Sunday, September 7, 2008

Monday Notes - Less Than Peak Performance

11:32pm (Sunday Night) Wow. As I write this, ES is up 37 points from Friday's close and hammering swing traders shorting the market at Friday's close worse than those with Tom Brady and the Patriots on their fantasy teams this year (after what looks like a season ending knee injury to Tom).

And while there are times I wonder if multi-day swing trading would result in less stress and fit into my toolbox as a supplemental strategy, tonight's action reinforces my personal preference to never hold a position overnight to limit exposure to potential catastrophic overnight events when the market isn't open. In this case of course it was the federal bailout of Freddie Mac and Fannie Mae announced Sunday morning.

Ironically, I was out most of today celebrating my 23rd wedding anniversary with my wife, was unaware of the news, and was thinking during the day about establishing a modest short position when Globex opened earlier tonight should the market open around Friday's closing 60-min resistance. When I checked to see how trades were lining up around 5:45pm today just before Globex opened for trading, imagine my surprise when I saw bids being posted in the 1260s!

So again, the game plan changes. Monday should be interesting and it won't surprise me if I don't trade much at all until the dust settles. The smooth-running natural market rhythms of Thursday and Friday have clearly been disturbed, and it may take the market a while to regain its footing and find its new rhythm. Perhaps much like the Patriots' next 15 games.

10:47am Grrr ... I have to pay more attention to my own blog (see Friday's comment about not hesitating at the open). Again, I should have been more aggressive in fading the first post-open move up AND adding on the 1 minute turn south on an unsustainable TICK ++ reading. I saw it and read it right, but it was tough being too aggressive right out of the shoot on a Monday. No excuse though ... just like being dealt Kings on the first hand of the game and slow playing them!

11:11am Jittery and rumor-driven market. UAL "files/didn't file/thought about it a few years ago" bankruptcy rumors helping whip ES around. 15 point plunge and recovery. Reminds me of many years ago when a former vacuum cleaner salesman turned analyst came out and gave a price target on an Internet stock ... and forgot to take into consideration the the stock had previously split (my best trade ever). At this rate, ES could bounce around when Tom Brady's MRI results are revealed! Like the Pats on Sunday ... looking for my trading defense to now rule the day and expecting a low scoring game. My immediate goal is to have both knees in tact for tomorrow as I see a lot of traders buckled over. Definitely have to stay out of the woulda-shoulda business big-time today Don. Yea, and if Tom had just stepped to his right.

11:37am Been trusting the 15-min uptrend and trading small sizes with that bias despite the chop, but the first high % bounce already occurred on the UAL fake-out and I don't trust another test without a clear 1-min turn. A few more milliseconds on that 11:00am rumor drop & a pause would have been sweet though. Get over it Don ... move on.

11:55am NQ -25 pts ... not good for stuck longs.

12:02pm 3ES 3LB 1-min turns up; 15-min holding; Not trusting longs a whole lot though given NQ tank and VIX turning north. If ES loses 1250, look out.

12:07pm 1-min 3LB turns down; shorted 51.75 small size ... this should plummet.

12:11pm Covering on the drop ... sitting at 46.25 on final ... still looking for a final Wile E Coyote drop.

12:13pm Took 47.50 on final on TICK barf. Finally finding "some" rhythm. Then again, even Matt Cassell can throw "one" touchdown. Still not at my sharpest though.

12:44pm Providing some tight-range liquidity but still not adapting well to the larger swings as I should ... initial scalp sequence entries always 0.50-0.75 too soon and trading not feeling natural. Intraday chip count check +$6K but working way too hard.

12:59pm 1260 seems again pivotal.

1:05pm Short biased against the 1260 level and will use that as stop on any shorts.

1:14pm Good read and sequence but backing away big-time and going into income preservation mode. Today's win thus far as ugly as the Pats/Chiefs game. Some good decisions, some poor decisions (including inaction). Good outweighing the bad, but the bad providing huge warning signals performancewise. Need to get my #$%& together.

Here's what I was looking at on that 1260 biased short sequence. Caught some, but not all of it.

1:25pm Market somewhat on the fence now although 1260 still looks good as short pivot, 3LB still short, and VIX trying to push back up. Long-term long button taped over for now.

1:54pm Shorting the next pullback.

1:56pm Short 50.50, target new intraday low with VIX on the rise.

1:59pm Free-riding now with partial profit taken and stop at entry.

2:04pm Very sloppy on final cover 53+. Best cover 48.25 but gave some back on final. Re-read your last post Don ... "stop at entry". Small contract size, but doesn't matter. Again, sloppy.

2:08pm That's a wrap. Not happy with performance at all. +$9K chip count meaningless ... A on reads; C on execution and crispness.

P.S. Thanks to all providing input on this weekend's beta video blog ... all feedback was very positive and I'll definitely do more ... probably every weekend along with some occasional weekday evening stuff. Maybe next time, I'll even shave.


Anonymous said...

Awesome blog/journal Don! Are you based out of Chicago? And are you trading from home or at the CME?

Don Miller said...

I trade electronically on a remote basis in the Northeast.

Anonymous said...

Hi Don, when you get a chance, could you post your thoughts on setting stops? Tight stops is my biggest problem right now. Typically my entries are OK, but the volatility of the market knocks me out before the trade has a chance to go my way. Ofcourse I could just widen my stops, but I'm really looking for a methodology that will help me figure out when to use wide stops, and when to use tight stops. What's your strategy/method on setting stops? Thanks in advance for any insight. I'm still going through all your posts from July and it's a great read. Keep it up!

Don Miller said...

Re: Stops, I touched on my personal approach to risk management a bit in the comments to Saturday's Weekend Trader.

I'll touch on the topic in a future weekend video ... just please keep in mind it's one person's approach and there are many ways to manage risk.

Steve0617 said...


How much time are you giving trades before you scratch them? Does it change daily based on feel? Or do you set your stops where you set them and wait until they're hit or the trade goes in your favor and then you start peeling out?

I STILL seem to not give the trade time to develop. I cut it off too quickly.

How do you do it?

Don Miller said...

Hi Steve -

I still bumble and fumble scratches at times, but as I've said in responding to a few recent ?s on stops, I use trade size more than anything to control risk.

I guess how quickly I scratch is dependent upon market conditions. But keep in mind when I do sratch/stop, I'm usually also doing so in a scale in/out manner ... I rarely if ever make a single entry and have a single stop or scratch for a trade sequence. (That would require a perfect entry and exit in an imperfect world.) For me, it's usually a matter of getting larger or smaller ... unless the market clearly blows the initial trade premise. And even it if does, I'd look to the first retracement the other way to take the trade off vs. exit in the retail panic.


Anonymous said...

Don - Great commentary on the activity during the past few days.

Its interesting to hear your perspective on not holding anything overnight.

Do you choose to not hold overnight because you feel that you don't have an edge there?

I am coming from the opposite end of the spectrum where I currently position & swing trade and am working intra-day into the mix. I think a lot of people are scared away from holding overnight because they oversize the position. It is foolish to hold the same size overnight that you would trade intra-day- thats a great way to blow out an account.

In doing some web research I found some interesting findings between intra-day & overnight holding periods thats worth further review.


Don Miller said...

Hi Eric.

Simple answer. I sleep much better knowing I'm in cash overnight, and will take my chances with my ability to perform intraday. I also never want to be in a trade where I can't control my risk.

No other reason :-).