bondtrader's Blog

Futures Trading, Musings, and Random Thoughts

Friday, June 18, 2004

Lessons I learned today

  1. Do not trade after 3 losses in a row (yes 3, not 2). This will help resolve the problem if you entered just as it is about to retrace. If the market is trending, your 3rd trade will win. If you have 3 losing trades, the market is in a choppy condition.

  2. Of course, keep an eye on divergences. Do not enter a trade if you see at least one indicator diverging.

  3. After entry, if the next 3 bars go against the direction of your trade (lower lows after a LONG entry, higher highs after a SHORT), exit immediately.

  4. Exit loss Reasons

    "Limit losses quickly. Most traders hold on to their losses too long because they hope the loss will not get larger. They take profits too soon, because they fear the profit will diminish. Instead, traders should fear a larger loss and hope for a larger profit." -- Mark Weinstein

  5. Pay attention to how many waves there are in a direction. There is a minimum of 3 waves in every one.

  6. When trading continuations, take only the first continuation (wave 3). The 2nd continuation (wave 5) is dependent on how strong the first continuation (wave 3) is.

  7. Keep an eye on the 15-minute chart, which shows the larger degree trend. There should be at least 3 waves on it.

  8. Take a look at MBO and SuperIndicator to help confirm divergences. Do not enter when these indicators are diverging, even when the others are not.

  9. Last but not least, always use my main trading strategy - Breakout Trigger @LSMA/TSF - and pay attention to price bar color via mid-BB crosses.

The combination of the above guidelines (waves, divergences, larger degree trend) will help you stay out of low-probability trades, and keep your account and your sanity intact.


(Disclaimer: Even though the above guidelines contain suggestions specific to my trading system, it shows roughly how one can deduce trading rules from lessons learned in the trading arena. Aside from specific indicators, the general concepts above apply to any trader and/or trading system.)

Ugh... What a day!

Today's results:

Tradelog 20040618

What an ugly day! I missed the first trade opportunity, which was a good short @ 105 20/32, or even 105 18/32. I decided I'm not going to chase it after it just kept going down. I'll catch it at the retracement. The continuation move was weak and didn't go down very much. It retraced for the 2nd time.

After that, my system gave me a signal to go short again (another continuation move). I took it. (highlighted bar)

fakeout signal?

It was a fake-out. All the signals were present: momentum and volume were strong on the downside. However, it immediately reversed on me. The only thing I could think of to explain this reversal is that there have been 5 waves downward, and price was bound to go up to take a breather. (But you don't see things like that until after the move is over. Maybe I should be looking at the big picture.)

After I was stopped out, I entered on the long side, given the signals which confirmed the move had reversed. Volume was strong, and momentum was on the upswing (see circles). However, I was stopped out again when a long red bearish engulfing candle appeared, accompanied again by volume and momentum, thus reversing the long signal.

I set myself a daily loss limit of $500.00, and I breached that today. Each trade stopped me out at 4 tics ($31.25/tic), for 2 contracts. Even if I wanted to trade more, I need to respect the boundaries that I set for my trading, because I don't want to get into emotional trading, or worse yet, revenge trading.

I have not had this happen in a long time, and this series of bad trades was all because I entered at the wrong time - right around the time it was about to retrace. The 5-wave move (3 waves in the same direction) is a good clue, plus looking at the bigger picture, like a 15-minute chart helps to keep me in the direction of the larger trend. That last reversal to the short side was good, and I probably would have been able to taper my losses a bit or even gain it all back and then some more. But I need to stay out for the rest of the day, to re-focus and regroup.

That's it for this week. I'll be back again on Monday.


(Note to self: The MBO indicator (TFS system), and the Super Indicator did show divergences at the point when I entered the first trade. Something to think about.)

Thursday, June 17, 2004

Recap of Trading Day: 2004-06-17

Today's results:
Tradelog 20040617

I missed a couple of good Long entries because I put a BUY limit @Bid, and they didn't get filled. On other days, this works and my orders get filled (like yesterday), but not today. Maybe BUY limit @Ask orders work after choppy narrow-range days.

I read it somewhere that entry is not as important as exit; and direction is more important than speed.

I need to remember that.

Wednesday, June 16, 2004

Recap of Trading Day: 2004-06-16

Today's results:

Tradelog 20040616

Today opened with a gap down, and the entire move is exactly a 38.2% retracement from yesterday's open to close. If there is more downside in this market, it will be at least 104 11/32, the 38.2% retracement from the last swing low (102 28/32 last Monday) to the last swing high (yesterday's high at 105 09/32).

Today's volume was thin, and the moves slow and staggered. For each trade setup I took, the move yielded only 2 tics, paused, retraced, then continued it slow pace. This behaviour is typical of wave 4 (for those who follow Elliott Wave). Given this backdrop, I moved quickly to grab the small profits in each move, not staying too long, and this proved to be a good strategy for this kind of market.

Trade 1 setup:
Trade 1 setup
I took a short after the last low was violated. From my entry, the market reversed on me before going back in my direction.

I took a quick profit because the DiNapoli MACD/Stochs and Ergotic TSI-2 made a higher low compared to price - a bullish divergence - a sign the trend could be almost over.

Trade 2 setup:
Trade 2 setup This is a typical continuation setup. I entered on the highlighted bar, and immediately exited because of the slow move upward, and fast retracement moves (a sign of stop-running by the big boys). If you take a look at the chart after my entry, every green bar is quickly followed by a red bar.

I'd rather play it safe, and take whatever profits I can get in this wave 4 market.

Trade 3 setup:
Trade 2 setup

There was a long red bearish engulfing candle, which engulfed the last 7 bars, a very bearish setup.

I entered on the next bar, and took a quick profit, again for the same reasons mentioned above.

Boy, was that a good decision. The market reversed upward in a swift move on the Fed Beige Book announcement. It is always better to stay out whenever there are news like this, as the bonds are very sensitive to news and data relating to the economy.

After that, my chop indicator signalled a weak trend and all my charts were coloured grey. No further trades until the close.

Tuesday, June 15, 2004

Recap of Trading Day: 2004-06-15

Today's trading results:

Tradelog 20040615

I'll publish the charts later today. Got to go for now...

Recap of Trading Day: 2004-06-14

Here are yesterday's trading results:

Tradelog 20040614

It was a trend day, but I only captured 1 tic. Tiredness from staying up late the previous night caused a lack of focus on my game. I am still glad it ended up positive, no matter how small. It could have been worse.

I am tempted to publish the set-ups that I missed, but I decided I won't do it. This journal is about honesty. It doesn't do me any good to publish "could-haves". I've made a rule that I can only publish those trade set-ups that I took. This way, it's more realistic.

Monday, June 14, 2004


So far, this has been a choppy morning, except for the first half-hour. No trades to be made in this market. Prices are in a tight range, and volume is thin.

20040614 chop

Stay out for now. Let's watch and wait for the market to reveal it's true direction.