tell the trader to exit the position immediately.
If your advice is Go Long, your advice would be to stay in the trade.
If your advice would be, that it's best to remain flat, then you would tell the trader to move the Stop to a position, where you as mentor would go short.

We know the 500V chart and objectively there is a Short signal on this chart, but if I make a trade decision, it is based on the 9minute chart combined with the 30minute chart to know the trend. The 500V is used to finetune an entry.

So let's look at the 9minute chart

Now that chart tells a different story altogether. Here we see also a ZLR, but it's a long ZLR and based on that chart I would take a Long right now. Especially after seeing the open GAP being closed. But let's take a look at the 30min as well:

Trend on the 30min is long, a 30min long signal is a few bars away, if any will be present at all as the CCI might as well settle on the +100 line, meaning DAX might turn into trend up.

So objective analysis (or something as objective as I can muster having still in the background of my mind, that I'm already in a position and a position 10 ticks down actually) tells me, that I should have waited for the signal present and taken a Long right here, or considering the 500V the moment the 500V forms that Shamu. But then DAX would be at 6996 at least and again fairly close to the Top of Friday.

No, if I were flat I would take the long right here 6994.

Target 10 ticks as that 7000 resistance is a big one and will need some volume to break, so better safe than Breakeven plus 1 tick on a rejection of that resistance. The Stop would be at 6987, 1 tick below Fridays close.

And as I'm actually in a long position, it means I remain in that position, but put the target to 6999.5. Yes I hate paying commissions and I "hope" DAX will test this 7000 number, if only to knock out some DAX futures options, even if the majority are based on the DAX cash index, which still trades about 15 points below that 7k number.

Gotcha!

Btw the 500V did not form a Shamu, it just reversed forming a V-pattern.

A pattern I really have problems with trading it, as it gives no clear entry signal, unless you take the cross of the Zeroline as signal, something I don't do. But by looking at longertime charts I got a signal not present on the shortterm chart.

Now that I finish this article DAX trades at 7009 and I have to ask myself, should I have stayed in the trade? But no, the trade was a dumb one actually. I did not respect that resistance at 7000, I should have waited for a wiggle before taking the long and I took a prudent, money management based exit.

Reinventing the wheel

Today, when taking a walk with my dogs in the sun, I had the idea to add a study to my charts, which would show me on a percentage scale, where the current price was trading relative to the total range of the last 20 bars.

Implementing such a study in Ensign using a DYO study was relatively simple

You see the result of this DYO study in the second subsection (% Range). (There is a second study doing all the colors you see on the chart, but it's not important for the results)

The study results looked interesting enough as the trading idea behind the study was to enter a trade with the trend, when you see a retrace of 50% of the current range. And that's something the study was sure giving me.

But there was a lingering doubt, that even if I found something interesting here, it might not be something new. Actually it reminded me of the stochastic indicator, which as far as I remembered measured exactly what I was doing with my DYO. So I added a STO 20 to the chart and when setting the fast STO to a setting of 20,0,0 I got my newly designed indicator.

Eureka! The wheel has been reinvented.

Not only did I design an indicator, but I came up with one already known to the trading community. An indicator I now really understand, as I designed it from scratch. I used no formula book, I just implemented an idea and then saw that someone else already had exactly the same idea.

But while you might use the Stochastic indicator with certain standard settings, I now know exactly what I want, what this Stochastic indicator is showing me and why I don't want any smoothing introduced by averaging the fast line.

I want a retrace of 50% on the range of the last 20 bars and I want a Turbo (STO 6,0,0) to be at the bottom or the top at the same time in a trending market to get me in a trade or to add to a trade (if I happen to be still in).

If this Stochastic indicator will replace my CCI I just don't know yet. I have had a time two years ago when I had the CCI replaced with the Stochastic, but then I had done it because the Sto and the Turbo-Sto showed me clearer slings. I did not know then, what this indicator really was showing me, what this retrace to the 50 line (or zeroline on my chart) really meant, especially when it turned at this 50 line. I used settings, which mimicked the CCI, the patterns where similar and still different in detail. So when I hit a rough bump in trading I went back to the CCI. Now I went again full circle, but with new found insights into this Stochastic indicator. An indicator which now fits extremely well with my current trading methodology.

Trading Errors

I just found this blog article about conditioning optimal trader behavior by punishment. Make a trading error and you cut you in your hand. Bit extreme, but even less drastic measures won't work as far as I can see. Sure you can train animals to stop certain behavior by pain. But I think humans are different. Sure it's simple to teach a child to avoid fire, by telling the child to hold it's hand over a burning candle. It's hot and the child from now on will avoid touching a burning candle. But, if something as complex as trading errors are involved, it's different. You make trading errors for a reason. You might not know consciously the reason, but there always is a reason. And punishment won't rid you of your problems in trading, it will make you only stronger, so you will continue to make the errors despite the punishment.

Take a different approach. Brett Steenbarger suggest introducing an external observer in trading. Think of you split in 2 persons and now you as external observer would look over your shoulder while you were trading. Your external adviser would now counsel you how to handle the trade. A very effective concept I have to say, as you can now look objectively at the trade as if it were a third persons trade, see the risks and potential and suggest to yourself to act accordingly.

Take this concept a step further.
After you make a trading error.
Take the time and try to analyze in a discussion between yourself and your external observer what you were thinking in the trade. What the real reasons were, why you made the trading error.

Maybe you will find,

• that something totally irrelevant to trading caused the trading error. (eg. You had a pressing chore to do, but you could not stop trading)
• that you are taking to big risks in trading, because the size traded is too big for your account.
• that you were frustrated missing a clear opportunity and you wanted to get the "missed" money back.

I found that I can not trade against myself. I will just make the same mistakes again and again. With some problems I have to live, but knowing them I can try to avoid the situations, when these demons pop up, some others I have integrated in my trading as money management rules or strict trading rules. EG. If I have to leave the trading desk in 20 minutes, I take no trade. If my family is around I don't trade. If I have to finish a paper I do that first, then I start trading.

I know I haven't listed them all, but I think I have given you an idea how to deal with trading errors effectively. Take them seriously, you make them for a reason. Deal with the reason and the trading error is neutralized or just gone.

Emotions in trading

Good or bad?

• Be calm
• leave the last trade behind you
• let every trade be the first of the day.

Does that really work?

For me it doesn't.

I have emotions while trading.

• I feel good after a nice profitable trade, well executed.
• I feel anger about myself for not following my plan, for allowing a bad trade go farther against me than it must. Usually when a trade is going into the red, I get that feeling: Out, this trade is not going to work. Stop out now, before I get's even more costly.

I think we all can agree, that having a clear head while trading, that being able to analyze a situation objectively without emotion is important to trade profitable.
But no emotion at all won't make sure, you become a profitable trader either.

Brett Steenbarger starts his new book "Enhancing Trader Performance" which I only can recommend as a MUST READ for novice and expert traders with the example of one very emotional trader, thinking about every trade and error he's making and an emotionless trader, being able to leave the last loss behind him as if it were just nothing. The emotional trader is the multimillionaire, the emotionfree trader is struggling to stay afloat. For Brett it's a question of screentime, of playing and replaying situations in your mind and on the screen which lead to trading errors, which enable the emotionally attached trader to avoid such situations in the future by creating a feedback loop and learning from his own mistakes.

I think a second crucial element to emotion in trading is, that something learned with emotions attached to it, is learned a lot faster, is a lot clearer than a memory, which has no emotions attached to it at all.

Market movements are facts. Prices go up, prices go down, oscillators move, the tape runs fast or smooth. When trading you see a lot of facts, but when do they become important to you?

They become important, when they trigger certain thresholds you have set, which then trigger a tradesignal within you, within the system you designed.
But how do you learn that a certain combination of facts is important, while another is not?

First by experiencing a lot of situations. There is a saying, that you can't learn from the experiences of others, that some errors have to be made by yourself as otherwise you won't learn to avoid them. Nothing can be more true.

How often have you heard, that you should never move your stop, that you should not add to losers. Did it make any difference. Can you really say, that you never ever added to a loser, that you never pulled your stop? But when you have experienced a loser becoming a disaster, when you have experienced, what adding to a losing position means, if the market continues to trade against you. When you have felt the agony and the sleepless nights thinking about your deep red position, which now became a swing trade, then you will think twice doing such a mistake again.

Why?

Because the moment you are in such a position again, the feelings attached with that situation are here again. You feel the same agony as the last time. And you will have to override such agony, if you plan to add to a loser again.

Now we all know, that sometimes adding to a loser works quite well. And here again experience comes in. You need to know when to add and when to stop. You need to know when the odds, your edge is in your favor and when all you rely on is just pure and simple hope for a miracle. You need a clear head to override your emotions. You need to have emotions in a trade, they are a warning sign. Beware, that combination of facts lead to disaster, led to huge profits the last time, but you missed them, because you pulled the trade. You need the clear head to analyze the facts, to see, if the situation is really the same. You need to decide in split seconds if you have the home run or a potential disaster in your hands.

I went Short IBEX35 at 903, when I took the trade the candle was still red, momentum was with me, we had a huge Gap, other European indexes were ticking down as well, so it was a trade the Gap fill kind of trade. Disaster Stop above the high at 933 for a 300 Euro Stop as IBEX35 can move fast, shows a good spread at times and I don't like to be picked by snipers on a possible 60 point Gap Fill trade.

Sure enough IBEX35 traded against me upto 921 after bouncing from 902. But it came back and it hesitated and hesitated, 905, 906, 909, 905, 903, 902, 904, 906.

DAX in a very, very small 2 point range for 15 minutes, FTSE ticking up and up and making a new high. DAX ticking up as well. A 25c order traded at 907.

I've been in such situations. I felt myself holding my breath for the spike I knew would come, I felt a pressure around my ribcage as if someone was trying to hold me tight.

Exit 908

905 trades...you idiot I was thinking, but 1 second later SPIKE

Once the trade is closed let yourself feel your emotions. Go over the trade again in your mind. Did you follow your plan, what were you feeling, when entering, during and when you decided to exit the trade. Was the feeling correct, was it based on fact or just irrational anxiety, fear and the facts after the trade proved your feelings wrong. Don't let an extremely valuable experience slip away emotionfree by learning nothing from it. You will just have to pay the price again. You will make the same mistakes again and again as long as you don't learn from them. Add emotion to your trading, attach emotions to your setups, to your trading style and you will be the better trader.

ES sucks

Someone posted this statement in the chat yesterday and I begged to differ:

[14:38] (xx): ES sucks
[14:39] (croc): no xx, ES is the benchmark
[14:40] (croc): if ES goes down 0.25 points, the DAX does 5 to 10, ER does 1point, YM 5-8
[14:40] (croc): NQ I don't watch
[14:40] (croc): ES holding a major level is a reversal signal
[14:41] (croc): I use the ES to know how the market is doing, I don't trade it, it's too big for me, but it's very important to know how it trades
[14:42] (croc): ES ticking above 1455 triggered this dax spike

[14:42] (croc): the moment ES goes below 1455 again DAX will reverse
[14:43] (croc): very seldom a major market trades against the direction of the ES
[14:43] (croc): that's why I have one of my trend charts showing the ES during US RTH
[14:43] (croc): during european trading hours I use the YM for that
[14:44] (croc): it's thin, but it's well guarded, so it will make no huge move unless it's warranted as big market makers take care that this contract does not go out of line overnight

Trust your Signal

Sling Long at resistance

HSI down 300 give or take a few points, so despite the run-up in the US markets yesterday evening, this contract has a clear downward bias to it and any longs are countertrend.

The open of the afternoon session, which is the only HSI session I'm trading due to the timezone I'm living in, saw a 70 point gap nearly filled on the first wave of selling. I took a first long (not seen on the chart at 436 and was stopped +6, as HSI ran into resistance at 455)

The next trade was based on that sling I marked above.
(I just got reminded that not everyone was in Woodie's CCI room learning the patterns of the CCI -or any oscillator, as they all show similiar patterns. So what's a sling?
On the subwindow you see a standard CCI 20 -red, blue line and a faster CCI 6 -called Turbo CCI. Now if the TCCI goes down to -100 and the standard CCI remains around the zeroline and then both turn up again, it's called a Sling and it gives you a Long signal. It needs to be confirmed with something else though, as such a Sling might as well turn down again. But in a trend a sling is a very powerful trend continuation signal, telling you that the correction might be over)

Long 454
Exit into the trailed stop 484 for a +30 early morning trade

Writing this another sling formed worth over 100 points and a third for another 50 points. I missed both unfortunatly, but it gives you an idea why I like trading this contract. It shows follow-through, something not seen so often anymore on a lot of other contracts I watch.

Early Morning Trade

HSI, the HongKong Stock Index Futures traded on HKFE, are notorious for huge runs, 30 to 50 ticks in 2 minutes are common given the right signal. At ~6.40$/tick that's a nice return for an early morning trade. Limit orders work in HSI if the momentum is with you, but don't be greedy, as sitting on the other side of the world any order you give has to travel 20.000km around the globe before it's received at the exchange. It might be negligent, but placing orders you will experience a small delay not seen when trading at the US or European exchanges. So I took 30 ticks this morning, even if the market was still going up. But let's look at the signal.

• Bottom made 20665, which was a higher low
• CCI showing a small divergence
• POC (red line) at 20700, with some volume below at 20690
• I waited with the entry to clear that 20690 area, as any volume coming in there, would have meant a retest of the lows
• 20700 showed me just 30 contracts on the offer in a rising market, with a second green candle.
• Long 20698
• Resistance at 20720, I was tempted to exit 20718, but actually wasn't filled on my limit order, as HSI was going down already for a retest of 20712. Buyers stepping in again and I lifted my exit order to 20748
• Hesitation at 20732, Trailing Stop moved to 20728 with the Turbo CCI hooking down and CCI forming a plateau
• Exit 20728 for +30 in 2.40minutes

Go Long

...but I'm sure it will be the top.

I really like trading the UK market open. Move, countermove, enter. Easy as 1..2..3

But seeing a Gap up and run away market leaves me frustrated

I just can't seem to get an entry, even if I was prepared for such a move as Asia and Australia were up overnight. But I learned to take Asia with a grain of salt as Europe has a mind of it's own and follows Asia only when it decides to follow them.

Yes there are entries on this chart, but a slow and orderly advance is not my kind of market. everything in me is screaming

Go long ...but then a cautionary voice chimes in and says: That might be the Top, you know that, are you prepared for a loss. And that voice is right, because when I finally override it I sure enter at the Top of the move.

No market open trade today. I stay flat. It's healthier for my account and I'm sure there will be other opportunities today.

Patience

10:34am CET 

Here's what I'm looking at right now

(Doubleclick on the picture to see it, as it's going over 3 19" flatscreens) 

UK news have been released just 4min ago, I've made 2 profitable trades this morning and ask myself now

• What shall I do
• Shall I do anything at all
• Is there a setup

Quick analysis:

• The German DAX is rangebound and flat
• The FTSE looks like it might bounce on the slightly weaker PMI data
• The Spanish IBEX35 is rangebound as well. I usually no longer trade it, but it's an extremly sensitive contract, as it is very thin, so movements influencing not only one but most markets in Europe will be seen in a spike in the IBEX35 first.
• And last COIL (the Brent Crude contract traded on IPE) seems to be set to close Friday's Gap
• The trendcharts (30min charts, to the left) tell me: the Euro is weakening, YM is flat, Gold is consolidating, only the french CAC40 is showing something of a reversal pattern.

No trade (and writing this article instead)

• I had missed the COIL entry at 58.20
• DAX can go both ways as it is oscillating around the POC (red line)
• FTSE might be a long on data, but the Pound is going down and I'm not yet sure, if there really is an inverse correlation between the British Pound and the FTSE.
• As I already said I usually don't trade the IBEX35

Back to watch mode.

Maybe I will take a break, relax a bit and come back in 2 hours to see, if a setup presents itself then. No need to force a trade, when I already made 80% of my daily goal in the first hour of trading.

Weekend impressions

Skiing in Christlum, Austria

Yes it was a really great day. The sun shining all day long, around 0°C and not too many people, you can't ask for more.

My sister in law, her daughter behind Robin (my daughter) and Heike (my wife)

and I myself to the right

Back on track

It always amazes me how powerful the mind is. It takes what you think literally, keep that in mind and you will do fine.

Back in October I thought at the 20k$ level in my account I will get in trouble. And I sure did. Of course there are reasons, the market got more volatile, but the mistakes I made were the old ones. There was no real reason to get into trouble at all. I could have chosen to go on, to weather these troubles. But I had done the one thing crucial to make sure that I got into trouble.

I had told my subconscious mind, that it was time for a retracement. That 20k$ were the level were my troubles would start. Actually I already had had a difficult time to convince myself, that the 15k$ level (the former high in my account) was one level I could cross.

And sure enough I have fallen back below that level in December as you can see on the chart in my last article.

It took a change in my trading method, a whole new world of insights into trading to bring me back on track. One thing I've learned these last few years. I can fall down, but I will land on my feet and there is a way out of the hole I've dug for myself. No one else but me is responsible for my trading. It is my decision if I make money today. There is an abundance of opportunities, I have to take them to make profits.

There's a saying: You can't win the lottery if you don't play. You can't make profits if you don't risk money. You need to know, what you are doing. You need to have an edge and you need to be able to describe the reasons why you took a trade. After two years of trading I'm able to do just that. No big mumbo jumbo. I know what to do and when to do it. Trading has become a lot clearer to me now. Sure I have losses, we all have. But I have accepted that there is no 100% thing in trading. Even the charts I see on my screen are up for debate, because you might use the same setup, the same timeframe and still have a different looking chart. I tell you a secret: It doesn't matter. We can both win, even if our charts are different. We can both make money, we just need to trade our charts and be sure that we have an edge in the markets.

At the next major level in my account - yes I have set one, even if I know it is dangerous to do so- I might decide to take the money I'm supposed to retrace just out of the account. Maybe that will satisfy this retracement need. But first I have to reach the level. A worthy task for the next 6 months.