Friday, January 9, 2009

Friday PM Notes - Anatomy of a Scalper

OK, we'll give this a shot. For the first time in a few years, I did go back and plot today's trades for reasons I mentioned in today's earlier post. It took me about an hour, and reminded me why I don't do this 99.99% of the time.

A few things to keep in mind as you view the chart and my notes (click of course to enlarge). First, I'm showing a 30-second chart that spans just before the jobs report came out to my last trade at 11:28am. Now of course I don't trade off of a 30-second chart, but I had to blow it up to try to capture the various trade entries and exits without them being on top of each other. So it's probably best to view a 5-minute chart alongside it.

Second, the colored dots (color key is in the middle) reflect my manual posting of trades based on today's time-stamped broker log. I'm sure some aren't exact, but I tried to match the time and price as best as possible and think it's pretty darn close.

Third, and perhaps most importantly, note the large green circles reflecting "preferred short-entry zones", as those areas represent where I (and of course the whole rest of the world) wanted to load up on short entries after the initial morning breakdown. Yet the cliff drop and shallow retracements at best provided a bit of a challenge in finding low-risk wholesale entries (long or short) as I didn't want to short into the emotion or on tiny pullbacks. That left me looking for a few wholesale long entries on unsustainable spikes while at the same time searching for that one meaty short retracement. And the more the market tanked early, the greater the conviction in wanting the eventual short.

Eventually, ES of course finally provided a shorting opportunity on the climb into 10am which provided the bulk of the day's take ... although I still preferred a sharper move to put size on.

Most of the entry dots reflect 15 or 30 contract lots, with the several short entries into the 10am climb obviously resulting in the heaviest-sized sequence on the day.

So 'twas an interesting day in that ES didn't reach my preferred entry points, yet I took what was provided and tried to make a meal of it. And while I give kudos to those with the foresight to short the open (or even pre-open) and ride it down for mega-points, that will never be my game (last fall's 10-point "scalps" notwithstanding!). Simply put, I care about hitting solid singles, doubles, and an occasional triple, as experience has taught me that's where my personal advantage lies.

Yet we all paint the canvas differently, which is the beauty of this "art".

Please note I'll be in and out this weekend, attending my daughter's state district orchestra peformance on Saturday afternoon, but will post "The Weekend Trader" as usual and keep an eye out for comments. I imagine the chart may generate a few.

16 comments:

MK said...

Hi Don,

I think this is the most useful description of your trading style I have ever seen. The chart says it all and I found it very illuminating to how you are trading. What an excellent post. I really liked how you worked into that short but wondered - what was the plan if the market continued to go up?

I nominate this as post of the year ;) (so far)

With kind regards,
MK

nocved said...

Hi Don

Thanks for taking the time to mark and post the chart. I found it very helpful in reviewing my day.

Have a Good Weekend
Tom

Goldenpiggie said...

Very informative. Thank you for taking so much time illustrating how you trade. I have been reading you since you started blogging, and it has always been somewhat of a mystery to me how you have such an incredibly high win rate. Today's illustration is very illuminating and educational.

Btw, TradingMarkets has run out of your DVDs. I did try to order a set. Do you think your e-mini course is still consistent with how you are now trading? Is it still possible to obtain your DVDs?

Thanks

Don Miller said...

Golden -

To my knowledge, TM doesn't plan on replenishing the stock, but that's their area. Over the years, I've tweaked my trading somewhat based on continued experience, and I added the use of TICK for very short-term scalps, yet I don't think the core concepts ever change much.

In its place, I think following the blog diary may help ... keeping in mind as with anything I describe, it's simply one way to approach the market. Plus, it won't cost you anything.

Don

Don Miller said...

MK -

Thanks. I'll add some additional thoughts over the weekend.

If the market had continued to climb, I likely would have lightened the load or scratched it (with a possible reentry) as I did a few times during the day. In fact, you see that in the one orange dot on the short sequence ... it was a total bail to get flat and reassess, followed by an immediate re-entry.

Don

trader said...

Don-
Thank you for posting the chart. It is so helpful for learning your tradeideas.

M said...

Howdy,

Good of you to take the time to mark your trade entries and exits on a chart - explains some of what you've said.

What helps you to nail the timing on those shallow pull-backs? (Longs)

And the exits - was it based on feel that there was no upside momentum on the pull-back? or are you more systematic than this?

cheers,

Don Miller said...

Hi M -

A lot of it is just a visual view of the chart where I'll pick a reasonable price (below the bid for longs on uptrends or breakout thrusts; above the ask on shorts on downtrends) on a retracement and sit there on the DOM screen hoping to get picked off.

I do find the TICK useful, particularly retracements toward zero, which when combined with the price chart and general view of market conditions, can help refine/confirm entries, etc.

I of course miss many, but often it's my price or nothing as I don't like to chase or gamble.

Hope that helps.

Don

James Stollenwerck said...

Thank you for this. It's consistent with the basic ideas you wrote about on TM. I'm a swing trader, but I paper trade your way when I'm not in the market. I must say I have a hard time trying to keep my heart rate down, but, then again, I'm not as young as I used to be. Another thing...I appreciate the time you take to write each day. You won't blow out due to your risk parameters, but if you do, you can always be an author.

James

Don Miller said...

Hi James.

Thanks. It's interesting that my oldest daughter is majoring in broadcast journalism at college (although she has nothing to do with this site).

Stay well.

Don

Sean said...

Hey, Don:

Thanks for taking the time to post your chart. I think the most important part of the graphic (at least for me) is demonstrating the ability to scratch due to market conditions and/or a poor trade location. I find that if I can do that effectively, I can be there for the larger wins when my mental state, market reads, and execution are all aligned.

Have a nice rest of the weekend.

Sean

E-Mini Player said...

Very useful post Don! I need to get a seat at the merc :)

austinp said...

Hi Don,

Have enjoyed your posts for years now... glad to see you've gone public again.

One question: why in the world weren't you selling into that crystal-clear trend move Friday? Every bear-flag break you scraped for pennies offered wads of cash into downside continuation shorts.

The trend is your friend, always. Ride that with your trade size, and last year's result will be a mere speed bump in 2009.

Best Wishes Always

Don Miller said...

Hi Austinp -

Oh I was looking to sell it and sell it hard as I mentioned (which I eventually did), but will always personally only enter a hard surge on a wholesale retracement that meets my criteria (green circles). And if I don't get my price, I'm more than satisfied to let it go and wait until I get it.

Shallow bear flags on a sharp fast move (of course only evident in hindsight), especially right after the opening bell, will never cut it for me given the risk of deeper retracements which are often the norm.

And if I miss an initial sharp move as a result? All the better as there's usually a strong contra wholesale entry before finally reversing with the trend on a larger timeframe.

Keep in mind that much of last year's profits during the fall crash was obtained by fading emotional extremes and going long the market on unsuatainable (on the short term) emotional panic spikes.

Re: Friday's sequence, it of course looks somewhat silly in hindsight ... and it always will during sharp moves ... yet if the retracements were deeper and trend shorter-lived (of course never known until after the fact), the improved wholesale price entries would have been the only profitable entries.

It's a good question, yet also reminds me why I rarely ever look back and chart sequences on a chart that is only fully known in the future. I have no regrets at all, and all eyes remain on the road ahead.

There's of course "no right way", which, at the risk of stating the obvious, is what makes a market.

Good question and stay well.

Don

Geert said...

Hi Done,

Fantastic to see that you are one of the few traders that is realy wanting to share its ideas without the whole commercial machine.

Please go ahead this year as you are doing.

Benjamin said...

Hi Don,
Thanks for taking time to show a mornings trade sequence. It has re-iterated one of the most useful concepts i have drilled into my thinking since following your blog. Everytime i go to click on my mouse to open a trade or place an order i ask myself if i am going to be buying (or selling) wholesale or retail. This mental check alone has done wonders in my avoiding getting caught on the wrong side of the emotional extremes and being patient, not forcing trades and waiting for the high probability entry.