Wednesday Notes - Volatility Returns

8:10am Starting blogging early today as I'm a bit peeved that I woke at about 6:15am, right after a textbook DAX & ES retracement occurred off their overnight highs and in the area of Tuesday's resistance. Now I need to channel that pissed-off feeling to productive action for the rest of the day. The good news is that Tuesday's resistance seems to be in tact, despite the slight overnight pop, and early focus will be on carefully establishing a core short position -- ideally in the mid-to-high 1270s -- assuming the market gets back there in the normal session. A nice gift would be the market trading up there, pausing, and then turning south on a 1-min timeframe. Should that occur, I'll look to establish an initial position on the fade with a long leash (managing risk with size), and add to it on a turn.

My general feeling is that I should be able to let off the brake today and press the accelerator given we're now in "day-after-day-after-1st trend day" mode. As a result, I expect several good oscillations today, which would normally have occurred yesterday, since we're stretched even further and given the overnight action. Bottom line is I need to be sharp, make sure the gas tank is full, and not be a wuss -- meaning I'm willing to risk more chips given what I feel are high probability opportunities. The market dealt Aces overnight when I was sleeping, and I expect it will deal Kings at least twice during the day.

12:20pm Wow ... where do I even start? So many themes ... so little time. Well, we did get exactly as we expected -- in terms of the delayed day after trend day action -- which because of the one-day delay, resulted in even greater and extended intraday volatility that's still in play as of 12:20pm! When's the last time that happened? Said another way, imagine an absolutely still pool, and then Michael Phelps jumps in ... can you say "ripples"??? The hourly downtrend also remained in tact, volume increased, and the market did trade into the mid-high 1270s.

Lots of TICK vs. ES price divergences on both short-term peaks and valleys throughout the morning. btw, if you nailed that 11:14am spike to short ... congrats. While I was expecting that same "take out the swing high stops, and then whip down hard" rhythm that I mentioned yesterday has been a common theme this summer -- and was ready to scale into a heavy short position on that last thrust -- the bottom fell out. Apparently, the market didn't get my memo asking for a PAUSE! (See 8:10am comment.) Very tough entry with little second chance, and at the time, I felt the subsequent 1-min turn was too far off the high to enter. In hindsight, it wasn't.

Ironically, despite my early eye on shorting, I've actually traded much more from the long side given the early plunge and then the "frustrate the hell out of everyone" 11:14am shake and bake. No matter though, for if we can nail the rhythm, plenty of opportunities should evolve as the day develops. I've also traded smaller sizes than I expected to ... perhaps because of the violent action ... often scaling in and out of modest 30-40 contract sequences, and have missed a few prime entries. Yet today is another great example of where you only need to nail a few of them to carve out decent profits.

One of my huge concerns heading into today was fear that I might not be able to make an effective brake-to-accelerator transfer, especially since the foot had fallen asleep on the brake in recent lackluster market action. Kudos to Aman's comment to Sunday's post (also see my response) that helped me turned the missed Globex opportunity frustration into a call to focus and action during the regular session. His note was well-timed.

There's no doubt I could have traded better, and in the words of Bill Belichick, there will be plenty for me to work on for tomorrow's game, yet I'm OK with the morning $13K take in light of the relatively small sizes traded and violent early action. And while that could have easily been doubled if I'd nailed the 11:14am short (give it up Don!), my primary goal for the rest of the day is not to try to make up for lost opportunity and lean on the brake a bit as I wait for the next strong hand.

1:37pm Looks like it's back to the still pond again. ES trading right on top of both its 5 and 15-min 15MA moving averages. A quick aside ... played decently in a small local Hold 'em table tournament last night, managing to eek out first and win a whopping $100. What's amazing is how much more that "felt" like real money vs. trading earnings that drawf that. Still trying to figure out what that means.

2:04pm Going for a quickie short sequence on the attempted turn ... looking for 1-2 points on small size. 3LB went short, and the 2-min charts trying to turn off that last high. Stop 1271ish on a 3LB turn north. Will scale into cover on any drop.

2:12pm Good ... averaged up to 67.50 on the entry and best cover 64.75 on the drop. It ran more more, but I wanted the high probability in case they jerk this back north, am getting a bit tired, and want to lock up the day shortly. Plus, we're still in a larger triangle pattern in the middle of today's range. Here's what I was looking at:



2:59pm Too funny ... exit looking better now as ES turned up hard. Amazing how that happens: One minute you're the donkey on the flop, then after the turn you look like Daniel Negreanu. I want the high probability period ... others can gamble.

3:30pm Market back to flatline ... calling it a day. Nudged the day's take to $14K. Not a grand slam and definitely fouled off some pitches today, but overall a pretty high on-base percentage and touched home a few times. 133 days to go and back to work tomorrow.

I might follow up with another post later tonight when my head is clearer. Been a long but decent day.