Wednesday Notes - Tale of Two Markets

12:03pm I don't know why, but I tend to trade better when mad. After botching an overnight opportunity in the DAX on its late-day breakdown out of consolidation prior to the U.S. open, I got pissed and have finally got back in lockstep with the U.S. market. I guess it's how I'm wired and why the fictitious draw programming works for me (that is, when I actually believe it ... which is becoming an issue I'm struggling with).

15- and 30-minute has initial resistance above in the mid 1280s, and I'd like to either buy the next leg down or fade a clear retracement with some size. Just a matter of the market cooperating before and after! Not much to ask, is it?

I almost did a late night blog entry last night as I was thinking out loud trying to figure out if I've gotten complacent in these late dog days of summer in terms of reduced size and interest at times, or if my size management has actually done a decent job of keeping me out of trouble -- and if so, I'm simply beating myself up over nothing. I decided to instead get a good night's sleep after figuring that time would provide the answers ... time in the context of a few more trading sessions before I jumped to any conclusions. Plus, I was tired from watching the 36 runs in the Red Sox - Rangers game!

I sometimes think back to Herb Brooks' constant encouragement to his team during the 1980 Miracle On Ice run ... "Play Your Game" (when he wasn't cursing at them). Those words ring very true to me any time I feel unsettled, and I'm relying on them strongly as this summer nears an end and days of treading water run together. My game? Chip away at the market providing some liquidity day after day -- sometimes marking time -- until such time I feel I'm locked into an opportunity at which point the defense comes off the field and the offense finally lets loose. Right now, the defense looks tired and is screaming at the coach saying they want to come out of the game. And the offense is taking off their warmups.

12:42 Want to begin establishing a short position if ES gets to 1283 with a preferred position closer to 1285-86. Been nibbling on the short side on this midday climb, but keeping size light and holding time tight (even for me).

1:16pm Longs have some work to do as we're back below Friday's breakout for now.

1:28pm Shorted partial 1282 in case that's all she wrote. Will let it run against me; managing risk with size. Can run to the 30/60 min (1286-88) and still sustain downtrend.

1:32pm Added small 84.75.

1:48pm Right read on expected squeeze; wrong read on extent. Did some dancing on size mgt and re-entries. Flat now and looking for possible reentry on any divergences with 30/60 min at back.

2:04pm Reestablishing short position 88.00. Prefer to see 1 min turn now to add. Hard stop at 90.00. Will take it out on TICK drop.

2:11pm Dive little TICK, dive.

2:12pm Flat best cover 86.25. Didn't add ... traded what I had. Too much action to memorialize all activity, but think I captured the gist of it. Just missed a clean reversal long at 1:50pm as I was scratching the short sequence on the drop and had bids in below to reverse. Want a mulligan on that one. Very fertile ES scalping market on overreactions. Reassessing charts now as we have multiple timeframe ping-pong going on.

2:25pm Quick self-assessment. Decent size management ... a good reminder that risk can be managed by size, stops, or both. Never had full size on and had a fairly loose leash on initial short probes. Seems I ended up essentially flat on the sequences. A reminder if you're looking over my shoulder that I do fade immediate moves at times to provide liquidity ... but have seat belts and airbags at my disposal. I prefer to trade with the 1-min trend, yet sometimes I'll put some probe bets on, expecting the market to run against me initially.

2:34pm Still kicking myself over that 1:50pm reversal pitch over the heart of the plate that I just missed. Good battle of a strong 5-min uptrend banging up against 30- & 60-min resistance. Not too interested for reentering right now as they battle it out, and less interested in shorting.

3:01pm Tale of two intraday trends with equal opportunity ... trend shorts win in the A.M.; trend longs early P.M.; overreaction longs A.M.; overreaction shorts & longs P.M. Trader flexibility critical today as in not getting locked into changing biases. Personally, I think it's tough to clean up on both sides ... probably better to stay out of trouble on one. Did pretty well here on the shift at least by staying off the short trend bias as the day went on. Potential longer-term triangle as we now bounce around a bit, but decent wholesale opportunities within the larger range with good pace. Also a good day showing why moving averages only relevant when used in combo with momementum & strength indicators.

3:04pm Gain preservation mode.

3:45pm Clipped a couple of stretched bungee scalps to end the day. Decent comeback from the early DAX mess to end +$9K with a solid ES showing. Missed enough opportunities and was still wrong enough though to have plenty to work on tomorrow ... not a bad combo.

140 days to go.

Tuesday Notes - Trendless Action

12:41pm Been a pretty trendless morning. Main trade attempt thus far was taking a shot one of the early post-10am attempts for the hourly to turn back up but stopped out at 10:19am at 1299.75. Turned out to be a decent stop, but did result in starting the day with a larger draw than I'd prefer. Been doing some light scalping since then to cut it somewhat. 5 min & 15 min ranges tightening up quite a bit, so looking for possible afternoon breakout action. My guess is up based on the hourly, but tough to trade on a guess as lesser timeframes need to tip their hands on some volume.

btw, just responded to a request to post expandable charts ... I'll look into it, yet please keep in mind this is simply my personal trading diary and I'm not too focused on infrastructure :-). 99.999% of my focus has to be on trading and December 31. Essentially, if you're looking over my shoulder, consider it looking at my scribble pad.

1:23pm Perhaps it's down we go? VIX suggesting a possible price thrust down. Sitting on sidelines.

1:28pm Short ES at 9650; Stop 9800; Size modest.

1:35pm Best cover so far 9550; Holding small free-ride now with same 9800 stop. Sitting at 9375 in case Wile E Coyote visits with his anvil.

1:44pm Scratched rest of sequence ... market didn't react fast enough and too many timeframe trend conflicts. Was worth throwing some chips at pockets 9s though.

2:05pm Shaken and stirred a bit on that one. No market pace to speak of. Very "chippy" rhythm. No trades now unless a clear break. Very easy to get sucked into whipsaws.

2:44pm Closing the books on a modest ($4K) draw as I head into a 3pm meeting. Not too interested in much more slop. They could run it in the last hour again, and that would be fine to set up the A.M. OK with today's management and the cost of antes. Could have been a lot worse in this chop. September will here soon enough.

Monday Notes - Changing Rhythms

1:20pm Admittedly, it took me a bit to get the blood pumping today on the heels of a family event from which I returned late last night. Got some of the initial pop off Friday's supports, but have been watching the rest of this climb. Finally felt confident about putting some size on this midday pullback to 5-min support. Here's a nice pic ... I'm currently long and will take it out into any pop with a stop on the 1-min 3 Line Break (bottom chart) reversal. Faded into long best price 1307.50 and added on the 1-min turn. Very high probability, but as Forrest Gump would say ... "market is as market does." VIX 15-min looking to continue its downtrend ... which also suggests price bounce.

1:25pm Taking it out into the pop. Looking for 1310+ on final exit.

1:32pm Flat. Nice set-up and pace. Took the high-probability reaction. It can run to the moon now for all I care. Here's the 15-min VIX after the bounce (didn't have time to capture during the trade but saw it). Note how it pulled back to downtrend support and then continued its push.

1:37pm Yea, yea, yea, I know ES ticked 1313+ and 1310 now looking like a stupid exit. Then again, other days it would be the peak and I'd look like a genius. Neither of course would be right ... I want the high probability move and don't like to gamble! Had OK size on, but could have added a bit more on the turn to take out into any extreme pop. Steady as she goes Don ... step by step, day by day. Eyes on December 31 only.

1:50pm Heading into income preservation mode. $7K on the day and a good start to the week (btw, all figures quoted are NET of commission expense). Gotta be a helluva pullback entry now toward 15-min support as 5-min high probability move has already played out.

1:59pm Would love a cliff drop toward 1305 ... might have some late-to-the-party stuck longs bailing. But has to be a premium hand only. Might do some light wholesale scalping on any drop as volatility picking up a tad.

3:10pm OK, earlier exits looking better ... too funny. Scrambled a bit on the drop which did come in all the way to the top of the A.M. breakout range. ES only overshot my 1:59pm wishlist by 5 points! 3 Line Break continuing to be a great stay-out-of-trouble guide as it never went long on that full retrace. Picked up a few extra $ on the drop, but picking optimal wholesale entries a bit tough. Hate it when the whole world sees and wants the same thing!!

3:21pm Definitely got some stuck longs on that earlier blow-off top. Nice market rhythm though today with lots of mini-trends in play. Did OK and nudged day's chip increase up to $8,400, but it won't be hard to find some things I didn't like about my trading today. Size management may be one, and perhaps a bit too cautious in the P.M. Also been a while since I've had a five-figure day ... need to put my finger on that. Maybe size management again.

Will need to do better.

The Weekend Trader

This Week's Trade - Quite a market dance this week as the band kept alternating from Waltz to Disco to Classical and then the Mamba. Seemed just when traders got comfortable with one, the song changed. Talk about needing to stay on your toes. Then again, I suppose if this were easy, we'd have a staff of monkeys and would be lying on the beach listening to far better music.

Early Bird Gets the Worm - Repeating one of Friday's comments, it was interesting that both the ES and DAX markets did provide early pullback shorts and follow-through from Thursday's late-day range breaks ... with emphasis on early as in their overnight sessions. ES indeed dropped 12 points (1274 to 1262) off its overnight high before the moonshot. Guess the final short-term ES barf happened for the most part in the lower liquid Globex session.

Trader Imperfection - One of the things I tried to stress when I traded live for teaching or demo purposes was that I wanted people to see firsthand the significant number of imperfections in my own trading. Let's face it, name the last day -- or any day -- where you optimized entry point, contract size, and holding time on every opportunity presented. It never happens. Yet in my view, the perception of required precision was one of the greatest negative side effects resulting from the unregulated chatrooms and trade callers over the last decade. For it seemed no one ever made a mistake, everyone posted gains which were inflated and without losses, and room gurus would find excuses every time their calls didn't work. I remember one time the leader actually left the room and hid! That was a damn shame.

I'm not sure about you, but I screw up hourly. I suboptimize size, miss ideal entry spots, get distracted, lose focus, don't let winners run enough, step away from the market right before the move, misinterpret a signal, get shaken and stirred, etc. One of these mistakes happens every hour of every day for 250 days a year. Some days, I flat out suck. And I want to be extremely careful with this next comment which I feel is necessary for shock value and which I state with all due humility -- I expect to earn fully auditable seven figures this year after expenses. But forget about the number, my point is the only way I can expect to profit is to do so by accepting my humanity and constant flow of mistakes. Let's bring out all the cliches -- you don't score if you don't shoot; a .400 hitter fails 60% of the time; it's not how many times you get hit, it's how many times you get back up; yadda, yadda, yadda.

We are imperfect beings, and that ain't going to change.

Trading Coaches - Dr. Steenbarger had a great post on Tuesday discussing trading coaches and why he never went into private practice of counseling. I faced a similar dilemma when I was asked to teach years ago during which time I found teaching trading to be one of the most challenging tasks I'd ever pursued -- more so than all the hard hits I took learning my own trading -- in part because I'd take student failures to sleep with me and ask myself if they should be doing this or if I could have taught better. And yes, many shouldn't be trading, which is a highly personal decision. And while I tried to find innovative ways to "do it right" and provide seat belts for the apprentice driver, it was frankly hard to be fully at peace. Plus, the resulting energy loss zapped focus on my own trading (which was why I was asked to teach in the first place!)

I will say I'm very much at peace now. I look back at those years knowing I did the best I could, and now feel perhaps sharing personal trading diaries can do more good ... with pimples and warts in full view as always. Who knows. I suppose we'll have all the answers in the next life.

Emerging Blog Community - I'll be out of touch most of the weekend, and will catch up on any comments on Monday. Keep the dialogue coming. I do read and respond and feel we've started to build a nice little community of professional and honorable traders to support each other. It's been nice to see some old friends and make some new ones, even if it's just in writing. Perhaps some day, we'll share stories in person over a drink or two.

Enjoy the weekend.

Friday - Fool Me Once ...

3:55am Thought I'd post this early chart combination of the DAX market which reflects one of my favorite entries that stopped.

The trade is an early-day pullback entry in the direction of the prior day's closing trend support or most recent signifcant range break, and I've seen this pay nicely more times than not over the years. In this case, I shorted around the 6570 level with decent size, albeit I was still somewhat cautious since the 1 min 3 Line Break trend on the left never turned down. At my end, I do fade the market without confirmation on the lesser timeframe at times, especially on the 15 min charts. Yet the smaller timeframe still provides a caution light.

Anyway, the trade sequence of course didn't work out this time ... I stopped the probing short sequences at 6577 at 3:34am and have been doing some light scalping since to adjust to try to adjust to the subsequent action. Recovered about 1/2 the stop cost thus far, but not yet in my best rhythm this early in the day.

A good reminder that we can try to skew probability in our favor, yet that's all it is -- probability -- and as Grace will tell you, nicks and dings are going to happen when taking the car out of the garage.

Depending on how the U.S. opens, I may try a similar sequence there on the approach toward 1275, but will be ultra cautious as Europe may provide a clue.

4:35am Nap time.

6:23am Pretty sloppy Globex session. ES traded to 1274, but no clean shot. I suspect there may be only one shot post-open on the first sharp move either way.

10:22am Yup ... monkey see, monkey do. Complete carbon copy. Altered strategy again on the fly, this time thanks to a dress rehearsal. Want the first hard pullback long. 1277 area would be a gift ... doubt we'll get it. One this is clear ... there are a ton of stuck shorts that will have to cover on the first move down.

11:13am Not bad. Did pretty well adjusting and going with the flow. Pullbacks up here have been shallow, so been nibbling only. Funny, looking back at my 6:23am comment ... talk about another stampede 5 mins after open. Very little reaction time. Yea, it would have been nice to load the boat and ride the moonshot all the way ... then again, I'd like to win a bracelet at the World Series of Poker. Just trying to grind away like Michael Mizrachi.

11:22am Back in the midday summer nothing doin' mode.

12:07pm One interesting observation is that both of the planned DAX and ES pullback shorts would have worked for decent gains, but in their respective pre-market sessions (2am-3am ET for the DAX). The normal session simply didn't pay.

1:53pm Finally felt like shorting on that last spike on strong 1 min TICK vs. price divergence at 1:42pm. Had been sitting on the sidelines. Averaged into short to 9475 and covered into the TICK drop to zero.

Got a decent bite on that one.

2:03pm OK; major day and week income preservation mode now. Considering the cost of early short probing and stops, I'm OK with today's performance +$7K. A bit more scrambling over the last two days than I'd like, and I'll need to take a look at that. Keeping sizes relatively small in these whipsaws has kept me out of major trouble even when wrong ... and I've been wrong a lot this week.

I'll share some more thoughts on that last point over the weekend in terms of dealing with being far less than perfect and often downright wrong during parts of every day. Duh, today was a good example.

Lots of work left and miles to go before we sleep. Target remains 12/31/08.

Thursday Notes - Blinds, Antes & Patience

11:29am A bit choppy on the seas this morning as clean triggers have been few. Did OK in the Globex session but struggling a bit with the U.S. open as the best wholesale entries have fallen into what I call the "fade and wait" category, which is a blind fade on the extreme spikes and then a hold while the market takes its time to revert toward the mean or range end. Continuation triggers are tough since the market really isn't clearly trending on any decent timeframe and the trigger premiums eat into much of the profit potential, and even the 1 min charts have been sloppy. Pace and feel is incredibly important to me -- more so than chart patterns.

That early 8 point post-open plunge likely caught more than a few gap faders, although early and late day summer dogpiles shouldn't a surprise by now.

11:52am Bought a few tops and sold a few bottoms providing liquidity in this range ... not a good strategy :-). Laying low for a while. Don't have the personal rhythm today so shaping up to be a draw day. Goal for the rest of the day will be to keep today's antes and blinds cost manageable.

The 10am-3pm intraday opportunities continue to be almost non-existent as the summer gets late. September can't come soon enough. Having a hard time remembering the last time I had a 100-contract position on!

1:13pm VIX on the fence ... no help there.

This weekend, I'm going to think out loud about imperfection in the maketplace, and more importantly imperfection at the trader end.

2:16PM Looks like a blinds & antes round today at this end. Nicked up a bit ($4K) but not too bothered with attempts ... gotta get in the pool to swim. Tomorrow may not be much better in terms of volume and pace. Considering taking the day off if this keeps up.

2:47pm I want this pullback short! Sitting at 7525 and 7550.

2:50pm Took 7500 short. Cover orders in 73s. Stop on 1 min 3LB turn.

2:55pm Added 7550. Looking for a elevator drop. Lots of size spoofing and finally a range break. Shorted into a phony sized bid.

2:59pm Covering on the drop. Flat at 7250.

3:03pm Here we go again with the last hour. Careful Don ... not your strength. Not many market supports out there if this implodes. Watching.

3:10pm Doing some wholesale scalping; Strong 1 min TICK divergence last drop. Hmmm ... volume bars ... almost forgot what those looked like.

That might be it. Tough market when there's maybe just one or two meaty entries all day, and you have to be there and be ready to hit it hard. Could have sized larger, but tough when you've had chop all day. Very similar to yesterday in that regard.

3:22pm VIX sneaking up. Early Friday entries may not be bad after all. Flat and watching.

3:27pm Nice rhythm down here ... TICK very helpful on overextensions for short covers or quickie wholesale longs.

3:33pm Bottom falling out; VIX leading the way.

3:49pm OK; nice scalp sequences to end the day. Decided to trade when the market said to, despite the last hour. Who'd have thunk? Kept things tight though. Nice comeback to end slightly green.

Looking forward to the open.

Wednesday PM Charts

Here's a decent picture of what I was looking at for the PM trade sequence. The charts are 15 Min ES on top, 15 min VIX in middle, and 1 min 3 Line Break at bottom. Approximate time of entry is circled:

The three in combination seemed to indicate bias was up (especially the VIX which was poised for another leg down -- even at these extended levels), and I felt the 1-min 3 Line Break would be a decent stop trigger if it reversed back down ... which it of course could have.

Just thought I'd post a picture.