Globetrader

Looking at Spreads

2011-02-09T09:32:00.001+01:00

I’m revisiting “The complete Guide to Spread Trading” from Keith Schap to get some ideas about spreads, which make “sense” and I want to share this approach with you, by posting some long and midterm charts.

Gold/Silver

Kind of extreme move or Silver catching up with Gold in the last 12 months.

Gold / Palladium

Choppy, but as you can see on the long-term chart PL/GC is forming a bottom pattern/ higher low. A break above 450 confirms.

Corn / Wheat

Nice move yesterday and prices have reached the breakout level from 2010 when we went from 200 to 320 in a matter of weeks only to drop back as fast back to 165.

Might be worth watching for a few more days, if indeed we spike up again. Seasonality supports that idea.

Short WTI/COIL

2011-02-07T11:26:00.001+01:00

In addition to my last post, this is how a live order looks like

I’m short WTI/COIL at 11.50, will add at 12.00 and cover at 11.05

Stopped into this spike 11.39
(we made that higher low at 11.30, so I placed a profit stop at 11.40, which triggered at 11.40 and executed at 11.39)

Btw: Here is the IB TWS screen showing the closed position

You can see, that I’m looking at the crack spread (HO-RB) as well, but I’m not sure, if I will trade it, as it has quite a huge Bid/Ask spread. Will need to watch during RTH, to see if it gets better.

Ps.:

Trailing stops suck…(often not)

Initial target hit (the lines are slightly off, as I set them on the bigger chart above)

Spread Trading revisited

2011-02-07T08:51:00.001+01:00

I wrote about trading spreads in the past: Tech spread, Spread Trading and concerning Forex here.

I recently started looking at spreads again and I think, it might interest you as well.

But first things first. I have a tick chart on my screen and sometimes I ask myself…Why can’t I trade the Tick

Simple, easy and always be right…

It’s obvious, why you can’t trade the Tick, but over the years IB came a long way concerning the ability to setup generic combo’s. You can go long one security/future/bond/option and short any other, as long as the underlying currency is the same. IB will then tell you to setup the ratio, so the value of the long and short leg match, calculate a trade price, display bid and ask prices, where you can actually place limit orders, stops or target orders, as if your combo where a regular traded instrument. It doesn’t matter, if that combo makes any sense at all, IB will calculate a price and you can trade it.

IB will even display a chart of that generic combo, something like this

That’s a Brent / Light Sweet Crude generic combo (Coil H1-IPE / WTI H1 IPE) chart. WTI is the same as CL, just traded on the IPE).

You can even use the IB Scaletrader to setup your orders for the day

The reason to trade such a combo intraday is simple. You look for something, which swings around a value, which displays an intraday behavior like the tick chart above. That oil combo is a bit more erratic, as it’s quite political right now with the Egyptian unrest and the spread being at extreme values in the “wrong” direction (Coil is the lesser oil quality compared to WTI, so the price should be below, not above WTI), but still it moves real nice intraday. Btw: As in CL one tick is 0.01 and that’s 10$ per tick, so that chart shows some real meaningful movement.

My next task will be to look for combos which move even more predictable, as I like in them, that all that bs, you see in the charts today, is not there.

I don’t care, if someone slams CL down or up, because it can only be done, if you slam not only CL but Coil as well, which means my combo is not affected, my signals work.

Sure you may be down 2000 in COIL and up 2200 in WTI per contract and one minute later you are down 500 in COIL and up just 750 in WTI, next you look its down 1600 in Coil and up 1900 in WTI and you decide to cover your position nicely up 300, without a sweat, while CL was swinging around wildly and I know, I wouldn’t have entered that contract straight, as I would have been whipsawed many times before covering a CL trade with a profit. That combo trade was no sweat, you can really trade what you see, and be reasonably safe, that no bigfoot will slam that signal.

PA works on these charts like a charm and I might even lose my long year companion Ensign over them, as Ensign is not really able to chart these combos. And… you don’t need fancy charts to see PA signals on this chart

Nothing to add…

2011-01-10T20:40:00.001+01:00

It’s been quite a while, since I posted an article. The reason is very simple:

I’ve said, what I have to say.

And you can find my trade rules here: http://globetrader.blogspot.com/2008/03/trade-rules.html

There is nothing new, spectacular, which gives me instant access to these riches mentioned in all the emails I receive daily.

Looking through all the articles I’ve written, I ask myself one question:

Why am I no millionaire?

I know what to do, I have a system, I can trade … really?

The answer, why I’m no millionaire (yet), is quite simple and is actually the only argument I remembered from a trading book I recently read.

Why can you find more than 36,000 entries on weight loss at amazon,

when there is a very simple, always working method to lose weight (if you are overweight, of course):

eat less
do sports

36,000 books teaching you this simple concept!

Discipline .. traders have no discipline to follow some very simple rules

Have a system, which tells you what to do at any time (I got that one some time ago)
Take your stop loss or target, if hit (I struggle with that one from time to time, with disastrous consequences)
Stop, when you have made your daily, weekly or monthly goal (I failed that one completely)

I have started a daily workout in November (6 days on average with one rest day), I eat healthier and … surprise .. I’ve lost weight.

It’s slow going, it’s sometimes hard to motivate myself, but I feel better and already miss it, when I can’t do it … (I’m no gym guy, I like to exercise at home, when it fit’s in my daily routine. I got myself some Gilad DVD’s, as I like that Hawaiian background, when it’s freezing outside.)

I have adapted that same routine to my trading now.

I have a weekly goal, which I can make with 3 winning days
I have a daily goal, which I can make with one or two winning trades.
I know the market I trade, as I trade just one instrument.
I stop trading after two losing trades.
I stop trading after two winning trades. Actually most days I do just one trade.
I’m usually done with trading 30 minutes after the open.

Why?

It’s my system. It works, so why mess with it.

And of course

… Discipline

Gold

2010-05-12T08:07:00.001+02:00

From time to time I will continue to post an article. Have a look at this promising Gold chart:

First target of that move is around 1331 and with the political uncertainty in the world right now, gold might have it in it to reach the second target at 1500 earlier than later.

Learning to swing trade

2010-02-23T08:15:00.001+01:00

I have stopped posting in groups and even in my blog ..the last post (besides the one pointing to the new Amy MacDonald album) was that 1.48 Euro short call, which is still valid and which points in the direction I’m taking in my trading. Last fall I got involved in some commercial community affairs, which is a lot of fun, my law office picked up at the same time, so I need to find a new way of trading, which I trust, which no longer takes as much time as in the past. I still follow the charts as much as I can, but now I go for 2 or 3 days without a trade, if other matters are pressing. So I need to do swing trading to cover for that and I have some good general sense how currencies move.

So for the time being, until I refine it, I follow these ideas with my money by doing cash currency trading…currently I went from long USD to 40% USD and 40% AUD, the rest being in the currencies I trade futures in (GBP, HKD, Euro).

The Euro may have more room to break, but the USD is not as safe either…with Gold being on the way to 13xx I see the AUD profiting from that (together with the CAD btw, as oil is picking up as well) Being right is not as profitable now, but I can sleep sound and have no heart attack, when I have no way to check the markets for a day. Once I have it nailed down again, I will swing trade futures or currencies on leverage again…for now it’s learning a new way to trade, as I found interacting with people too much fun to shut it all out in my solitude as day trader.

A trader called Ira (http://tradingone.wordpress.com/) got me on the path of my current trading, as his ideas got me thinking some time ago. On his charts you see price, candles and target lines and there is that comment of seeing price showing buying or selling pressure. These charts spoke to me, they were clear and simple. Any chart, which speaks to you, is worth investigating.

Who has learned more, the student, who is told that 1 + 1 equals 2 and who accepts it or the one, who takes 1, adds 1 and suddenly really understands that 1 + 1 equals 2. If a chart speaks to you, it usually uses only concepts you already understand, so to understand a chart from a fellow trader the first step should be to try to get an idea what his charts are showing you….

A trading range, trigger levels and targets to the upside and to the downside.. actually a relatively simple concept

Let’s look at the Euro

Here is a long term inside view where we are with the Euro

Now that is interesting, but not what Ira is showing us

Let’s see if that move in 2009 to 1.37 can tell us something meaning full Ira style…

Now that looks interesting…We have a retracement from 1.37 right into a nice reversal zone shown on the chart, some wiggling to give us time to go long into the first extension target marked with an x on the chart..but not only that…that first Target line is still valid a year later acting as resistance on a retracement from a strong down-move

All fabricated you say, let’s apply the same concept on the move from 1.29 to 1.43, which was the second up-leg

opps...now we see selling pressure applied right below our first Target line marked with a T (the retracement lines worked as well as you can see) and we a right in the middle of that buffer zone again on our down-move, which means, we might stay there for a while before the next move unfolds

Let’s see what to expect on the downside

but I think it’s time to get a more detailed picture, so let’s leave the big picture and let’s concentrate on the downside move

We made the first target of that move (The retracement from 1.42 was a classic btw…showing how much selling pressure there was on the Euro at the time)

The extension target is around 1.33 and the secondary target is around 1.27

Once we see the next retracement we will have a better picture to asses where that down-move might take us, but making that first target got me thinking and looking for an alternate currency, which I found in the AUD

(btw if you ask yourself, why short 1.48 in December…that was a classic range break to the downside http://globetrader.blogspot.com/2009/12/eurusd.html )

While the Euro broke down, the AUD returned into its old range

Applying the same concepts I did looking at the Euro, I get this picture

Trigger to the long side is a break of the previous highs, trigger to the downside is a re-break of the 0.86 level (actually now 0.85, as we broke that 0.86 level already creating a downside zone instead of a line. Nonetheless I went long AUD around 0.8750 after that one day retracement as support looked to be holding. If we break down again…so what…it’s cash, losses will be limited…gains as well, but I am just moving into that swing trading concept and even 1 AUD future would be too much right now and being long from support is a lot more rewarding, if we really make that upside target.

So I will for a while trade cash, then move into ¼ cars to end at one and multiple cars later..the markets will be there and my account as well, when I’m ready to swing trade and have fun working other things as well.

Long time waiting for a new song

2010-02-17T22:45:00.001+01:00

After Christmas thoughts

2009-12-29T08:58:00.001+01:00

Hi Brett,

Brett Steenbarger, whom I really respect and whose blog I follow on a regular basis, pointed me to Mike Bellafiore's new article at SFO magazine. It really was one of the first to make sense to me describing patterns as result of HFT, seen in the market over and over again, while I was struggling to accept these as real.
I have struggled the last few months with my trading setups, as they did no longer work as expected. Nothing to really put my finger to, just a feeling in my stomach, that the futures I follow do not move as expected. Taking longer to break out, testing levels again and again only to spike, after I covered my position for scraps. I adapted by scaling back on my trading to nearly zero. Just placing one or two trades a day to not lose the feeling for having money on the line at all and if these did not work (or if they worked - but after I covered) I left the market to itself. I reworked my charts, to find something better fitting, but nothing feeling right so far.
I know the market will be here tomorrow or the day after, when I will have found the confidence again to trust my signals and therefore trade more aggressively.
I know exactly why I wasn't able to rework my charts the way they should be. I'm an engineer -not by profession, but by heart- and I need a logical explanation, before I trust something.

…and I had none. I couldn’t explain multiple V moves, breaks which happen only to get reversed 100% only to break again and reverse again. The moves no longer spoke to me. I was still able to formulate longer term plays, but those I don’t trade with futures. Like a Euro/USD trade which I made with my account itself moving from Euro to USD when Euro broke down below 1.48 sometime before Christmas. This trade made sense at the time I took it and still makes sense. Nonetheless it went against me 80 or so ticks at first and in futures I would never ever held such a position.

I have my further work cut out it seems. Sure, it all comes back to trust what you see all along on your charts. But, the mind can put so many doubts in your decision making process, that the opportunity is gone, once you have put them all aside.

EUR/USD

2009-12-14T08:06:00.001+01:00

I went long USD in my account, when Euro broke below 1.48 after testing 1.51xx.

Will stay there until Euro comes back above I think. Euro should test the 1.38-39 level on this retracement in the long run, which is the 50% retracement level of the 1.2475 to 1.5150 move

and the 38% level of the move down from 1.60 to 1.2475

Any bounce upward above the 1.4450 level has the potential of forming a double top with a retest of the 1.5150 level on the weekly chart. Only a break and weekly close above former support at 1.5275 would negate that.

Long-term targets on the Euro see it trading above the 1.80 level, but that might take more than a few months….

Adios Wave Study, welcome Volume/Range study

2009-11-19T09:19:00.001+01:00

The comments received on my last post (in public and in private) suggest, that FFA (Fast Fourier Analysis) will give me the results I seek, but will still fail to predict future price behavior. Meaning implementing that, I will get yet another failing study.

In the back of my mind I know, I have to include volume somehow. I use volume in my trading, when watching the tape, when watching charts form, but I can’t put it in words or formulas.

Prices move up, when there is more buying than selling. But at any given moment in time when a trade happens, buying and selling volume is absolutely equal, equities change hands. This 50 contract trade on the ES at 1105.25 means there was a seller of 50 contracts and a buyer of 50 contracts ES. Volume on minute charts tells you not really something. Sure you can see, what prices did when there was a volume spike, meaning when more contracts where traded. If they move down sellers were willing to accept lower prices just to get rid of the merchandise, but what about the buyers? Why do they buy, when sellers move the market aggressively down. Some have to, but most don’t.

Volume and time are linked, actually volume, time and price are linked. Higher volume for some time at a certain price level tells you there is someone out there, taking all that is offered and betting on a move change. On a volume and on a time chart this is seen as a flat section of the tape.

The wave is the norm, the flat section on the chart is the exception.

Euro breaking down on a 15min chart. You see Sellers making a stand and just selling into the buying after a spike down until you suddenly see the buyers making a stand. There is a spike down initially, there is again that selling, but suddenly the selling is absorbed at the 1.4850 level. There is a final spike down, prices recover and recover into the previous range above the level, the buyers made. Sellers don’t give up that 1.4870 level so easily, it’s the Asian trading session now (charts are on CEST) and volume is light. Still buyers continue to come into the market and force prices further up.

I talked about volume, so let’s add it

That huge bar down is accompanied by high volume. But what does it tell you, how can I fit that knowledge into a formula telling me that the 1.4850 level will be the one, where buyers will make a stand.

Volume * Range will give you a high value, when Volume is high and the range of the bar is high. That’s to be expected, actually. I don’t need an indicator telling me what to expect anyway.

Volume / Range will give me a spike if Volume is high and the Range is small. That sounds a bit more interesting! I should see a spike, when there is someone taking a stand, because then we see high volume and a small range bar.

I will leave it at that…and see, if I get some input from you.

New wave study

2009-11-15T12:16:00.001+01:00

It's Sunday morning and I have some time playing around with an idea I already had for quite some time.

Prices move in waves. I think we can agree on that and using charts means, we try to predict future price behavior from past behavior aka prices are not moving randomly.

Also looking at any line chart in any timeframe, we see waves within waves. And usually we see breakouts (up or down) followed by consolidation followed by a new wave up or down and again consolidation. We use divergence, price patterns, whatever to tell us, it's time to take a trade, because we believe to see a pattern we recognize and which tells us, that a certain move is imminent.

(Friday's 5min ES chart European time zone)

I thought of a theoretical way to get a similar chart and a simple formula was able to do that:

y=sin(x)

gives you a standard sinus wave which in it's simple form might represent buying, consolidation at the top, selling, consolidation at the bottom and an endless repetition of the cycle

y=sin(x) doesn't do the trick, but if you define x to be different distinct timeframes, each a timeframe with a group of traders working that timeframe and you just add them up, like each wave in the ocean is just the sum of all waves it is composed of, you get a very interesting picture:

Gives you this graph:

In this graph you see a lot of patterns, we use for our daily trading.

And I thought to myself, if there was a way to match the line chart of the ES above to such a theoretical chart, you might get a really good predictive study.

I have no idea, how such a predictive wave study could be implemented, but maybe it's an idea worth thinking more about. Maybe you don't need a complex neural net to try to explain market behavior within the day, maybe a relative simple Wave study is sufficient. You need to play with the parameters and the number of Waves within waves, to get a good representation of the market, but starting with the major timeframes should work. Volatility could be added by multiplying certain timeframes to match news events pre-market.

It's just an idea, but maybe you have some time to follow up on it and play around with it.

Oil daily

2009-09-22T08:38:00.001+02:00

Quite some time, that I posted an article, but that chart was too good to be left on my computer alone.

A rising trendline against a stationary resistant line. It's that time of the year, where we usually will see oil prices come down a bit on a seasonal basis. And you see that on that daily chart above already. We had no major hurricanes, no militant attacks, no craziness from the OPEC but oil is still holding up - trying but refusing to make lower lows.

That means, we will see a test of that 76 level again. And you know what they say: On a third test, they usually break, making the way free for the 85 target area.

Sure if that test fails, the fall will be long and hard, as the only real support comes in at the 68 and 61 levels.

Right now I like to go long oil around that rising trendline.

How Money is created

2009-07-27T08:31:00.001+02:00

I wrote about it last year. But it is so important I decided to repeat it today

You ever wondered how Money is created?

Take a seat and watch these videos

Part 1:

Part 2:

Part 3:

Part 4:

Part 5:

Momentum Pattern I

2009-07-24T15:45:00.001+02:00

I will from time to time post patterns as I see them.

The first one is a momentum pattern in Natural Gas Futures. These futures are fast, usually have iceberg orders in the market, and can spike really lovely.

Take a look at this 10-Tick chart

I highlighted such an iceberg order, which was renewing itself. The market had tested the daily low and failed a few ticks above at 3.704, it went up and someone tried to sell it down again. But there was a lot of buying in the market, which you see in that nice line formed in the chart. The buying relaxed a bit, only to spike through the line in the sand, which is your signal to go long.

NG can run 40 to 60 ticks, still 3.750 was resistance in premarket, so I was wary when I saw the divergent wave pattern. I took the hint and exited with +20.

Here is another example of the same pattern at the above mentioned resistance level

As you can see it first failed, but there was support 10 ticks below and the market continue to try for a break, which eventually happened. Never forget: It's a momentum pattern, so don't hesitate to bail, in case it fails and don't expect home-runs.

Should have's .... are there for a reason

2009-07-15T09:54:00.001+02:00

I stumbled on an older article Brett Steenbarger posted last year: Second-Guessing: The Should-Have Syndrome

which I found really worth reading, as I missed it last year. And it got me thinking, which lead to this article today.

- I should have taken a stop, even if the trade turned out to be a winner. Last time it cost me a lot!

- I should have taken that trade, because all signals were there. But last time the same setup did not work!

- I should have held that winner longer, it was obvious, it would do the breakout this time, wasn't it?

Should have's ... can help you, as they are another way your inner self is corresponding with you. It's a discussion happening in real time in your head, when you are focused on the markets.

Listen to that voice, don't give in on it, but argue. There are times, when it is worth overriding that voice. If you are proven wrong, next time, it will be harder to override that voice!

At other times it's only prudent to follow that advice. Your trading plan is there for a reason and its rules are to be followed, unless there is real good reason to deviate. One rule may be that round numbers are usually Support / Resistance levels and you get out at them. They may break on the first test and leave you with a feeling of missed profits, but usually S/R holds on the first attempt, so getting out and locking in profits is only prudent as a daytrader.

Not taking a trade, you should have taken is a tricky one! But there is a reason for it. You just can't see it, as you are so frustrated with yourself.

It might be that you have personal issues today. Maybe you have no time for the trade as you have to leave in a short while or you have other things occupying your mind interfering with your trading. Be happy you haven’t taken the trade and get your things in order, so you can concentrate on your trading again.

But it might also be that your subconscious mind is seeing some flaw in your setup, you haven't identified yet and therefore have not integrated in your trading rules. Maybe your setup assumes high volatility and is just not working at its best in ranging markets. Your subconscious mind is extremely good at analyzing the markets and is signaling you just that. Of course, if the setup then works, you are frustrated not having taken it, at the same time ignoring the last 5 trades, where the setup worked just so or actually failed, but you still assumed that being do to the normal P/L% ratio of your system, when in reality it was caused by a market sentiment shift, you haven't acknowledged yet.

Try to deal with your Should have’s .. in a positive way. This will respect the parts of your mind, which are having problems with your current course of action and prevent them with interfering in your trading in the most unexpected way. Eg by flooding you with panic feelings, when a real cool head is actually needed. And it will actually help you in your trading, as it is always a good thing to be able to argue the reasons for your trade at any time.

If Should have’s … pop up in your head while in a trade, look at the position in an objective way, try to see it as a position your best trading buddy just told you about and he/she asked you, what you would do with that position.

Euro again

2009-07-09T08:38:00.001+02:00

After a failed H&S pattern on the daily down to the 240min timelevels the Euro moved into a sideways consolidation pattern holding above the neckline, but below the shoulders of said H&S pattern. We can see some important uptrend lines on the Euro, the first one has been broken a few days ago, the lower one coming into play now, but leaving the Euro still a lot of room.

On that 960min chart you can see where we stand right now. Yesterday we broke down finally, but that reversal we see right now leaves me questioning my decision to go 3/4 into the USD with my account at the 1.39 level. Retaking the 1.40 level will get me back into the Euro in the account. We might see another week or two of holding patterns in the Euro, but then that second uptrend line comes really into play and will decide whether we go higher or not.

Shift in sentiment

2009-07-03T08:59:00.001+02:00

It's some time I published an article. Not due to lack of trading, but due to a shift in sentiment and approach to the markets. A study of my approach to the markets showed me something very clear:

The time I force it, I lose.
The time I become confident, I become careless and I lose.
The time I take one small step after the other, I win.

It is frustratingly slow, it is a calm way of trading, sometimes I do just one trade a day, sometimes I do none, sometimes I do 3 or 4 trades, I stop when I made my target. I miss a lot of moves, and sometimes I feel I should press on, but then I remind myself, that it doesn't work that way.

Think about it this way: Over time you can fairly well define the win/loss ratio of your personal trade system. Now this win/loss ratio will not tell you, if the next trade will be a winner or loser, and actually even if all trades are independent, that win/loss ratio will be fairly accurate over a bigger number of trades. It will be also fairly accurate over a number of trades within the day.

So does it make a difference to start the day with a winning or loosing trade?
Knowing that each trade is independent, obviously NO.
Knowing that during the day my personal win/loss ratio will kick in, absolutely Yes!

Which means:
If I start with a winner and make or exceed my daily goal...I stop
If I start with a winner and don't make my daily goal... I continue. If the next trade makes or exceeds my daily goal, I stop.
If I still did not make my daily goal, I consider stopping for the day.
The least I do is take a walk with my dogs and switch contracts. Why: Because my daily goal is quite small and I can make it with one or two trades. So if I don't make it, my approach to the markets is wrong today.

If I start with a loser...I continue
If I have a second loser in a row, I'm out of sync for the day and I stop
I might even stop for another whole day, just watching the markets that day, to get back in sync.
If on the other hand that second trade is a winner...I continue. My personal win/loss ratio based on number of trades (not profits) is 58% winner, 22% breakeven and 20% looser, so the second trade being a winner is consistent with my personal w/l ratio encouraging me to continue.

This approach to the markets gives me a lot of time to do other things...I like it!

And I like the way my account is doing if I follow this approach to the markets.

...

Yes I miss the fun of trading more frequently during the day. Actually its boring at times.

But I noticed one thing: The personal win/loss ratio shifts during the month, if you follow this approach. I wasn't able to change my personal w/l ratio for 5 years. Taking this approach I have.

It might also have to do with my new trading system, I wrote about in my previous articles. So to give you another glimpse at what I'm following now, take a look at this Euro 240min chart

If we stay above that rising support line, I expect a real big move up in the next few days or weeks. if not, next support on the downside is 1.3736 and 1.3440.

Wave examples

2009-05-27T07:17:00.001+02:00

Piper asked for a 89 SMA on the charts. Here it is. A 60min and 5min crude oil chart...

Wave oscillator

2009-05-20T08:57:00.001+02:00

I promised a follow-up on my article Wave within Waves. It seems the idea has merits. The one question not answered was: How many different timeframes should I implement to get a reliable reading. My first implementation used 3 different settings, as these were the oscillators I always had on screen. I now expanded that to 10 different settings based on the Fibonacci number series and added a second independent oscillator, which I setup the same way.

This is what I got (crude oil July 09 60min):

and here is a crude oil July 09, 5min chart

Even if both oscillators forming my new Wave oscillator are independent from one another, both are scaled to use a mid-line and the scale seen on the indicator is fixed, so crosses of the lines are not just arbitrary due to screen resolution or chart size.

I'm now looking working with the assumption, that readings above the mid-line represent uptrends, readings below represent an underlying downtrend.

Color-changes at extremes might signal a trendchange.

Color-changes near the mid-line might represent an entry opportunities with the trend.

Crosses of the oscillators might confirm the color change signals.

Divergence of the blue line against price near extremes may support a trendchange signal signaling exhaustion of the previous selling or buying momentum as prices are running into support or resistance levels.

I will have this setup on screen for a while to see, if these assumptions are correct. If yes, I will try to implement an ATS, which should impartially tell me wether these assumptions are correct or not. I won't do that in the first place, as an ATS requires very strict rules. And there is a tendency to tweak an ATS until it produces the desired results. First I need to get a feeling for the setup, I need to understand, if this setup produces good signals or not. Then I can start looking to implement the rules into a mechanical ATS.

Waves within Waves

2009-05-15T10:33:00.001+02:00

Looking into a new (old) concept. Waves within waves. Why do we sometimes see springfloods, why do we sometimes have big violent moves in the market place, while seemingly similar circumstances at other times give us just a ripple with no food to gain?

Can you predict the height of any single wave in the ocean? If you knew the height of any wave in the ocean at one point in space and time and you add them all together, then you could. Or you just measure the height by placing a ruler into the water until it hits the ground. Now you can be fairly sure, that any trough you measure will be followed by a high. And the lower we go, the higher the next wave(s) will be.

Kinda' interesting, don't you think, if you assume, that the marketplace moves in waves as well.

The indicators we usually use, measure one wave. Yes one single wave in a specific timeframe. They simply ignore the remainder of the universe. But to measure the depth of the ocean, it doesn't suffice to measure one wave. Actually you just can't measure the height of one single wave. That wave is the sum of all waves making that specific wave up.

I had on my previous charts 3 stochastic %D lines (81,3, 27,3 and 5,3). The one indicator you see above is the sum of these 3 lines calculated as (%D(81,3) + %D(27,3) +%D(5,3))/3. The lowest reading lead to the best move for the day so far.

I will put this new indicator on my charts and watch it. I will experiment with it by adding other timeframes to see, how the information changes.

Maybe this makeup for an oscillator is an answer to the one flaw any oscillator has: It works excellent in ranging markets, but once a trend exceeds the length of the oscillator, they suck big time.

New Articles

2009-05-11T11:26:00.001+02:00

Hi Newton,

thanks for your encouragement. I'm sure I will write more often again, but right now I'm reading not writing. I'm reading "The Daily Trading Coach" from Brett Steenbarger. A book I can only recommend. A small, very small part is from me as well, as I participated in chapter 9 by writing Lesson 82.

The book is really good and for now I'm taking my time to get it's lessons in my head.

But be sure, I will post new ideas again in the future...

A different look at the Tick index

2009-04-18T08:46:00.001+02:00

The $Tick index (the Number of stocks trading on an uptick - number of stocks trading on a downtick on the NYSE) never told me a lot. I had it on the screen to watch for extreme values, but other than that a chart always looked too erratic to me to be of any use.

But playing around a bit I now found a display which actually tells me something:

Instead of displaying the $Tick-NYSE in any kind of chart, I plot it as price histogram. This shows you quite nicely where we trade in relation to the 0-line, where the POC is, which gives you a kind of short term trend (being below 0 it tells you the trend is down, being above we go up).

The first chart shows you, what you would expect from the $Tick. A nice bellshaped curve, with the POC above 0 as we had a day with an upward bias yesterday. The second chart gives you a shortterm look into the $Tick displaying the selling into the close yesterday.

Here is the Ensign software template I use to create this chart for those of you interested in replicating the chart.

(If you have your manager not set to add symbols automatically, check the template for the symbols used, so the calculations at the bottom of the chart work as well)

Euro

2009-03-30T00:35:00.001+02:00

Where we going from here?

The Euro took a dive the last 2 days and me being in the Euro in my account have to ask myself, where are we going. I'm a daytrader, I know not a lot about swing trading, still I need to, as my account holdings have to be in a currency and I like my holdings to work in my favor not against me. So if the Euro weakens against the USD, I go into the USD, if it is strong, well I remain in the Euro. Or is there another currency, which is even better suited to be in, which is going up against the USD and the Euro. Gold comes to mind, but gold is too volatile, I trade gold, but I don't put my account holdings in gold.

As I said I'm no swing trader, so I stay away from other currencies than the Euro or the USD. Otherwise it gets really complicated and I don't like it complicated.

Which means I just have to answer these questions daily and every weekend:

Shall I switch from Euro to USD or USD to Euro or shall I hold. Where is the point, where I reverse the account from one currency to the other.

Currently I am long from the 1.2570 area, but that might change. Take a look at this daily Euro chart:

There is something about to happen. That triangle will break. To the upside or the downside. Chart analysis tells you that such triangles tend to break to the downside, but before we jump to conclusions, let's take a look at the longer time charts.

A monthly and a weekly chart:

Monthly oversold, the weekly barely out of being oversold and showing a double bottom.

And the 240min chart (below) shows the Euro above the 50% retracement, which is around 1.3100

We might have a good flat top here, but as I'm not daytrading my account itself, I think I will keep the account 66% Euro for a while longer, actually I might go 100% at the 1.3100 level and keep that until that green line is broken to the downside for a 100% USD reversal below 1.3000.

Sanuk

2009-03-28T20:31:00.001+01:00

Wikipedia tells you it's the Thai word for fun. A fitting name for a trade setup I recently got introduced to. Trading is fun. The trade will or will not work, nothing you do can change that, once you have committed yourself to be in the market. So why is it relevant, whether this individual trade works? 25 trades should show you a profit overall or your setup has some flaws, but one individual trade...it works or not. Nothing you can do. So be relaxed, have fun and let me tell you about the Sanuk trade and how I understand it. Bruce will correct me, if I got it wrong, I'm sure.

Markets move in waves up or down. If the trend is down, you see lower lows and lower highs. If the trend is up you see higher highs and higher lows.

If in a downtrend you suddenly see a higher high than the previous high, something has changed. The Sellers are no longer able to sustain the constant selling.

If in an uptrend you suddenly see a lower low than the previous low, something has changed. Now the Buyers are no longer able to sustain the constant buying. Here's the chart behind that theory:

Take a look at this CL chart. Prices making lower highs and lower lows. Near the bottom you see a double top in the downtrend and the Low of the current move is formed at 17:25.

The low has been made at 51.72 and prices shoot up to 52.04 trading above the previous high at 51.91.

You missed that nice upmove, but there was no way to distinguish this low from any other previous low in the downtrend. So either you take all green bars forming in the downtrend or you accept, that you will not trade the reversal from the bottom. (Btw: I use Heikin Ashi Bars, which makes it easier to see whether we are in an up- or downtrend.)

But now we have the chance of a Sanuk trade setup forming.

Looking at this chart, what will most likely happen?

Exactly, Sellers will come in and try to force oil down again. But there are now Buyers in oil, which were able to push oil above a previous high and that means there are Buyers left behind, who did not enter the bandwagon and are now waiting to get a good price to enter oil on the long side. At the same time shorts will now be hesitant to push oil further down by just selling it short, as Buyers have shown their hand and their willingness to step into the market in the 51.75 to 52.00 area.

What does this mean? We are now looking for a retracement and will enter on the first green bar after that retracement has been made. Great! How shall I know, when the retracement is complete?

Look at this chart:

I placed a line from the previous high to the current higher high. And I placed a parallel line to it drawn from the low.

We don't go long now, we wait for the retracement to hit that lower violet line and then we wait for a green bar. Using HA-Bars this is the easiest way to tell, when a temporary bottom has been made and prices start going up again.

No hit, but a near hit...you could enter here

....or you wait:

Long 52.08 or 52.05

Now where is your stop and where is your target in this trade?

Stop first: 51.90 should be adequate and most will go for it. Target can be a fixed target of 10 to 20 ticks in oil, or you use the upper violet trend line, or you do as I usually do and switch to a longer timeframe for targets.

On the 100 tick you see 2 resistance levels:

Oil can move fast and violent. So if prices stall in an upmove where you are in and long, you don't hesitate to take profits. The least you do is move your stop up and be sure you use Stop Market orders, not Stop Limits as these tend to get jumped in oil.

Ok, from you entry at 52.05 you got a first target at 52.30 and a second at 52.45. 25 ticks for the first and 40 ticks for the second contract. Not bad at all. As you can see on the 100tick chart oil made the first target but failed to make the second target.

And on the 25 tick chart I used for the entry you can see, that you got quite a lot of warning, that the second target might be elusive:

Seeing this you either move your stop up to the 52.10-52.20 area to secure some profits or you close the trade for a nice profit.

Trading should be easy, it should be fun and your setup's should provide you with consistent profits. They don't need to be big, but they have to be consistent. This setup helps me on that path.

The setup is not my invention. As I said, I got it from Bruce and you can find him in the Sanuk Google group, if you interested and take the time to look for him. Access to the group is by approval only.

Markets trade in sync

2009-03-23T09:28:00.001+01:00

If you are used to watching multiple related markets, you will notice, that they tend to trade in sync. If the ES is going down, you expect the YM, the NQ, the major European markets to do the same. They usually do, but there are differences and you can profit from these.

First a word of caution: Never trade the lagging contract in the direction of the leading contract. There is a reason it lags.

ES is the leading contract in all my setups. I seldom trade it, I use it to define the major market trend.

Above you see the ES making a leg down. The CAC40 (french index) followed that last leg down, but the DAX, while trading to the downside is hesitant. That's a great example of a lagging contract.

Seeing this scenario the first impulse is: Ha, they missed it, for whatever reason they missed that downtrend in the market and are still holding support on Dax.

You sheep!

I have no idea why Dax is holding up, but that market has a lot of strength. Take a deep breath, you have missed nothing, instead pull up your trading charts for the DAX and wait for a signal to go long. The moment the ES turns, DAX will explode.

Of course, if ES takes another leg down, even the strong ones will follow, but that's what Stops are for.

Indicator

2009-03-17T11:53:00.001+01:00

You might have noticed, that my charts have a Stochastic indicator on them. In trending markets I look for pullbacks on the trend to enter with the trend, seen as a sling on the Stochastic Indictor.

Today I added a second indicator, as sometimes I have that dumb urge to jump into a market. We all know that feeling: Hey, that's a great move, it has legs, and again...I missed it!

Depending on the day, I sometimes just click and enter the trade. Usually when the market stalls and reverses, leaving me pondering the stupidity of my trade.

So I added an overbought, oversold marker. If %D of Sto81 + Sto27 + Sto5 is >280 or <20 a marker is shown, reminding me of the danger to open a trade with the trend in this timeframe.

See the red lines above the stochastic indicator.

Tech Spread

2009-03-17T10:28:00.001+01:00

I wrote about the Intermarket Spread between YM and NQ, set at a 2 YM : 3 NQ ratio.

Here is a 60min chart of that spread showing the ranges I noticed so far.

In my Sim account I made a nice profit trading that extreme -3400 reading by going long the spread (Long 3 NQ, Short 2 YM) and closed the trade in the morning at -2550 for a 683$ profit.

The assumption was that NQ was already down all day, while ES and YM showed profits until succumbing to the selling after AMEXCO posted that news-item about credit card defaults. So any selling would be done in the financials, while tech, even if it slipped further should already have found a bottom. Meaning the spread should come back to the usual -2200 to -2400 number I have identified as equilibrium for now.

Intermarket Spread

2009-03-06T08:50:00.001+01:00

For now I've just looked at calendar oil spreads. But after digging myself into Keith Scharp's book "The complete Guide to spread trading" I tried an intermarket spread yesterday:

You look at the market and decide which one is strong and which one is weak.
Right now the Technical's are relatively strong, while the big caps, especially the Financials are weak
Meaning: If it goes up you can expect the NQ to outperform the other markets, if it goes down the YM will be the heaviest hit
Trading an intermarket spread means: You go long one market and short another at the same time
But first you need to understand, that trading 1 NQ is not the same as trading 1 YM contract. They don’t move at the same speed
Therefore you do a little calculation:
NQ at 1080 * 20$ (per point) is worth 21600$
YM at 6625 * 5$ (per point) is worth 33125$
To make them move at the same speed, your long and short positions need to have approximately the same value
NQ: 3*21600$ = 64800$
YM: 2*33125$ = 66250$
So your Spreadtrade would look like: Long 3 NQ and Short 2 YM contracts
Most brokers will recognize that this is a Spreadtrade and give you a very low commission on the whole trade. In case of IB yesterday this trade cost me about 6500$ margin (IB gives the margin advantage for the corresponding 2 long and 2 short positions and adds to that the 1 contract long NQ margin)
This trade will show you a profit in rising and in falling markets as long as your assumption that Technical's will outperform the big cap Dow stocks is correct. It will show you a loss, if there is a snap back rally in the financial sector.

In spreads you need to be right about the fundamentals not about the direction of the market.

Being in a trading hole

2009-03-03T10:47:00.001+01:00

Been there, done that, will do it again...

From time to time emails from readers reach me asking me, what to do when you are in a hole. Something which worked last year really fine, suddenly stops working and you find yourself down 50% to 70% of last years profits or worse of your account value at the start of the year.

Stupid example? I don't think so! You can do it with 1 trade, if you are careless and stubborn. (I just proved it going long 30,000 FAS last Thursday in my 125k$ IB demo account, which is now reduced in size by 65% in just 2 trading days...just to prove to myself, that taking a 2,000$ loss on a big position is the correct way to trade... but I will hold it into extinction if necessary)

Being in a real big hole is something, which seems to happen to all traders over and over again. Strategies seem to stop working for no apparent reason and when you finally realize it, you are already down big time.

Question is, how do you stop and reverse the downward slide to climb out of the hole again.

You need to have capital, so you have to make sure that you still have an account to trade. Which means: STOP TRADING NOW
Stop for a day, a week, a month, as long as it takes. The market will be there waiting for you, when you are ready again.
Markets change and you have to adjust your strategy to compensate or you switch to a new market which fits your trading strategy better.
Something private: From time to time you will find articles about new markets in this blog. Most likely I'm in a hole or I'm feeling no longer sure in the market I'm trading at the moment. It might be that something changed in my trading environment, which causes me to trade at changed times, or I'm occupied with private matters which should take precedent to trading. The result is always the same: My trading system is not working the way I'm used to, I'm not getting the results I expect from trading and that causes me to look somewhere else. Usually when I do that, I write about it to get insight from you through emails or comments in the blog.
One thing you know, when you have fallen in enough holes is, that you will come out of them stronger, if you have discipline and persistence. Go back to the basics.
First answer this question:
What has changed, the market or I?
If its me, then the first thing I do is: I stop trading.
1. Maybe my environment has changed and I have to adjust my trading system to the new setup. EG: You had 2 screens and you upgraded to 4 screens. Suddenly you are flooded with information and you need time to adjust. More screen space is great, but you can't process all information presented to you, you need to learn what is important and where to find it on your bigger screen space.
2. You have less time for trading, but your trading system requires you to be present 100% of the market hours or you will miss your chances.
3. Something really difficult: You are suddenly dependant on the money earned through trading. It's a huge difference, if you have a regular income and your trading profits are just a nice add-on, compared to having no income other than your trading profits.
4. Maybe you don't have enough sleep, you drink too much, you don't exercise. Trading requires you to be fit. So take care of yourself.
If it's the market:
1. Question that assessment of the situation as markets usually do not fundamentally change very often. They do, but your trading system should capture quite a range of different market conditions or it would not have been profitable in the past. And that means, before you decide your trading system is not working, it's a lot more likely that something within yourself has changed causing the losses you experienced.
2. If everything you do is the same you did in the past, then your system might no longer be working. You could try to tweak your system, but usually tweaking a profitable system leads only to an unprofitable system in the future.
3. Try a different approach: Ask yourself, what is the basis of your system, why is it working, what are its components, what environment does your system need to work profitable.
4. Once you have answered these questions look for a market which fits your system. No one forces you to trade ES, YM or NQ. There are a lot of markets out there and once you know, what your system needs, you can look specifically for these markets to trade.
Once you found your market
1. Start demo for a week
2. Learn the movements of the new market
3. Start trading small
4. Forget the notion, that you will be whole tomorrow or the day after. You are in a hole and it takes time to get out of the hole.
5. But know, that once you found your mojo again it will go very fast and you will be stronger and better prepared the next time you fall in a hole.

I hope these points help some of you currently in a trading hole. They helped me in the past and will help me in the future.

Spread Trading

2009-02-17T09:57:00.001+01:00

In trading you need to move on, when it becomes crowded. There is still money to be made, but the moves become random, the edge you have erodes over time and you find that more and more setup's stop working, have not the follow-through you are used to or more and more trades hit your stop-level. Sure you can fine-tune and you should do that for a while, as you might just be slightly out of sync with the market. But when you start doing that it's also time to broaden your horizon. You need to look for new, greener pastures.

I'm doing that at the moment and you might find it interesting to take a look yourself, so I will add these thoughts here.
In trading you will seldom find something really new, what has changed is the velocity, what took days and weeks can now be made in hours and minutes. That change is true not only for equities and equity index futures, that is also true in commodities or bond trading.

I recently started looking at spreads, actually calendar spread trading. This chart shows the Spread between April Light Sweet crude and march Light Sweet Crude (CL J9 - CL H9)

Calendar spread trading is a very old trading technique, it works a lot better better in physicaly delivered contracts, than in money settled contracts, but it trends in both. What you will see, is that this spread has not a lot of momentum spikes and if there is one it is usually safe to fade it, as Oil is still Oil, the only difference is the delivery time. So spikes and freak moves seen in the individual contract to get the weak traders out, will not show on the spread chart, as the spikes happen in both contracts. Only the underlying trend will really move the spread, meaning get it right and stay with the trade. I have just ordered Keith Schap's book "The complete Guide to Spread Trading" which Newton Linchen recommended and whose website you might take a look to.

You can make war about the same meager bone or you can step aside and look for new bones outside of mainstream. These usually are bigger and safer to get than the ones thrown to the Wolfe-pack.

Trading Forex with Futures

2009-01-29T10:05:00.001+01:00

Trading currency futures or major Forex pairs makes no difference at all. The spread is 1 pip usually, so why bother with futures? Well, currency futures are traded on a regulated exchange, while Forex is not. Some see no difference, I do. Still the major reason I like futures compared to Forex is just a plain old habit: I'm used to trading futures.

Still I need to revert to Forex, when I want to deviate from the major Forex pairs, do I?

Let's start with the basics. This are the major FX pairs:

EUR/USD Fx (Euro)	trades as EUR futures	(6E on Globex)	(1 Tick = 12.50$)
GBP/USD Fx (cable)	trades as GBP futures	(6B on Globex)	(1 Tick = 6.25$)
USD/JPY Fx	trades inverted as JPY futures	(6J on Globex)	(1 Tick = 12.50$)
AUD/USD Fx	trades as AUD futures	(6A on Globex)	(1 Tick = 10.00$)
USD/CAD Fx (loonie)	trade inverted as CAD futures	(6C on Globex)	(1 Tick = 10.00$)
USD/CHF Fx	trades inverted as CHF futures	(6S on Globex)	(1 Tick = 12.50$)

In Forex some Majors are quoted as Currency against the US Dollar, others are quoted as US dollar against the other currency.

In Futures trading all currencies are quoted against the USD. Also compared to Forex the Tickvalue is fixed.

There are cross-currencies in futures as well, but with the exception of the EUR/JPY (RY H9 on Globex) they have no volume at all and should be avoided for trading, as the spread is just too wide to trade them.

Still looking at charts of GBP/JPY or EUR/JPY you might be tempted to trade them. You try and realize, it's just not working. You have been spoiled by futures trading and are just too used to your trading platform.

But there is a way around:

Most major cross-currencies can be traded using a major pair, which means you can trade them using futures as well

Cross-Currency	Major FX	Major FX	Future	Future	Value	Tick
long EUR/JPY	long EUR/USD	long USD/JPY	long 6E	short 6J	250,000$	12,50$
long GBP/JPY	long GBP/USD	long USD/JPY	2 long 6B	short 6J	250,000$	12.50$
long CHF/JPY	short USD/CHF	long USD/JPY	long 6S	short 6J	250,000$	12.50$
long EUR/GBP	long EUR/USD	short GBP/USD	long 6E	2 short 6B	250,000$	12.50$
long AUD/CAD	long AUD/USD	long USD/CAD	long 6A	short 6C	200,000$	10.00$

Other can not be traded using futures, unless you trade a certain size, as the tick value on the futures is not identical

Cross-Currency	Major FX	Major FX	Future	Future	Value	Tick
long AUD/JPY	long AUD/USD	long USD/JPY	6 long 6A	5 short 6J	1,250,000$	62.50$
long CAD/JPY	short USD/CAD	long USD/JPY	6 long 6C	5 short 6J	1,250,000$	62.50$
long EUR/AUD	long EUR/USD	short AUD/USD	5 long 6E	6 short 6A	1,250,000$	62.50$
long EUR/CAD	long EUR/USD	long USD/CAD	5 long 6E	6 short 6C	1,250,000$	62.50$

For Shorts the positions have to be reversed.

Cross-Currency	Major FX	Major FX	Future	Future	Value	Tick
short EUR/JPY	short EUR/USD	short USD/JPY	short 6E	long 6J	250,000$	12,50$
short GBP/JPY	short GBP/USD	short USD/JPY	2 short 6B	long 6J	250,000$	12.50$
short CHF/JPY	long USD/CHF	short USD/JPY	short 6S	long 6J	250,000$	12.50$
short EUR/GBP	short EUR/USD	long GBP/USD	short 6E	2 long 6B	250,000$	12.50$
short AUD/CAD	short AUD/USD	short USD/CAD	short 6A	long 6C	200,000$	10.00$

Other can not be traded using futures, unless you trade a certain size, as the tick value on the futures is not identical

Cross-Currency	Major FX	Major FX	Future	Future	Value	Tick
short AUD/JPY	short AUD/USD	short USD/JPY	6 short 6A	5 long 6J	1,250,000$	62.50$
short CAD/JPY	long USD/CAD	short USD/JPY	6 short 6C	5 long 6J	1,250,000$	62.50$
short EUR/AUD	short EUR/USD	long AUD/USD	5 short 6E	6 long 6A	1,250,000$	62.50$
short EUR/CAD	short EUR/USD	short USD/CAD	5 short 6E	6 long 6C	1,250,000$	62.50$

New-York Magazine

2009-01-29T07:44:00.001+01:00

The Day of a Day-trader:

Take the time to read this: Stock-Surfing the Tsunami

New market: OMXS30

2009-01-13T09:58:00.001+01:00

Last year, actually it was in December I was tempted to join a different broker, who was offering me 500$ margin on the ES. I test drove his platform, making huge demo profits in the ES by taking extraordinary risks of course.

Trading 10 or 20 or even 40 cars, when you come from 2 to maximum 4 cars makes a huge difference. I did decide not to go that route knowing in real trading I would most likely blow my account in a matter of days by being just once stubborn. I have been stubborn at times and will be stubborn again. I know myself.

None the less, I know I need to increase my trading size if I want to make a living from trading. And that means I need to get used to the swings involved.

That's when I found the Swedish OMXS30 market futures. They move very similar to the ES, they trade in 0.25 increments and the range is comparable. But the tickvalue is different: Each tick in the OMXS30 is worth 25 SEK, the exchange rate being around 0.11 USD, which means the tickvalue of the OMXS30 futures is 2.75 US$. That's quite a difference to 12.50 US$ for the ES and that makes it an ideal vehicle to trade size without losing your shirt.

The contract has good volume and I currently trade it in increments of 4 cars, with a maximum size of 20 cars. Profits and Losses are shown on my platform in the currency the contract trades which means I see the profits jumping in the 100ths, but in US$, that's approximately just 1/10ths. Real cool to get used to bigger numbers.

Marketdata subscription for the Stockholm Derivatives Exchange on IB is 1 Euro, margin is 950/760 USD. The market trades from 9:00 CET to 17:30 CET which is 2am EST to 11:30am EST.

Trading GBP/JPY

2008-12-28T11:06:00.001+01:00

Some time ago I wrote about GBP/JPY. Today I received the following eMail:

i really like the way you descibe gbp/jpy in the blog globetrader and i really want to learn more about gbp/jpy market as the way u seen it or trade it...do u have any system,e book,or whatever that can enrich my knowledge on this gbp/jpy market.. i only trade on gbp/jpy but only a small trader and plan to increase lot by few months.

The system, the things I look at in trading can be found in my blog. Sometimes I rearrange them, put things together in a different way, but they are all there. I’m trading for some time now and the longer you trade the more you will find that there is nothing new. Just ways to look at things this or that way.

Sure not every market is the same. Some markets move slowly like a big river, others move fast, but still predictable and then there are markets which are just too fast to trade, which have swings you can’t survive in the long run.

GBP/JPY is called the widow maker…and for a reason

I hope you have learned already that there are major pairs in Forex trading and then there is the rest. Some pairs of this rest are still traded very active, but with the exception of a few days and weeks they are at the mercy of the majors. The 6 (eventually 7) majors are all traded against the US-Dollar and they are EUR/USD, JPY/USD, GBP/USD followed by USD/CHF, USD/CAD, AUD/USD and the last NZD/USD. You might add the Renminbi, but as the Chinese currency is not free floating, it’s not(yet) in the list.

EUR/JPY is the major cross-currency followed by a big gap and then the GBP/JPY and the EUR/GBP, followed by the other former carry-trade currencies (AUD/JPY CAD/JPY and NZD/JPY). Other cross-currencies I would just not look at, as they are not actively traded.

What is the difference between a cross-currency and one of the majors? Why do I have to concern myself with the GBP/USD market if I want to trade the GBP/JPY market (or the USD/JPY market)

Unlike other markets the FX market is interconnected. There are no imbalances. Every cross-rate can be expressed by looking at each of the two against a third currency. And guess, what that third currency is? The US-Dollar as the most liquid currency in the world.

Assume you are a big player being in need of Japanese Yen and what you have is British Pound. You go ahead and trade British Pound against the Yen? I wouldn’t guess so! You would crush the market, actually you wouldn’t but only because all other big players would compensate for your folly and let you pay for it. You not being dumb will avoid that folly and you will first trade your GBP against the USD, which might move the market by a few ticks but nothing major and then you will trade the USD against the Yen, which will result in nearly no movement at all as the USD/JPY market is extremely liquid and as big as your trade might seem, it’s just a small one compared to the daily total trade volume in the USD/JPY market.

But your trade will still influence the GBP/JPY market as the GBP/JPY exchange rate will not be found by market forces of Buyers looking for Sellers or vice versa. The GBP/JPY exchange rate is found by doing the following calculation: GBP/JPY = GBP/USD * USD/JPY

And if there is any deviation at all from that mathematical result (maybe caused by market orders which bring the GBP/JPY market out of line) then arbitrage programs will make sure, that the GBP/JPY exchange rate will be back at the mathematical correct value in no time at all. Any deviation from that value is riskfree money. A deviation from the correct value of 0.0001 times 10.000.000.000 is a huge amount of money, which arbitrage can give you absolutely riskfree. So if you want to trade GBP/JPY you actually are trading 2 markets: The GBP/USD market and the USD/JPY market.

If you can do that and if you can read both of these markets without a problem, then go ahead and give yourself the new challenge of trading the GBP/JPY market. But if you are new or just not as experienced, then I would suggest you first master the USD/JPY and the GBP/USD markets before you take a look at the GBP/JPY market. Yes you can make fantastic profits in that market, but can you survive 50 to 100 pip moves against you, which are just a wiggle in the longer trend? Will you be able to use adequate Stops in that market? Are you prepared for the spike in GBP/JPY if GBP/USD trades up to 1.4710 while USD/JPY trades at 90.60 and can you tell me without a second thought what direction the spike in GBP/JPY will have, when GBP/USD and USD/JPY both retrace, when GBP/USD retraces back to support at 1.4660 while USD/JPY remains in the 90.50 to 90.70 range. Do you know what Stop to use, when you are long GBP/JPY at 133.25 in that scenario?

Do your account a favor and master the major pairs first. GBP/JPY will still be there, when you are ready to trade it.

EUR/GBP parity

2008-12-18T13:39:00.001+01:00

Any chance at all for P A R I T Y. Not within a day. Expiration games carry only so far and December 19th went without a spike for parity, instead we saw a pull-back. But there is renewed talk in the media calling for parity and the pound joining the ECU. It will take some time, but parity is sure in the cards now.

Take a look at this parabolic move:

Is the Euro really that strong? Isn't the EU in as big a mess as the US. Obviously not, at least if you look at the exchange rate. My article on November 25th was prophetic. But I did not expect such stellar returns. I'm just glad I followed my own advice at least that much, that I converted my account to Euro, when the Euro broke 1.31. I did not hold additional futures, but at least I did not lose on the US-Dollar depreciation.

But when will it stop?

Markets can remain irrational a lot longer than your account can survive. Still there is strong resistance 200 pips ahead from that top made in the down move. And I expect the Euro to stop and retrace from there down to at least 1.40, which would form a very clear inverse Head and Shoulder pattern on the daily and the weekly chart, something not seen very often.

At the same time the Euro/GBP exchange rate is on the move. London isn't at all unhappy about the weak pound to help it's ailing economy. Add to that, that it might economically be in the interest of the UK to join the ECU and a move to parity wouldn't be such a bad thing to convince our British neighbors to join the ECU.

Just 570 pips to go.

1x1 of ETF trading

2008-12-08T23:07:00.001+01:00

ETF is not ETF.

There are regular ETF's. These move in value comparable to the underlying index. A prominent example are the Spiders (SPI) or the Diamonds (DIA) which mirror movements in the S&P500 and Dow Jones index. So 1 point up in the S&P is a 0.1 point up in the spiders. No problems here. You may stop reading, if you trade just these. This article does not apply to these regular ETF's. Just make sure you have just these regular ETF's in your portfolio.

But there is a new kind of ETF's. These ETF's move the same percentage as the underlying index. Meaning if the underlying index moves 5% up, then the ETF also moves 5% up. If it's 5% down in the index, then these ETF's move 5% down as well. There is also a very hip breed of these percentage based ETF's, which give you double or triple the percentage move of the underlying index.

These percentage based ETF's show certain characteristics, which makes them great trading vehicles for short term swing trading, but make them very dangerous for investment strategies.

Let's look at a few examples to show my point:

You are long 200 DDM (Dow30 Ultra 2x long) ETF at 30.00.

Now consider two alternate scenarios:

1. Monday the Dow rises 5%, Tuesday up another 3%, Wednesday up 0.35%, Thursday up 2%, Friday up another 2%

2. Monday the Dow rises 2%, Tuesday up another 5%, Wednesday down 3%, Thursday up 5%, Friday up another 3.35%

Can you tell me which scenario your account likes better?

Lets look at another example:

1. Monday the Dow rises 10%, Tuesday up 0.5%, Wednesday up 0.5%, Thursday up 0.5%, Friday up 0.5%

2. Monday the Dow rises 2.4%, Tuesday up 2.4%, Wednesday up 2.4%, Thursday up 2.4%, Friday up another 2.4%

Or can you tell me how it is possible that a Long ETF and a Short ETF both starting at 50 when they start public trading, today trade both below 50, even if they both move the same percentage points?

EG: Long +10% is mirrored by the Short -10% and it is every day the same, still you can have both ETF's trading below 50. Is it all a sinister fraud a conspiracy to get your money? Or is it something different?

(First you have to remember, that a Ultra 2x ETF will move twice the percentage points the market made

Long DDM	30.00	1. Alt	Price	2.Alt	Price
Monday		10%	33.00	4%	31.20
Tuesday		6%	34.98	10%	34.32
Wednesday		0.7%	35.22	-6%	32.26
Thursday		4%	36.63	10%	35.49
Friday		4%	38.10	6.7%	37.86

200 Long			7620.00		7572.90
Paid			6000.00		6000.00
Profit			1620.00		1572.00

Interesting what that one down day made to your total profits, even if the percentages in both scenarios added up to 24.7% up.

Let's look at the second example:

Long DDM	30.00	1. Alt	Price	2.Alt	Price
Monday		20%	36.00	4.8%	31.44
Tuesday		1%	36.36	4.8%	32.95
Wednesday		1%	36.72	4.8%	34.53
Thursday		1%	37.09	4.8%	36.19
Friday		1%	37.46	4.8%	37.93

200 Long			7492.00		7586.00
Paid			6000.00		6000.00
Profit			1492.00		1586.00

Both percentages add up to 24% upmove, but in the first scenario we had a big upswing and then consolidation with an upward bias, while the second scenario was a typical rising market, nothing spectacular just relentless upward. The percentages add up to the same amount, still the results are different.

As far as I can see at the moment, ETF's are great for trading, but you don't hold them and forget them. Especially when you do some calculations to find the answer to my third question.

Why can 2 ETF's, which are supposed to mirror each other starting from the same price at 50.00 both trade below 50 after a while?

Meaning, if you invest 100 in the ETF long and 100 in the ETF short, your net should remain 0 after 1 or 2 or 10 years. But that is not the case and I hope you have an explanation as the answer might result in the decision to go short the Short ETF, when you intend to go actually long or Short the Long ETF, when you want to short.

That way you would trade the fund side of the ETF investment game and no longer the investor side. Investors buy either long or short ETF's, the Fund sells them and is therefore always Short.

Let's look at an example I just made up to show my point:

Assume you have a long and a short ETF and both started trading on 1.1.08 at 50.00.

We had a bit of a buying spree at the beginning of the year, reality setting in after 3 days and the market retracing over the next trading days, then just regular market madness, nothing spectacular, nothing you wouldn't expect from today's trading ranges. My example shows a regular and an Ultra 2x ETF. As you see, the Ultra results are just more pronounced.

Now within just 17 trading days an investment in 100 shares (10,000$) each of the Long and Short ETF is down 231$, in case of the Ultra you are down 902$. If you have 2 accounts and in one account you go long 100 shares of the Diamonds and in the other you go short the Diamonds. What is your net after 17 days, assuming an initial investment of 10,000$. Sure it's 10,000$, any gains in one account will cover the losses in the other account.

With ETF's it's different. Sure you get the expected result, if you go long 100 Long ETF in one account and short 100 Long ETF in another, but that's not how it is sold to the public.

The public goes long the Long ETF, if they think the market will go up and it goes long the Short ETF if they assume the market will go down ultimately.

Btw: The results are nothing sinister, no conspiracy, just the way ETF's are setup to trade. They mirror percentage moves and that means ETF's will always fall faster than they go up. And the higher the leverage, the more extreme the results.

50 -10% = 45.00
45 +10% = 49.50

Who is gaining? Well the Fund companies selling these ETF's of course. They are short the ETF's you go long and if you are down 1000$, they are up these 1000$.

But can't they lose? Sure they can. But in the long run statistics make sure, that any ETF will be likely to fall below the price the fund opened trading.

DUG is the Ultra Short 2x Oil & Gas ETF and you would assume that contract should be trading above it's highs

DUG started trading at 69 in February 2007.

Despite the huge downward move in the Crude Oil price reflected in the Long Ultra Oil & Gas ETF (DIG) The corresponding Short ETF (DUG) is down. An investment of 100 shares in both the long and short ETF at the start of trading in February 2007:

100 DIG at 60 = 6000$

100 DUG at 68 = 6800$

Total 12800$

Today's value:

100 DIG at 27.35 = 2735$ Down 3265$

100 DUG at 32.99 = 3299$ Down 2701$

In other words, Going Short 100 DIG in February 2007 and going Short 100 DUG in February by selling you your position in the Proshares Fund has made the ProFunds Distributors, Inc. 6834$ (excluding commissions).

6834$ on an 12800$ investment in 1 and 1/2 years.
That's a 53.4% return on investment. Not bad, really not bad at all.

So shall you go Short the Short ETF, when you think the market is going up and Short the Long ETF, when you think the market is going down? The results point in that direction, especially if you intend to hold your ETF's for the long run.

ETF's favor the Fund company, if the market moves against the ETF (meaning the market is going down and you hold a Long ETF. Just look at these beaten down ETF's I have told you in recent articles about: DXO, UYG or URE). But they have great leverage and they will bring you good profits if you swingtrade them. Actually if you trade futures and you want to expand your trading into swingtrading, ETF's are a great way to do it. You are used to watching your positions like a hawk. You are used to fast adverse movements, which require instant action and you are not likely to panic in case the market is not doing what you expect the market to do.

Just know that the odd's in ETF trading favor the short side, that any long gains are most likely temporary, and even when an ETF trades 100% above it's initial open price, don't expect these gains to hold. Adverse percentage moves will make sure, that these ETF's can fall extremely fast and hard. A lot faster than stocks will fall.

DXO - a 2 x Ultra Crude Oil ETF

2008-12-07T12:23:00.001+01:00

I received this question regarding my last article:

Looking at the daily chart it looks like that price you bought at is near to a 1.272 extension at 2.57 the 1618 is at 2.18. Buy more ?

First the answer: Yes I intend to buy more DXO. As written all ETF positions have a target of 1000 shares initially. I just decided to scale into these positions as otherwise the daily movement will affect my daytrading as long as I have no segregate account for these swing holdings. In addition I don't see an up- and away type of market, but further consolidation in huge ranges before the market will be able to take off again. Too much damage has been inflicted in too short a time.
While the UYG position has options available so I get paid for my willingness to build a position, the DXO has a different rationale.

Looking at the above chart, short is the only way to go and where DXO a regular share I would go short and stay short until the company filed for chapter 11.

But DXO is no regular company, it mirrors the development in the Crude Oil market. And it is supposed to make a daily percentage move twice as big as the crude oil market is doing.

Will Crude Oil go to zero? A limited resource the whole world depends on. You really believe that then go ahead and short DXO.

Crude Oil is a limited resource and the moment the economy starts going again, we will see new highs in oil. It's just inevitable. I don't care if it's in 6 months or 3 years or 10 years, oil will go up again unless someone discovers a way to make oil from saltwater. But why would someone do that? With oil below 40$ in the short term? It makes no economic sense whatsoever!

Right now there is no reason at all to invest in oil or the oil industry. And the moment we need oil again, the world will find, that -what a surprise- there is not enough oil to bolster the economic upturn.
As I said, I don't know when it will happen, but I'm quite sure it will happen.

Friday the first call was made for oil below 25$...you remember what happened, when the oil 200$ calls were made? It wasn't long after these, that the market started to break down.
Surprise.. it were the big investment houses, who made these calls. And who was on the other side, if you believed that oil 200$ call and went long?
Who is on the other side, if you go short oil now? I won't bother you with the answer, but I bet you that even if Goldman is now a regular bank, they still have an inhouse department going against the mainstream. And that department might save the day in one or two years when their oil profits will pay for all the losses made in other departments.

DXO at 2.50 has a very limited downside. Sure it takes a while to go up again, sure Ultra ETF's fall faster than they rise as a 25% move down from 5$ brings it to 3.75$, while a 25% move up again from that level brings you to 4.68$ and not 5$.

So what! If oil goes really down to 25$, then I will have added to DXO at 2.25$, 2.00$, 1.75$, 1.50$, 1.25$ and 1.00$.

	Shares DXO	Price	Total
	200	2.59	518.00$
	200	2.25	450.00$
	200	2.00	400.00$
	200	1.75	350.00$
	200	1.50	300.00$
	200	1.25	250.00$
	200	1.00	200.00$
Total	1400	1.76	2468.00$

When oil is down to 25$ I will be down about 1500$ in my position as it will be worth about 900$ total. Should this happen I will still sleep sound as the size of the position will not affect my trading. My risk is really limited and to tell the truth I actually would like to see oil at 25$ to build that position. I have a bigger problem, if oil starts to rally now and I add to my position in a rising market only to see it come back down in spring and retest the lows made now.

Investment Plan

2008-12-05T20:34:00.001+01:00

Today I decided how to handle this investment idea in the future.
(Part I, part II, part III, part IV)

1. I won't trade 10 cars (as I did last month, when I sold a great UYG long for a meager 30% gain instead of holding it for possible 120%, just because the position was affecting my daytrading).

I start with 2 cars and add to them. That way, my positions initially will be just take and forget positions, which is exactly what I want them to be in the start.

2. I will open a second account with IB, where i will park these position trades, so I'm not always tempted to daytrade them, something I just can't stop myself to do.

3. I will look for these extreme beaten down Ultra ETF's and start long positions in them. As I said I will start with 200 shares of the selected ETF and sell 2 in the money puts into the next expiration.

4. I will add to my position every 5.00, 2.50, 1.00, 0.50 or 0.25 USD down depending on the initial price I got for my position.

5. I plan for a maximum holding of 1000 shares in any selected ETF and will plan my add-on strategy accordingly. Regularly add-on's shall be made monthly by being assigned the shares against the in the money put's I sold. But I'm not prohibited to add to my position if an opportunity arises.

6. If prices go up, I will buy back my put and sell the next in the money strike to the upside, to make sure I get my add-on at expiration.

7. I will never add twice within a day.

I started this plan today with

200 DXO at 2.59, the 2 x Ultra long Crude Oil ETF (no options available on that one) and

200 UYG at 5.53, the 2 x Ultra long Financial ETF and

I sold 2 UYG Puts Strike 6 at 0.90

My homework over the weekend will be to identify other likely candidates for my investment plan. A list of available ETF's was recently published by Leavitt Brothers and can be found here.

Euro

2008-11-25T09:05:00.001+01:00

Where do we go with the Euro from here on?

Euro is in a consolidation range for some time now. But where do we go from here? We had an exceptional rally in the markets yesterday and the Euro added nearly 500 pips yesterday at the highs. We came back quite a bit overnight and I have to decide whether I see Euro falling back to 1.2500 or whether the Euro has finished the consolidation and is ready to break the pattern to the upside.

To the upside? Hold on...Consolidations are broken in the direction of the primary trend, which is not up but down in the Euro. So why am I thinking that the euro might break the pattern to the upside?

Well it will break the pattern to the upside if that consolidation was a bottoming formation and the downtrend in the Euro, which started in July from the all time high, has already made a midtrend consolidation pattern, which was broken to the downside.

Let's take a look at a longer term chart.

Yes, the Euro has made a midtrend consolidation, which I marked in the chart above. The all time high is some pips below the second target from that consolidation range and our current year low is a few pips above the second downside target from that consolidation. So we can for sure say, the euro has already made a midtrend consolidation, it has broken to the downside and what we are seeing currently is no consolidation but a bottoming reversal pattern.

Anything else supporting that view?

We have made three higher lows and we are at the apex of a Wolfe Wave Pattern with an ascending baseline whose target is 1.32

Longer term where do we go from here?

If this bottom at 1.2500 in the Euro proves to be the bottom of the current steep downmove then the monthly Euro chart tells us we are in for a more leisurely ride in the Euro in line with the monthly volume weighted average (yellow line).

This actually would be a very healthy development as the steep ascend of the 55 moving average wasn't sustainable for the long term.

But this monthly outlook is too long even when I'm trading the euro on an account cash basis and not with futures. I need to decide what to do today.

Go long US Dollar an the basis, that euro tested and rejected 1.30 and is now returning to the 1.25 level or stay long Euro on the basis that we had 3 successful tests of the lows with strong support shown by the ascending lows. We made a nearly 500 pip move yesterday. This move needs to consolidate and we might retrace today. As long as 1.27 holds we are still in the uptrend to retest the 1.30 level. 160 pips from current levels to the downside sounds quite a lot, but I'm in euro cash, staying in the euro will cost me a few US Dollar, when converted to base currency. But Euro seems to be supported this morning looking at a 50 tick chart and therefore I'm not inclined to go against it right now. Actually I might support my stance by trading Euro futures on the long side today. Will see how the day unfolds.

Investment Plan (November expiration)

2008-11-24T09:19:00.001+01:00

I'm down on my investment plan for the moment. I sold 10 UYG 6 Puts on 11/19, which got caught in the downward market spiral starting that day. So I bought these back for a loss of 600$ and at the same time sold the lower 5 strike for 600$. This weekend I was assigned the 1000 UYG shares at 5.00 which currently trade at 3.98.

I said earlier I wanted to start a longer time Portfolio on the idea, that without order being restored to the financial system, no recovery will be possible. I have no idea, if that assumption is correct or not. Maybe the banks will all be nationalized and the US government introduces the Chinese idea of capitalism. I don't think so. In Germany and a lot of other European states we have had government participation in private industries for a long time without becoming communist countries. Direct government involvement in private corporations can work and the US may only need to get used to it.

The government is like any other long time investor: They buy cheap and sell high. The German government sold most of it's silver -as we say here- until mid 2007. They had not a lot left (the railroads still have to be privatize) for future generations and they sure had become accustomed to the earnings these acquisitions provided for the last 20 years. Now everyone is running to the government for help and they provide that help at bargain prices against participation in the corporations. And this will be sold again into the next boom cycle. Governments have a lot more time than any private investor. It sure helps, if you can print the money you need.

Back to my portfolio, which consists of 1000 UYG now. Next expiry is 12/19 and the question is, will we get a x-mas rally or will Santa stay at home with a cold this year.

Well it doesn't really matter, I will try to sell 10 Calls 8 strike for 1 $, if I get it (it trades at 0.30 at the moment) and will sell 10 Puts 4 strike (I think) for 1.25. I will most likely have to sell the Puts first and might even decide to scale into them depending how Citi trades today as the development there was the reason UYG lost about 50% of it's value the last week.

Here is a copy of the trading spreadsheet.

Will keep you informed, how the story unfolds.

Update:
We have had a huge rally today.
And while I intended to keep the strike 3 and strike 4 UYG puts I sold this morning, I could not let the profits slip away after UYG made a 32.5% move today. This morning I was down about 800$ in my Options trading. This evening I'm up a total of 775$ after being stopped on my UYG position at 5.25.

500 $ margin

2008-11-22T08:53:00.001+01:00

It's tempting, it's really tempting!

The last few days I have been testing a trading platform used by a broker, who offers me 500 $ intraday margin to trade the ES futures.

I have been trading on the long side in this 2 day breakdown and I made a ton of paper money. Unfortunately by taking risks my account would never ever survive. The sell-off into the lows on Thursday I survived by trading 1000 cars in the final add-on. 1000 * 500 = 500.000 USD margin and every tick is worth 12.500 USD. That means I was 10 points away from burning half a million USD, when the ES traded at 746 Thursday evening. Cool.

But even realistic trading with the leverage that margin offers me, got me trading up to 15 cars with a point-value of the ES (4 ticks) of 750 $ on a margin used of 7500 USD. Still another 20 to add, if ES continues against or with my position, depending on the strategy traded. Yes, gains come fast with that kind of leverage, but losses come even faster.

On the other hand there is my good old extremely conservative Interactive Brokers account, which offers me intraday margins on the ES which equal overnight margins. I'm limited, very limited trading the ES with that kind of margin. But surprise, I made 2.700 $ trading just 1 or 2 cars in a contract I refused to trade so far, because I considered it extremely difficult and to tell the truth sometimes very boring to trade. This has definitely changed.

Not being able to add at a loss, means you have to use stops and the ES is the first contract I trade, which is not as fuzzy with stop levels as other contracts I'm used to. After you have identified a short term support or resistance, that S/R level either holds or it's down to the next S/R level. That means the ES is the first contract where my add-on strategy really works.

I wait for a trade signal, I take the trade at a level, where I can use a 17 tick stop, which means the initial risk is 220 $ (incl. comm). Now I place an add-on 1 or 2 ticks above the last S/R which has to be nearer than the 17 ticks. EG: Long ES 847.5, Stop at 844.25 Add-on at 845.25 assuming 845 was the low tested and rejected on the last move down. The Add-on moves my trade risk to 330 $ and the average comes down to 846.5.

You can ask, why not enter at 845.25 in the first place after you get a trade signal? Well, I miss the trade if I don't take the signal when it occurs. That's why I usually also have a Add-on at 1 or 2 points above my entry. But to tell the truth, in the current environment these add-on's in the profit have proven to be extremely difficult to manage, as the current volatility in ES means in about 99% of all trades, that this trade will be down under at least for a time and the trade risk has considerably increased. There is no new S/R level to place the stop, meaning the stop has to remain at 844.25, while I added say at 850.50, bringing my average up to 849. That means the trade now carries a risk of 490 $ compared to the 330 $ I was willing to take initially.

As it stands now, I will leave the profit Add-On's until I can trade more cars in the ES. If ES runs right now, it's worth to be on the ride even if it's just 1 car. And if it first trades down only to be rejected and driven up again then I have added at the optimal spot 1 or 2 ticks above support, if I want to go long.

My Fib-lines continue to work real nicely. Here is a new picture for the weekend:

Trading ES

2008-11-14T22:33:00.001+01:00

With the big ranges we are seeing in the last weeks and months I'm thinking about trading ES again. It feels safer than other contracts which can jump 10 to 15 ticks on me in the blink of an eye. I applied my standard chart template to ES, but wasn't really content. And I did what you should do in such a case. Go back to the basic.

Start with a clear candlestick chart and add what you feel is missing to read the chart:

I added a moving average to have a trend feeling.

I added my round number tick lines calculated from yesterdays close, which I use as horizontal gridlines. Not only will they show me round numbers most traders trading with numbers only have on their screen as well, the spacing also tells me something about the volatility of a contract compared to another one. The wider the spacing the slower the contract trades.

Some markers on the right side showing me the pivot, today's and yesterday's important trade levels.

That's it.

But my wonderful band I introduced to tell me about oversold or overbought conditions, my Donchian channel...Gone after I applied the great tool I had sleeping in my pocket. Stashed and waiting to be used again

Sweet, don't you think, considering I got that picture by applying the Fib-tool to the opening range from 888.25 (strong premarket support into the open) to the open move high at 907.

Trading your account

2008-11-04T07:59:00.001+01:00

I said, we see unprecedented moves in currencies in my last post, but I failed to recognize a spike when I saw one.

1.3150 would have been the right spot to go back into the USD. As you can see the Euro came back to the 1.29 level quite fast, actually it bounced at the 50% line and I stayed in the trade, Euro broke further overnight on October 31st, but held the bottom above 1.2650. The Euro tried a swing up, but failed breaking the 50% line a second time and I went long USD in my account at 1.2720. The Euro continued the 60min down pattern and may actually test the 1.2350 lows prior to the rate decision on Thursday, which might cause a relief rally, as I don't see Trichet cutting by 1% as some market participants seem to price in right now.

One thing to remember, when trading your account that way is, that you are never short. You are always long one currency or another and by going into your home currency you go flat and take a time out.

...... 6 hours later

MISTAKE...

and it cost me big today, as I trade the euro on the short side for most of the morning.

I failed to recognize this huge buying wave. Yes you ask, how? I was biased I guess. And that bias cost me in a row of stopped short trades in the futures. The account is back into euro at 1.2820 and we will see what develops after the election.

....

Upmove

Manage your currency holdings

2008-10-30T08:54:00.001+01:00

In my last post I told you I can't really invest. Buy and hold, I tried it for two days but took profits the moment it looked ripe. Still for a few months now I am a kind of long term swing trader as I now come to realize.

I have my IB account for some time now and when I opened that account in 2000 I think it had to be in US-Dollar. I never got around changing it to the Euro base currency, even if I live in Germany and obviously need Euro to pay my bills. For more than 5 years I just held the currencies as they came in. This year it happened to be mainly in Euro and the British Pound, as I traded mostly instruments valued in these currencies. As long as the Euro was rising that was just fine, as my USD-balance went up and I started the trading day with some gains already banked (at least in the USD). But when the Euro started it's slide it got more and more difficult to trade back the USD-loss I started the day with. Actually I changed my daily trading excel sheet, to include the daily E/U exchange rate and converted my USD holdings into Euro. Now I realized, that I wasn't doing that bad. The USD-loss I saw in the morning did not transform into a loss in my Euro holdings, as it was just happening due to a change in the E/U exchange rate.

And finally I realized, it might make sense to set certain levels, where I convert my main currency holdings into one or the other currency. I decided to go long USD, if and when the Euro broke the 1.39 level. I know, that's late, given the Euro had seen the break from 1.60 already, still, you need to set levels at which you react and I thought, If 1.40 holds, then we go up again and I'm better off holding Euro's, otherwise we go a lot further down and it might make sense to hold USD.

You know how it went. The euro broke down to about 1.2350 and while my account remained fairly stable in the USD, when converted into Euro it made a huge difference.

On the way back up, I was quicker. Two days ago the Euro had broken 1.25 to the upside and the Asian markets traded it to 1.2570 when I opened my screen in the morning. I saw that as a double bottom and converted my currency holdings back into Euro.

Now I start the day again with nice USD gains, which translate to no gains at all converted to Euro. But I do not lose on this Euro rise by holding USD, which is something already. We see huge movements at the moment, which took months in the years before and I might have to react fast, if Euro starts to plunge again. Still I'm looking at 60minute and daily charts now in the Euro instead of 250, 50 and 10 tick charts for my intraday business.

I am naturally Euro long living in the Euro area. So holding Euro doesn't do me any good. But making money on a rising Euro is something for my daytrading business until I hold funds in such amount, that I can really hedge against averse movements. Making money on a falling Euro is something different, as I just need to park my money in a different currency. Around 1.29 to 1.30 is the new level, which the Euro should not breach, if we hold above 1.30 today. Actually I see the Euro with an upward bias for the next 7 days until the ECB rate decision next Thursday, when Trichet might decide to follow the FED step in a 0.5% cut in rates, which might trigger the Euro selling again.

Investment Plan III

2008-10-29T16:10:00.001+01:00

I'm a daytrader, I can go to swingtrading, but monthly investments....that will take time to get used to. The first trade is closed and will be reopened at a lower level. I really can't help it, but a 13% return on investment in 2 days is just too nice to be left floating around. Especially in an environment, where volatility is high and the downside potential is a lot bigger than the upside.

Still I learned quite a few things in this trade. And one is that you can't underestimate greed! I held off selling the Call, because I thought, if we get that 1000 point spike in the Dow, then 12$ on UYG will look shabby and I will regret having sold the 12$ call. I still had the order in at 1$, but there was never a realistic chance to get filled with the call trading 0.25 0.35 for the last 2 days. On the other hand I might get more greedy on the Put side. Not taking one that far out, but a nearer strike, which is priced higher. In case we rally I always can buy it back and resell. The 7.00 Put I sold went down 33% but it was still just 25$ as it went from 0.75 to 0.50 when I bought it back.

Now I will wait for the FOMC and reenter the market. Not necessarily in the Financials, but maybe in the Dow30 (DDM Ultra Proshares). And I actually might do it by selling the Put first.

It's an interesting area of trading, which really moves aside from my daytrading business, as it moves at a different pace.

Will keep you informed.

Investment Plan - II.

2008-10-28T08:35:00.001+01:00

I started the plan yesterday.

Long UYG at 8.00,
sold the November 7.00 strike put for 0.75, but
held off selling the November 12.00 strike call, as it was trading at 0.25, which I was not willing to accept, considering the upmove potential and the possibility, that we are near a Double or Tripple Bottom.

Charts favor a further downmove, I know. Still this morning we have a huge reversal in the Asian markets and Europe is opening with a Gap-Up. With the FED meeting ahead we might actually see some kind of relief rally and then I should be able to sell my November 12.00 strike call at 1.00$ or more.

I also had a sell order for the DDM (Ultra Proshares Dow30) November 23.00 strike Put in the market yesterday, but wasn't filled.

Only thing I need to get used to now is, that my account window on my trading platform is now always showing open positions, which have nothing to do with my daytrading business. Actually I'm already thinking about opening a second account and moving the longer term stuff there. Might be a good idea, if I do not incur monthly costs in that account at IB. Will have to check, if an account without any market data subscriptions will cost me something.

Investment plan

2008-10-26T22:21:00.001+01:00

Maybe I have been watching CNBC too long, as I am starting to believe, that the current price levels are actually starting to look interesting to begin a longer term investment in the markets. Despite the gloomy economic outlook I'm convinced, that the (financial) world will not end and that we will avoid the Japanese stockmarket pattern in the US. I might be wrong, but then I'm starting small so I will not incur huge losses.

I have no idea which company is worth investing in and actually 8 years ago I lost so much in the stockmarket, that I'm still not willing to trust myself in this regard. But I know a lot about indices and trading indices is what I do for quite some time now. That's the reason, why the Proshares Ultra ETF's look like a good investment vehicle to me. Volatile enough, that even small investments can offer reasonable returns. And the Long ETF's trade at such depressed price levels, that this fact makes them a nice learning vehicle.

Take 100 UYG long now, which are the Ultra Financials, and even when the Financial sector is nationalized, the maximum you risk is 825$.

But just owning stock is not what I look for nowadays. I'm a greedy bastard, which means, if I decide to become a stock owner I want to be paid for the risk taken and that means Covered Call writing.

So after I take the long UYG at 8.25, I will decide that I am content with a 30% profit in 20 days.

That would mean a price for UYG of 10.73. Selling a 10$ call for 0.75, for which I will get 75$ gives me exactly that. If UYG trades above 10$ at expiration, I have to deliver my UYG shares and give up the additional gains, but as I said I'm content with a 30% profit in 20 days. It's like taking a target in my futures trades. I usually miss 50+% of a good move in any trade taken, but I'm more than content with a nice profit made. And if UYG trades below 10$ at expiration I got a nice 75$ for holding something worth 825$. That's 9% interest paid in 20 days! Try to get that for just holding your stock in your account.

Ok, that's a fine return, but in November I plan to buy another 100 UYG.

Now Art Cashin on Friday said something very interesting: If he would like to invest in this environment, then he would sell a put and wait until the stock is given to him.

I first did not understand him, to tell the truth, but it's actually ingenious!

I know, that I have an investment plan, which tells me to buy 100 shares every month and I have the money to do so.

Now I think about the investment I am willing to make and about the price I think it's reasonable to add. 30% below the current price level is a price I consider worth adding to the financial sector. So I think UYG is worth another investment at 5.78$. That means I will sell the 7.00$ put at 0.80, which gives me 80$. If UYG trades below 5.45 at expiration, I pay more for UYG than necessary (I included my profits for the expiring call here). But considering my belief, that the US can and will avoid the Japanese stockmarket syndrome, which shows us a declining stockmarket for 2 decades now, I think, I will see a time in the future, when the financial sector is sound again and the UYG will trade above my average.

And if UYG trades above 5.45$ or even better above 7.00$ my next investment in UYG is already 80$ cheaper.

In the unlikely event, that UYG trades above 7$ but below 10$ at expiration, I receive 155$ for owning stock I want to have and consider worth adding to. Not a bad return for 20 days doing nothing.

Obviously I'm not the first thinking these thoughts and I'm sure some of you reading this can point me to errors in my thinking, as I really have not a lot of understanding in options trading. Please let me know, if my basic thinking is wrong, if I take on higher risks than I see now following this plan.

Screw-up

2008-10-18T13:24:00.001+02:00

It doesn't matter how bad your screw-up was, if you recognize it as a screw-up, if you are able to see, why it happened, you are already on your way out of the woods.
Losing 30% of your account in one day? With the recent turmoil in the markets it can happen and has happened to more than one trader I know.
But the question is, what do you do next? Why did it happen? Was it your system, which made you consistently money in the past, only to be lost within a few bad bad trades, or did you change your own behavior, your own responses to the market.

Certain trading techniques work great in a ranging or slightly trending market. But if the range/trend goes 500 points as you see in the YM recently only to reverse within the next 30 minutes, any trading method designed to scale into a trade, when it is at a loss, might not work, because the range is just too high. It worked in calmer markets, but it does not work right now, as you can't afford the risk involved.

Did you ever try to swim in the ocean, when the waves are between 1 and 2 or 3 meters? When they go beyond? If you are not careful and a wave breaks over you, and you are pressed under water, struggle to come up, only to have the next wave break above you again, you might feel real panic. Only by calming yourself and diving below the next wave instead of tumbling around, will you reach the surface again and be able to swim to shore.

Using trading methods, which worked for years will kill your account in this environment. But the problem is not your trading approach, your trading rules. They are most likely still sound, even if we have very high volatility.
Good trading rules work on small intraday timeframes as well as on daily charts. The only difference is, that the risk and the possible reward increase the higher the timeframe becomes.
Currently we see daily or weekly ranges made within minutes and hours. But that doesn't mean, you won't get good trade entry signals.
But your money management rules, they need adjusting!

Why are you a daytrader? I know, why I'm a daytrader. I can't afford the risk associated with holding overnight. My targets are smaller and the risk I take is smaller, as I place the stop nearer. But right now -as we all know- we see daily ranges within minutes. That means you need to adjust your stop or you get stopped out a lot more often than you are used to. Most of us trade with targets. If the Internet connection breaks down, at least a stop and a target order are placed. But did you adjust your target to the higher volatility, to compensate for the wider stop?
Most likely not, because you trained yourself to be content with 10 or 20 points even if the market ran another 100 points after you exited. Adjusting this is very difficult, as you need to overcome your fear of losing paper profits.
And, at least I, can sit calmly in a trade in the red, as long as my stop is not hit, waiting for it to return to green, while sitting in a green trade for a longer time always urges me to take profits now, instead of waiting for the next leg and the continuation of the trend.
Adjust your maximum position size. If you scale into a trade adjust the levels at which you scale in. be prepared to go out in a moments notice, if the trade does not work, because some moves just don't stop at the moment.

If you lost high, do what you always do, see where you failed and continue trading your signals. You can't climb out of a 30% loss in a day. But if you have a sound system, it will work in this environment, if you adjust your money management rules. And once you made it back, don't relax, continue doing what you did to climb out of the hole, so you can start the next leg up in your account.

Money

2008-10-10T13:50:00.001+02:00

You ever wondered how Money is created?

Take a seat and watch these videos

Part 1:

Part 2:

Part 3:

Part 4:

Part 5:

Bailout Bill

2008-09-30T10:53:00.001+02:00

I'm following the discussion from abroad, living myself in Germany. As our economy seems to be as affected by this mess as yours, I thought to post my thoughts as well.

I have a question? Who got all the money in the first place. What happened with these now so-called toxic loans in the first place? Before they became toxic, they were regular mortgage backed loans to American people, which were then enabled to buy houses or enabled to finance their living style.

People, who shouldn't have gotten a loan in the first place, as their regular income did not allow them to pay that loan back, got a loan, as that loan made the broker and the bank money in commissions.

Surprise....Some of these people really were not able to pay back their loan. But I bet there are a lot, actually most likely the majority, of the people, who got a loan, who are still paying that loan regardless how difficult it is, as they want to keep their home for their family, as they want to continue to finance the eduction of their children for a better future.

At least, that's what happens here in Germany, if someone has a house, who is nearly bankrupt. He will still do whatever necessary to keep the house.

Allowing people to have a roof over their head, even if they can't afford it. Here in Germany it's called social welfare. It's something the government and the communities have to pay for. Everyone has a right to receive at least the minimum necessary for living and that includes a place to live.

I don't know, if it's the same in the US, but taking a bigger view to me it seems, the banks were doing the governments job, when they gave people, who could not afford a home, the money to buy one.

Sure, the banks then did, what every good manager would do, they passed the risk on, they created instruments, gave them a grand name and sold the mortgage backed loans to someone else. That one sold it again and made a profit and so on and suddenly the world found itself in the mess we are now in.

But that doesn't change the fact, that our taxes and I say our taxes, because my taxes are used for this purpose as well here in Germany, should partially used to give every citizen in this country a place to live.
It doesn't need to be a big one, but I think every family, every kid has the right to have a roof over their head so it has a chance in life.

In Germany this is done by a program called Hartz IV, it's not the best, but it provides the basic living necessities to those who need it. And that program is extremly expensive. We pay for it with our taxes.
The costs? 26B to 30B per year. That's about 250B for the last 10 years. And we have just 80.000.000
people living here. You have nearly 300.000.000 US citizen.

Do the math: The 700B for the bailout bill. Isn't that just the bill come due for a task the US-government had to do in the first place and neglected to do for at least the last 10 years?

Strategy

2008-09-25T12:52:00.001+02:00

Adding at a profit, yes, that's how it's done. You scale into a profitable trade.

You remember the last time you did it successfully?

In daytrading it just is difficult to do, as you enter at highs for longs or lows for shorts usually, which brings the potential profits down, while risk goes up, as your average entry price for your position moves nearer to the current price.

Nonetheless, I tried it today and as I know you love proof for real trades, here are my FTSE trades:

I took a long after the open and added 3 minutes later. The high of the move was 5139 and then the FTSE sold off to a low at 5100. I added at 5113.5, a contract which was sold at a loss at 5108.5. Then an unexpected meeting came up and I had to leave the computer. I set 2 stops at 5114.5 and 5106 each and left the desk for 1h. Coming back I saw that the DAX had rallied and FTSE was still struggling below 5140. I added at 5140 and closed the position into the spike at 5149.5 and 5154.

My initial idea was long 5130.5, add 5115.5 and 5100.5, but that idea of adding at a profit popped in my head, so I added at 5136 instead. Instead of a position average at 5115.5 I was long 2c at an average of 5133.5 with the same clear position stop below 5090. Stupid!

Next comes 5139 trading with the DAX going up, but me refusing to move the position stop, as I saw a good long bias in the European markets with the EOE trading nicely up. The EOE V8-FTA is the Dutch futures contract, which includes mainly banks and insurance companies and in this environment is a contract you want to watch, as it reacts most sensitive to any bailout rumors. So I had a long bias and was willing to give the trade room.

Add-on's I usually trade not in front of the market but by a trailed StopLimit order where I'm taken in, when the market turns. 5113.5 was a tick to narrow and I exited that contract at a small loss, which moved my position average to 5136.

FTSE bounced from 5100, with the DAX and EOE making new daily highs. Still the seller at 5128 was not gone and I suddenly saw myself confronted with a meeting I had not anticipated.

I had to decide what to do...Closing the position at a loss of more than 200 Pound..Don't like that...especially, when I still had the long bias confirmed by the trading in the DAX and EOE (ES was treading water around 1191)...leaving the position open with a Stop at 5090...too far away as while I sure like to trade double bottoms, the retest of the 5100 would have been the forth test of that level within 36 hours. NO if we go down there, we break it...see that 60min chart for that..

So I put the stops at 5114.5 and 5106, which would have been a bad loss if both were to be hit, but then I was sure I would see FTSE go well down below the 5100 mark and that is what stops are for...Protect the account, if things don't work out.

Coming back at 10:50 I saw my stop at 5114.5 had been a bit too high as we had based at the 5112.5 level and finally the up bias took over...

The position average was now 5154.5 with 1 contract still long. Just great...yes there was potential for a good upmove, but there was also a lot of overhead:

5139 was the daily high, EOE and DAX had made real good upmoves already and were trading at daily highs...Add-on at 5140...traded and being long 2c again the position average was now 5147.5. Good, at least below that 5150 resistance.

Chart was long, better entry would have been 5135, but that - on the other hand - would have been too near to the daily high, to be a good entry long, so the new DH was as good as any other entry.

Price stalled at the 5150 level and as the trade was already open for such a long time plus had been considerably down I took 1 off at 5149.5

More stalling above 5150, which let me exit the trade at 5154 to settle in again after my meeting.

I missed that nice bounce from support for a new long writing this article instead...

Adding at a profit got me.... a total of 12.8 points minus commissions or 56.76 Pound. Sure not worth the risks I took.

Let's look at the initial plan instead, which I abandoned in favor of adding at a profit.

This was the situation I was looking at this morning:

Lower highs with support at the 5110-5090 level. If that support broke I would not want to be long, so Stops at 5090 for a position trade were fine.

Initial trading gave me support for that long at 5130.5, target for that trade 5151, stop 5090 with add-on's at 5115.5 and 5100.5

Risk in that trade: 153 ticks or 765 Pound
Potential: Without add-on: 205 Pound, one add-on: 560 Pound, two add-on's: 1065 Pound

The trade idea would have done quite well, abandoning the plan got me 56.76 Pound while taking risks of more than 600 Pounds at the low of the trade. Sure at the low this plan would have been down 230 Pound as well, but 230 Pound compared to more than 600 Pound down. I know which plan I prefer.

Amy MacDonald

2008-09-21T22:45:00.001+02:00

Get yourself in the right mood for trading. 14 minutes to get you in that positive, alert, but relaxed mood, where you are able to swim with the markets and just do what is necessary to do....

A live concert with Amy MacDonald

Admission

2008-09-18T13:56:00.001+02:00

I dogged a bullet yesterday. Yes, had I followed my impulse, I would be down this morning nearly 13.000 USD.

Yesterday I traded HHI.HK, which are the Chinese H-Shares futures traded on the HKFE. This contract has better volume and is normally not as volatile and fast as the HSI futures.

That's what I did:

I first had a winning HHI.HK trade, followed by a loser. I then switched to the HSI, where I had another loser, as I really did underestimate the selling pressure in these contracts. Even with a 5% down move before I took my longs the selling pressure remained.

I took a long HHI.HK 15min prior to the close and added to that one at the close of the equity market. (Futures continue to trade for another 30minurtes after the close of the equities exchange.) (marked red)

I was down 2 trades in a row and somehow thought, the market really was near a bottom. So I was more than willing to hold the position overnight, if it would not show me a profit within the next 30 minutes. It was revenge trading, it was dumb and I knew it. I was talking to myself not to do it. That the account always comes first, but that voice inside me was still very insistent, that that bottom in the HSI and HHI.HK made earlier would hold overnight. 21 minutes later I was taken out on a short covering spike for something like 18 ticks. The average entry was at 8731 and I had placed an exit order at 8749, in case of such a spike. HHI.HK was trading around 8680-8700 for some time and I just thought, if I get out great, if not I will hold it. To tell the truth, I still might have closed the trade at a loss prior to the close, but I'm not sure about that and that's the reason I'm writing this article.

Here is what happened this morning:

I marked the close. We opened with a 300 point gap down and dropped nearly another 700 points. HHI.HK was down around 10% after the morning session. 2 contracts down 1000 points, that's 100.000 HKD or 12.840 USD down. With the increased margin rates at IB for index futures, I would have gotten a margin call near the bottom.

And that huge recovery rally, which started in the afternoon session, after the market gapped up 600 points in the HSI and 400 points in the HHI.HK would have seen me without a contract long.

I'm a daytrader and the day offers enough opportunities to make good money. There is no need at all to hold a position overnight.

Timeframes

2008-09-10T10:03:00.001+02:00

If you use charts at all you have to answer one very important question:

What timeframe do I use?

If you look at traderchats, Yahoo/Google trading groups, follow one or another Guru, they will tell you to use this or that timeframe or a mix of them. Some claim 244, 333, 666, 2400 ticks are magic, others use 3 minute, 5 minute or 60min charts. Users with more sophisticated chartprograms try their hand at Range or Volume charts.

I'm no exception, I have used them all and I still have not found THE MAGIC CHART.

But I have recently found something else, something the timeframe you use for your trading should provide to be of use to you:

You need to get clear entry (and exit) signals from your chart.
Prices swing and you should see a retracement not too far away from your profitable exit. Taking 80% of the available range is emotionally great, taking 5% on the other hand, even if the result is the same will let you feel like a real dumbass.
If stopped, prices should continue proving your stop right. You don't want prices turn one tick away from your stop.
If you exit early, the retracement should give you another entry signal.

Let's start with a 30min DAX chart

Yes you see nice moves on that chart. Now say you usually take 20 ticks per trade, which translates to 10 points or 250 Euro/trade on the DAX. Not bad, but looking at bars showing moves of 50 points within one bar, these 10 points are just noise. Believe me, if you trade them with a small account they are not. On the other hand, where do you place a stop. Say you got a signal at 6210 at the open today for a long. The low of the current bar is just above 6180, the previous low is above 6170 (yes it's a Heikin-Ashi bar, so the low is not the true low, but I use HA-bars to see the trend better and that means the trend remains intact as long as the HA-bar low (or high) is not broken)

6210 long, with a target at 6120. Bar high was 6236, low 6182. My 10 point target is just noise on that chart.

Here is how I trade nowadays

Yes it's a 3 tick chart on the DAX, a 50-tick and the 30 minute chart. Remember I use the IB-datafeed, so expect 1/3rd of the regular number of ticks. On the E-Signal datafeed you might use 10 tick, 150 tick and 30minute to see a similar chart. (And no, I don't care about the missed ticks when I trade with the IB-datafeed, I don't need them. As you might already have guessed from my affinity to Heikin-Ashi bars, I don't care about the individual chart, or it's exact OHLC. I care about the swings and I want to enter a swing in the direction of that swing, take about 80% of the available range and exit with a feeling of a job well done))

That 3-tick chart on the DAX was the first timeframe, where I finally got 80% of the range with a 10 point target. The 50 tick chart has to be traded with 25-40 point targets to get the same 80% of the available range result. Unfortunately that comes with wider stops, which I can't afford on the DAX. Yes the 3-tick is fast, but using Heikin-Ashi charts the bars are clear, you get swings instead of tick levels and you can actually swing with the market.

3-Tick (real Tick chart) compared to a 3-Tick (Heikin Ashi chart)

So how do I decide what trade to take?

3-Tick is holding below the 240-ema, 50-Tick might bounce up, 30-min is in a downtrend, but retracing. A long is valid on the 50-Tick above 6200. That level is below the Stop level indicated on the 3-Tick, a long is valid on a bounce from the band on the 3-Tick

Seconds later we got that 240-ema test on the 50-Tick, a test of the band on the 3-Tick and a long around 6205 (6204.50 to 6205.5). The exit was a nice 10-pointer on that 3-tick chart. On the 50-tick its noise, on the 30 minute not visible.

So when you decide about the timeframe to trade and the charts you look at keep in mind, that you don't want to trade noise. Having entry and exit within 1 bar is fine at times, but for the long run it's just stress as you trade just intrabar noise. You trade with charts to see what the market is doing. Make sure you really can see what you want to see.

Responsibility

2008-09-03T12:34:00.001+02:00

I have been reading a few articles about the Woodies CCI club and I want to put some perspective to it, even if it might not be another voice in the condemn Ken Wood chorus.

A few years back I have been in Woodies CCI club. I left, because at one time I was discouraged to post my ideas and discuss them as they seemed to distract new traders. Still I have to say I learned a lot in the WCCI club. Not the system, which did not work for me (and may not work for anyone), but I learned pattern reading, discipline, account management. I had already lost a small fortune, when I came to the club, so I was already humbled, knowing that you never ever follow someone else's call, that if you trade futures, you start trading 1 contract and work your way up to keep the risk acceptable.

Some Futures and Forex broker give you better than a 100:1 leverage. If you trade that kind of leverage as a beginner you are simply crazy. If you go to Vegas and someone tells you to put all your money on the number 13 because he has a sure system, that that's the number which will come next... Would you do it? I don't think so. But that's what some in the WCCI have been doing it seems. It works when it works.

Today I trade with an internal margin of about 10k$ per contract traded. Anything less exposes my account to risks which are just not healthy in the long run. I went bankrupt a few times when trading futures, but I never had someone else to blame for than myself.

I have no idea what Ken Wood is doing or not doing with money supposedly going to the MAW foundation. And I have no intention at all to defend him. And if he committed crimes he should be held accountable.

But to blame him or any other guru

for your own lack of responsibility,
for your own inability to manage your account,
for your own inability to see that a system is not working,
for your despair or addiction, which lets you continue trading real, when every other trader would take a break and trade demo for a while,

is not ok.

Trading is about taking responsibility for your own actions. If you are new to trading and want to learn it, you start demo first, then you trade small and then you work your way up. It takes time, but it's the only way I know.
Do you take over a company as CEO without any business experience at all and expect to be profitable? I don't think so. Usually you go to business school first, then you learn the trade and then you start as CEO. You still might fail, but your chances have become a lot better now. If you expect success immediately, most likely you are doomed. And that has nothing to do with Ken Wood or any other Guru.

Oil

2008-08-05T21:05:00.001+02:00

Here is how I see the oil market unfolding

It's a daily continuous CL chart and I have added a Trendline fan. As you can see 2 trendlines have been broken to the downside with the next Trendline coming into play at 110 and then the last one going back about 2 years at 87.

As you can see the upmove had as first target (green line labelled T) 115 and as second target 145, which was tested to the upside, but then proved the correct target for the upmove.

Now let's look at the upmove itself. We have retraced more than 33% and are about to test the 50% retracement level at 116.50. That corresponds loosely with the first target of the upswing at 115.40.
A bit below you find the Volume weighted longterm MA (240WMA) which might add support as well.

That means I see the 116-114 area as a strong support area for oil, with the 110 level as second support below, as that level corresponds with a 62% retracement level from the top.

Add to that reports at CNBC that with gasoline below 4$ demand is coming back into the market, I see a bottoming process starting in oil at the 115 level with 110 as eventual spike low.

I usually don't trade long term, I trade day by day. Still I like to have a view on the market. I like to know what longer term traders see in a market I trade. And maybe I will manage to trade longer term myself.

Trading coaches

2008-08-04T15:11:00.001+02:00

2 years ago I met a very gifted trader and she agreed to teach me. I learned a lot during the time, I blew it later not due to her fault, but because the trading plan was not suited to my style of trading. It just wasn’t my edge in the markets. The trading plan worked then and it works today. I could even trade it today, but it still wouldn’t be my plan and I wouldn’t feel comfortable trading it. A few days ago I had the following discussion with David

[09:24] (croc): there is upside pressure on oil this morning

[09:25] (croc): but it's early, so expect range trading for the time being with higher lows

[09:27] (croc): 124.20 -124 is a good support this morning, 125.30 needs to be taken out for any move upward having legs

[09:31] (david_uk): morning croc, do you no longer display those 'volume profiles' on your charts?

[09:33] (croc): no, I can now see them without displaying them, so it's just clutter on the chart

[09:34] (david_uk): what do you mean? Do you mean that you can visualise the poc ?

[09:36] (croc): the poc is not really important as it does not act as Support/resistance but as a point around which prices swing. The 66% volume lines are a lot more important, but these you see as well without having the lines shown on the chart

[09:37] (croc): thing is, you need to have clear charts. The less you have on a chart the more it can tell you

[09:37] (david_uk): you can 'see' them or you can visualise (imagine) where they would be?

[09:39] (croc): I look at a chart and can tell you where the current POC and the 66% volume lines should be. Call it as you will, I have removed them from the chart, as they are no longer necessary for my trading

[09:40] (david_uk): ok understood

[09:40] (croc): It's the same reason why I have no oscillator (STO, CCI, RSI) on my charts

[[09:40] (croc): I know what level these oscillators have approximatly when I look at a price chart, so I don't need them on the chart

[09:41] (croc): I used to trade divergence on these oscillators, and I see that divergence when I look at the pricechart only, so I don't need to display the oscillators

[09:43] (croc): If I add a cci on that 10 tick chart I showed earlier, you will see higher lows on the cci and a long at that last 124.25 where I had a small long arrow placed on the chart

[09:43] (croc): so why do I need a cci, if I see it on the chart itself?

[09:47] (croc): or do you need a volume/price histogram to tell you that 124.85 is a short term support? (marked on the chart)

[09:48] (croc): add to that that gold is trading at the daily highs, HO and RB are trading up and you have a low risk long trade

Be prepared that any method you learn from a teacher will fail, if you can't make it your own method.

It doesn’t mean you are not suited as trader, it doesn’t mean you can’t make it or that a good teacher will not bring you forward. Any teacher, who shares his/her method with you and explains it, so you can understand it, will bring you forward regardless what trading style you will later adopt as your own trading style.

A trading coach might bring you a huge step forward, but he can’t force you to drink. Only if you understand why the method works, will you be able to profit. And then it must still be a method within your comfort zone. Meaning the risk taken must

Trading PA means you have to let go of a lot of precious thingies like oscillators or arcane indicators. You don’t need them, but first you need to trust yourself that you can walk without them. And believe me it’s difficult to let them go, to accept that they are not a way to finding the holy grail. And be prepared to lose first and make it back later. We look for security in an unsecure business, where the trade which looks riskiest actually is the safest trade available, while the trade which looks 100% sure is the one which no longer works, where you go long 1 tick below the top or short one tick above the low of the day. And you will sit there unable to take the next trades asking yourself, why always me, why do I always get the short end of the stick. Of course the next signals would have paid for the one loss and when you are ready to take the next trade the market is ripe to go again against the 100% sure signal giving you the next loss.

I have found my edge, my own interpretation of price action. I have losses as everyone else, but I trust myself now and know I will trade it back. I just need to continue trading my plan because price action works. I still sometimes struggle, but I get better and I don’t need 20 trades a day. I don’t need to trade a market, if I have no feeling for it, I trade the markets which look like they will suit my trading plan today. If I make 4 or 5 trades per day and get my 70 to 100 ticks per day I’m more than content at the moment. Rome wasn’t built in a day. No need to take higher risks by adding contracts if you are not ready for that risk. I always have a small grin on my face, when I see brokerages advertising low margin rates. It might be nice to trade oil with a 500$ margin, but that would have thrown me out of the game long ago. At the moment I apply an internal 10500$ margin per contract traded. So I don’t care about margins really, because my money management plan won’t allow me to make use of lower rates anyway. The associated risks are just too high. Before anything else you need to keep your account safe, so you can trade the other day. And overleveraging is the sure way to the broke house.

Wall-Street Crime

2008-07-25T11:30:00.001+02:00

I have no idea how long this report will be available on the Net.

France24 made a report about rogue traders. Watch the video it's worth it.

Joe Jett, a failed bet on Wall Street

I could not resist....

2008-07-14T20:10:00.001+02:00

Withdrawals

2008-07-07T21:09:00.001+02:00

Is that really worth writing about? Chris gone over the edge. He's writing about withdrawals. What's there to write about? You instruct your broker to transfer money to your account. You usually do that only when you made profits and you cash them in. It's no longer paper money in a far away account, it's suddenly something tangible. You see it in your bank statement, you can buy something with it.

But ...

...in my brokerage account it looks like a loss, it feels like a loss and I really have to tell myself

it's not a loss, it's a withdrawal, which just happen to have the same effect as a major losing trade:

Your account balance is sharply lower,

your margin is smaller and

you have to walk that path to - in my case - 30k again

A path I already took a few times in the last few weeks

only to be beaten below by a stupid mistake again and again.

On the other hand trading for a living means you have to live, you can't have the fun student life, where you are financed by other means. Your profits have to finance you and some profits have to be taken out of the account to finance your life. It's just a fact. So better enjoy your profits and don't let the withdrawal spoil your day.

Hmmm...just that that dumb feeling won't go away, which tells me that if my account was >30k on Friday and today it's <28k, that about 2.5k are missing. And these 2.5k are gone and usually if something is gone in the account it has been lost. I tell myself, it's not lost, it's a withdrawal...but that concept is just too new it seems...yes I have to admit, I just started it a month ago and that's why I have to find ways to deal with the feelings, which come up.

I made no withdrawals during my learning years..I made some payments when I had been busted instead...then I made the money back I invested in my learning...then I build my account to have some leverage as I did not really need the money for living...now I decided I should start taking something out on a regular basis.

I now have two approaches to fool my subconscious mind, which refuses to see a withdrawal as a withdrawal

In my tradejournal, withdrawals are recorded at least 1 week prior to the day they have been made. So looking at the journal I see no big loss today

When I have the money in my bank account I go out and buy something for myself. A bonus for a job well done. I like it, it feels good and it convinces my inner self, that the money is not gone but actually there. Hard cash which I can spend as I see fit.

I'm sure, once I'm used to it, I won't need to fool myself any longer. But I've learned, that it's better to listen to your feelings and to respect them. Otherwise they turn around and bite you by letting you do real dumb stuff, until you listen and deal with them.

Missing an opportunity

2008-06-28T22:06:00.001+02:00

Missing an opportunity for me comes in two different flavors:

One is the missed trade while I was not at the computer for some time and just couldn't take the trade or did not leave a trade open, because I don't like to be in the market when I'm away.

It's a missed opportunity according to the rules.

It might be that I'm angry for a short time, that I think, shit, what shall I do now, that this move has happened and we will most likely see only choppy consolidation for the next few hours. But I missed the trade according to the rules and that is ok, because I have a reason for that rule.

The missed trade which makes a lot more problems and which might actually cause me damage is the missed trade I did not take, even when my inner voice said "Go for it, everything is aligned, you have a signal, take it NOW"

Still for some unspecified reasons, which might be fear, feeling unwell or some other unclear reasons, I override the signal and my inner voice and the market jumps away.

It's these missed opportunities, which cause me problems, because I did not follow a signal, which was there to be taken.

A similar situation arises, when I enter the trade, but then -out of fear to have taken a wrong signal- trail it so narrowly, that the trailing stop will for sure get hit on the slightest wiggle, even if the trade is a good one and the market seconds later does what it was supposed todo.

Most of the times I recognize the symptoms now and stop trading for a while if this problem occurs, because then I know I'm no longer fit to trade. I just don't have the energy and stomach to give the trade the room it needs to develop.
If I don't recognize the symptoms, then the day usually ends deep deep red. Because then unconsciously I will try to make back what I missed with the follow-up trades. And this is a setup which usually ends in disaster.

Monthly Euro-Yen

2008-06-26T08:23:00.001+02:00

Euro-Yen is approaching a big round number.

170.00

Here you have a monthly Euro-Yen. As you can see we have a very strong setup, but we are also at a possible monthly double-top area.

And Euro-Yen has already made the second target in this upmove, projected from the consolidation period in the pair from 2003 to 2005.

So we should prepare for a leg-down, before Euro-Yen starts to rally ahead to take out the new targets projected by the current consolidation area, which started back in mid 2007.

Of course timing the top and the start of the leg-down to the 50% retracement area near 159.00 isn't so easy from a monthly chart. Still looking at the 2003-2005 consolidation area might offer clues:

The second high made there was 141.54, before Euro-Yen started the leg-down to the 50% retracement area, which was followed by the leg-up to current highs.

I will watch Euro-Yen for a test of 171.50 and place some shorts there or more likely buy some puts once we are near that area, as I found, that timing longer term tops with options is easier for the mind than trading futures, which I hold intraday only.

Of course the scenario calls for a High Failure Pattern at 171.50, meaning Euro-Yen should better drop below 169 until the end of the month or we have a close above a previous all time monthly high, which would make the 169 to 170 area a very strong support zone.

Emotions

2008-06-13T14:16:00.001+02:00

If you trade oil futures try one experiment. It will cost you maybe one or two ticks in commissions, but emotionally you will learn a lot about yourself:
Take a quiet period and go long 1 contract CL N8 (which is the current front month contract) and if possible at the same price Short 2 contracts QM N8.
Make sure you have no stop or target orders in the market.

This position will cost you 150USD in margin as in fact you are flat, you have no market exposure at all, as every tick down in CL will be made up by a tick up in QM and vice versa. The only slight difference comes from the fact, that QM trades in 0.025 increments while CL trades in 0.01 increments. As the tick value in QM is half that of CL you will need 2 QM contracts to offset the CL position.

Now take the time and follow your position during the day. Monitor how you react to the losing side and how different you react to the winning side of that combined position. Notice how you have that urge to take profits in the green position, while you are somehow reluctant to let go of the losing side, instead having the feeling that that loosing position will come back.

At the end of the day, when everything is quiet again, close your position.

I don't suggest taking advantage of extremes, as the purpose of that experiment is to learn how you react different to a losing and a winning trade, even when objectively there is no market risk at all.

You are at no time exposed to any market risk, you may have to pay one or two ticks plus commissions, but that is well worth the experience.

Modified Donchian Channel

2008-06-11T09:28:00.001+02:00

For trading priceaction with double top (DT), double bottom (DB), high failure (HF) and low failure (LF) patterns the Donchian Channel (DC) is particularly suited, as it is a channel drawn on the Highest High and the Lowest Low within the given period.

But there is one disadvantage:

It won’t show you a HF or LF pattern as the channel will move up or down once the new High or Low has been made. Thus the channel will behave as if a breakout/breakdown is occurring when in reality prices will return into the channel and reverse.

Now I thought that drawing the DC not on High/Lows but on the highest Close and Lowest Close within the given period would solve that problem. It’s a bit tricky to do that, as Ensign will draw the Channel on the Highs and Lows even if you select the Close as datasource for the DC.

So we first need to add a Simple Average with length 1 based on the Close, which is in effect a Line on Close and then select that average as datasource for the DC. (Settings have been posted below)

And now you get a DC, which shows you not only DT and DB’s but also HF and LF patterns as marked in this ES chart (The thin yellow and green line is the modified Donchian Channel.

And here are the settings used

Internal Margin for your trades

2008-06-09T13:42:00.001+02:00

After 3 months of fine trading earlier this year I find myself in a consolidation. My trading results going up, then down, then big down, then up again. As if something in me has changed. Reading this article from Dr. Brett Steenbarger "Getting off the Performance Roller-Coaster" think I found what was going wrong. Overconfidence in my ability to read the longer term market direction correctly. Going so far that I no longer cared where my entry really was, as the contracts I traded were showing such a high volatility, that nearly all trades would show me a profit sometime after my entry. But I coupled that with a desire to squeeze more and more ticks out of the individual trade seeing 50 to 100 tick moves and thinking, that I should be able to get more than 30% out of these moves. Therefore, even with a bad entry I stayed in trades longer than warranted and I did not take the chance to exit when it was offered as I expected follow-through which never materialized as I traded against a longer term trend.

The first time in my trading career I'm going through such a consolidation and I'm not standing with my back at the cliff, where one misstep will throw me in the broken account chasm. And by chance I followed a link to Henry Carstens. In his "Introduction to Testing Trading Ideas" article I found something extremely valuable:

A formula to calculate the Minimum Margin you should apply to all your trades.

You need to know the maximum loss sustained in one individual trade and your Win% and Loss% numbers. I've taken the numbers for 2008, but that's up to you of course. Just make sure, that the number of trades done within the time selected is high enough to give an accurate picture of your trading.

Minimum Margin = (Largest Loss) / (((( 1 + (W% / L%))*W%) - 1) / (W% / L%))

My largest loss this year so far was 5812$, my Win% rate is 63% and my Loss% rate is 12%, the remainder are breakeven trades. I made 377 trades which is high enough to give me statistically meaningful results for my Win% and Loss% rate.

So my Minimum Margin calculates as:
MM = 5812$ / (((( 1 + (63%/12%))*63%)-1)/(63%/12%) = 10347$

I always knew, I should not use less than 10k$ / contract traded and I did so for 3 months, but I violated that rule during the last 4 weeks, when I tried to convince myself to increase size. I did not feel comfortable, but I couldn't put my finger on it, telling myself that I'm just anxious to increase size. Now I have something measurable, something which tells me when it is ok to increase size and when I should still wait.

Trading method

2008-06-04T08:21:00.001+02:00

Session Start: Tue Jun 03 20:30:45 2008
Session Ident: trader
[20:30] (trader): hi croc
[20:30] (croc): hi
[20:31] (croc): how are you?
[20:31] (trader): Very well and u?..i read you blog...it's big now! But i have a question: In a few lines what did u change in your trading method?
[20:33] (trader): Or can you point to the pages i have to read (in your blog) if not all pages! :))
[20:33] (croc): buy low, sell high or sell high, buy low...to determine what is high or low I use a simple range calculation from yesterdays close
[20:33] (croc): http://globetrader.blogspot.com/2008/03/trade-rules.html
[20:34] (croc): http://globetrader.blogspot.com/2008/05/countertrend.html
[20:34] (trader): Very nice to share!! thanks croc!!
[20:34] (croc): http://globetrader.blogspot.com/2008/05/heikin-ashi-candlestick-charts.html
[20:35] (croc): excel tool: http://globetrader.blogspot.com/2008/04/ib-excel-adapter.html
[20:35] (trader): thanks i think i read the last 2 ones!!
[20:35] (croc): :-)
[20:35] (croc): then you got it already
[20:39] (croc): but that's all in your brain
[20:39] (croc): its about taking really responsibility
[20:40] (croc): the last article has my ideas re this topic
[20:40] (trader): Yes...absolutely agree with you! Nice! Do you have an email or it is in your blog (if i have any question)?
[20:41] (croc): if you think you can do it then you have done it already. You just need to prove to yourself that you can do it, so these nagging doubts leave
[20:41] (croc): anwalt@czirnich.de
[20:41] (croc): there is also a link in the blog
[20:41] (trader): thanks! yes that's suggestopedy!
[20:42] (trader): force ideas prove right if you hardly think about them!
[20:42] (trader): I'll read it! Your blog is very rich and full of good ideas!
[20:43] (croc): problem is you need to trust your instincts 100%, but those instincts have to prove themselves to be right and it takes a lot of time to teach these instincts to do what you want them to do
[20:46] (trader): you still think you need to trade with instinct?
[20:47] (trader): or just instinct to take responsibility and start your own business?$
[20:51] (croc): lol trader, you don't understand, of course I trade with instinct. I can't build a mechanical trading system from my rules, there is always a filter which decides that I take this trade and leave the other. I have the best pattern analysis computer and neural net right between my two ears. I use it, I don't need to know how it reaches its conclusion, I just give it filters and certain rules which should be present and I'm happy if after a trading day I'm able to get an inkling how my brain did what it did throughout the day
[20:52] (croc): I'm no mechanical trader and will never be. I can't trade with 50% to 70% winning trades, or 30% losers
[20:53] (croc): so I need to rely on my instincts or better my subconscious mind to do the analysis for me
[20:54] (croc): as long as you go against your instincts and you have not a proven mechanical system which gives you an edge you will lose
[20:55] (croc): of course I have rules, of course I have strategies, what will I do when x or y happens
[20:55] (croc): but ultimately I need to rely on my feelings what the correct course of action in a certain situation will be
[20:55] (croc): of course these feeling are not 100% right
[20:55] (croc): but overall I have an edge now
[20:56] (croc): and that's all that counts
[21:00] (croc): take a look at brett steenbargers blog. He has some very good articles on training your subconscious mind. How you learn to hear your inner voice and how to learn to trust that voice or feeling
[21:00] (croc): http://www.traderfeed.blogspot.com/
[21:01] (croc): of course you need to couple that with a sound and simple system which "just" needs a filter which picks the good from the bad trades
[21:02] (croc): It's really a bit like developing/programming a neural net
[21:03] (croc): you don't need to know how it's done, but you need to provide input which you know could produce a lot of winners if only the bad trades (at least some) would be flagged and left out
[21:05] (croc): cu tomorrow, I will close now
[23:13] (trader): ok thks!
Session Close: Wed Jun 04 00:00:00 2008

How do patterns form

2008-06-04T08:04:00.001+02:00

How do patterns form on different timeframes. We all can agree, that the same patterns are visible regardless of the timeframe. Now have you asked yourself how a Double Top on a 30minute chart looks on a 5 minute chart or a 10 tick chart.

1. The daily highs and lows are visible on all timeframes

2. A double top on the 30min chart might be visible on the 5 minute chart, if the bars forming the top are not too far apart, so you still can see them.

3. You will certainly not see the double top on the 30minute chart on the 10 tick chart, instead the 10 tick chart will form its own pattern. But as we know that one bar of the 10 tick chart makes the high seen on the 30minute and the 5 minute chart that top on the 10 tick chart will look like a high failure or a double top or a failed breakout above a prior top on that 10 tick chart and a reversal down.

Now we have to differentiate:

A. Trend continuation

a. If a trend continues, then we see higher highs and lows on the longer timeframe chart eg. 30min.

b. We have a retracement on that uptrend, which we see on the 5 minute chart

c. And we have the 10 tick chart which forms a downtrend showing lower highs and lows as long as that retracement lasts.

d. Now that retracement comes to an end and a bottom forms. We see lows forming on the 30min chart, the 5 minute chart and the 10 tick chart. We do nothing.

e. We bounce upward and we stall, because Sellers which caused that retracement are not willing to give up so easily. And we go down again.

f. We have a second low on our 30min chart or it happens within one 30min bar, then we see that second low forming a double bottom on the 5min

g. We watch the 10 tick. Yes we see that low, we go up, we stall, we go down and BINGO: we have a higher low or a double bottom on the 10 tick and we are long

h. As you can see to go long on a trend retracement gives you a lot of time to go actually long. You get the preparation on the 30minute, you get advance warning on the 5 minute and you have time to commit while you wait on the 10 tick to form the entry.

i. Here you may decide not to wait for the signal, but to anticipate the Double Bottom forming on the 10 tic chart. I place a limit order 1 tick above the bottom on the 10 tick and if hit I get a great entry for the long.

B. Trend reversal

a. We have a Top and we see that top on the 30minute, the 5minute and the 10 tick chart

b. Being a Market Structure High, a Reversal starts (something we only know in hindsight)

c. That reversal starts on the 10 tick chart. Here we see a high failure or a Double Top and we go down.

d. We are still within that bar forming the high on the 5minute chart and certainly within the 30 minute bar. These give us no signal. The only signal we have that the market is overdone and ready to roll-over is the 10 tick chart telling us that the market was not able to trade higher.

e. How can we trade such a reversal?
We can, if we jump in front of the Freight Train and say: “Market! Stand Down and Turn around. This is Chris the mighty and I’m telling you: Enough is Enough … Down you Go”
Ask yourself how often you have done it

f. Truth be told you can of course jump in front of the freight train if there are other factors or signals not seen in the price action, which tell you that there is a very good chance that the market will turn. I use round numbers or points from yesterdays close or just my knowledge how far any move in a certain contract on average goes on spikes before we see a retracement to get these outside factors. But you need to be on your toes, you need to be aware, that the market might not bow before “Chris the Mighty” and just leave behind “Chris the Beaten” on its path to new highs or lows.

g. When we have made the top, the next to reveal that there really is a top in place will be the 5 minute chart forming a Reversal pattern and if its really a trend reversal we will finally see the test and failure of the test on the 30 minute chart.

h. To go short in a long trend betting on a trend reversal to happen asks for a fast trigger finger and decisive action. You have no time, you have no ample preparation. You see it happen on the 10 tick chart and you execute your plan as near to the high as possible. If you wait you will be left behind or sit in a losing position until the market decides to really roll over.

Here you have a chart of a trend short today on oil. First take a look in the lower right corner. That’s my 30minute chart. I have marked the lower double top which formed today

Then look at the big chart to the left which is my 5 minute chart. There you see clearly the resistance zone formed and marked at the 127.65-127.95 area. And last the upper chart to the right, which is my 10 tick chart.

You could have taken the short at 127.60 or at the second lower Top formed at 127.48. Enough time and options to enter the short for a 50 to 80 ticks trade. For the exit I trail and have target orders, which get adjusted, depending on the speed of the market.

Trend trading that way is not fancy, there is no fame in a lot of trades to be made. That one trade I mentioned made 50 to 80 ticks, that’s 500 to 800 $ / contract. Sure you need to hold that long, you need the conviction to hold onto your winner for 20 long minutes, while you were sitting on a lot of profits always thinking: It might reverse, it might reverse, it might reverse…let’s take the profits now.

Responsibility

2008-06-01T21:57:00.001+02:00

There are a lot of professions, where there is one way of doing things.

In trading it’s different.

In trading you need to find your own edge.

You need to find that setup, that method, which speaks to you.

If you find a method which speaks to you, then you can’t make it your own by copying someone else. Even if it is Don or Bruce or another great trader.

You need to do it all by yourself.

You need to test, to build, to try one timeframe, then another. This chart type, then another.

You will go circles, you will hear Don and others tell you to use x and y tick charts in combination. You should try it, but then you need to take the next step alone.

You need to find the setup which speaks to YOU. No one else matters.

I said you will go in circles, because I found myself returning year after year to concepts or ideas I’ve had in the past. It’s a bon writing a blog for a long time, because then you can go back and see, what you have done in the past, what ideas you have already tried, where you did not take a path worth trying now. Actually you don’t go in circles, you go up a stairway going round and round and round up a very high tower. You come back to concepts you have tried already, but with a lot more understanding, which allows you to use that old concept in a new way, a way not tested before.

In trading you need to trust your system 100% or you won’t execute it, you need to trust yourself 100% or you will do a lot of damaging things to your account.

To be able to trust your system and yourself 100%, you need to do it the hard way, you need to do it yourself, because ultimately no one else but you is responsible for your actions. You can’t blame the system for your failure to make money in trading, you can only blame yourself. We go long ways, we invest a lot of time and we pay a lot of money just to avoid that responsibility.

But only when I accept that no one else but me is responsible, then I will be able to do what is necessary to do to be profitable in trading.

Go to other chatrooms, test other methods, learn, learn, learn.

Don from SANUK group saying that only PA works is fine, but do YOU know that? Really? Can you tell me, why oscillators don’t work? Why CCI crossing the zero line, with the slow Stochastic at the 20 level and the Fast Stochastic at the 40 level is not a great long signal? Why a Moving Average crossover system will (not) work?

You need to try using the Stochastic, you need to use a moving average crossover system, you need to look at other things, because you need to come back to PA knowing what works when and when you better don’t use a certain method. You need to truly understand, that there is no Holy Grail.

Of course you can use this bit of information here and that bit from there to build your system. But in the end it must be your system. Not Don’s, not Bruce, not mine.

YOUR SYSTEM, which you trust, which you can trade and which makes you a lot of money.

You will invest a lot of money in your education, but trading is the one profession where you can make it all back in just a few months once you found your edge. It is possible.

Long CL, Short COIL

2008-05-30T18:15:00.001+02:00

Talking about change. I tried something new for me today. I had discussed it here and here a year ago or so, but it was only theoretical then.
I was long oil (CL at 127) on a possible spike up. It was a fake and CL broke down fast 40 ticks.

Remembering yesterdays sell-off, I did not add to the position, but I hesitated to get out.
A familiar problem, as I was up for the day and did not want to close the week on a losing trade, especially one which wiped 40% of my daily profits.
I had the Brent oil contract (COIL) available for trading as well on my tradedesk and instead of covering the losing CL trade I shorted COIL.

I was now Short COIL, Long CL, which froze my exposure to the 40 ticks or more accurately to the spread between COIL and CL, which actually widened in the breakdown to about 60 ticks max. as COIL was stronger than CL today.
When CL could not take out the 125.10 mark and then held above 125.40 I covered COIL for 100 ticks profits and stayed in CL.

(I hoped I had timed it right and we would not break further)

It was the right decision and when we came back to 126.10 I closed CL for a 90 tick loss (we had spiked above 126 and I had moved a trailing stop to 126.10 as I did not want to sit through another test of the lows)

(A look at the chart confirms that I should have had conviction and stayed with the trade, but you never know, and I was happy to have successfully traded something I had thought about a year before, but never got around to really trade it.)

In the future I will actually use the WTI contract to offset a CL position, as this is also a Light Sweet Crude contract, which trades 1:1 with CL, just the spread is a bit higher. But using WTI to offset CL freezes the Loss effectively, even in a very fast market and that would have allowed me, to squeeze some more ticks out of the Short position.

Being in a position focuses a lot better than when you sit on the sidelines. I know, that had I taken the loss of 40 ticks, which most readers will recommend and gone short, I would have made a lot more. But you don't know that in advance and actually I need time to refocus after a big loss, I don't reverse a 40 tick loss. I go flat, and I would have remained patiently on the sidelines through the breakdown and the recovery without taking a trade unsure when CL would reverse on me again.
Taking the Short put me on the sidelines, while still exposing me to the market, while still forcing me to focus and make decisions. It was difficult to see that deep red CL position and it's true that the offsetting profits in COIL did not seem so big. Only the look at the total confirmed, that my exposure was not changing, even if CL showed me a -190 ticks at one time.
I won't trade that way every day, but in a fast market it's a good tool to have available I think.

Btw: I did not worry that I couldn't make back the initial 40 tick loss, because CL swings usually 60 to 100 ticks even if you are in a countertrend trade. The only thing is, that you need to get within the current swing range with your open position to be able to close the trade at a profit. Adding to a trade is one way, being long and short at the same time another and that way actually brings down your entry price a lot faster, if you are on the wrong side of a trend move.

Gold Standard

2008-05-26T14:20:00.001+02:00

Today I read this article written by the father of Warren Buffet, Hon. Howard Buffet in 1948.

Human rights rest on Gold Redeemable Money

The issues presented then are as important today as they were yesterday.

Take a look at these 2 charts.

The first is a weekly oil chart, where I marked a range from September 2000 to December 2001

And here is the same chart, but not denominated in US$, but denominated in Gold. Meaning this chart tells you how much Oil would cost, if we still had the right to redeem our currency in Gold.

(Please ignore that this chart is labeled EUR #F. I just used the Euro to have the correct pricescale to display the Goldoil chart)
As you can see, I marked the same range on that second chart, and we just crossed the 2nd target on that Goldoil chart, while we are way beyond that on the Oil/USD chart.

Oil would still be affordable would we back our currency with something of universally agreed upon value.

Old habbits

2008-05-26T12:22:00.001+02:00

In my development as a trader I noticed, that changing an old habit often works fine for a while, only to have it reappear at the most inopportune time sometime in the future.

As this happened a few times to me, I tried a different approach:
Instead of trying to undo an old habit, which often has very deep founded roots and which actually might serve a valid purpose, I try to live with it and give it its proper place in my trading system.

Take the fear/panic to lose all of my account in a sharp spike against my position. That fear is unfounded usually, but trading highly volatile futures means that my stops often are farther away than I feel comfortable with.
Still it was a conscious decision to trade that way, because I like to have a high percentage number of winners, which pay for the few losers, which from time to time hit my stop.
In the past, when something like this was about to happen I moved my stop, I added to the losing trade at the dumbest possible times, I did everything not to acknowledge the losing trade.

My first approach to solve the issue was to trade with small stops.
But I hadn't changed the way I took profits then and as I tended to take profits early, my overall breakeven trading system, which allowed me to continue learning suddenly turned very red and negative.
The profits I made did no longer pay for the higher number of smaller stops I had to take.
So giving in to the fear of losing a too big chunk of my account actually led to higher losses.

That approach did not work, but ignoring the fear wouldn't work either, because I knew, that would led to panic in case something unexpected happened.

So I returned to using wide stops, but nowadays these wide stops are above or below clear support or resistance levels on higher timeframes, meaning if they are hit, it's very unlikely price will come back.
Because one of the reasons I was unwilling to take the stop in the past was the 'hope' (and fear) that I would (again) prove myself the real dumb trader being stopped at the bottom or top of the move against me.

At the same time I started working on myself to increase the holding time on my profitable trades. Something easier to accomplish as doing this 'just' means, that I have to overcome my urge to take immediate gratification. I still exit profitable trades early, especially when the trade was first sometime in the red, but overall I'm quite content with my performance going from an average of 5% - 10% to 20% - 50% of the available range.

I still question myself after I take a big loss, even if the statistics now clearly show, that my profits pay for these losses. But now it's no longer panic overcoming me. I review the loss, I look for the reasons why I was not able to exit the trade at a profit and what I should have done instead. Sometimes there is no way, but often I get a better market understanding, I am able to formulate a plan, where in the past was just a feeling, you should do such and such. I also analyze myself and look for reasons why I took the losing trade in the first place. Was there outside influence, was I bored, was I distracted. If I find something it actually puts me at ease, because once I found a reason or a pattern not seen before, I can work with it, I can integrate it. The trade which just did not work, the trade which just is one of the losing trades of the system is an excuse for the mechanical system trader, but if you are a discretionary trader, you always have to pass the filter: 'Go ahead, take the trade', which makes it my responsible alone. No one to blame but me for not reading the market correctly.

And all discretionary traders know that feeling when you override your inner voice which tells you: BEWARE, it looks better than it is.

It's when these trades turn sour, I look for reasons, because I know my subconscious mind saw something I consciously haven't identified yet.

HSI trade

2008-05-23T13:10:00.001+02:00

HSI opens at 8:30am my time for the afternoon session and lately I started trading HSI again, as that contract has a high range, something I like for my trading. HSI was down for the day, when it reopened and the selling continued, but found a bottom at 24760.

Long 24840 and Add-on at 24830 after 24800 held. I had decided to keep the trade when I was not filled at 24844 after the HH was in as I saw a good possibility for a Gap fill.

The trade was not straight forward, actually it came twice to a point where I was ready to throw the towel or close at break even, frustrated that the trade was not working and glad that I got out at BE at least. I held, because we made a double bottom at 24800 and then a higher low. After we made that HL the risk was really there that I would close the trade, which again ran into that selling resistance below 24860. But I stayed with the trade and was rewarded with a 24901 exit.

Countertrend

2008-05-23T12:47:00.001+02:00

Buy low, Sell high

Short high, Cover low

Trade with the trend after a consolidation

Trade countertrend after a momentum spike

These simple rules have made me a lot of money over the last 3 months, but the last rule can sting, if applied at the wrong time. Actually it was a lesson I had to relearn the last 2 days

Take a look at this FTSE chart. I went long 6221 as 6220 seemed to hold on the 2min and the 10tick supported the trade.

The FTSE broke down and the trade cost me 250 GBP.

Next day Heating Oil making a new High, it seemed to stall and I took the short

I missed the 2 opportunities to cover at a profit and that trade cost me 1100$ overnight.

1600$ paid and yesterday I was mulling over what I did wrong, why these trades, which usually work failed. It could be that they were just losing trades but with 71 trades made so far this month, they were losing trade 2 and 3 within 1 day to another. There had to be something putting them apart from my regular trades. We had a holiday yesterday here in Bavaria, I took the day off and enjoyed the day. While taking a long walk with my dogs I let the trades play again in my mind and I finally found something which set them really apart from other trades I took these last few months. Both trades were made late in the day when the regular trading in the contract had already ended and it was actually after hours trading taking place.

Today I traded the HSI, a trade I will discuss in a separate article and the chart looked like a long to me at 10:00am my time. A bounce was due, but I remembered my lesson and the new rule I had postulated yesterday:

Never take a Countertrend trade after hours

Trade not taken, even if a Higher low printed above the -200 line, because HSI regular session closes at 10:00am.

And here you see what happened in the last 15 minutes.

HSI continued the move it made prior to the close of the regular session.

A lot of my trading is based on psychology and a countertrend trade works, because bigger traders, traders with a lot of money, who don't care if they need to scale into an opportunity, see a bargain price, when they look at a chart. But bigger traders don't look at the chart after hours. After hours is too thin for them, there is not enough volume to trade big. But that's what you need to do to turn a train around. So the playground is left for the trend traders, who continue the trend with less volume. You don't need to add a lot selling pressure to continue a slide, but you need a lot of buying to stop and reverse a train. There are enough opportunities to do that in the trading day, no need to do it when the exchange just closed. And this let to my new rule:

Never take a Countertrend trade after hours

Heikin Ashi Candlestick Charts

2008-05-12T21:27:00.001+02:00

Croc, I am wondering why you embrace Heikin-Ashi candles rather then conventional candles. I feel even the slightest "information giver" prejudices your judgment calls. Do you find only the ma information you want in Heikin-Ashi candles, or are there other factors these bars give you. I have noted for months and months now you use only these candles. Please fill me in on your reasoning. Thank You, Gary

Hi Gary,

Why do I like HA candles? Well just take a “regular” candlestick chart and place the HA chart side by side.

(Heikin-Ashi Candlestick Chart) (Regular Candlestick Chart)

The HA chart looks a lot clearer and easier to read. You can tell me, but Chris you miss information, if you look at a candle with an “artificial” or calculated open and close price. That’s correct, but the information I miss is not part of any setup I trade. Actually the information I miss would cause me to close a trade prematurely would I see the regular candles.

HA candles have certain characteristics:

1. In an uptrend the candlebody starts at the bottom and the candle has an upwick. You don’t see the regular bottom or open of that particular candle.

2. In a downtrend the candlebody starts at the top and the candle has a downwick. You don’t see the regular top or open of that particular candle.

3. As long as the trend is intact a retracement in the trend will not change the color or shape of the candle.

4. If you see a candle with an up- and downwick, you know, that you see the real high and low of that particular candle.

5. A trendchange often is announced by such doji- or star-like candles near support or resistance levels.

6. The open of any HA candle starts at the 50% range of the previous candle. So to see an upwick in a downtrend the retracement has to go higher than 50% of the previous candle’s range. So even if this candle closes still red, it tells you that buyers have tried to take control from the sellers but were beaten down again. It’s a sign that sellers might be near exhaustion and a to be on watch for a double bottom and reversal.

7. The same principle applies for a top forming. You see a downwick while the candle still closes green, meaning sellers tried to take control from the buyers. They were rejected, but you should be on the lookout for another attempt thereby forming a double top.

8. Any retracement not going to the middle of the previous candle means the trend is still intact and will resume in due course. On a regular chart you might see one or multiple candles showing the opposite color, the HA chart just tells you to stay put and wait for the trend to resume.

It took me some time to get used to HA candles, to let go of the additional information regular candles give me. I gain on the other hand information hidden by regular candles as the trend is a lot easier to see on a HA chart. Only by trading HA candles was I able to increase my profit target from 4-10 tick to the 20 – 30 ticks now used and that is not the end as I’m still not catching more than 25% to 60% of any swing I see clearly on my charts.

Best regards,

Chris

Weekend reading

2008-05-09T22:17:00.001+02:00

First enjoy some bluegrass music ... and repeat your trading mantras

Then take a look at Ed Seykota's website The Trading Tribe and dig through his materials. Some really good stuff available there.

Ready to trade real

2008-05-08T09:07:00.001+02:00

How do you determine that you are ready, that your system will stand the test of at least the next months, that you have an edge.

You will know for sure only in hindsight. But that doesn't help you in your decision to go live or not
or in your decision to stop for a while and get back on track by demotrading for a while.

There is a tool available at http://www.enthios.com/simulator.htm to help you in your decision process

As I have more than 4 years of data available I took the test using my own trading results to determine whether something has changed, whether my odds improved over time. You need to do a bit of math to get the values you need out of your data, but Excel can do all of the necessary calculations.

2004

2005

2006

2007

2008

What do these lines tell you? We start with a starting capital of 100 and look how it develops over 453 random events. That calculation is done 50 times and you get a bundle of lines. The closer together these lines are, the clearer the direction the better, as long as that direction is up.

Looking at the previous article, where I posted my trading results I would have guessed that 2006 should have been a good year, but actually it wasn't. All years showed me at least a chance to profit, but the cones of the lines were fairly wide and not exceeding the 200 lines usually. So over 453 trades I have had just a slim chance to double my initial capital. In 2008 that looks obviously different. I'm doing something right I did not do correctly in the previous years. Of course I have just 4 months of data so far in 2008 and the results may look different in December. But if you trade demo and you get that picture I see in 2008 then you are ready to trade real. It's all just a chance to win, there are no guarantees in this business, but that's all you get in trading.

One way to learn trading

2008-05-07T10:55:00.001+02:00

Following the articles I posted over the last few weeks I have been in contact with a few traders, who told me about their trading problems and asked for advice, what they should change, what they could do to become profitable. One trader quoted Marc Douglas' (Trading in the zone) advice to look for a master trader to emulate, to considerably shorten the way to success and asked me to help him on the way. I'm humbled, I know I'm no master trader, I'm just on my way and all I'm doing here is sharing that way with you, sharing my experiences, sometimes my emotions, on that way. If I found some nuggets on the way and you can use them for your own trading, I'm happy. It's my way to give back what I have learned from so many of you.

I would like to take the opportunity to say Thank you to NQOOS, who recently announced his intention to close his Tradingnaked.com website. A treasure trove, I only now begin to understand how it influenced my trading and got me to the point I'm now. As long at is still open, follow the link and dig through the materials offered there. (Actually it seems NQoos has been convinced to keep his website open for the time being.)

What do you need to do to become a profitable trader?

There is no holy grail, there is no secret trading wisdom. It’s all very plain and simple. But you need to find it in yourself. That might sound cryptic, but trading the way I understand it is nothing mechanical, nothing I can reproduce in an automatic trading system. And that means if you want to learn it you will have to invest the time. You can shorten your way by following a path that has lead to success for others. If it is your path only the future will tell. There are a lot of successful trading methods I can’t trade, because I don’t have the money or account size, because emotionally I can’t stand the high number of losers compared to a small but very profitable number of winners.

I followed a master trader, I learned a lot from her and I got my account to new highs only to go nearly bankrupt just 6 months later. The way that true master trader traded, even if it was extremely successful, was not my way. I could not trade that way and it nearly cost me my account to finally understand that. It took another 2 years to find my way, to find a way to trade that is in sync with my understanding of the markets. You will find successful traders on your way as well. You will follow their example and try to emulate their trading. But only if you are able to make it truly your own, will you be successful.

If you want a specific advice:

Maybe these articles I wrote over time will help you: http://globetrader.blogspot.com/search?q=learning

They will point you in a direction, they will show you what turns I took and if you compare it with what I do today you will see, that a lot of things I do today were known to me years ago, but I could not really implement them. (Sorry some older articles no longer have charts as the link to them is broken)

To learn trading takes time and even if you are a quick learner it will take you 4 years at minimum. You just can’t accumulate the necessary screen time faster. So be prepared to invest the time and have the money to do that. If you don’t have it, look for a job and build your trading account over time, while you follow the markets in the evening. The markets will be there when you are ready. But will you still have enough money when you have finally learned what you need to learn? It’s your decision.

I did not follow that advice, I always traded real and I'm lucky that I never had to rely on trading income during that time to finance my life. It would have been a lot easier and I would have considerably more money now, had I traded Sim for the last 4 years. I know account curves for trading account always look so fancy. Going up, retracement, going up, retracement, going up. Well reality looks different. At least for me. Here is my account curve looking at the trading results only:

Yes I found a way to trade which seems to fit my personality in the last few months. If it will stand the test of time I have no idea. One thing is clear: I did not give up, I continued the struggle to find a way, I continued to learn despite the setbacks.

There are some (old) ideas, which might help you on your way:

1. Familiarize yourself with what you want to trade. Get yourself a book about futures, so you have a basic understanding what what represents. I read Kleinman: Commodity futures and options and Gann How to profit in commodities, when I started trading futures

2. Get a basic course in futures trading. You can find very good information on the net for free or dig through this blog. I've linked to or commented on information I found useful at the time. And again, take a look at the tradingnaked website

3. Join a trading room, where you can see good traders trade. The Sanuk trading room on Google groups or Buffy’s chatroom on echat (see the Download section on www.ensignsoftware.com for a standalone access using the echat software) come in mind.

4. Start a trading journal. Take a look at Brett Steenbargers article on that subject.

5. Setup your trading software and charts. KEEP IT SIMPLE
The human mind on average can process 7 items of information at the same time. If you are a women you can probably handle 10 things at the same time. I'm just a man and if you ask my wife how many things I'm able to do at the same time the answer is 1. I hope it's a bit more, but if you look at my charts I have prices and horizontal lines. So I need to recognize if prices comes near a line on 2 charts at the same time.

But I also check other charts to see where we are on the overall picture...that's DAX and ES on 5 minute charts...

Four charts to check (The 30min chart is just for trend information). Of these I watch 1 chart (10 Tick) for the actual trade entry....Hmmm, maybe my wife is actually correct!

6. Trade Demo over a longer period of time, which I suggest should be not shorter than 3 consecutive months but at least until you have proven to yourself, that your Profits pay for your Losses. You need to prove to yourself, that you have an edge in the market aka that you have a profitable system and that you can be confident that you can apply your system rules consistently without second guessing yourself, over-riding rules, and other damaging stuff like that.

7. Have another source of income to finance your learning

8. Be prepared for a 4 year learning curve. If you don’t want to spent a lot of money, you will have to dig and read a lot of the available information on the net and you will have to demotrade, because only with trading you can develop the skills necessary and find out what works for you. But you need to have enough money to trade when you have found your edge in a few years.

Sorry Marc Douglas, but in my humble opinion: There is no shortcut to trading success

It takes as long as it takes. And if you manage to be profitable in 6 to 12 months. Congratulation
I thought so as well in June 2005 and November 2006

Setup

2008-05-02T10:03:00.001+02:00

I got an E-Mail asking this:

A question if you have time to answer...Do you always use the same setup 30 min, 2 min & 10T chart or trading on all instruments? ... Do you trade ES.?..it moves so slow I wonder whether it will adapt to these settings ?

Yes I use the same setup for all my charts. As I said numerous times...MAKE IT SIMPLE...so don't mess around with your charts, don't mess around with your trading software...get used to what you know works 80% of the time. If you have a string of losers, so be it, it's part of the plan. One thing you need to be sure of as discretionary trader: You need to know that you have an edge. And you can only prove that convincingly to yourself, if you have the statistics to back you. So have a trading journal, where you see right away how you doing. Below I have attached a copy of my trading journal for the last month, this is just an excel sheet, but I use it now for 4 years and that amount of data can tell you a lot about yourself.

A rising account balance is not all, you need to set yourself goals, you need to have rules, which protect you, which keep yourself safe even when you in a losing trade. In trading there is no room for panic. When you are driving your car and suddenly something unexpected happens, you react, if you panic you crash. You rely on your instincts to keep you safe. You know, that your instincts will let you do everything which is necessary to avoid the crash if humanly possible. The same must be true in trading.

Unfortunately as a trader we need to train our instincts first, before we can rely on them. Without training we will panic and usually do the wrong thing. (But isn’t it the same with driving? When your kid starts driving, you can only pray he/she will master the first 2 or 3 years without serious accident, then they most likely will have learned enough to master most basic situations)

You stick to ES because it’s not as volatile as ER2. As a trader you embrace volatility, you don’t fear it, because volatility is profit, is security for your account.

There are 2 ways to trade: With stops and without stops.

If you trade with stops you might endanger your account by bleeding it to death by taking a 1000nd stops. Taking too many stops is difficult, as it sure gets on your psyche.

If you trade without stops, you trade swings, you know that all instruments swing, that every price will be revisited eventually and that you only need to bring your average price within the next swing area to close the trade at a profit. But the risks for this kind of trading are a lot higher as you may not have the margin to bring your trade within the next swing area, you add to a losing trade and prices might still go against you, just that now the hole is twice the size it was before. This kind of trading can freeze you, it can leave you drained emotionally and it can really damage your account, as you might not be able to act, when it is time to act, because you fear doing the wrong thing again. (My highest losses came from that kind of trading)

Here are 2 30min charts: One is the Euro, one is CL (oil)

Yesterday you could have traded Oil successfully without stops, while trading Euro without stops often ends in disaster. Why? Oil has a higher volatility than the Euro, that is one reason. And Euro as all currencies has a tendency to trend stronger than oil. Oil swings a lot more compared to currencies. Currencies after a strong trend move tend to consolidate in a small range and reverse the next day part of the trend move. Oil often reverses up to 50% of any move into the close. No rule without exception of course!

Still you need something which tells you when to hold it and when to fold it.

I use this Excel-Spreadsheet, I’ve written about here: ib-excel-adapter to tell me that. If the Euro has gone 200 ticks since yesterday’s close, I trade it countertrend on a setup which presents itself. If it goes against me I add to the trade. If oil has gone 200 ticks, I trade it without stop. I might reconsider that number after yesterday, where I had a bit of a problem getting out of such a trade (but actually I made the error of looking at the move from the top instead of from yesterday’s close. Had I seen it as a US trader has seen oil, it would have been clear that there was more downside to come in oil)

And as you can see in the chart above, I messed up the final exit, leaving a potential huge profit on the table. But as I said, trading without Stops drains you emotionally, and I was not willing after seeing the trade finally in the green to let it go against me again.

Oh yes, I consider yesterdays trade as a lucky one.

I messed with my rules, none the less it was a good experience to trade it and to monitor my emotions within the trade which took a few hours to complete.

The basic rule is: If a contract is at extremes from my knowledge of watching and trading a certain contract, then I go countertrend (unless there is a strong reason why the contract is at extremes of course). If it is not at extremes I trade trend moves and stop if necessary.

I don’t trade the ES, I use the ES as a guidance for market direction. (I do the same with the EuroStoxx50 in the morning btw) There are a lot of vehicles available which move faster and stronger than the ES, but still take their direction from the ES. I trade these, but that is my style, that is where I feel myself comfortable and where my statistics tell me I have an edge.

I have feared volatility, but trading slower contracts is not my style...water torture must be the same. The trade goes tick by tick by tick against you without hitting your stop. After 2h you are still in the trade, the stop is about to get hit and you move it and it goes again tick by tick by tick against you…Done that, been there…

No a fast move in my stop, I can accept that, I was wrong, but a relentless force driving a contract slowly against me without any meaningful retracement … Sorry that’s nothing for me.

You need to find what works for you. Where you can be in sync with the market. It can be an arcane contract like Silver, Soybeans or Natural Gas (low volume, very high volatility) or something from the mainstream like ES or ZB or ER2. It doesn’t matter what you trade, you need to know the contract, you need to know what drives it, how it trades, what is a normal swing, what is an extreme range, where does it tend to reverse a swing. It’s always the same. There are big traders in any contract, they are human (or if they are computer programs, then they have been programmed by humans) and humans tend to repeat themselves. They repeat what works for them. If you have followed a market for some time, you know where to expect support or resistance. If it works 80% of the time, you have an edge and that's all you need!

Long Oil

2008-04-30T10:27:00.001+02:00

I missed that one, but Pat asked for a trade setup and this was a real fine one:

CL dropping fast into yesterdays low (see the yl label). A drop of 100 ticks just begs for a retracement, so take a look at the 10 tick and wait for a long signal. I marked it with the circle. oil was not able to take out the previous low, so you have a double bottom and go long 115 or a few ticks below. Then just let it run. You might adjust the Stop to 115.01 when 115.15 is passed.

IB Excel Adapter

2008-04-29T14:27:00.001+02:00

I recently found an extremely handy little tool: The IB Excel adapter from CyberXpert

This tool makes it easy to get any futures (stock, options, commodities) data from IB into your Excel spreadsheet. I know, you can do that with the IB Excel Spreadsheet as well, but the example is so complex, I had to give up. I only needed streaming quotes, not a whole trading application. This IB Excel Adapter is doing exactly this, with a few lines you can request streaming data for the contracts you are interested in. And the best: The software is free.

I recently became a big believer in round number Support and Resistance lines calculated from Yesterdays close. I traded NG (natural Gas) today. Take a look at the lines labeled -100, -150, -200 and -250. Isn't that neat?

I'm following usually a maximum of 6 contracts a time, when I'm trading. Of these 6 two have multiple timeframes, the other have 5 minute charts. Meaning in hindsight I see a few of these round number hits when I go over the charts after trading. But while trading I miss quite a few setups. Here my new toy comes to play.

I developed this Excel spreadsheet, which you can download here.
(Be aware that you need Excel 2007 to display)

Before you open that spreadsheet, you need to install the IB Excel adapter and you need to run IB TWS, so the spreadsheet can connect to IB.

The Contract details are set on the page named Details and are self explanatory. What you get with the spreadsheet is the Range in Ticks from the Close (Net), the maximum or minimum Range, depending whether we are up or down and the total daily Range in Ticks. The next 2 columns (Bearish/Bullish) show you how strong up or down we are. The numbers are just another representation of the Net column.

I'm sure if you play with it, you will find a lot of other possibilities of what you can do with the IB Excel adapter.

Trading becomes boring

2008-04-28T10:21:00.001+02:00

The following article has been written as a letter to someone, who set himself the goal to go real only after 40 consecutive days of profitable demo trading. This trader had losses in the past and switched to demotrading 2 years back to really learn to trade. He now has reached a point, where real trading seems to be no longer elusive, but near again as he has mastered a lot of ground these last 2 years in his personal trading.

Hi,

allow me to jump in as I have been down that road. I hope you understand this mail as well meant advice and not as bashing, but it is my frank opinion and I really hope to see you succeed in the future.

Reading your mail I have the feeling, that despite your success you are setting yourself up for another failure.

1. Being 40 days green doesn’t mean you will be able to start green in real trading. Actually looking at my own trading journal I know at my current stage as a trader I will have a (few) red day(s) after a very successful run up in my account. Your account development can be plotted like a chart and even a very strong bullish run will have some retracements, will consolidate from time to time. So after 40 green days I would expect one or multiple red days in a row, before the trend resumes. And actually, that was my downfall 2 years ago, when I was where I am today again. I was unable to manage the red days, I was unable to trade with the knowledge, that red days, that losing trades or a red week are part of the business. Ask any merchant, if he has made only profits, if he never ever had spoiled merchandise, if he never ever experienced some theft. You will find none. No the real test comes when you have had 3 red days in a row, when you have a red week after months of green and need to ask yourself: WHY?

Were these red days, this string of losses just bad luck, just a few trade setups not working or has the market changed and have you lost your edge? If it is the first, as most likely it will be, then you Continue to do what you have done in the past and the profits will come again. But when the markets have changed, then you need to go back to the drawing board, then you need to identify what has changed and adapt or you will wash out. 2 years ago, I nearly washed out. I did not adapt to the higher volatility creeping into the markets, I did not change my trading approach and it cost me nearly my trading career.
So embrace the red days, handle them, see to keep them small without taking extraordinary risks. It’s not about turning the day green after you made a bad trade, it’s about keeping the riskprofile equal over all your trades. If then the day turns green after you started with a red trade, Great!! But if you took higher risks to turn the day after a losing trade, then beware: Know that you have been lucky. And every trader may rely on luck a few times during the month. Without luck there is no success. But be sure that if you need it too often it will no longer come to you. I try to limit myself to two lucky trades a month. Usually you only know in hindsight, that you have been very lucky, that you better stop going down that road and return to the well worn safer roads you have traveled before. Because in trading higher profits always mean higher risk as well. So if you took a higher than normal risk to turn the day and you got away lucky, then turn around…or decide that you are now ready for that higher risk, but then you need to take it always or your edge in the markets will have vanished.

2. You want to change your broker and trading platform from the one you used 2 years ago. I could give you advice on what I use as anyone reading this letter can. But BEWARE you are setting yourself up for certain failure.
I found these steps 3 years ago I think and here is the link again:
http://www.dacharts.com/articles/_38steps.htm
Start reading Step 30 to 36
Trading becomes boring…Something becomes boring, when nothing new comes around, when you just go straight ahead. I once made a vacation in Australia, we landed in Darwin, took a Jeep and drove along the Stuart Highway down to Adelaide with a few detours right and left. But I still remember that Street-sign in Darwin saying Adelaide 4400km (~2750 miles) And that Stuart Highway went straight ahead for hours, 300km just straight ahead before a bend in the road came. Your mind starts playing games, but you need to focus and drive on and on and on.
But before something becomes boring it needs to be familiar! Anything new is by definition not familiar and it certainly will not be boring.
So your 40 days green will only be a worthwhile experience when you trained yourself exactly the way you want to trade in real time. Why do Air force pilots use extremely sophisticated simulators. Training without killing the pilot. But all that training would mean nothing if the simulator would not look and feel like the real thing. So setup your trading station exactly the way you want it. It’s a bit like decorating your own room. You need to feel cozy, actually you will be sitting there for hours a day, so it should be comfortable, it should not be stressing and everything stays where it belongs. It is your room, you don’t need to, you don’t have to share it. So make your trading station your home, where you feel comfortable. Start demo trading and after a few weeks when switching to real trading it will be just a small step. Marriage used to be such a big thing. For me the real big step was deciding to live together with my girlfriend in 1989. The marriage 4 years later was just a small step, just telling the world that we belong together, that we want to stay together. We are still together and we love each other. An anachronism in our fast world? Maybe, but I know I have something very special in my life. Is it boring at times, just going straight ahead? Of course, after such a long time there can’t be something new every other day. But I would not have it any other way!

Trading becomes boring only when it’s no longer new, only when it is so familiar that you can do it in your sleep, when there is nothing new every other day, when you are set in your trading, when you trust in your method, know deep deep down, that you really have an edge, when you can trust yourself to do what is necessary in every situation. There still will be surprises, there still will be a detour, a new road to travel, new obstacles never encountered before, but you will be able to master them, because you can trust yourself to do what is best for you. But first let it become familiar and boring. There is no shortcut on that road, we all know that. Start and just take it step by step and you will be surprised how fast these 4400km will be behind you and you have traveled a whole continent.

3. Opentick gives you a datafeed for 15$/mth. IB costs me 10$/mth if I trade demo only. Otherwise I pay nothing for the US futures data. I pay for my chartsoftware, I pay for other futures data, as I trade more than US futures. But limiting yourself to just a few shortens the time you need to become profitable. I now know that, I already took that longer road, so now I profit from the experience. But it added 2 years to my learning at least. Keep the cost of business down. Use what really gives you an edge and just stay away from all that candy right and left. It will be sweet for a few days…and the dentist will love you, as you made sure he has a job to do in the future. Keep it simple, stupid.

Best regards,

Chris

Trade Entry

2008-04-17T08:14:00.001+02:00

Its 1:45am EST, so I’m looking at the Euro for a possible morning trade, knowing that during the switch from Asia to Europe Forex trading usually some nice moves happen in the currencies with one market closing down while the other is just gearing up for trading.

On the 30min chart I see huge volume at the 1.59x level. We had a big move yesterday and were then unable to trade beyond 1.5940 or 1.5980FX cash. I see a HH, HL and a Lower High on that 30min chart and that whole flag seems to be leaning downward. So I’m inclined to look for a short trade near yesterdays resistance levels. The 2minute chart shows a Lower high at 1.5907 (marked HH with the automatic Ensign count, but I don’t like to adjust my templates for every symbol, so I take it as what it really is, a lower high compared to the 1.5913 high made overnight)

Now I look at the 10 tick and take a Short at 1.5903 or 1.5902 with a potential add-on at 1.5922. The market at this time is thin and moves happening before the UK Forex market opens are usually reversed. Add to that, that 1.5925 was very strong resistance and I feel comfortable, that even if 1.5925 prints, we will see 1.59 again, before 1.60 is taken out. Meaning even if this short would go against me, I see a high probability, that this trade will work.

The trade did work, but made a low at 1.5891 and held there

This kind of behavior is a red sign saying – GET OUT or +7 or +8 ticks

Later in the day, I might just adjust my Stop to breakeven plus a tick as I would expect more selling volume to come in, but due to the thin market conditions prior to the London open, I take what I get and reenter the same trade again, if the opportunity presents itself.

I use no Moving Averages on any of my charts. Well that’s not entirely true, as I use Heikin Ashi charts, which incorporate a fast Moving Average within the Candles itself. But these usually help me to stay in a trade and are not consciously used to time the trade entry (at least I haven’t identified such a use yet. Still I can’t rule it out, as I don’t take every trade which presents itself and that might have to do with patterns my subconscious mind sees on these candles.)

Entries are based on Support and Resistance levels marked automatically on my chart and a retest of these levels. I have a trade bias, meaning I lean to the long or short side, based on the trend seen on the longer term chart and based on the range the contract selected for trading has made already. Then I watch the 2 minute for a possible entry signal (double Top, Double Bottom, Trader Vic2B, etc.) I also watch correlated markets to see how they behave and whether they give me a clue, how the market I trade will actually behave. Take a Trader Vic2B entry. It usually works on the DAX when the ES is holding a Support or Resistance level, while the DAX is breaking it for a Stop hunt.

Once I identify a possible signal on the 2minute I look at the 10tick chart and watch price action. Now the 10tick tells me what to do and where to enter.

Once I’m in the trade I first watch the 10tick to see whether the trade is working or not. If it starts working I switch to the 2minute until we near support or resistance, then I go to the 10 tick again and see what price action is telling me. Stay put, move the Stop or Take your Profits and leave.

That’s the area I need to work most nowadays, as I’m not yet able to grasp the real force of a trend wave correctly. Meaning I leave a lot on the table after I entered a trade correctly with the trend.

Euro target

2008-04-16T15:55:00.001+02:00

The Euro has hit a symmetrical target going back to August 2007.
The target remains nearly the same regardless wether I use the December, January or February lows in the Euro. The difference is in the predicted date, the Swinghigh is being made. As you can see using the January low, the high should be made near the end of April, while using the December low, the High should have been already made end of March.

So I expect a Top to be made today or in the coming days around that 1.59-1.5950 level in the futures, which actually is the 1.5950 to 1.60 FX cash level, a nice round number and target for a huge move started just 8 months ago.

Be prepared

2008-04-16T13:33:00.001+02:00

March 14th my phone line went down at 9:30am right after I placed a limit order in the Euro at 1.5525 in the market. No phone, no DSL, no internet. I had prepared for a breakdown of my DSL line, but I hadn’t be prepared for a breakdown of my phone and DSL service at the same time, even if both run on the same cable to my telecom-provider. Stupid, I know. The Telco had a problem and I was cut off.

I tried to establish an internet connection using my handy, but had to learn that that wasn’t just a plug the datacable into my laptop and connect me to the internet job. It took me over 1 h to find the necessary driver disks as I had no internet access to download them in a minute. Then I found out that my new Vista notebook and my handy GPRS software did not work together. So I had to install the suite on the older laptop my wife is using and which is still running WIN XP 32. Two hours later I had a first internet connection using my handy only to learn that the IB TWS software I had on file and had in between managed to install on my wife’s computer was way out of date and that the IB servers rejected the connection unless I update the software.

Just great, all I wanted was a glimpse at the market and a way to cancel my working order or to put in some stop and target orders, in case I was already filled.

At 12:40pm the phone rang and a friendly technician told me that my phone and DSL was working again. A look at the market showed me that I was real lucky today.

Not only was I filled, but I missed the move to 1.5570 for a -50 which would have stopped me out for sure had I had any market access. Of course we should not mention the fact that before running up to 1.5570 the Euro dropped down to 1.5480, for a nice 40 tick profit missed. I also missed the subsequent drop from 1.5570 to 1.5505, and a further move to 1.5545. When my phone was back online and I saw what fun I had missed just by not being able to see the market I exited the trade with a 4 tick profit at 1.5521 and started getting the stuff together to have a working and tested internet connection over my handy from my Vista based trading Laptop. It took me another 2h to get that one finally working. But now it’s one safeguard more.

Obviously, what i should have done, was calling IB to cancel my order. But...I have to admit...that was another lapse, which should never happen: I had the phone number not available. Be it, that all the talk about bad IB phone service somehow prevented me from storing it in my handy, be it, that in 5 years of trading with IB I never had to call them. Now I have that number readily available and feel better knowing, that if necessary I can connect to IB using my handy.

They want YOU

2008-04-11T18:21:00.001+02:00

I have had always problems leaving my stops in the market when the market was moving against me, especially when it was doing so in a slow fashion always letting you think it will come back just in a minute.
The biggest losses I've had in my trading career occurred when I doubled down in such a market.
I know that letting the market take my Stop, if the trade is not working out, is imperative for my future as a trader. Still only after I stopped being calm while in a trade I was able to take a loss without moving the Stop order.
To the outside I was calm in the trade, but inside my emotions where boiling, often resulting in a canceled Stoporder or a doubled down trade.
Now I'm letting these emotions out, I swear at the market, if it goes against me, I talk to myself during the trade. And while I do that, I noticed I'm calm inside, I'm able to follow the market, letting it hit my stop or take my profits at a logical point. I'm taking less and less impulsive trades, because I found a way to let the emotions out instead of letting them boil inside.

Missed the bus

2008-04-03T08:35:00.001+02:00

Buy low, Sell high
or
Sell high, Buy low

I know trend traders argue that a price is never to low to sell or to high to buy, but my approach is a lot safer!

You don't know when a trend day will develop, but if you trade in the direction of the longer term trend (for intraday trading use a 15 or 30min chart on indexes) my approach makes sure you are in the trade, when it starts trending.

And if the pullback you used as entry really signals the trend change (and there is just ONE real trendchange) then you will be stopped out at a less damaging price for your account compared to the trader who bought high or sold low.

Sure, you will miss a trade, a breakout or breakdown, because you waited too long to commit. But if you do the math, most actually 70% to 80% of the rangebreaks fail before a real trend emerges, so by waiting you usually will get another chance to enter. Just have patience.

For some time now we see high volatility in stocks, futures or commodities, so there is enough meat for intraday traders, even if you miss one trade. If you expand your trading to different classes of trading vehicles, you will notice, that you no longer depend on one signal. If you miss he bus on equities, because Mr. Bernanke gave the go ahead in his speech, the market reacted, but you were getting yourself a new cup of coffee, take a look at currency futures or oil futures or gold futures or treasuries or soft commodities. You will notice, they don't move in sync! They have their own patterns, they often move non or only loosely correlated to other markets, so you might catch the ride there, when you missed it in the ES.

Trade Layout

2008-04-01T17:12:00.001+02:00

Some asked me about my Trade Layout, so here it is:

I have 4 19" Flatscreens in a row powered by 1 desktop computer (core2Duo 2.66GHz, 4GB Ram, 2 NVidia 8600GT grafic-cards) and I'm looking at this screen. Below I have a 15" Acer Travelmate 5520 notebook running my trading software (Futures-trader)

Trade Rules

2008-03-27T13:47:00.001+01:00

Considering Don’s and Bruce’s prep-talk I changed my layout to include a 10 tick chart complementing my 2min and 30min charts

Here is the current Setup:

I will try to summarize my trade rules as I understand them now. Maybe some of you can add to the list or make corrections, so we get a list of rules, which will help all of us.

1. Trade pullbacks with the trend
That means:

a. Never sell a low

b. Never buy a high

c. You go long a test of a higher low in an uptrend

d. You go short a test of a lower high in a downtrend (see 10 tick gold chart)

2. Control

a. Buyers are in control as long as the market is making Higher Lows

b. Sellers are in control as long as the market is making Lower Highs

3. Support and Resistance

a. Resistance will be found, when the market is in an uptrend but is unable to make Higher Highs. As long as you see Higher Lows being made you might expect that resistance to be taken out eventually

b. Support will be found, when the market is in a downtrend but is unable to make Lower Lows. As long as you see Lower Highs being made you might expect that support to be taken out eventually

4. Trend

a. You see identical chart patterns develop on all timeframes.

b. Uptrend: Market is making higher Lows

c. Downtrend: Market is making lower Highs

d. To determine the trend you take a higher timeframe and then take the entry signal from the shorter timeframe

e. The longer the timeframe giving the entry signal, the stronger the move. (See example on the Chart I posted above) (30min chart showed a 50% pullback on the Easter Gap

5. Consolidation versus Trend

a. Markets swing between trend phases and consolidation phases. What looks like a trend in one timeframe can be consolidation in another usually higher timeframe.

b. Markets go from equilibrium to equilibrium. Usually the range covered in a trend phase stays constant within limits. If you know the contract you trade, you know when it has reached an extreme of a move. Take the Euro for example: A trend move usually goes 100 to 120 ticks. If on any given day a trend goes beyond that to say 150 to 200 ticks, you should expect a consolidation phase to start. That does not mean you blindly take a counter trend trade, but if you see Resistance not taken out and say a Double Top forms or even better price is unable to retest the former High, then you go short with a Stop above the highs in case the trend resumes.

c. Consolidation in a longer timeframe trend usually retraces 50% (minimum 33%, maximum 66%) of the previous move, before the trend resumes. If you see a smaller retracement, expect the trend to resume strongly.

d. What is an extreme move in one contract, might be just normal in another. So you need to know the contract you trade.

6. Stops

a. Trading without stops and instead adding contracts at a loss to get the average nearer to price works, as long as you are able to get the average entry price within the next consolidation price range. Say Euro makes a 100 tick move. You can expect Euro to eventually retrace 40 ticks from that high, so you need to get your average entry to less than 40 ticks below the high. But that means you are staying in a losing trade, which becomes more expensive with every tick against you. Even if eventually you might close the trade at a small profit or breakeven, you will have invested huge amounts of emotional energy. Not talking about the missed profits, because you stayed in that losing trade

b. Trading with Stops hurts immediately, something most traders like to avoid. But it has advantages:

You are emotionally free to step back and take a new look at the market
You get immediate feedback whether you are in sync with the market. I have as a rule: 3 Stops in a row and I’m out for the day. Tomorrow is another day and it will provide fresh opportunities.
You make sure you stay in this profession for the long run by protecting your account.

c. The disadvantage is, that you can bleed your account to death by a 1000nd Stops. To avoid that problem, you have to make sure, that when your Stop is hit, the entry signal was not a valid trade setup, meaning the possibility that the trade will come back is remote.

The better a trader you are, the smaller your stop can be without the risk of getting thrown out of a valid trade. (At least that’s what I assume)
The less wiggles the contract you trade shows, the easier it is to define where a stop needs to be placed to be sure a trade signal is no longer valid.
If you are still on the path to the expert level, you need to stack the cards in your favor to make sure you have a very high probability of the individual trade to be a winner. Only then will you be able to pay the unavoidable stops and still come out a winner.

7. Profits

a. Let the profits run.

b. Don’t give profits back.

c. Say you are long, the trend is up and the trade is showing you a profit. Where do you exit? Buyers are in control until Sellers are able to take control from them. That means you exit

at Resistance on a longer timeframe, because resistance usually is not taken out on a first try, or it would be no resistance.
If the market is making a Double Top. That means you need to sit through a pullback first. This pullback should have its low above your entry. That’s why we have the rule: Never go long at a top. If the market is unable to take out the previous high, you exit
If you trade (just) 1 contract, you take profits at certain targets, which have been proven in the past to be the average maximum range a trade goes before you see a pullback. It’s better to build your account step by step. The home runs are for a time, when you have mastered trading 1 contract.

d. I use an achievable daily goal of 375$/day per contract traded. Once I reach that, I stop trading,

if I’m at it for more than 6 hours,
if I have taken already 5 or more trades,
if I feel like I want to do something else. I trade to have free time for other things, so you need to take that time or the ultimate goal is not a real goal.

e. If I make my daily goal in one or two trades, I continue trading and see what the day will bring further. I limit my loss in that case to the profits made so far. A day in green, where you made your daily goal already should never end red, as that’s a big emotional blow to your trader psyche. It’s like a contract making a new all time high and then reversing to close below yesterdays lows.

8. Number of contracts

a. If you can’t trade 1 contract profitable, why do you assume you will be able to trade multiple contracts profitable?

b. With 1 contract you can achieve a daily goal of 500 to 1000$ / day by taking 3 to 8 trades a day. To build your account that’s for sure good enough. On the other hand you protect your account from overleveraging yourself in case something goes terribly wrong. And it teaches you to trade for bigger gains, which makes it easier to pay for the unavoidable losses.

c. I use an internal Margin of 7500 $ / contract traded unless the contract needs a higher intraday margin, then I use at least that margin (eg: the DAX is traded with an internal margin of 17000$. So I allow myself trading a second DAX contract only when my account statement shows at least 34000$)

9. What to trade

a. Trade what speaks to you. It really doesn’t matter what you trade. You need to be comfortable with the contract you trade, you need to know it in and out.

b. Trading different contracts is fine. But it will extend the learning curve as you need to learn not 1 contract in and out but multiple contracts. Each has its own quirks, each his own personality. Compare a Bond chart with an oil chart. It’s something totally different. There are groups of contracts which behave similar. Most indexes will move in a similar fashion, most currencies, a lot of commodities show comparable moves. But just because one contract is rising another must not fall or rise in sync. If you trade different contracts be sure you know the correlation between these contracts or you will be fooled by the markets.

c. If you trade Forex or currency futures be aware how each currency trades against each other. There is no longer 1 major currency in the world. We have 3 major currencies (US Dollar, Euro and Yen) and moves in one pair can be expressed in the other two as well. You might take a EUR/USD trade, but you might as well take a EUR/YEN and USD/YEN trade to get the desired position. The cross rates (major ones are EUR/YEN and GBP/YEN) need to be watched these days, as the carry trade was and is made or unwound in these currencies (If the interest rate differential between the EU and the US widens the new carry trade will be the EUR/USD, something we are already starting to see in the high Euro / USD exchange rate)

That’s it for now I think

KISS

2008-03-21T17:11:00.001+01:00

Dave is asking for the template I posted in my So long note. I will not put that template online, as it was a step back into complexity. A template opening a multitude of options in real time, with no clear path to take at any given time. But I will post the new template I'm trading for the last 2 months.

First the chart: DAX M8-DTB (Thursday, March 20)

And here are the 2 templates used:

Template for chart time-frames below 30 minutes
Template for chart time-frames higher than 30minutes

With these charts I trade price action patterns on the short time frame in the direction of the longer chart. So if the 30 min chart shows me an uptrend, I look for retracements long on the 2min chart. If the 30min is oscillating flat, I trade the ranges and if the 30min is trending down I trade retracements short. Simple, yet effective and less risky than anything I did in the past. Only thing you need is a lot of patience and no need to make a trade every hour or minute. I usually make my daily goal with 2 to 5 trades and sometimes I get no trade for hours, then have two within minutes which make the Daily goal. That's trading.

Btw: The one thing you might not recognize on the charts are the 50, 100...400 and -50, -100...-400 lines. These lines tell you how many ticks a contract is trading above or below yesterdays close. Just be aware, that these lines are in ticks, not in points. So if DAX is up 100 (as seen above), the DAX futures are up 50 points from yesterdays close. I use ticks instead of points to make charts comparable despite different minimum tick-sizes. These numbers tell you a lot better than any oscillator when a contract is trading in extreme territories and when you might expect a retracement. They work like round numbers, so you look for confirmation before you take the trade.

So Long, and Thanks for All the Fish

2008-01-03T15:13:00.001+01:00

I hope this blog has been of interest to you...as you might have noticed, I have stopped writing new articles some time ago. Actually I stopped because I was preoccupied with other things besides trading, which took most of my time.

I'm back to trading now, but I did not resume writing this blog. I actually might write a new article once in a while, but writing a blog like a daily logfile takes too much time. And to tell the truth, it did not bring me forward in my trading.

What brought me forward was adding Slings back to my repertoire of trades and removing the account balance window on my trading platform.

So before I say So long, here is peak view on my new layout

I wish all of us a prosperous and healthy year

2008

Short GBP/JPY

2007-11-23T09:21:00.001+01:00

Took GBP/JPY short on a trendline breakdown on EUR/JPY

Stopped +17 when Support held

2 minute Long FTSE trade

2007-11-19T14:02:00.001+01:00

Long 6259 Exit 6266.5

Reason for Exit...well I was on the phone when the move started and 15 ticks was fine for the first trade today I guess, went to 6271.50, so a +20 ticks was in the cards before the FTSE retraced.

I have modified my chart a bit over the weekend.

As you can see it's just the obvious, just for the blind here sitting in front of the computer...hmm that must be me I guess:-)

I have small lines placed on the chart if for a Long: the high of a bar is not violated by the low of the second or third bar. Be aware, that I use the real High and Low, not the H/L the Heikin Ashi bar shows.

As I say: It's kinda obvious, but if it helps seeing a trend, it's worth it

Short GBP/USD futures

2007-11-15T09:09:00.001+01:00

Took GBP/USD short at 2.0557 and added at 2.0547

The FX market did not break the 2.0550 level into the London open, so I placed a Stop at 2.0539, which was hit right before the Selling started. Can't afford that. Next time I might place the Stop nearer to my entry giving GBP more room and so allowing for the greater volatility this contract shows compared to other currency futures I trade.

Trading is stress

2007-11-14T10:39:00.001+01:00

I've posted this article in response to an article Brett Steenbarger wrote on Trader's Burnout, which I recommend everyone to read.

Trading is a stressful occupation. And I don't think it gets any easier, if you have more money. Usually if you have more money to be used as margin, you will use it.
Trading 10 CL contracts with a 100k account is for sure as difficult as trading 2 CL contracts with a 10k account.
I have the feeling that it's extremly difficult to distance yourself from the monetary value of the gain or loss you just made. CL trades 20 ticks in the blink of an eye and seeing yourself being up or down 2000$ or 400$ on the smaller account multiple times within a trade is really the same. It is stress. And if you do it again and again and again, it becomes more stressful, not less stressful.
There are methods to distance yourself from the actual value of the trade by not looking at the current account window or the current P/L, still, after 5 years of trading futures, I can tell you exactly what my current trade will gain or cost me including commission, I don't need to look at the account to know that.
Of course removing the Account information still helped to reduce the stress, as I'm not always presented with the results of my earlier trades for the day.
Missing trades is stress and it's very difficult to go against the urge to make the "missed profits" back as you go against the feeling you are owed these profits.

So why trade at all? Because any profession is stressful. Making money is never easy or we all would be millionaires long since.

But there are ways to make your life easier.
What helped me is finding contracts which move in sync with my own risk parameters. If you look at different contracts you will notice a certain range in which each contract swings without violating your trade pattern.
Identify this range and ask yourself if you can handle that range. If 20 ticks up and down on your short is too much for you, then trade something which swings only 10 ticks or 5 ticks, before you know your position is wrong. I always had the feeling, when I have a problem trading the Euro/Dollar, I can always trade the USD/CAD or AUD/USD as these trade more sedate, less stressful. So the last time I went to a difficult patch, I told myself, Chris, why only go to USD/CAD when the going gets tough. If you feel good with this contract, trade it on a regular basis. I'm now doing so and doing fine. I still trade other contracts beside USD/CAD, but eg. I've restrained myself from trading the last hour in CL.
Huge gains are to be made during these 60 min of trading, as CL usually swings about 80 ticks in this last hour, but the pace of the tape becomes so fast, that I'm no longer able to trade it without a lot of stress. And as this last hour in oil comes when I've been at the computer for around 10 hours usually, as it's 7:30pm here, when it starts, I'm often a bit fatigued, I've already had a good or bad day and I might blow a good day in the blink of an eye, because I'm not fast enough to close out a position or reverse it in this manic trading arena CL has become.

Last think about your charts as art. Make them an artwork, you might as well print and put on a wall for everyone to see. Make them pleasing to you. Certain colors have certain meaning, give certain responses within yourself.

We are wired to recognise Red as an alarm signal. If you are a driver you will instantly recognise a flashing blue light. A lot of traders use a black background, even if black is like looking into a hole, a bottomless pit. Then they have harsh colors on the chart, each indicator line more pronounced than the other, usually the latest add-on is the most prominent so you can distinguish it from all the other lines you already have on the chart.
Take the time and list the indicators you have on your chart from least to most important. Make the important things more prominent than the less important ones.
But first think about the background. What color do you like? Really black? Would you paint the office you sit in day in and out really black? That's depressing.

Most will have white walls, but unfortunatly white on a screen is an active white, not a passive one like we have on our walls. So I use a kind of sandy white, which looks a bit like the clouds in the morning on a day which is to become warm and sunny. But you might as well use any other color. Just play with the infinite number of colors you have available to choose for a background. Then adjust the colors you use for bars and indicators to fit this background color, so you finally have an artwork, which feels pleasant for you to look at day in and out.
Next ask yourself, if you really need all your indicators. The less indicators you have on a chart the less stressful it becomes to make a decision. The best traders often use just 1 or 2 additional indicators beside Bars, if they use charts at all
I've switched to Rangecharts (each bar has a specific range) and Heikin-Ashi bars to reduce the number of indicators on my charts. Heikin Ashi charts are a certain way to build a Candlestick chart which keep you in the trade, as they "filter" wiggles against your trade without the candle changing color.

Take a look at this YM chart to see what I mean

(Be aware that the times on this chart are CET which is 6h ahead of New York)
Maybe someone finds an idea in this post to make his or her life easier.

Difficult

2007-11-13T13:48:00.001+01:00

I made 3 Breakeven (+1) trades this morning and missed very clear and good signals, I did not take for various reasons. Now I'm sitting here and pondering what to do...I have to admit...thinking how I can "make back" these missed profits. A most dangerous feeling and usually leading to impulsive trading by jumping into trades with little or no reason at all.

Let's look at the trades first:

Long FTSE 6330.5 near the open, Stopped when the FTSE reversed from 6335.5 to 6331.5 before trading to 6340. There was downside pressure at the open and the FTSE made a low at 6303.5 later.

Watched the FTSE for a reentry, but couldn't commit after the low was in at 6303.5, as the downspikes still were coming quite fast.

Still this break of the 50% downtrend line was a clear long signal, which on any oscillator would have shown up as an inverted H&S pattern.

But I wasn't sure at the time and took a Gold long instead, which was trading less volatile. I posted that trade and the trade brought me a tick only as Gold was in a consolidation trading in the 803 to 806 range marked on this chart.

While I was in Gold I noticed the AUD/USD breaking up and also saw the CAD/USD still holding it's small trading range at 1.0402

I decided against taking the AUD/USD trade because it had spiked already and I don't like chasing trades.

I decided against the CAD/USD trade because I had to focus on Gold and did not want 2 trades requiring my attention open.

Missed huge trades that way

Last I took an Oil long at 93.84, did not exit at 93.94, but held. MAE was 93.72. After CL could not take out 93.90 on the 3rd attempt I put in the Stop at 93.85 and was taken out at that level.

All the while the FTSE made a huge run of more than 60 points

Long Gold

2007-11-13T10:22:00.001+01:00

I wanted Gold at 800, I took it at 805.1

Was stopped on Gold after it first went +15, then came back, jumped my StopLimit order at 805.3, traded down to 802.9 (disaster stop in gold is 30 ticks). I considered an Add-On at 803.1, but Gold bounced too fast for an entry there. Now it's back to 806, but unable to trade higher. Stop at 805.2, as I don't want to be in, if this 805-806 area get's rejected a second time.

Stopped at 805.2

Whether this most recent Schiffline is valid (starting at 791.5 upto 810.3 and downto 802) I don't know. Have used so far only Lines with starting points farther back in the past. Will have to watch that one.

Long AUD/USD

2007-11-12T13:46:00.001+01:00

Took the AUD long at 0.8787 (0.8805 cash) after 0.8799 had been tested on the cash level

Still strong selling despite AUD/USD being down 330 ticks for the day.

Trading at 0.8811 I'm moving the Stop to 0.8808 therefore

Taken out at this 0.8808 level for +21 while AUD is again trading against resistance

Long AUD/USD

2007-11-12T12:36:00.001+01:00

AUD is down more than 250 in the last 12 hours. That's kind of excessive, even if there were huge long positions.

Traded down further, but missed my -20 Add-On level by 2 ticks

Exit Breakeven +1, moved my stop too early and was taken out, when AUD couldn't hold the cash 0.8890 level.

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