Adjusting timeframes

Thought:

1) I'm analyzing on timeframes that are weekly and daily. However, my trades seem to last less than a week. Perhaps i should consider using daily and hourly charts instead.
Weekly should be there to identify key turning points, but more as a watchout?

2) Use my daily analysis for the setup, and then hourly for entry and exit points?

The end of the bear?

Mid term trendlines for the SPX have been cracked since 23/3. Perhaps i should have taken that into more serious consideration. Till today, i've still been an active bear, when the market has moved into a phase of consolidation.

I shouldn't do anything until the market plays out where it's going.

Bullish:
If it takes out the previous high of 832, which would mark the next significant trendline resistance at 940-950.

Bearish:
If it cracks the 770 trendline instead of bouncing off it and resuming the bull.

FPL loss

Another loss, this time on FPL. This one was another example of bad trade management. My initial stop was 50cents away from my entry. The trade went in my favor for the day of entry, but the next day, it threatened to gap against my position, so i moved the stop.

The next day, the trade continued to go against me, albeit a small amount. On the third day of the trade, it went against me even more and that's when i woke up and exited at a near 2R loss.

With perfect 2020 hindsight, my mistakes these couple of days seems to be:
1) Trying to call the top. The SPX was falling for 2 days, so i thought it would be the resumption of the bear. However, i ignored the fact that volume was light, and that it didn't take out the killer one day 6% rally's low.

2) Bad trendline drawing. Looking back at the trade, the trendline was actually cracked, and the reaction against it wasn't as it should have been.

3) Forgetting PotP's rule of "you're wrong when you enter the trade. the market has to show you that you're right. otherwise, exit and look again"

Tighter rules

Another loss for CVX. Bought a CVX put at 6.50 when stock was at 66.60. Bought it back when stop was triggered at 67.90 at 5.50.

It's hard taking another loss, but that's the way it works. It got me thinking about my past trades that went well. The only thing i'm not incorporating from that are patterns. Right now i'm trading based on trendlines only with some confluence of RSI, Fib and Candlesticks.

I'm wondering if my setup isn't as optimum as it could be. Chart patterns provide a more solid structure to the trade.

New filter?

After bouncing some thoughts off a buddy of mine, it got me considering another potential filter for the stocks i trade.

In a nutshell, certain sectors/stocks will lead the index. So i should be looking to those leaders or laggards for my trades as they would likely be the ones that are 'moving independently' and should comply with proper analysis. The alternative are other stocks, the 75% that move 'with' the index, and would likely be wafting around.

Downtrading

I reviewed my trading activity since i started again this February. Prior to that, it was a year since i made my last trade.

Within a month, i've made about 10 trades already! Looking at the rate as well as the quality of trades i've taken, that's an area i can greatly improve.

My greatest lesson here i think is of Patience. I need to teach myself to sit more on the sidelines and only act when the timing is right.

- Wait for prices to approach trendlines
- Have a clearer perception of how the indices are trading (bull or bear)
- Always have at least 3 confluences (trendlines, candles, RSI, and/or Fib ratio)

Turning point

SPX is trading at 822.92 now. Prices have passed the fib retracement levels from February's swing of 61.8% (daily). On weekly fib retr, the levels will begin from january swing, and 61.8% will be at 837. This could be the next resistance point.

What will it take for me to turn bearish again?

1) Resistance at January 61.8% swing levels. 837ish
2) Down candlestick
3) Close below 772 (low point of 23/3/09)

When good trades go bad

Once again, the market tests my fortitude. A good trade went ugly in one day, when hours before, it seemed like a sure winner. I take pride in knowing that i made the right decision in this trade, but improvements can still be made on how i manage 'special situations' like this (refer previous post).

Morale is low, but i'm hanging in there. While i can't really control the emotions that arise, i cannot let it affect my objective analysis, nor my actions. Remember that each trade is its own.

The 'should i have done something' feeling

I took another loss today with my UPS trade. All things considered it was a good trade, one that helped evolve my style a little.

Firstly, the setup and entry remain roughly the same; Entered on a down day towards the end of the session when it bumped off the 38.2%, had a bad candle, and oversold RSI. The same went for the SPX. A day later i continued to sell off, which created another opportunity: Pyramiding.

This is when i thought about what Soros said; When you're right, you've gotta be right big. (or was it Richard Dennis?) Anyways, the next closing session showed me an opportunity. I moved the stop and added a put position.

The third session was when it went ugly, this morning. The incident was when Geitner introduced his package to buyback the toxic assets.

I'm still relatively calm, nevertheless i do feel a slight pang of loss. Net for this trade, i was down 1.3, slightly over my regular risk position. My string of losses has grown to about 4 trades in a row.

While i'm still proud of this trade, I'm wondering if i should have managed it better? With a big ass move like this, the futures were already showing serious indication of moving against my position. Perhaps i should impliment some new rules;

- In case a startling event occurs against my direction, watch the first 30 minutes and move stops to the high of that timeframe.
- Continue to trade with pyramiding style, but be cautious about how i manage my exposure.

Psychological risks

After reading some articles by Brett Steenbarger, i'm reminded of the... other risks involved with successful trading.

Again, anyone can trade, for whatever reason they really do. Most people think they're trading for money, but in fact are fulfilling some other need they have. To be perfectly honest with myself, trading does fulfill more than one aspect for me.

1) Monetary - the desire to make enough money to be financially free.
2) Excitement - the thrill of being in a position is unlike any other. it triggers feelings of anticipation (better and worse).
3) Significance - a sense of satisfaction when i made money with my mind, executing my ideas. it's also a thrill of feeling like i'm 'better' than the average person by being a part of something like this.

There might be others, but these are the main ones.

Now where does the risk come in? It's when you start to make trading decisions that aren't based on sound analysis. If you don't stick to your plan, you'll end up waving in the wind as your emotions take control of your actions.

I've just got to keep in mind that my objectives for trading are first and foremost, MONEY. Doing the RIGHT thing to make money. All else is secondary.

SPX direction 18/3

Currently at 778.

Weekly:
RSI resistance at 50 levels since August last year. Currently at 44.
Next high resistance (prev 1-3 month high) 880 or 950.
From 950 levels, there's a fib ratio 50% resistance at 805, with round number and ceiling resistance around 800.

Overall: Still has room to go up.

Daily:
Next short term resistance will be around 800 with a trendline sitting there.

might seem a little 'slow' for me to catch a downward move in time) Trying out 1hour charts.
1 hour:
Prices still in clear uptrend on 10 and 21period EMAs.
Prices made new highs, but RSI hasn't.
RSI's on extreme overbought now.

Conclusion: Wait for 1hour charts to capitulate towards the downside to resume slide. Limited potential upside move, so don't take long positions yet unless it clears the 800 mark properly. Capitulation should come within this week if it does.

JPM another loss

Early in the trading session, i detected strength where there shouldn't have been if my analysis was correct. Because of this, i moved my stop somewhere closer, and i guess despite the monetary loss, my decision was a correct one. It blew right above my stop and i believe this might be the turning of the market for the medium term.

The direction of the SPX now is still in long term bear, medium term bear, but short term bull. Next we'll have to see what happens when it hits the 800 mark.

The Turtle Way

I'm 1/3 way through 'Way of the Turtles' by Curtis Faith, the best performing turtle of them all. It was quoted by Van Tharp that this book is one of the 5 best trading books ever written. This far in, i'm convinced he's right.

It's not a typical 'i can promise you riches with these magic formulas' type of book, but rather a very honest and detailed listing of his lessons since becoming a turtle back in 83.

The one line that spurred me to write this is his philosophy, which echoes the work of Mark Douglas in 'Trading in the Zone', is how he's committed to approaching each trade with the same level of commitment and expectation. There are many biases that afflict a traders mind; law of small numbers, recency bias, and others that result in us taking actions that divert us from the goal of being consistent with our plans and systems.

I'm guilty of negative feelings, that i can't deny. My duty now is to NOT let it get in the way of acting right.

JPM feelings

Entered another JPM trade yesterday right before the close at 23.30. The stock closed 23.09. Overall i'd consider it a good play, with the technicals right and the SPX looking like it's rally has run out of steam and reversing at the fib 32.8% line.

However, i'm noting that i'm still feeling the fear after Asia performed very well, with gains in Sydney of 3% and 5% at Tokyo, which were driven by financials. I'm afraid it will re-ignite the uptrend, and negate my trade.

The amount i'm risking for this trade is 2x the regular R amount. At the look of this, i will likely be cutting that risk amount.

As i sit longer, i realize what this feeling makes me do. After i make the trades, there's an obsession about 'babying' the trade by reading as much news as i can which supports my move. As much as possible, i try to make myself believe i made the right choice. This points to a lack of confidence in my system.. There's alot of hope gathered, which doesn't really harm my position, it creates mental and time waste.

JPM too soon

Got stopped out of another trade, JPM. In anticipation of resistance in the SPX, i shorted JPM, only to be taken out 30 minutes later.

It felt bad at first, but the trade risk/reward parameters still remain good, and it formed a nice Doji in the end. I'm still keen on shorting this, but i need further confirmation in some form of weakness in the indices.

My mistake here was probably jumping the gun and making the trade too soon. My fear of losing a good entry point made me want to place a trade ahead of the confirmation... this again boils down to:

Do i place an entry like traps?.. or do i stalk the trade?..

BNI - profit at what cost?

I exited the trade today at a small profit. However, i managed the trade badly.

1) I was risking too much to comfortably let this position play itself out.
2) Managing the stock's movement vs the index got me really twisted. I need to relook at how i would handle adverse index movement. Did i panic out?

The stock closed a dollar higher than my exit. The main reason why i pulled out was because i feel that the SPX will encounter resistance really soon.

BNI - feelings

As i'm managing this trade i feel:

Anxiety - It seems to be tracking the SPX very closely. Price action is almost identical. However, the SPX seems to be at a very crucial spot, hovering right below the November resistance (which was previously the support). How the price acts against it tonight will be telltale of how this trade will go.

Disappointment - The trade target has changed for the lower now that the moving averages have come downward. The target area is probably around 60, which makes the initial risk reward 1:2, which isn't optimal.

Indecision - To terminate the trade because i'm afraid? To wait for further confirmation from the indices and stock tonight.

BNI tracking

At 4.30 this morning, i woke up and wrote this:

At 430 in the morning, watching the 5 minute bni chart, my 'gut' is telling me to exit. i'm guessing it's because the day's rally looks halted or stunted. could this be what the 'masses' feel, and therefore be the wrong thing to do?

The stock did close lower than the point at 4.30am. I've not moved my stops yet as i think this trade is still working. Here's why.



The 10day 30 min chart shows that it's broken through a resistance channel and it's just rebounded off it, confirming a support.



The daily still remains upward, as it made a new high. However, it failed to close above the prev day high.

BNI for the win?

The SPX bounce that i was relying on for this trade finally arrived today. SPX closed up nearly 6%, and i got into my BNI trade 20 minutes before close. Bought at a price of 54.60, this position is going to be a tricky one.

My initial stop as of now is 51.60, 3x the regular risk amount. This shouldn't be the case, but i want to give this trade room to breathe. The potential gain i've tagged around 10dollars, with a trade target of 64.

However, that's assuming this rally lasts. Frankly speaking, i don't expect it to, so this trade will have to be managed more carefully. If buying picks up again tomorrow, my stop will be moved much closer to my entry. If the mood is ugly, i will probably exit as soon as i can.

Pivot points

Amongst the stuff i downloaded, i stumbled upon a short one on Pivot Points. It's not the first time i've 'used' this, but suddenly, i realize it could utilized to point out price targets to place my orders.

The initial simple formula is as such:
R2 = P + (H - L) = P + (R1 - S1)
R1 = (P x 2) - L
P = (H + L + C) / 3
S1 = (P x 2) - H
S2 = P - (H - L) = P - (R1 - S1)

There is another version by Tom DeMark, which kind of gives you the middle range of the pivots. From the looks of it, he believes that if the next period (day/week) pivot will be affected by whether or not it was an up/down day before.

I feel that it can be successfully utilized as a powerful indicator when both daily and weekly (and perhaps monthly) figures coincide. Ie; The weekly R1 point is close to the daily R1 point of the previous day.

These points can be used to add confluence to the trade setup.

On losing

Losing always has an effect of dampening your spirits and/or making you start to question your method. I'm still in a positive frame of mind, but this post is to remind myself about how i can deal with it in the future.

1) Losses are part of a winning plan
- No system produces a 100% winning rate. Even the best traders knock out winning percentages between 30-50%.

2) Money management will see you through the end
- As long as you keep your losses to a minimum, and your winners maximised, you will come out tops.
- (My previous wins were at least 3R, and these 2 BNI positions combined produced a 1R loss)

3) Think objectively about the losing trades
- If you stuck to your rules, it's part of the plan.
- If you broke them, DON'T DO IT THE NEXT TIME.
- (In BNI's case, i was trying to 'predict' when the SPX rally will come, and both times, the stock price just followed alongside the indice, which tanked)

BNI again

2nd losing trade this year.

The previous post was written hours before the market opened, which showed a near 2% gap down. I waited till the opening bell, and from the point of opening, the market was showing some positive signs, at one point erasing the 2% decline within 10 minutes of open.

Taking this as a bullish sign, i set in a limit order to buy BNI. The reason and target for the trade remain similar, with a slightly higher risk target of 55c.

However, the markets proved grim today again. I feel a slight loss, but again, nothing horrible. The trade seemed justified.

Lessons learned:

1) Trying to catch a falling knife is very very dangerous. Perhaps i really need to start considering whether i should continue to trade with such a method, or 'wait' till further confirmation.

2) I wasn't trading with the big trend. As a lesson to myself, i will not initiate any more long trades until a much clearer signal is given by the indices.

SPX blues

It's a new week, and the futures look like another bloodbath. Currently 3 hours to open, and it's down 1.5%. The question is when will respite come. In the past month, it has maintained it's RSI oversold status, and currently is sitting a few points higher than the previous oversold extreme.

Now that the 700 mark is clear, the next run will be to 600 before a significant rebound is made.

BNI loss

My BNI trade was stopped out at a loss. 1R, but my position was a half one, risking 50cents.

The good part is that i don't 'feel' so bad about the loss. Looking at the trade again, the risk/reward was worth the shot, plus i still believe the trade has merits.

In some ways, it's a slight breach of discipline in that i'm not trading the direction of the current trend, which is down. It was a long trade that's positioned very nicely in an existing trade channel.

I'll review the technicals for the indices and reconsider taking the trade again.

Exiting strategies

The USB trade went well and i was stopped out yesterday at 10.43. The only gripe i had was that my exit was nothing but sloppy. Here's what happened:

Pre-market open, the SPX futures were screwed, plus USB was also gearing to gap down significantly which would bring it close to my initial exit target of 10.00. Seeing this, i wanted to capture a more significant profit, so the only 'safe' way i figured was to do a trail stop like i did with my JPM trade.

However.

Sure enough it gapped down, and within 5 minutes i was taken out of the trade. I set my 30c trade stop fairly tight as i didn't want to yield too much profit. As i write this USB closed at 9, and it went as low as 8.53.

As i write this, there really isn't that big enough a way i can think of to improve it. I had reasons for having such a tight stop:

1) I really didn't want to give up too much profits, so i had to find a balance between how much room to let it run, and a comfortable amount i was willing to 'give away' should the market go against me. (and we all know that can happen on a dime)

2) The trail stop analysis was more shoddy as i just looked at the past week for how much of an advance/decline streak that could happen. 30cents seemed to be a fair mark to me then.

Anyways, no use crying over spilt milk, just focus on improving my exits. Cheers to another profitable trade!

Trinity

This entry has 3 observations.

1) Morning haze.

Waking up and turning on your trade monitor at 7am in the morning can be hazardous. Impaired vision and sitting in darkness can really affect how you see things. This morning, i totally misread an article on Marketwatch only to gasp at myself after i returned from brushing my teeth and turning on the lights.

Lesson: Turn it on sure, but MAKE NO DICISIONS until you’re fully awake with the lights on. Or 15 minutes after you’ve ‘started your engine’.

2) Pyramiding blues

Pyramiding blues again. USB is going in my favour. Great! However, i’m still having trouble trying to figure out a way to pyramid the position.

It closed the 3/3 at about 12.50ish in my favour, but opened 4/3 gapping upward at 13.37 past my opening price of 13.15. So, if i add another position now (11.30), my stop would still be above my initial position, turning my total risk into an unreasonable level.
Moving my stop closer doesn’t really seem like a smart technical move either, as i won’t be making a decision based on technical analysis, but purely from my own position’s perspective.

(on a separate and brighter note, as i write this, the SPX is up close to 5%, but both the stocks i was eyeing are down; USB and JPM)

3) Morphing trades

As per the previous posts, i’m in a short position with USB, entered at 13.15. Looking at this chart, i noticed that i feel like morphing this trade into another one.

CAUTION

Look at the descending triangle that seems to be forming on the extreme right. I’m wondering if it’ll breakout

on the downside.

However, regardless whether it does or not, my original trade objective does not encompass this. Now, i’m a believer that trading is like a sport, where great skill honed through repeated practice lets you react and change your play on a dime. So, when i believe this is possible, the question becomes, am i that skilled a sportsman yet?

It’s still too soon. Only after 1 year of consistent gains will i let myself do this.

USB - feelings

As i wrote about Pyramiding, i notice the feeling i have that i really want to add to this position because it's moving in my favor.

Is this the sign of greed? or instinct that's telling me to move in for the kill. If i recall right, George Soros once said that if you're right, you can never be right enough.

I won't be adding to this position today however. Looking at the risk levels and where my new stop would be, it would create a total risk that's too high.

Pyramiding beta 1.1

One thing i've yet to perfect is the art of pyramiding my position. Case in point, my USB position that's still currently on. My initial risk was about 75 cents, not enough to make a full dollar R, but doubling up would mean risking more than my initial R.

Because of this, i want to seriously consider pyramiding positions like this, (and it can be used for other profitable trades as well).

One method i'm considering is this. Being in this time zone, i can catch the final hour of trade easily. Perhaps if i see that towards the close, it will close below the previous day's low (because i'm short), i can add a position.

Conditions:
- the candle being formed is in my favor
- the close is in my favor
- the new total risk levels shouldn't exceed my initial R

But, how do you determine the 2nd entry price?... or should i just issue a market order?

Missing a piece

Only after reading the news after the market closed did i realize that i overlooked a significant fact. After gazing so strongly at the November lows, noting that it's also an 11 year low, i totally missed the simple 'round number'.

The SPX closed right at the brim of the 700 mark. It briefly pierced it, but nevertheless, the line held. Only time will tell if this mark will remain a significant support.

I'm in a position with USB, shorted at 13.15, with a target price of around 10.

Chasing prices

Rather frequently, this happens to me.

I spy a trade that i want to get in on. I'm convinced that i definitely want to be in it, but the prices are slightly off my 'target' entry. What i do is i put down a position and wait.

On a day like this however, where a significant event is occurring (plumbing new lows), i'm hesitating to enter at a lower price, but my conscience tells me i'm a little fool cause i'm being penny wise pound foolish.

Breakouts

I'm looking at the S&P chart, both daily and weekly and this is what i see.















This is the daily action, and from the looks of it, it'll crack the november lows, bringing the close (in 30 minutes) to about 11 year lows.

Look at the oversold RSI. Part of me says that shorting something in this market might not be too wise because of a bounceback. However, i believe it's negated due to the breaking of the new lows. As mentioned in the previous post, the decline should continue from today for the next couple of days, to eventually rally to test the new resistance created after this.

March begins

S&P seems to have broken the november lows last week. Europe and Asia are deep in the red today before the market opens. My projection is for it to extend losses for at least a couple of days before rallying back to the new resistance.

In line with this, there's a good trade setup for USB. Currently trading at 14.31, it's sitting right on a resistance line, as well as the 21dEMA. With the negative backdrop in the broader market, led by bad financial news, i'm betting on buyer resolve to fade and for the recent lows around 10 to be retested.

Healthy rising

I've long been a fan of Candlesticks and recently i've started rereading Steve Nison's great books on them. Again an old lesson has resurfaced. Seemingly simple knowledge, yet profound in how it can really change the way you see prices.

Any advances in whichever direction should be 'healthy'. Captured neatly in the saying, '2 steps forward, 1 step back', it implies that in a healthy bull market, prices SHOULD encounter resistance, and you will see this in the candles. If there was nothing but buying going on, at one point there won't be any left and it won't take much effort on the sellers part to push prices down. The faster it rises, the more dramatic the fall.

Overload

I was thinking and browsing through a truckload of books lately and an old lesson reemerged. Right at the start of this whole journey, i read The New Market Wizards, by Jack Schwager. One of the best books i've read in this genre.

Being inundated with information, most of which proclaiming their superior efficacy, i remembered that there is not only 1 path that can lead to success. Jack has done traders all around a favour by distilling the key elements of our heroes. Get a decent system yes, but always remember psychology and money management.

Learnings

Here are some key thoughts/ ideas/ point of views of the market that i've picked up since i started this journey.

1) You're wrong till the market proves you right.
- Coming from the Phantom of the Markets book written awhile ago, it creates the rule that if the markets aren't showing you the expected price action, you're wrong and should be out of the position.

2) The biggest players buy weakness and sell strengths / Trade with the prevailing trend (of Indices)
- The trick is identifying which is happening when. Coupled with the belief that markets do trend and that events/prices will have a tendency to conform to the long term trend, i should learn to identify 'key points' where i should be buying/selling.

3) Confluence.
- Nothing unique about having multiple indicators point you in one direction. Confluence is expanding that view onto the larger field. Right now, I love seeing 3 or more aspects come together.
- Ie; For a 'buy', i'd like to see an oversold RSI, a good weekly support, a chart pattern, and/or a candlestick pattern.

4) The more defined your system, the better.
- The fewer 'loose' variables you have in your system, the less chance of you sabotaging your own trade by making bad judgment calls.

Tuesday 24/2/09

I woke up at 7.30 this morning, with another 30 minutes till closing bell. I had no positions on.

The market was rallying as expected, with the SPX eventually closing 4% up. Overall, it was still on a downtrend, but i am expecting a few days of rallying towards the resistance line around 811 or 830ish.

My system requires me to look for only short setups because the prevailing major trend is still down, and overall sentiment is still negative. The rationale for this thinking has its roots in the thoughts of Jesse Livermoore/ Edwin Leferve of how events tend to fall in line with the prevailing trend. I determine the trend by using simple trendlines on the weekly charts.

I could feel my emotions tempting me to make a trade. I flipped through a few bullish charts that i identified and despite the fact that technically they seem decent trades, i will maintain my discipline to stick to that philosophy.

Purpose

After more than a year of being away from the market's, i'm back. This blog is meant to journal any thoughts, ideas or emotions that cross my mind as i go through my trades. I hope that by getting it all in one place, i will avoid 'running around in circles'. In my short history of trading, that seems to be the case much too often.

A little bit of history, to myself and whomever reading this. I started looking at the markets in the year 2004. After returning from my studies in NZ, i was at a point of wondering how i could make more money. I had shortly started work already, and was looking at a bigger picture. It was there that i stumbled on an advertisement on options trading.

I'm not sure what exactly was it about the ad, or the 'introductory' seminar that got me, but i was willing to commit 5k of my cold hard cash to 'learn' more. I had no idea what i was getting into. On hindsight, it was the best and worst 5k i've spent. Best in a sense that it was my starting point of hunger in wanting to master this trade (no pun intended). Worst, as after all i've been through, i believe that guy was a hack.

In the next few years, i started an account with OptionsXpress with 5k USD. Lost 30% of that in my first year. Pumped in a similar amount in dollar terms and shifted my account to ThinkorSwim because of the commissions and i wanted to trade stocks. There, i lost 20% of that in 2007, and i took a step back from the markets in August 2007.

Today, i'm back in the game, and after a lucky first run. My beginners luck finally kicked in perhaps? I made back all i lost in 2007, and i'm raring to go in early 2009.

What has changed? What have i learnt that will make this attempt a more successful one?
1) Dozens of books later, i've learnt enough theory to understand that it's not the complexity of the trade method. It's a sound system that makes sense, psychology that helps you achieve consistency, and excellent money management.
2) I've learnt to not be too compulsive in selecting my trades. I had a tendency to chase too much action, and end up running in place. That said, i'm now more patient; an analogy of me and the markets akin to a hunter stalking his prey and laying traps/ trades.
3) I'm more self aware of how i feel. I recognise that i'm probably not gonna be able to eliminate being emotional completely, but i'm more able to control my actions/reactions from that. I watch for wanton fear and greed by trying my best to remain objective. What helps is that i make my trading decisions after market hours so that market hours are simply kept for executing orders.