Wednesday, February 4, 2009

Wednesday Notes - A Telling VIX

4:15pm First, a very happy birthday to my wife Debra, who as I mentioned when I locked in the 2008 trailing stop in December, has been a lifeline for me over the years. And after having spent the last 20 years raising two kids, including one Type-1 diabetic, and also surviving a massive appendix rupture a few years ago, she has some of her own key personal goals this year. I've told her that 2009 will be her Bamboo year, and last year's results are in part allowing her time to focus on herself for the first time in two decades. That alone was worth all of the painstaking focus throughout '08.

OK, now to the markets. The VIX was the story of the day, and today provided yet more proof of its intraday power as shorting for anything other than extreme scalps in the morning was a sure ticket to frustration as the downtrending VIX (see attached chart; click to enlarge) was supporting a continued ES price climb. Until just after 1:30pm ET of course, as it turned upward and supported the ES tank. And while a trending VIX doesn't guarantee price movement in the opposite direction -- a stretched VIX can snap back just like price charts -- it sure as hell provides a caution sign in terms of trading against it for reversals.

At this end, I traded fairly well, although I had to adjust to the extent of the early PM drop as I started buying wholesale on the approach toward 830 on the extreme TICK reading and had to scamper to adjust to the plummet to 827.50. And while I could have traded that particular sequence better, the subsequent short sequences on pullbacks more than offset the "scamper" sequence. And after closing my final trade at 3:07pm, the rest of the day was a snoozer with no clear signals and I did well not to try to force things.

On the last point, keep in mind I do often fade trends on extreme emotional price and TICK movement for very brief sequences, and such provided much of the 2008 take. Yet one has to of course manage risk carefully with size and have clear signals. Gaining the spread also helps minimize risk. And it's not a reversal trade. Further, as last year's single-day October draw showed, extreme can become more extreme.

Having said that though, the much overused and misunderstood "trend is your friend" concept should probably be replaced with a more relevant "wholesale opportunities are your friend" notion. For how many times have you traded with the trend and generated a loss due to poor entry points, a shorter-than-expected continuation, or getting caught up in the emotion of the move?? Happens all the time. And while I of course prefer to trade with the trend currently in play, such is another missing chapter from most Trading books.

Bottom line is someone has to be willing to step to the plate and provide liquidity when people are bailing in mass, and do you think we do it intending to lose money over the long run? As with anything in life, timing is everything. 'Nuff said.

Anyway, I've updated the scorecard to the left for today's results, and now it's off to the most important event of the day ... a birthday celebration.

I'll post and respond to comments later tonight.


NQJ said...

Hi Don,

Wishing your wife a very Happy Birthday and a wonderful year.


Julius said...

I'm new to your blog (heard you on TraderInterviews, well done). Any particular posts you recommend starting on to get my bearings? Do you still recommend the materials at, or is that older?



Don Miller said...

Hi Julius and welcome to the blog.

I'd recommend perhaps starting with the first few July '08 posts, then skipping ahead to the "Key Posts" below the main index to the left, and then perhaps going back and filling in the gap as you have time.

Keep in mind the "Weekend Trader" and Video pieces tend to me more general in nature, so that may guide you as well.

The site you mention was an older site active a long time ago for a short while when I was asked to provide trader development tools, which I don't currently do. I also don't believe the products are currently available, so I'd definitely stick with the blog.

Again, welcome.


Severino said...

Hello Mrs Miller,

Happy Birthday! You must be a real saint, because it is usually a challenge to deal with someone who has such a competitive spirit. Have a great 2009.

Hello Don,

I do not want to abuse the standard etiquette in asking questions of someone who is giving a lot more then they are getting in return but, (Someone once told me that when you say but, that you can just erase your last sentence). Would you please elaborate a little on the wholesale prices?

Does that mean that you usually will put you bid in the top or further down on the DOM instead of just clicking on the ask for a buy and wait to get filled? (Visa versa for sale).

Can you have a buy and sell on at the same time without having a position on?

Please forgive me if I am complicating something that is simplistic in nature.



Don Miller said...

Thanks F&W :-).

Get In Get Out said...


Just curious on why you switched your charting software from esignal to tradestation? I am currently looking for a good charting software package so I was just curious. Just started following your blog 2 weeks ago and it is one of the best!!! I have learned alot from you after blowing out 4 es accounts.

J. Scott said...

Ok, Don, I was hoping I would figure this out in due time, but I’m still not entirely sure what you specifically mean by trading at “wholesale prices” since you routinely mention it. Do you mean it conceptually in that you are getting in at the best price (ie, you’re buying when others are selling and vice versa to catch the small counter-trend moves)? As a CME member, are you afforded fills different than the rest of us in the crowd? The “gaining the spread “ threw me. Thanks.
Signed, Konfused in Kansas City

Don Miller said...

Severino -

No problem with the ?s.

In general, wholesale simply means entering at a discount, either via (1) gaining the spread by entering a position via buying the bid or selling the ask, (2) simply fading a short term trend when playing a longer term trend, or (3) taking the other side of "panic moves" for a reversion toward the mean prior to the trend attempting a continuation.

In existing, I ALWAYS have resting exit orders in the DOM above or below the market in the direction its moving after establishing a position. 100% of the time.

I do certainly buy the ask or sell the bid at times, especially when adding to a position, but I hate paying retail, even if it's just the spread. That's something that catches me at times as I try to get too precise. [Frankly, it's one of my largest weaknesses.]

And yes, you can list buys below the inside bid and sales above the inside ask simultaneously. You're only restricted by available margin in terms of lining up entries.


Don Miller said...


As I mentioned in a response a few days ago, I switched late in '08 primarily because I was having some techincal issues with Tradesation at open, and never worked on fully resolving the issue.

I have both platforms available for use though, as I believe in redundancy and backup at every turn.

eSignal also has better 3 line break charts. Yet other than that, I consider them both very comparable.


Don Miller said...

Hi JScott -

See if my response to Severino above helps, as he touched on a similar issue.

In terms of CME membership, I stand in the same Globex line as everyone else in terms of fills. One doesn't need to be a member at all to post buys on or below the inside bid or sales on or above the inside ask, and I traded that way prior to becoming a member in 2004.

You DO have to trade through a broker with Globex access though, and preferably via viewable price ladder, if you want to place such "wholesale" orders.

The primary benefit a member receives is discounted commissions, so members tend to trade much more frequently and thus help provide liquidity for others.

Other than that, it's a completely level playing field for all on a first come, first served queue basis.

Hope that helps.


Don Miller said...

Severino -

Of course I meant "exiting" to begin the 3rd paragraph, but you probably figured that out.

And thanks for the B'day wishes. I'll pass them on.


KN said...

I sincerely hope you and your wife had a good birthday celebration a day I will certainly not forget.

I have won my first poker tournament with 680 participants and would like to thank you for giving me/us something money cannot buy, which is the mental strength to carry on through trial and tribulations of trading, poker and life...

Thanks for sharing


Don Miller said...

Kobus -

Way to go ... Congratulations!!

Needless to say, that is no easy feat navigating such a large field.

Nice going.


KN said...

Thank you Donald,

It’s like walking in a minefield but if you are disciplined, patient (does it sound familiar?) plus timing of your "trades" are done in the right spot you make the money.

Further starting well and staying around or just above the average stack will get you deep into the tournament.

The virtual coffee/tea/beer is on me....what a nice feeling


B.S.trader said...


Curious if your trading evovled primarily on the screen or if you cut your teeth on the floor in any capacity prior to, or in addtion to screen time?

Having had floor experience (pre es), exposed me to the lowest common denominator of the largest participants, no charts and an overhead board truly forces simplicity of measuring price over time without the distracting bells and whistles. Thanks.

MACDOW said...

Hi Don
Slightly off subject here but as you know you have started a community of sorts. We all follow your blog and enjoy sharing your little bits of wisdom. May I suggest to other readers who comment that they open their profiles as its always nice to see , even asmall glims of who it is who has taken the time to leave a question for you or a comment.
Usually you get the following which is a great pity "Profile Not Available

The Blogger Profile you requested cannot be displayed. Many Blogger users have not yet elected to publicly share their Profile.

If you're a Blogger user, we encourage you to enable access to your Profile"

OPEN YOUR BLOG PROFILES, Lets get to know each other :)

Thanks as always for such a great blog. I also try to insulate myself from the market commentry and chatter ?/ clutter as it plays on your mind. I do find your blog and Dr Bretts blog worth reading every day.


Don Miller said...

Hi Startrader.

My teeth have been cut (and split and nashed) 100% via the screen.

I'd probably be lost on the floor without the chart visualization of the trading activity ... which is opposite of the challenge many former floor traders have.