TradeR:R

Sorry bulls, today wasn't that hopeful, it's bear time.

2006-11-30T21:14:00.000-08:00

Yes, the morning dip was bought today (11/30/06) but look at the 5 min chart and you'll see that all the strong volume was down.

I think the party is still stalled for the bulls... too early to call a full on party pooper down draft, but that's my bias for now. Bear time.

And the bears growled, Grrrrrrrrrrrrr....

2006-11-27T13:18:00.000-08:00

Positively negative day for the bulls... unless they're looking for a bit of a sanity check. Even though this may only be a small basing correction on the longer term up trend, it's about damn time! Let's hope it's only a short pull back and basing. Either way I expect it'll break a lot of hearts/accounts through a myriad of hard fought battles.

That being said... most of the indicators I look at ($NAHD weekly, $NAAD weekly, $NASI weekly, $NDXA200 weekly, among them) are looking rather top heavy. I'd be a very cautious bull if I was at all... and that's a moment to moment call right now. Looking at all the indicators listed above my bias would be bearish, but not right away. Usually there is a fair amount of whip saw around this time of a cycle.

Everyone is still afraid of being a bear.

2006-11-12T20:24:00.000-08:00

Well... let's see... I was wrong about the bears winning last week... and this week may or may not be the week the bears turn the tide. As the saying goes: "The market can stary irrational longer than you can stay 'right' and solvent.

I'm still in in short position in BSC, but watching it closely.

I'm seeing more long opportunities going into this week, but I'll be wary of being too aggressive.

Everyone's afraid to be a bear

2006-11-04T17:39:00.000-08:00

The market has been consolidating lately and everyone is afraid to be a bear right now, and who can blame them with the way the market has slapped bears on the paw every time they venture out of the den over the last 3 months.

I don't know what's going to happen in the market tomorrow, next week, or next year... but I do know that one of these days/weeks/years the bears will win one of these stand off's... and why not now? Hmmm let's see... because of performance anxiety of those who have been waiting with their money on the sideline? Now they're going to jump in and drive the market further up with fresh capital... or will they be the suckers buying at the top, only to be exasperated by the sudden market push up to new highs after they decide to cut their losses and sell.

Dr. Joe is a rather entertaining chartist that I check out from time to time. My favorite chart that he posts is the weekly $NASI, which is a summation index of the NASDAQ stocks reaching new highs. Here's his view: (click on the image to enlarge)

The way I'm looking at this is that we're due for the bears to win a round... maybe not a big win... maybe just an interim win before a big push up to new highs... but I don't think the folks hoping for an immediate big push up in the market are going to be rewarded this week.

There are several other technical indicators of this, but really the most obvious signal of all to me is that everyone is afraid to be a bear right now.

Thus here are some stocks on my watch list with an eye towards shorting (in addition to the short position I'm holding in BSC from last week:

AMTD
UAUA
GOOG
AMAT
BEBE
CKFR
CYMI
JNPR
LCAV
SNWL
SWIR
TROW

Swingin baby

2006-11-01T23:46:00.000-08:00

I'm swing trading more these days... busy schedule demands that I do less day trading right now.

So, I started out the week with a bearish bias towards the markets as a whole and spent some time this weekend looking for good candidates. I settled on a nice list of about 10 and then on Monday morning entered three short trades as swing trade positions: AAPL, ERIC, BSC.

Then the market appeared stronger than I thought it would be and so I exited AAPL and ERIC before they hit my stops (they still actually haven't hit my stops as of this blog entry). I hung on to BSC because it looked to at least be running into more resistance to the up side.

Now two days later, I'm wishing I had let my positions ride with my stops in place... because 1) I'd still be in the positions and 2) Two of the positions would be currently profitable and the third (ERIC) looks like it may break down after all.

Ah well, at least I hung on to one.

One more nice bit of news... Stocktickr has added a position scale in feature to their service.

Happy trading.

My best trade of the last 3 weeks.

2006-10-26T17:31:00.000-07:00

Ok... I definately fall into the camp that feels we have a lot to learn from looking at failed trades, but every now and then it's nice to have a look at the ones that go perfectly too.

I wish every trade looked like this one:
(click on the image to enlarge)

Not gone... just taking a break

2006-10-25T17:31:00.000-07:00

In addition to this being an FOMC announcement week... I just needed a break... so I'm taking it.

I'll be back next week.

TradeR:R

10-19-06 wrap up

2006-10-19T13:03:00.000-07:00

I've narrowed my daily watchlist down to only include stocks with volume of at least 1,000,000 shares per day, and a current volume ratio of 2/1. I did this because while I was finding some good set ups that looked to have a reasonable risk/reward ratio I was having too much trouble getting good order fills on more thinly traded stocks. The net effect of bad order fullfillment is usually a badly skewed risk/reward ratio, and I found myself left with the options of either keeping my original stop to see if price would follow the chart trend (but if I was wrong I'd end up losing more than -1R), or cutting my position to bring my R:R into balance (but paying more commissions in the process).

Blah... trading is hard enough without having to face that choice several times in a day.

I'll leave the thinly traded stocks in my screens for longer term positions, but no longer for my day trades.

I had a decent trading day despite all the pre-options expiration choppiness.

10-18-06 wrap up

2006-10-18T20:25:00.000-07:00

not much to wrap up for me today. I was in the midst of managing my first trade when my wife came in the office handed me our 8 month old son and announced that she's not feeling well - so I had Daddy Duty today... impossible to give trades the necessary attention with a baby on your lap.

Oh yeah, I lost on the one trade I made. -1R.

Well aint that interesting?

2006-10-17T13:32:00.000-07:00

Voting with your wallet

Short term technical trader STILL beating the pants off the professionals in stock contest. Nah... technical analysis doesn't help at all ;-)

Dummy Wisdom... Maybe the problem is that most people are too smart to be good dummies. Thanks to Dummyspots for this list.

Rules rules rules... so many rules... yet... they are useful. Thanks to TraderGav for this list.

Oh my god... The Scorpions are going soft rock.

10-17-06 wrap up

2006-10-17T13:09:00.000-07:00

An interesting thing happened with my trading statistics today... I finished the day with a negative R return... BUT I made money on the sum of today's trades. Just goes to show you that while R and Expectancy are useful statistics, they do not tell the whole story.

How did this happen? Simple... I had one trade where my risk capital (R) was much greater than the other trades of the day - AND on this trade I had a paltry return of 0.45R.... however the amount of dollars returned on this trade was much greater than any other trade I made today because I risked more dollars than usual.

This is how I end up getting $94 on a 0.36R return on one trade and $544 on a 0.45R return on another trade.

So is R really useful? Yes, because R tells us how much I win versus how much I'm willing to lose on any given trade... and over time (the total of all my trades up to this date) my average R had better be larger than 1. Why? Because if my total R doesn't stay above 1 then that means that I am more suseptible to losing my total winnings when a losing streak comes along.

For example if I have 10 trades that all are profitable but less than 1R return on average (say 0.5R), then all it takes is 5 losing trades of 1R to lose all my winnings.

Ok, with that thought... have a happy day.

One trade and out.

2006-10-16T10:03:00.000-07:00

I entered one trade this morning... which stalled out and reversed to my stop. Since I had no profit as the afternoon arrived I'm going to obey my new risk management rule and not trade this afternoon.

I'm seeing another advantage of this rule... If I'm going to have a down day, I'd rather it be 1R down than 3R down... and today I'm only 1R down.

As I read on one of the blogs the other day (sorry I don't remember which one... I read several every day - Probably Trader X, Move The Markets, Ugly, Mike or Maoxian) I didn't see any good set ups this morning so I

A) enjoyed the day off... took my wife out to lunch.
B) forced a trade to happen and lost money.
C) took advantage of this opportunity to try out some new trade ideas in my virtual account.

If anyone knows where I read this let me know and I'll put a link in for the real quote.

The ever evolving list of risk management rules

2006-10-15T01:26:00.000-07:00

I spent some time tonight analyzing my trades by time of day. What I've discovered is I'd be more profitable if I didn't trade in the afternoon... but I've had a few great afternoon trades so I don't want to knock out all afternoon trading. My compromise is to only trade afternoons if I've had a profitable morning.

...and since I've never published this list... now's as good of time as any.

These are rules that guide my risk management

1. If no profit from morning trades - then no trading in the afternoon
2. If no set ups by 12:30pm - then no trading in the afternoon.
3. know what my target price is before entering trade.
4. Know what my maximum acceptable loss is before entering a trade. Base this value on risk:reward of the trade at hand.
5. Only enter a trade when reward:risk is => 2:1
6. 1R is never more than 1% of my total available trading capital. If it is then decrease position size until 1R is less than or equal to 1% of my total account.
7. Do not enter a trade on the 3rd bar of a break out.
8. Scrap entry if the bar immediately following the signal bar does not trigger an entry.
9. Do not trade before 10:15 EST.
10. Do not enter a swing trade Wedensday, Thursday , or Friday of options experation week.
11. Do not trade on FOMC announcement days. Close all open positions by close of day before FOMC announcement.
12. If a trade could be considered a wash if a loss occurred… trade only if maximum data points are in favor of the trade.
13. If a loss is taken on a stock - do not trade that same stock again that day.
14. 1st stop = 1R. This is my stop loss (Never to exceed 1% of total available trading capital).
15. If I enter late for any reason (i.e. can't get filled at my ideal price) - then I should set an aggressive stop when 1st resistance is met… don't let winners turn into losers.
16. If stopped out of a position w/a loss then pull analysis level all the way up to the weekly level and work down through smaller time increments (daily, hourly, etc…) and have a good feel for what the market may be attempting before entering a new position. Do not just re-enter the same position at the same level soley on the hope that the entry timing was wrong... have a workable bias for minute, daily, weekly.
17. Don't hold over weekend.
18. If the stop slips on more than one trade in a day, STOP TRADING for the day.
19. If there are 2 losing trades in a day with one of those losses due to a missed stop and I'm down for the day STOP TRADING for the day.
20. If there are 3 losing trades in a day. - STOP TRADING for the day.
21. If I'm down $1000 or more for the day STOP TRADING for the day.

10-13-06 Wrap up

2006-10-13T12:56:00.000-07:00

My trade stats posted on Stocktickr don't reflect the actual results of my trading because one of the trades I made this week was on a stock they didn't have in their data base (INAP)... and unfortunately that was my worst trade of the week... so instead of a small profit of $242 which is shown by my stocktickr record I'm actually down for the week about $200. The good news is I'm up for the month about $1500. Not big time winnings, but I'll take it over big time loses.

Here is a link to my Month to date trading record: TradeR:R trading record

Today was no fun... I have yet to break my habit of losing on Thursday and Friday. I'll have to spend some time this weekend looking closer at my trades from those days.

My best teacher

2006-10-12T21:43:00.000-07:00

I've been making a habit of looking closely at all my losing trades, and I'm convinced that I've learned much more from that than from looking at the winners.

Looking at the charts from today's losers I see signs of an over confidant trader. When the trades roll easy for a few days it's too easy to get bored and over confidant, and if you have a day with no ups (at least at the stocks on my watchlist) for over 1/2 the trading day - it get's too easy to start trying to force trades. The catch is... I can't force anything to happen in the market.

I've spent all this time learning how to recognize and act on good set ups - and how to manage my losses, and how to exit my winners... only to throw it away when I get bored or over confidant.

Best to remain humble and bored until a good set up comes along.

10-12-06 wrap up

2006-10-12T12:24:00.000-07:00

Today's trade stats:
-2.32R return
Win rate = 40%
Win/loss = 2/6
Expectancy = -0.46

Not a good trade day for me. I'm most disapointed with my breaking of 2 of my system rules:

1) 3 losing trades and I'm done for the day - I went for one more trade after losing 3 over the course of the day.
2) Never trade off of one time frame only - I make my best trades when I'm taking a set up from one time frame and finding an entry signal on a smaller time frame (for example, see a set up on a 30 minute chart and find the entry on the 15 minute chart).

Thursday is living up to it's reputation of the last 3 weeks for me as being a difficult day to trade. I hope tomorrow doesn't keep the trend up as being the worst trade day of the week for me.

wrap up 10-11-06

2006-10-11T12:32:00.000-07:00

Today's trade stats:
2.67R return
Win% 66.7%
Total trades today 3
Expectancy 0.89

I missed most of the day due to sleeping in and meetings. Looking at the nice rally up this morning (after a daunting gap down open) I wish I had been around to trade this morning as well.

My first trade was ill timed as I entered in the 1/2 hour before the release of FOMC meeting notes... it was a long on ADTN which I quickly exited as I watched the QQQQ crash down through key support, so I ended up with a -0.88R loss on that one.

My second trade was my best trade of the day. I waited for a pullback on the QQQQ and shorted at 41.61 with my stop at 41.71. I put almost all my trading capital into this position since I felt the odds were high (given the sudden break and high volume) that price would continue down. I monitered my position on the 1 min chart and finally exited at 41.37 for a gain of 2.4R or 24 cents/share.

My 3rd trade was again on the QQQQ. I went long at 41.45 and placed my stop at 41.38. I exited when price stalled out at 41.53 for a gain of 1.15R or 8 cents a share.

I hope your trading day was a profitable one.
TradeR:R

wrap up for 10-10-06

2006-10-10T12:54:00.000-07:00

My stats for today:
1.33R return
Win rate 100% 3/3
Expectancy 0.44

A modest yet profitable day. I had a couple mandatory meetings during trading hours so I was forced to cut my most profitable trade prematurely and returned for the final 1/2 hour of trading only to manage a quick 2 tick move on QQQQ. I coulda/woulda/shoulda bought earlier and made more like a 10 tick move but I was overly cautious since I had to catch up on the intra day market action.

Here's the chart for my best trade of the day (the one that I cut short prematurely).
Click on the image to enlarge:

Happy trading and remember to avoid the abyss

Ugly puts it all in perspective

2006-10-09T21:52:00.000-07:00

This is hilarious: The Ugly Show

Charts charts charts

2006-10-09T16:20:00.000-07:00

Here's an update from last week's chart analysis of the QQQQ:

No real change on the monthly view:
(click on image to enlarge)

No real change on the weekly view:
(Click on image to enlarge)

The news on the daily chart is that last week ended on a narrow range inside bar with the lowest volume of the week. Today price broke through the top of Friday's trading range and today's volume was even lower, but it was a semi-holiday. Although stochastics are in the over bought territory and the market has consolidated over the last 3 trading days I don't see a top yet. Maybe tomorrow, maybe next week, maybe next month... not today though.
(Click on image to enlarge)

The 60 minute chart is interesting... It just looks so ready for a big volume move. Up or down. The other thing about the 60min chart is the decreasing volume spikes since Oct 4th.
(Click on image to enlarge)

What's the market going to do? Break a lot of hearts whichever way it goes. It seems many are bullish and many are bearish... and many are moaning about missing the rally.

Do your own research... don't buy or sell based on what you read here. I post so I can have a public record of my thoughts and trade habits... keeps me honest... but I'm not posting to act as a financial/investment advisor.

10-9-06 my trading statistics

2006-10-09T16:04:00.000-07:00

I'm digging stocktickr.com. This very reasonably priced service makes the chore of keeping track of my trade statistics much easier in several ways... ok I'm not trying to be a commercial... but I used to keep track of these things manually on a spread sheet and now I simply log on and the information is there at the end of each trade.

For example:
My performance for the month of October including today:
10.11R return
Win% of trades = 60.87%
Expectancy = 0.44
Profit = $1,773.17 (yes that includes taking broker fees out, but not taxes)
Trades = 23
Shares traded = 45,500

Today's performance:
0.64R return
Win% of trades = 33.3%
Winners = 1/3 (proof that proper money management via entry selection, position sizing, and hard stops can help you make money even if you lose 2/3 trades).
Expectancy = 0.21

Based on a view of my trading statistics by day of the week I know that Monday's are typically not my best trading days... Wedensdays are my best... and Friday's are my worst.

wrap up 10/5/06

2006-10-05T14:49:00.000-07:00

In the zone yesterday... not so much today.

I went 3/8 in trades today... for a total of -3.06R today. Not too bad considering today was an extremly difficult day to trade QQQQ. I'm still up 10.89R for the week with a profit of $1,825.04 on 17 trades.

The QQQQ was totally range bound for the day. Looking back on the charts there are a few things that pop out at me:

1) QQQQ is making intraday highs on lower and lower volume with each move up. That's not what bulls want to see. (see the chart).
2) There was really only 1 good tradeable long today on the intraday QQQQ, and it required use of shorter than 30 minute time frame on the chart. (see the chart).

See you tomorrow!

Links to ponder

2006-10-04T16:10:00.000-07:00

Proprietary trading firms feeling the heat from SEC and NASD.

Will drinking help my career as a day trader?

Bernanke: housing is showing a ``substantial correction'' and inflation will recede slowly over time.

Wrap up for 10-4-06

2006-10-04T15:51:00.000-07:00

A good day for trading... and from what I gather from other blogs I read... a good day was had by most.

I was 6 for 6 today in the green with a return of 8.76R. If only every day could be this good.

I stuck with my favorite workhorse (QQQQ) for all my trades today, and found myself trading off of shorter time frames, even the 1 min chart. When I'm in the zone trading such small time frames is not stressful, and today I was in the zone. I didn't bother keeping track of profits during the trades, I focused on making each trade the most effictively managed trade that I could. I did exit pre-maturely on one trade and almost late on another (I came out ahead anyway), but I'd rather exit early with money than exit late with a loss.

10/3/06 wrap up

2006-10-03T16:40:00.000-07:00

Maybe today's blog should be "warp up" rather than "wrap up".... that's what the QQQQ/$NDX did on the intraday charts... only to stall out in the afternoon and finally break down after being range bound for about 2 hours.

Happily I caught both moves. 2 trades. 2 winners. If only everyday could be this good.

Click on the image to enlarge.

QQQQ chart analysis

2006-10-01T00:51:00.000-07:00

Here's my analysis of the QQQQ Daily chart:
(click on the chart to enlarge)

Here's my analysis of the QQQQ Weekly chart:
(Click on the chart to enlarge)

Here's my analysis of the QQQQ Monthly chart:
(click on the chart to enlarge)

followup on last post re: QQQQ

2006-09-30T23:20:00.000-07:00

As you can see from the chart below... it's good to get confirmation on what you see before believing it... and in this case confirmation has not happened. a new support may form and then retest or break the high... or not.

Click on the image to enlarge:

QQQQ Ascending Triangle

2006-09-29T10:22:00.000-07:00

The Nasdaq is really choppy again today.

Here's an interesting view of the QQQQ from the 30 min chart:

(Click on image to enlarge)

Happy trading!

9/28/06 wrap up and bias for tomorrow.

2006-09-28T17:33:00.000-07:00

I managed 3 trades today, and managed to make money in the process. 2 were losers, but both were small losses (-0.6R and -0.91R). My one winner was +1.62R. I came out ahead... yet another day of trading that rewarded risk management and money management via position sizing.

Here are the story telling charts:

I was short on this one (click on the chart to enlarge):

I was short on this one too (click on the chart to enlarge):

The other losing trade was a short on QQQQ in the afternoon... based on 5 min stochastics and the candle formations on the 30 minute chart. I thought there was a good possibility price would reverse but it didn't.

Bias for 9/29/06...
I can't get a clear read using my usual indicators but based on the charts I'm looking for more consolidation or down drifting... but as the saying goes:

"The market can stay irrational and exuberant longer than you can stay solvent." In other words... despite my bias or preference - THE MARKET IS ALWAYS RIGHT.

Do not trade based on information from this website... do your own research. However, if you have comments, suggestions, jokes, or a blog you'd like me to check out then let me know!

What I learned about trade management today

2006-09-28T17:05:00.000-07:00

I had a good trading day today. Yes, a bit of money was made, but more importantly I've experienced a shift in thinking about makes any given trade a success. More specifically I'm deepening my understandinng of the camp that believes that consistantly managing trades by one's system is more important than making a profit on any given trade. In fact thinking about the profit or loss of any given trade while I'm still in the trade is detrimental to my success.

So... when is it helpful to think about the profit/loss of a trade? Before and after each trade - but not during. Today I took the simple step of deleting the "open positions" display box from my trading screen. How does this help? It helps me to concentrate more fully on the chart and managing the trade by the chart... not the profit or loss that's occurred.

If I've done my stop determination and risk/reward calculations before I enter the trade then I've already "rehearsed" and internalized the worse case scenario which is my stop loss (always 1R). Ok, now I'm free to really concentrate on the important thing - which is managing the trade once I'm in the position.

Now when I enter a trade all I have to do is watch the price and chart action to determine which aspect of my trading system is currently in play. When the position is closed... then I look at the profit/loss.

Here is an excellent posting on this subject from a different angle: Trading to win and trading not to lose - by Brett Steenbarger.

And here's another link talking about the same thing: Avoid Tangifying Your Positions.

Those of you who read Trader Mike's Blog (I do) have probably already read these articles... but I'm posting em here too because I think they're important.

Strategy Lab - Ko

2006-09-27T15:25:00.000-07:00

I've been following the stock trading/investing contest on MSN for a couple years now. I gotta say I love it that the current leader of the contest (with a 48% gain thus far) is not your typical fundamental investor that is usually found in this contest. He uses technical analysis and describes his styls as

"straight arbitrage and momentum-type plays based on various types of trading scenarios. I watch for general market sentiment and sector-momentum indicators."

Here's the quote that sums it all up:

"The trick is to identify which stocks have the most potential for the easiest gain with the lowest risk."

Here's a link to the contest: Strategy Lab

Bias for 9/28/06

2006-09-27T15:04:00.000-07:00

I'm looking at a down day for the QQQQ tomorrow... that's my bias and I'm sticking with it for the day.

Wrap up for 9/27/06

2006-09-27T14:39:00.000-07:00

Blah blah blah.

I executed one trade today (a short on the QQQQ in the morning)... lost 1R (R is usually 1% of my capital)... and decided that I've made enough crappy calls recently and the best thing to do would be to sit on my hands and watch the market roll around like a pig in choppy slop.

Most of the trades I've done with real money are not dummy trades so I thought this would be a good time to try a few virtual dummy trades and see if it's a good fit for my trading arsenal. My results were:

4 triggered dummy trades
2 winners (1.21R $544 and 2.27R $1075)
2 losers (-1.07R -$480 and -1.08R -$490)
total winnings $1619
total losses $970
net winnings $649

Here are the charts of the trades:
(Click on the charts to enlarge them)

9/26/06 Wrap up... bias for the morrow

2006-09-26T16:07:00.001-07:00

The press is raving about the continuation of the rally today... and it was a nice one... but I gotta say I'm not impressed enough to be overly bullish tomorrow. This market may have some steam left in it, so I wouldn't go rushing into a bunch of short positions, but I don't have a strong indication one way or the other going into tomorow's open.

The QQQQ has been in the oversold territory for almost 2 weeks on the daily chart according to several technical indicators, and now the weekly charts are in that range too. Weekly charts are also bumping into a resistance range from a consolidation back in February and March.

In short we're due for a pullback this week or next at the latest. Looking at the weekly chart of the QQQQ one can see that the market has been traveling in on a nice steep but tight trajectory since the 4th week of July. That line has to zag sometime.

9/26/06 Wrap up... bias for the morrow

2006-09-26T16:07:00.000-07:00

9/25/06 Wrap up

2006-09-25T15:37:00.000-07:00

The market blew out the downside run first thing in the morning so it could then get back to business as a bull rally... and what a rally it was.

From the posts I see on other bloggers sites, I see that traders were in line and ready when the trades started materializing. Take a look at what TraderX did today... Classic Dummy Trades.

What's gonna happen 9/26/06? I don't know, but my indicators are looking for an up day... so that's my initial trading bias for the day... and as today showed by example... it's good to have an initial bias, but important to be able to perceive the change in market sentiment during intraday trading... and trade accordingly.

P.S. This is a blog. I'm not a financial advisor. Don't enter/exit trades based on what you read here. Do your own research.

Mid Day report 9/25/06

2006-09-25T10:16:00.000-07:00

What whiplash this morning's chart brought:

Falling gas and oil prices... elections nearing... the market is up on any bit of good news these days.

The morning free fall lasted until about 10:15am EST... at which time the market had gone down enough to justify my indicators having a down bias for today... but at which point the market was over sold and falling gas and oil prices was good news enough to spark a nice rally. Typical of the market's behavior lately... rally on any bit of good news... and there really isn't much bad news to argue with the market's direction any way.

Will the rally hold? Will we flat line the day? We'll see.

The markets are definately not boring today.

Trading related links I've been enjoying lately

2006-09-24T17:29:00.000-07:00

Everyone should know what they're core trading philosaphy is... here's a great example of one:Trade The Market Core Trading Principles

Dummy Trading is really getting popular... starting with the chairman's famous tutorial: Trading for Dummies tutorial I reccommend you bookmark this tutorial.

Ugly chart is now posting a Dummy a Day.

If you need help finding these kinds of trade set ups... check out what TraderX has to say about it: Finding gap openings

Have a great day!

Thoughts and bias before the 9/25/06 trading week.

2006-09-24T17:20:00.000-07:00

Last week was a tough trading week for me in terms of winning less than losing... BUT it was also a real testament to my use of risk management techniques in that I did not acually lose all that much, and I'm still profitable over all for since the time I started this blog. So I've lived to trade another day.

So where is the QQQQ/$NDX heading tomorrow? My indicators say down (as in opening price > closing price) for the day... is this a long term trend? I don't think so. We've got a ways to go before we break the current up trend.

Wrap up for 9/20/06

2006-09-20T16:56:00.000-07:00

Today was my day for the market to remind me of a few fundamental trading truths:
1) Betting on the trend is safer than betting against it.
2) Trading on FOMC day is difficult at best and hazarous at worst.
3) The market doesn't care whether or not it touches my systems price target before it reverses. Thus it's a good idea to tighten stops or exit as the indicators and market factors start to converge against my position.

As noted in a post from earlier today, I closed out my QQQQ short position with a -0.096R loss... after it had posted gains of up to +3R yesterday before close. That's what I call 'paying tuition.'

Where to focus your thoughts when trading.

2006-09-20T16:36:00.000-07:00

Here's a link to a Van K Tharp posting regarding where one's attention should be focused when trading... not on the profits or the losses... on the solution.

This is an item I am working on mastering in my trading.

Reply to Damien's comment on Trailing Stops and R

2006-09-20T13:08:00.000-07:00

Thanks for the comment.

Certainly your advice to tighten stops on perceived risk would have helped me on my last QQQQ short position. In fact both of the factors you mentioned (along with the impending FOMC announcement today and the sky high Call/Put ratio at close) weighed heavy on my mind at close yesterday (9/19/06) when my position was between 1-2R in the black at the end of day... and then the market gap up on the opening today and I ended up closing my position at a -0.096R loss. That's the kind of trade that certainly makes me look at my exit strategy execution with an eye for improvement. Had I followed my own advice to tighten stops when +2R was reached I'd have a tidy profit today.

My idea behind tightening stops at +2R was to eliminate trade exits like the one I just experienced. I'd rather have a +2R gain than a loss any day... but I do agree with you in that the best way to tighten (or not) stops once a position is profitable is to base the decision on perceived risk... which is ultimately what I failed to do in this most recent QQQQ trade.

The other idea I'm trying to implement by tightening stops at +2R is to make sure than my average gain is >= +2R. I've had too many trades swing into a nice +2R or greater profit only to swing back and I end up getting less than +2R return... I want to eliminate that habit.

Consider this scenario:
10 trades
10.00 = starting capital to trade with
5 trades win at 2R
5 trades lose at 1R
R = 1%
Each entry = 1 (so each loss =.1, each gain =.2)
5 wins = gain of .2x5=1
5 losses = loss of -.5
Net Gain = .5
Total capital at the end of 10 trades = 10.50

1. I know from my trade history statistics that most of the trades I enter have an average profit target of 4R.

2. I know from my trade history statistics that price hits my profit target just over 50% of the time.

3. I know from my trade history statistics that about 70% of the trades that don’t hit the profit target do at least touch the 2R profit level.

It is based on the above scenario and 3 facts about my trade history that have prompted me to think of ways to improve my exit strategy, especially when it comes to factoid # 3.

Trade plan for 9/20/06 QQQQ

2006-09-19T20:20:00.000-07:00

This plan is regarding the open Short position I have in QQQQ - entered on 9/18/06 (see trade post from that date for the entry details.)

If the open is about the same as the 9/19/06 close then I'll take my chances with letting the stop slip a bit. I expect it would be reasonable to expect price to test support of my short position between 39.95 and 40.10. Anything above 40.10 and I'm exiting the trade. I would be disapointed to be stopped out at that point because I could have captured another $1000 in profit earlier in the trade... on the flip side, If my bias is correct then my target price will bring more than twice the profit. Either way it's a profitable position.

If the open gaps down then I'll get more aggressive about tightening up the stop and not complain if I get stopped out before my price target is hit (IF it does get hit).

If the open gaps up... I'm wrong at 40.10 or greater... so that is the early exit zone.

QQQQ/$NDX Bias for 9/20/06

2006-09-19T16:54:00.000-07:00

Down... yet again... but with caveats...

Caveats:
1) FOMC announcement at 2:15pm.
2) The overall daily trend is still up... this is likely a mere consolidation movement.
3) The CPC ratio is through the roof at market close today... and extreme readings can be bullish.

None the less, my bias indicators are pointing down for the morrow.

So... be careful... Do your own research... Don't trade based soley on what my humble opinion is.

Market wrap up for 9/19/06

2006-09-19T15:54:00.000-07:00

It sure is fun to watch the market move in the direction of my trade. I did have a few moments of hesitation as to whether or not I should exit my short of the QQQQ today... I decided to stick the day out with my trailing stop system outlined in yesterday's post.

However, I'm nervous about price closing so close to my stop (only 0.09 ticks below my stop)... If price opens anywhere near today's close, there is a good chance I'll get taken out in the morning volatility. Being stopped out there wouldn't be all bad. My trade would end up with a profit of about 1.6R (a gain of about 0.85%), but my goal is to end trades when profit >= 2R. Today price touched point off on points where my profit would have = 3R, but I stuck to my guns because I want to see how well this trailing stop system works. Tough call... stick with a mechanical trailing stop that's not based on the chart anymore (it kind of was when it started)... or toy with it to match what I see as the logical support/resistance points on the intraday chart? I'm going to have to think about this one and study the charts a bit more before I decide on a plan of action. I will post on this again later today when I have a plan.

Integrating trailing stops and R

2006-09-18T17:32:00.000-07:00

I've been experimenting with several exit strategies... I've read everything I can about them from the links of various blogs... Trader Mike especially.

Here's my latest take on it for my system:

My goal is to create a system that:
1) Never loses more than 1R (unless of course the market gaps against you or you are unable to get the order filled).
2) Gains are greater than or equal to 2R on average.
3) Allows enough price swing action to not stop out pre-maturely due to price volatility.

Here is the system:
When entering a trade set initial stop loss to 1R (I call this point -1R).

When price reaches a profit level of +1R then set a trailing stop equal to the number of ticks between the +1R profit level and the -1R Initial Stop loss. I often add .01 cent to this number if it will help get the stop over a key resistance level that might get hit during an intraday price swing.

My experience thus far has been that this is an effective mechanism for my swing trade stops (not so good for some of my intra day trades though). It allows enough intraday price action that I only get stopped out if I'm really wrong... and since it's a trailing stop I often get stopped out at a point better than -1R (or even a small profit)... thus it should help lower my average system loss to less than 1R.

Once price reaches into the +2R profit or better territory, then I tighten up the trailing stop based on the intra day chart support and resistance. The idea at this point in the trade is that I don't mind being stopped out on intra day volatility if it's at +2R or better.

Let me know if you have any questions.

Bias for 9/19/06 $NDQ/QQQQ

2006-09-18T16:56:00.000-07:00

Down.

I see a few reasons to be nervous about this position... starting with the fact that there is an announcement from the Fed on Wedensday. I hope to be out of the short QQQQ trade I entered today by then. Also more volume moved up than down today in the NASDAQ despite the fact that more stocks moved down than up. My screens are pulling up more long candidates than short. However my main bias indicators are bearish for the short term... and I do mean short term... a few days at most is my guess.

Don't trade based soley on what you read here. Do your own research. Let me know if you have any insights you'd like to share.

9/18/06 Swing Trade

2006-09-18T12:54:00.000-07:00

As posted in the trading plan: I looked for an opportunity to enter a short position on the QQQQ this morning. I resisted the urge to enter at market open... and waited until after 10am to pull the trigger. I was going to wait until after 10:15 am but the 15 minute chart was looking good and price had moved up enough that my risk management system would allow a stop at 4 cents above the previous daily high intra day high - and if that happened then my analysis would be wrong and I'd be glad to be stopped out at 1R. The advantage of entering in this mannor is that I worry less about intra day price swings stopping me out of a position even though I may be right about the swing trade direction.

Trade data:
QQQQ
Entry Time: 10:09:49
Trade Type: Short
Initial Stop Loss: 40.49
Price Target: 39.32
Risk (R) = 1% of total available trading capital.
Risk:reward = 1 : 4.57

I'll post the results when the trade closes.

9/18/06 trading plan

2006-09-17T17:34:00.000-07:00

I'm going to be looking for a nice entry point for a short of the QQQQ tomorrow (9/18/06). If I can get in and the high of last week holds - then my profit target is 39.32. I'm not going to enter at market open. I'm going to wait until the opening volatility has calmed a bit. Probably around the 10:15 time period is when I'll get serious about finding an entry opportunity. If I don't like what I see then I won't get in.

Wrap up for 9/15/06 and bias for 9/18/06.

2006-09-15T16:13:00.000-07:00

Well I pretty much got my behind whooped at the opening bell today... as the opening bell opened higher than my stop loss for my swing trade from yesterday. So I took a 1.85R loss (0.92%). Never again will I enter a swing trade during the later half of an options expiration week... In fact I just added this rule to my trading rules.

I spent the rest of the day executing quick trades for small profits. I've been able to eek out a profit today and yesterday using quick SMA + support/resistance reads... but after reviewing my stats and trade journal I see that I would be better served to exit even faster. I keep getting a few ticks up into profit and then lose 1/2 of the profit because I'm waiting for just one more bump up.

The trades that really get under my skin are those that are profitable and then quickly evaporate into a loss because I'm waiting for that last bump up. The waiting is not generally suited for this style of trading... it's been difficult for me to internalize this because I find the opposite to be true in my swing trading.

Many times I've decided to exit a swing trade before my target is reached so I can lock in the profits... only to watch price shoot right to or past my target. So... recently I've employed a system of using a very loose trailing stop based on the chart. This has worked well for me in the times that it has been triggered - price did not swing back and hit my target afterwords.

OK my bias for Monday QQQQ is down. This is the 3rd day in a row I've been saying down and obviously I've been wrong... but like I always say... it's just a bias... it's not something to blindly trade on.

Wrap up for 9/14/06 and Bias for 9/15/06

2006-09-14T17:05:00.000-07:00

My bias for today (see yesterday's post) was wrong in a purist sense, but it did point right the way for trading today non the less. The Nasdaq 100 topped out with a new high but did so on declining volume and it closed considerably lower than the high. The candlestick formation is almost a shooting star. I'm sure all kinds of oscillator type indicators are showing a negative divergence with the daily range of price.

I scalped a few small trades in the morning:
4 profitable - 3 losses = small but positive gain of $245. None of the losses were more than 1R. The wins ranged from 1R to 2R.

Finally this afternoon I got in short on the QQQQ at a point I feel comfortable holding for a swing trade.
Entry Time 2:26:23
Entry Price 40.03
Position = Short
Target = 39.09
Stop Loss = 40.23
Risk:Reward = 4.7 : 1

I'll post the results of this trade when the position is exited.

So if it's not obvious by now... my bias for tomorrow is down... however, my indicators aren't pulling for an open > closing any more than they are pulling for open < closing... just down in general. So I'll make no predictions on that front for tomorrow.

Disclaimer: This site may include market analysis. All ideas, opinions, and/or forecasts, expressed or implied herein, are for informational purposes only and should not be construed as a recommendation to invest, trade, and/or speculate in the markets. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise.

Wrap up for 9/13/06 and Bias for 9/14/06

2006-09-13T15:26:00.000-07:00

Charles E Kirk is taking tomorrow off from trading and after looking at my indicators I'm starting to believe that's a good idea for me too. Today was a volatile day in my trading universe... and I'm sorry to say I did a poor job of sticking with my guns and ended up making measely profits on a few morning trades (PAYX, CTSH) and then when I realized I had exited hastily I made the classic mistake of executing a couple "keeping up with the Joneses" and "Grudge" trades.... and so ended the day with a loss.

For those of you who are wondering what I'm talking about:
"Keeping up with the Joneses" - trying to hop on the momentum train after it's taken off, usually resulting in an entry near the end of the run.

"Grudge" - missing the signal for a nice big move and trying to buy in on a reaction.

The only real difference between the two is your emotional state... Joneses is almost panic, and Grudge is pissed off. Neither of those emotions is helpful to trading in my experience.

I'm still up for the week, but I don't like the looks of tomorrow.

.... and so without further delay... Here's the Bias for QQQQ/$NDX 9/14/06:

Neutral or Down... My indicators are more bearish than bullish but they are not triggering a short. If I had to put money down on it right now (9/13/06 3:39pm PST) I'd say QQQQ open will be higher than close regardless of intraday price fluctuation. But again my indicators are not all the way in the signal zone so I'm not going to blindly follow that bias... and neither should you. Do your own research and risk calcuations.

Disclaimer: This site may include market analysis. All ideas, opinions, and/or forecasts, expressed or implied herein, are for informational purposes only and should not be construed as a recommendation to invest, trade, and/or speculate in the markets. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise.

My stats as of today

2006-09-12T17:03:00.000-07:00

%Win 50.5
%Lose 49.5
(note: trades that are break even are not counted toward win or lose)

Edge Expectancy (of all my trading regardless of set up) 0.21

Expected Return 54.25

I'll try and post these numbers every month so we can see if there is any progression.

Bias and stock watch list for 9/13/06

2006-09-12T15:43:00.000-07:00

Bias for 9/13/06 is for a long day on the QQQQ. Price will do what it does intraday but if I had to put my money on it now I'd say close will be higher than open. If I'm wrong, well then I'm glad that I don't trade blindly on my bias indicators... and neither should you.

Stocks to watch on 9/13/06:

PAYX, APOL, BRKS, INFY, LCAV, LEAP, NETL, NVDA, RTEC, SMTC, SSCC, SBUX, UCBH, VSEA

Disclaimer: This site may include market analysis. All ideas, opinions, and/or forecasts, expressed or implied herein, are for informational purposes only and should not be construed as a recommendation to invest, trade, and/or speculate in the markets. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise.

About my trading style

2006-09-12T12:20:00.000-07:00

My universe is limited to the NASDAQ 100.

I trade several different day and swing set ups. All technical.

I look for 1:3 Risk:Reward opportunities or better, but will trade as low as 1:2. For useful information on Risk:Reward go to Tradermike.net

I enter each day with a long/short bias for the NASDAQ and NASDAQ 100. I use the bias as a starting point when looking for trading opportunities (i.e. if my market bias is long I look for long opportunities)... however I keep in mind that although a day may close as a long day (open < close) the intra-day range often runs contrary to the bias for a good portion of the day... and sometimes my bias is simply wrong.

I have a written set of rules that govern my trades. They are applicable to all my trading set ups and time horizons.

I use statistics to analyze my trading style, and use this information to make adjustments to my rules and/or trade set ups. The aim is to always learn and improve.

I enjoy trading.