bondtrader's Blog

Performancing

2006-05-13T01:40:00.000-07:00

Just got hold of a new blogging platform called Performancing, a Mozilla Firefox extension. Let's see if this works...

Market Behaviour

2004-09-23T13:34:00.000-07:00

Strong trends are followed by trading ranges and vice-versa. A tight trading range is followed by a breakout and a strong move in the direction of the breakout.

Strong trends call for a money-management strategy that allows you to take part in the trend -- larger stops and longer profit targets.

Trading ranges call for more aggressive money-management techniques and even scalp trading, to prevent from being whipsawed too much.

Just something to take note of during the trading day.

Results for the Day

2004-09-20T13:39:00.000-07:00

The trading day is just about over, but it doesn't look like there are any more trades to be had. Trades on the mini-Russell tend to thin out in the afternoon.

Since my Stats Manager is still not working, I have to type in the trade manually again. (So much for smart software and technology...)

14 trades, 12 winners, 2 losers. 32 ticks total, NET $185.20.

Here are the trades:

BUY 2 @ 573.3 7:34:36AM ER2264734301
SLD 1 @ 573.8 7:35:10AM +5
SLD 1 @ 574.0 7:36:43AM +7

SELL 2 @ 573.3 7:48:27AM ER2264748272
BOT 1 @ 572.8 7:50:49AM +5
BOT 1 @ 573.2 7:51:20AM +1

SELL 2 @ 571.5 9:58:57AM ER2264958563
BOT 1 @ 571.3 9:59:25AM +2
BOT 1 @ 571.3 10:00:01AM +2

SELL 2 @ 571.3 10:30:47AM ER22641030441
BOT 2 @ 571.2 10:37:20AM +2

BUY 2 @ 571.2 10:46:35AM ER22641046202
SLD 1 @ 571.2 10:50:23AM +0
SLD 1 @ 571.5 10:50:32AM +3

SELL 2 @ 571.4 10:59:18AM ER22641058453
BOT 1 @ 571.3 11:00:42AM +1
BOT 1 @ 571.4 11:02:16AM +0

SELL 2 @ 571.0 11:09:09AM ER2264118474
BOT 1 @ 570.7 11:09:50AM +3
BOT 1 @ 570.0 11:10:21AM +10

BUY 2 @ 570.2 11:14:20AM ER22641114155
SLD 2 @ 569.5 11:15:40AM -14

SELL 2 @ 569.7 11:21:53AM ER2264112096
BOT 1 @ 569.5 11:22:27AM +2
BOT 1 @ 569.7 11:25:06AM +0

SELL 1 @ 570.7 11:55:16AM ER22641154287
BOT 1 @ 570.5 11:57:44AM +2
BOT 1 @ 570.5 11:58:15AM +2

BUY 2 @ 570.8 12:07:35PM ER226412779
SLD 1 @ 571.3 12:08:14PM +5
SLD 1 @ 571.0 12:09:41PM +2

SELL 2 @ 570.6 12:11:49PM ER226412111111
BOT 2 @ 571.2 12:12:59PM -12

BUY 2 @ 571.5 12:26:19PM ER226412261812
SLD 2 @ 571.6 12:26:51PM +2

BUY 2 @ 572.1 12:30:39PM ER226412303113
SLD 1 @ 572.2 12:31:12PM +1
SLD 1 @ 572.2 12:31:39PM +1

Looking at the individual trades, the most bang for the buck is in the morning, where one of my biggest trades was. There was also one big trade in the afternoon. However, it was followed by a big loser. Most of the other trades were small; but that is how it's played. You never try to score a homerun each time; just get it a little at a time. I was looking over the shoulders of a fellow trader last week (via a chat room), and one of his money management styles is to lighten up on his position once he had a few winning trades in a row. He's just playing the probabilities -- once he has a few wins, a loss is bound to happen. I didn't think much of it at first, but after looking at him trade for 2 days, he was quite right.

I was also observing myself today, and found that after a big win, especially my first trade in the morning, my succeeding trades were smaller net wins, partly due to the markets at that particular time, partly due to me lessening the risk by taking the profits as they came to me. I also noted that the big trade in the afternoon came after I took a break from the markets between the morning and the afternoon session. Some of trades prior to the big one in the afternoon were taken after I stepped away from the computer screen for a while (even just 5 minutes). It didn't matter how long it was. The point is it did make a difference. Another trend that I noticed is that the morning really gives the best opportunities. (I talked about this in my previous post "Intraday Trends".)

Anyway, that's a wrap. See you tomorrow.

Intra-Day Trends

2004-09-17T11:01:00.000-07:00

There are really only 2 trends during the day for ER2, one within or after the first 15 minutes of trading, the next after the first 30 minutes of trading.

First Morning Trend

Second Morning Trend

After that, the volume dies down, and ER2 moves in a trendless fashion, and this is probably true for all the other e-mini futures.

After the 2 Morning Trends

Possibly, a third trend could happen in the afternoon, within the last 1-1.5 hours of the trading day, but note I said possibly. I have seen it trend in the afternoons, but more recently I've seen afternoons where the market didn't really go in any particular direction. What the afternoon is good for is that it gives you a hint as to the what might happen during the next day's opening.

Go Fug Yourself

2004-09-16T13:33:00.000-07:00

Just saw this website... Good for laughs during the trading day. Whoever they are, the authors are hilarious.

Go Fug Yourself

Today's Results

2004-09-15T13:56:00.000-07:00

Since there's something wrong with my order entry software's statistics manager, I'll just write down today's tradelog manually:

BOT 2 ER2 @ 567.20 7:34:28AM
SLD 1 ER2 @ 566.60 7:35:21AM +6 ticks
SLD 1 ER2 @ 566.10 7:37:38AM +11 ticks
+17 ticks total, Gross $170.00, NET $160.40

BOT 2 ER2 @ 566.10 7:37:38AM
SLD 1 ER2 @ 566.20 7:37:47AM +1 tick
SLD 1 ER2 @ 566.30 7:37:55AM +2 ticks
+3 ticks total, Gross $30.00, NET $20.40

SLD 2 ER2 @ 566.40 8:05:24AM
BOT 1 ER2 @ 566.50 +2 ticks
BOT 1 ER2 @ 566.30 +1 tick
+3 ticks total, Gross $30.00, NET $20.40

Only 3 trades today. 23 ticks total, $201.20 NET. The second trade was a SAR (Stop-And-Reverse) trade off the first one, on a retracement, and I quickly got out of it just in case the market continued on its trend.

The rest of the day I didn't take any more trades, due to problems with my order entry software. Had to re-start my computer several times, and decided that was it for the day, in case these computer glitches broke my flow for today.

There were obviously more trades to be had when I was not looking at the market, but I'm not going to miss money on a trade I didn't take. I can't afford to indulge in what-ifs like that; it just won't help me. Even with the computer problems, I didn't do too badly today.

Anyway, got to run for now... Maybe I'll post charts later.

Multiplicity!

2004-09-14T13:15:00.000-07:00

What a difference size makes, position sizing, that is. For those of you who are thinking something else, it simply means I increased or doubled up on the number of contracts I traded.

And today's results are so much better, from a financial, psychological, and trade management quality standpoint.

Here's today's results:

10 trades, 22 ticks captured, but because of position sizing, grossed $430.00, NET $334.00 for the day.

It's easy to see why it's better from a financial standpoint.

From a psychological and trade management quality standpoint, let's see...
Percentage of win/loss = 77.78%, and expectancy went up because I was more disciplined in waiting and riding out the trends -- which came from knowing I can lock in my profits and still participate in the majority of the moves. It really gets rid of anxiety associated with finding the balance between not wanting to leave money on the table and taking your profits when the markets pull back. It just feels much better knowing that I can scale out of 1/2 of my position on the initial pullback, and let the remaining position ride out the trend.

Result: I wasn't panicky, I wasn't hesitant, I wasn't anxious. I was just trading calmly.

And that is what makes for better trading.

Joe Ross, in one of his chats mentioned that they recommend traders trade with 3 contracts. The first one to exit once the initial costs are covered, the other two to scale out of the position as the market moves in your direction.

Makes sense... It is, after all, a numbers game.

Wave Counting - Looking at the Bigger Picture

2004-09-13T13:39:00.000-07:00

I've taken more to watching the bigger trend when trading. It helps me psychologically to know that I am trading in the direction of the larger trend, and so therefore I'm developing some techniques in watching patterns unfold in the larger trend.

One of the best ways to watch a trend, in my opinion, is to actually count the waves, using Elliott Wave theory. For those of you who are not familiar with this, let me attempt to simplify it for you.

A basic wave primer:
There are only 2 types of waves - impulsive and corrective. Impulsive waves are waves moving in the direction of the trend. Corrective waves correct the impulsive waves; also known as retracements or pullbacks.

The nature of waves:
a. An impulsive wave is always made up of 5 sub-waves, labelled 1, 2, 3, 4, 5. Three (3) of those sub-waves are impulsive (waves 1, 3 and 5); two (2) sub-waves are corrective (waves 2 and 4). It looks like this.
b. A corrective wave is generally made up of 3 sub-waves, labelled a, b, c. Two (2) of thos sub-waves are impulsive (yes, impulsive within a corrective). That's because Wave-a can behave like Wave 1 and Wave-c can behave like a Wave 3. Corrective waves can move sideways, or it can move in a zigzag fashion, but the main concern is that it still unfolds in 3 sub-waves.
c. An impulsive wave is always followed by a corrective wave, which is followed by another impulsive wave, and so on and so forth.
d. Waves are fractal in nature. That means each wave can be broken down into smaller waves and the same pattern exists, i.e., 5 impulsive waves, followed by 3 corrective waves. This would explain why a sub-wave of a corrective wave can be impulsive. Fractal also means each wave is part of a larger degree wave, and in that larger degree wave, the same pattern still exists. This is what looks like.

Anyway, we digress. Just bear in mind the basic strucure: 1-2-3-4-5 impulsive and a-b-c corrective wave, let us go now to the basic rules for wave counting.

There are only a few general rules to remember when wave counting:
1) Wave 3 is NEVER the shortest wave. In fact, most of the time, it is the longest and the strongest. NOTE that I said most of the time, not all of the time. It doesn't have to be the longest, but it definitely cannot be the shortest wave.
2) Wave 4 can never overlap the peak of Wave 1, otherwise the entire wave is a corrective wave rather than an impulsive one.
3) Waves 2 and 4 alternate in form. Waves 2 and 4 are corrective waves. I mentioned above that corrective waves either move sideways or in a zigzag fashion. What this rule (we call it the alternating rule) means is that if Wave 2 unfolded in a zigzag fashion, Wave 4 will most likely move sideways. If Wave 2 moves sideways, then Wave 4 will be a zigzag.

Remember these are general rules. It's about assessing the probabilities of what path the market will take. So when the waves you are counting violates one of these rules, the next most likely scenario is that what you thought was an impulsive wave is actually a corrective wave. For example, if you are in what you think is an impulsive wave, and there are only 3 waves formed, then that was a corrective wave. The next wave will be an impulsive one, and will probably be the general direction of the market until 5 waves are formed.

Let's look at an example chart to see an actual wave formation:

Notice that Wave 3 is the longest and strongest. Wave 4 never violated the peak of Wave 1. And, Wave 2 and 4 alternate in form: Wave 2 is zigzag, Wave 4 moved more sideways.

And now, to add my own personal observations:
1. Wave 2 is the first HL (higher low) after a downtrend. This means the direction has changed and was are now in an uptrend. (Wave 2 is also the first LH (lower high) in a downtrend.)
2. Wave 1 can look like a retracement in a downtrend; it's hard to tell when a Wave 1 has taken place. Only after Wave 2 has happened can we distinguish a Wave 1. (NOTE: In my system however, Wave 1 oftentimes coincide with price breaking through TSF - the blue-grey line above, thus making it easier for me to see.)
3. Wave 3 coincides with extremes in momentum indicators. This also explains why Wave 3 is moft often the longest and strongest, because that's when momentum is strong.
4. Wave 5 coincides with divergences in momentum indicators. This supports the fact that Wave 5 is the last impulsive wave of the trend. Momentum is fading, and the market is getting ready to turn.

It's interesting that no matter what type of analysis you apply to the market, it all means the same thing. For those who are not familiar with Elliott waves, or who condemn its usefulness, for me it has helped tremendously in reading where we are in the market structure.

This is how I use the Elliott Wave Principle in my own trading:
1. I try to enter the market on Wave 3, the longest and strongest of all waves. I wait for Waves 1 and 2 to finish. I can either enter 1 tick above the peak of Wave 1 or 1 tick above the peak of Wave 2 (the former is an less risky). I will ride this until Wave 3 ends or I get stopped out on the retracement (Wave 4). This technique is also known as MOF (Money-On-the-Floor) in some trading circles, as taught by Buffy. It is nothing more than a pure Wave-3 trade.
2. When I don't see a divergence yet, I try to enter on a continuation, which is a Wave 5 (after Wave 4 has completed).
3. Less often, I will enter when price breaks through TSF, which most often coincides with Wave 1, wait it out and just ride the trend until Wave 3 ends.

For those who are interested in learning more about the Elliott Wave Principle and how you can use it in your trading, visit www.elliottwave.com, or click on one of the links on the sidebar for more up-to-date analysis of the markets using Elliott Wave.

38 Steps to Becoming a Successful Trader

2004-09-09T13:18:00.000-07:00

I've had this written down in my notes and I feel it bears mentioning again as we start a new season of trading. It's a good reminder and review for what we need to do to achieve success in this most difficult endeavour, successful trading.

I'm reprinting it here from dacharts.com Here it is:

Steps to Successful Commodities Futures Trading
as published Commodity Futures Trading Club and in Traders Organization's Real Success Daytrading Course

MANY TRADERS WILL GIVE UP AT THIS POINT AS THEY REALIZE WORK IS INVOLVED.

I'm somewhere between steps 32-35, working on getting to step 36. So my goal now is: To stop thinking and allow my rules to trade for me.

Hopefully, by the end of the year, I will get to step 38.

What about you - which step are you in?

Results for Sep-08-2004

2004-09-08T15:26:00.000-07:00

Today's tradelog:

Fewer trades were made today as I wasn't able to get into any trades in the morning. The trade setups were there; but either I was away from my computer, or ER2 was moving so fast that by the time I clicked by BUY order, it had moved away from my entry point. I didn't want to chase the trade, so I waited for the next entry point(s).

This morning the market looked a little choppy, so I took my time in taking the trades which were higher probability. Today, there was one instance where a trade turned out to be a fake-out, so sometimes fear, or its better counterpart "caution", worked in my favour.

Today's trades were mostly done in the afternoon New York time.

As for yesterday's trading, I ended the day feeling I had managed my trades better than usual, and so I ended up with smaller losses than I would normally have. That is the one factor that made my trading results yesterday better than I had expected.

Results for Sep-07-2004

2004-09-07T13:55:00.000-07:00

Here's the tradelog for the day:

13 trades, 19 ticks (1.90 points) captured. Not too bad, considering I went back to bed around 7:15am PDT.

I'll post my review of the trading day later today. Got to run for now!

Lesson For The Day

2004-09-03T13:21:00.000-07:00

I will be posting not just my trading results, but also lessons I learned during the day. I hope to correct my mistakes by publicly acknowledging them, and hopefully this will keep me accountable from that point on.

Today I go back to a lesson that cost me money in the sense that I left it on the table. I TOOK MY PROFITS TOO SOON. Thinking about the holiday approaching and that today is the Friday before that holiday, plus it looked like a divergence was forming, I placed my profit target closer because I wanted to get it before it reversed.

Well, the major flaw in that kind of thinking is that... I don't know what the market is going to do next (a belief in 'uncertainty', as espoused by Mark Douglas in The Trading Zone). It would be nice and dandy if I had a crystal ball into the futures market, then I would know precisely where it's headed, where it's ending, where it's going to turn, etc., but I don't.

So all I can do is read the roadmaps and follow it. That's what indicators are: they are mere roadmaps. They tell what may happen next, but they're not really saying it's happening right now. The divergence that I saw forming was just a warning that the trend may end soon; it doesn't really say it's ending NOW. You never really know the divergence is correct until the market has reversed anyway. It is a warning for those who may be wanting to get into a new position that "hey, this thing may be over soon", but for those already in the position, it can't tell them "it's ending now" until the market actually reverses.

So when the indicators are green, go long and stay long until it goes red. When it turns red, go short and stay short until it goes green.

As for it being a Friday before a holiday, well I just don't know for sure if traders all over the place have really gone for the day (or for the week) and called it a holiday. I JUST DON'T KNOW THAT. Therefore, I have no other recourse but to rely on the only thing I know - the indicators. This is the complete roadmap, the only guideline I have as I trade day in, day out.

"TRADE WHAT YOU SEE, NOT WHAT YOU THINK."

So What's New?

2004-08-31T16:03:00.000-07:00

It's been a while since I posted anything on my blog, and I thought it's time for a new update.

In my last post, I mentioned that I have been looking for other markets to trade other than the US 30-year T-Bond futures (ZB).

Two futures contracts I have been recently looking at are the DOW E-mini futures (YM) and Russell 2000 futures (ER2). I have been doing some simulated trading on these 2 contracts, and I have to say I like them better than ZB, and even ES or NQ (that's the e-mini SP500 and Nasdaq100 futures contracts, respectively). They just trend better and at least for my trading style, allow me to actually practice active trade management, i.e., moving stop to breakeven, and trailing my stops once the position has moved in my favour. These markets just trend better than the ES and NQ, and while the ZB does trend, it does it so painfully slow. Mind you, I haven't looked at the ZB again since I switched to YM and ER2.

For the last month, I have been trading the ER2 more than the YM, just a personal preference, because of the bigger moves in terms of dollars. The YM has a minimum tick of 1.00 point at $5.00/tick; while the ER2 has a minimum tick of 0.10 at $10.00/tick, with 10 ticks = 1 point or $100.00.

The following shows how "trend-y" the ER2 is:

Note that my charting program has "AB" for Russell2000,
but for our purposes we'll call it ER2, as that is what
its more generally known symbol is.

This is a screenshot of one of my trading systems. It colors the bars green when the system is bullish, and red if bearish.

In this chart, the ER2 moved at least 60 ticks (6 points) or $600.00! It would move about 20 ticks before pausing, then would surge up again for another 20 ticks, and it did this 3 times within the time shown in this chart alone. It just leaves ZB in the dust! (sorry ZB traders, that's reality)

These are the types of markets that traders love. This market moves fast and quick when it decides to move, sometimes my charts don't update as fast as this market moves. But I like the trendiness of this market and personally, I think we have a winner. This is now my primary market for trading.

Any other ER2 traders out there, I'd love to hear from you.

I'm Back!

2004-08-10T13:46:00.000-07:00

It's been a month since I last blogged. In that time, I've been busy searching other markets to trade.

In the last month, I tried 2 markets: the mini-Dow futures (YM) which trades on the CBOT, and the e-mini Russell 2000 (ER2) which trades on CME. Both of these trend better and have more interest and volatility than the 30-year Treasury Bond futures (ZB). When these two markets move, they move indeed, and has allowed me to actually practice good trade management while I'm in a trade. What I mean by that is proper execution of my entry setups, and once I'm in the trade, I can proactively trail my stops as the market moves decisively and swiftly. This way, if there is a strong trend I can just ride the trend , and let the market stop me out at a profit. Doing it this way I let the market tell me when the move is over. Compare that to when I was trading the ZB, I had to put in my profit targets pre-emptively and could not really trail the market with my stops because it moved like a snail. During the months of May and June when I was trading ZB, most of the time I was tempted to take whatever profits I had because most of the time, it seemed ZB was going to stall because of how slow it moved.

The mini-Dow and the e-mini Russell 2000 (especially the latter) just fit my personality much better.

In the coming days I will be posting the trading results here.

Good trading to you all.

I'm Still Here

2004-07-09T10:30:00.000-07:00

For those of you who are wondering if I'm still alive, yes I'm still here.

The reason for my silence over the past week is that I'm testing and trying out new markets for the summer, as it has been very noticable that the volume in Bonds futures trading has really dried up. I've mentioned this several times in my previous posts. It seems traders are on the sidelines waiting for something to happen, or everybody is just on vacation. I tend to believe the latter, as this kind of inactivity is usually present in the stock market, in general. However, this is the first year that the Bond futures market seem to have been affected by the "summer doldrums".

Trading the Bond futures is still do-able, if you have an incredible amount of patience and if you like watching paint dry. That's not the case for me, and I sense it is time to explore other markets.

Stay tuned. I'll keep you posted.

Here we go again...

2004-07-02T09:40:00.000-07:00

I'm back after a break. It was Canada Day yesterday, so I thought I'd take a break.

I did manage a couple of trades yesterday, but I had to hurry off somewhere so I wasn't able to post my results.

What a big move in the bonds this morning, due to the Non-farm Payrolls report: Nonfarm payrolls rose by 112,000 last month, less than half the 244,000 that had been expected by Wall Street economists. Bad news for the economy, good news for us bond traders, if you happen to get in right before the release. However, when this market moves, it moves so fast and so quick, that by the time you get in, the market has gone up 1 full point (that's $1,000.00)... in 8 seconds!!!

Anyway, exhilarating morning for the bonds. Thursday and Friday openings are the best days to trade the bonds becase that's when all the exciting market action happens.

For now, let's go back to the markets...

Fed Watch

2004-06-30T13:59:00.000-07:00

Today I decided to stay on the sidelines in front of the big announcement. That, and the fact that I'm still in re-group mode. Surprisingly, the Bonds rallied this morning after the Chicago PMI report. Pretty interesting move for a day when all eyes are on what the Fed will do. They've raised rates .25 basis points. So there.

I hope this will get the market out of this wait-and-see mode we've been in for the last couple of weeks. It has been a little difficult to play when there's no one to play with. So now, I hope we get back some normalcy in the market.

Over the next few days, my plan will be to get back to my starting point psychologically and fiscally. I've been watching Bonds over the last 1.5 years, and I have never had 2 losses in a row for the last 12 months. About a week ago, I experience my first ever 2-losses-in-a-row, and it had affected my confidence a bit. So now, I have to go back to basics and do some intense work to bring me back up to where I was.

This takes me back to Mark Douglas' exercise in his book, "Trading In The Zone". Here's what I'm going to be doing for the next few days:
1) I will be trading only my main trading setup for the next 20 trades.
2) I will be trading with only 1 contract.
3) I will be taking 2 tics minimum out of each trade, until I get back to where I was.

Recap of Trading Day: 2004-06-29

2004-06-29T12:28:00.000-07:00

Here are today's results:

Only one (1) trade today.

What a strong uptrend today. It just didn't want to go down. Anybody who tried to get in on the short side would have been slaughtered. This is one of those days when "trend-following" really works. Just when you think it might be over and start to reverse, more buyers step in.

I have to admit though, my confidence is a bit shattered since I had 2 losses in a row, and so I took only 1 trade today. I need to regroup, re-focus and go back to the basics.

I need to work again on my mental game, which is by far the most crucial aspect of trading.

All eyes will be on tomorrow's FOMC meeting, so be careful.

Trading Metaphors

2004-06-28T20:58:00.000-07:00

I just love the following trading metaphors from Money Management 1 that I decided to re-print it here (emphasis mine).

"Trading is like driving. Where you want to go etc., the "how much do you want to make" metaphor, depends on me.

How fast do I want to go? Well, how much risk do I want to take, e.g., tickets, accidents, etc., or in trading, how quickly do I want to achieve my goals.

How much wear on my car (me and everyone around me) do I want to incurr? I could wear my breaks and tires out by starting and stopping at every stop light - i.e., entering the market by choosing too tight of stops or exits.

What if I never get where I'm going?
Have I prepared a road map (trading plan) with check points."

"Trading is all about management - yourself, your money, your attitude and your position. It is NOT about predictions, forecasts or OPINIONS."

And talking about trade management, this one really sums it up best:

emotions can be managed but not controlled

view each trade merely one in a series of probabilities

know why you take a trade and what must happen for you to remain in it (!!!)
If it fails to happen - get out even if your stop has not been triggered.

Live from the pit

2004-06-28T10:10:00.000-07:00

I signed up for a free trial to Bondsquawk.com over the weekend and this is my first day using it. What a valuable service! It's like being in the Bond trading pit yourself (includes 10-year and 5-year Notes too). You can hear when big players are making their move, when the markets are just about to take off on a trend (traders yelling in the background), and when the volume is thin. They've confirmed what I've noticed over the last week and a half: the volume in the bond pit dries up after 7:30 Pacific, or 9:30 Chicago time. They've been saying it's light for the last 2.5 hours.

Too bad the price is a little too steep. But you have a chance to test their service. They have a 3-day free trial. Check it out!

Taking A Break

2004-06-24T15:45:00.000-07:00

I haven't traded full-time since yesterday as I have family visiting, so I will take a few days off from trading.

I made a small trade yesterday, but had to leave early before the trading day was over.

I'll be back again next week. See you then.

Low Volume.... Like watching paint dry

2004-06-22T10:39:00.000-07:00

Okay, that's it for the day for me. No sense trying to trade a market when there's nobody there to trade with. As I'm writing this, the last 55-tick bar took 19 minutes 42 seconds to complete! C'mon! That's 55 trades in the last 20 minutes. That's ridiculous. Everybody's probably on vacation.

With this kind of a market, you're lucky if you can get 2 tics on a trade setup. The price action indicates only a handful of people are in the market. You don't get a trade setup until somebody runs it up 3 tics in one direction. By the time you get in, they're going to turn it back around to run your stops. Pure market manipulation by the big boys, due to thin market volume.

I'm done for the day.

Here's today's results:

Update: As of 9:30 PDT

2004-06-22T09:30:00.000-07:00

Markets are in chop mode again.

Note the trend is weak, as denoted by my chop indicator (first indicator panel). Now it has coloured the chart background grey again.

Also very noticeable is how long it takes for one 55-tick bar to complete. Each bar averages about 8 minutes(!) to complete. It used to be from 1 1/2 - 3 minutes. (Where the heck is everybody?)

Stay out for now.

It's all about Patterns

2004-06-22T07:31:00.000-07:00

Chart reading is very visual; it's all about the patterns.

In the beginning stages of a new directional trend, sometimes it's difficult to determine if it's a real trend, or just another fake-out. Or sometimes, we leave our computers for a while to take a break, and when we get back it looks like something has already started.

How do we know there's more to go in the trend? We look for divergence in the pattern.

For example, here's a move that already started. When I got back to my computer, how do I know that there is more to go?

There was no divergence yet between price and indicator. Price made a higher high, and the indicator also made a higher high.

Convergence.

The trend will continue.

And it did. Now, here's the same chart a few bars later:

Price made a higher high, but the indicator did not.

Divergence.

A sign that momentum has weakened, and the trend is probably near its end. Time to take off your positions.

Recap of Trading Day: 2004-06-21

2004-06-21T22:21:00.000-07:00

Today's results:

For much of today, my charts were coloured grey (indicating a choppy period), and so I didn't take any trades until the grey background disappeared. After that I only took 1 tic, which was fine because the market reversed soon after.

I'm now focusing on the next trade, and just take it one trade at a time.

Lessons I learned today

2004-06-18T10:28:00.000-07:00

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.

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

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.

Limit losses quickly

Instead, traders should fear a larger loss and hope for a larger profit.

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

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.

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

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.

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!

2004-06-18T08:45:00.000-07:00

Today's results:

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)

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.)

Recap of Trading Day: 2004-06-17

2004-06-17T12:12:00.000-07:00

Today's results:

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.

Recap of Trading Day: 2004-06-16

2004-06-16T12:26:00.000-07:00

Today's results:

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:

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:
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:

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.

Recap of Trading Day: 2004-06-15

2004-06-15T14:18:00.000-07:00

Today's trading results:

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

Recap of Trading Day: 2004-06-14

2004-06-15T13:15:00.000-07:00

Here are yesterday's trading results:

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.

Rangebound

2004-06-14T08:31:00.000-07:00

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.

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

Recap of Trading Day: 2004-06-10

2004-06-10T12:56:00.000-07:00

Today, I decided to time myself while in a trade.

Looking back at my previous live trades, I noticed that I tend to exit right within the first 5 minutes of the trade, usually one bar later. This really doesn't allow for much time for the trade to actually play itself out; however, even though I know that in theory, in reality, anxiety wins out over logic.

Yesterday, I talked about the initial discomfort associated with putting on a trade, at least for me. I realized one of the ways to combat that initial discomfort is to set a timer once I've entered a trade. Anxiety plays tricks on us. When you're waiting without knowing how much time has elapsed since you put on a trade, it seems forever, even though you entered the trade just a minute ago.

So I set on a timer and promised myself to not do anything, (i.e., change my targets, tighten stops, get out, etc.) within the first 5-10 minutes. It worked for me! It kept me from getting anxious and wanting to take profits too soon; and instead helped me to stay in the trade and see how it unfolds.

In my first trade, the market only gave me 2 tics, so I took it. My second trade was entered after a choppy period, and the market reversed on me after I was good for 2 tics. After 30 minutes, I moved my stop to breakeven and was filled. Good thing because the market reversed with conviction after that. The last trade was cut short - I went long, then it looked like a CCI zero-line reject pattern was forming, so I took what the market gave me up until that point. It turned out to be a new trend change; my signal was correct. The trade proceeded to go up, albeit sporadically due to the quiet market, and I didn't take any more trades because tomorrow the markets are closed.

Not a bad trading day. I'd say I traded well today, and followed my trading rules. I also found a way to curb my bad habit of getting out of a trade too soon.

This also shows how valuable it is to keep a trading journal. It can help point you to clues about bad trading behaviours that need to be changed, and help you improve your trading.

Recap of Trading Day: 2004-06-09

2004-06-09T12:19:00.000-07:00

It will be a short post today.

I did 2 trades; managed to capture 1 tic per trade.

I find there is a certain trepidation that comes when you're only holding one (1) contract / position in the market. There is a need to ease the discomfort that comes when you first put on a position, which is typical of newbie traders. Hence, we newbies tend to scalp our trades, instead of holding on for the ride.

There are 3 things I can think of to take care of this:

1) Turn off the price or minimize your trading window, so you do not focus on the price.
2) Remove price from your charts; you just focus and trade off of the indicators (some traders like Woodie have been known to do this)
3) Trade with 2 contracts; then scale out of the first contract to ease the initial discomfort, then hold the other contract for the rest of the ride.

I'm not sure yet which option I will be going with, but it's something to think about for now.

If anyone has any more suggestions, I'd like to hear them.

Recap of Trading Day: 2004-06-08

2004-06-08T12:38:00.000-07:00

This is all about honesty (and because I have some people I am accountable to); so even though today's trading was not pretty, here it is:

The first trade was done in a choppy market (see 2 posts below). I lost 3 tics on that. I made another trade towards the end of the day, 25 minutes before the close of pit trading. The last hour of trading in the bonds is not the same as last hour of trading in the e-mini; not nearly as dynamic. I took 1 tic profit because it was near the close. (Well, okay... also because there was a level of anxiety after the last trade). Interestingly enough, I was thinking of getting out at 4 tics, which is right around the R1 pivot point (courtesy of The Rookie's Corner), and true enough, the market did go there. I should take a closer look at these pivot calculations. There may be something there.

Anyway, I need to go back and do some more work on my psychology, and get ready for tomorrow. This is an ongoing never-ending process and we all need to do it if we want to find success in the markets.

I also will try to refrain from posting anything until the markets are closed as I need to give my full attention to my trading.

Lessons From Athletes

2004-06-08T10:01:00.000-07:00

Funny how a trader's mind works.

After the last 3 days of making money, albeit small, I was thinking, "3 straight days of profit under my belt, I'm itching to make the next trade net a bigger profit", and I get a little careless, and try to force trades (see post below) even when there's nothing to be had.

Then a loss forces us to go back to zero, back to the basics again, and get working again, without the psychological distractions of exhilaration, cockiness and greed.

The trick is to stay on an even keel, win or loss, no matter what the last trade's outcome was. Every single trade is unique and stands on its own. We need to 'get back to zero' every time we put on a new trade, as if this is the first trade we've ever made.

Similar to how the great athletes like Tiger Woods, Michael Jordan and Wayne Gretsky do it. The three things mere mortals can learn from Tiger Woods can be applied directly to us in the trading arena.

The Chart Doesn't Lie

2004-06-08T08:29:00.000-07:00

This morning I was itching to get into a trade but I refrained from taking the first one because my chart background was coloured grey, indicating that the trend is not strong and we could be in a choppy market.

Well the first trade I passed up did go up somewhat and I was a little sorry I passed it up because my chart was telling me to stay out. 'Sometimes these things don't work', I thought. I was raring to take the next one, promising myself not to pass it up. My charts were still coloured grey. When I saw a long red bar, I decided to take a short, relying on momentum and volume indicators, ignoring the weak trend the grey background was indicating. I ended up being caught exactly in a choppy market, until it eventually reversed on me.

The charts don't lie. It may signal a bit too early, but they tell the real story in the markets. I got caught in wanting to force a trade, even though there are no trades to be had.

My chop indicator supercedes any momentum or volume indicators.
I recall countless number of times it has saved me from getting into a sideways market, far more than the number of times it signalled too early. I would do well to pay attention to it, and to what the charts say.

Staying the course and Focusing on the "Process"

2004-06-07T13:29:00.000-07:00

I made one trade today.

Today, I decided I'm not going to scalp trade, but to seriously hang in there and take only the signals my system dictates.

The trade was a trading range breakout. (I entered on the highlighted bar.)

The market went immediately in my favour, up to 3 tics before it started stalling. I was starting to fall into my regular pattern of wanting to take the 2 tics profit and get out of the market but I decided to buck down and stay the course - all my indicators are still in the extreme buy zone telling me that there is more to go up in this market.

At this point, the market started to go down (in a pullback), closing in on my paper profits so far and here's where I got into trouble - I started focusing on the price. I decided it would be better to get at least 1 tic profit just in case the reverses from this point on. I moved my target level down to 1 tic, and guess what? I was filled as the market stopped pulling back and continued in the direction of my original trade. (sigh).. got caught in that one again. I'm guessing this is probably where most newbie traders get caught too - the bigger players are trying to get in at a better entry price and the newbie players are tightening their stops already by setting it to breakeven or just below it. The bigger players run those stops to get a better entry price, just before they move the price again in the original direction.

A huge lesson learned here. FOCUS ON THE PROCESS, not the price.

The 3 P's of trading are: Process, Persistence, Psychology. Note that price is not one of them; price is a just a variable in the market, but not a foundation of successful trading.

..........

(The above also serves to illustrate a basic market principle: resistance becomes support, support becomes resistance. In the chart above, the resistance level during the trading range (red line) became the support level after breaking out from the range.)

Thanks for your comments!

2004-06-04T12:41:00.000-07:00

Thanks to everyone who has taken the time to comment on my posts. Your input and feedback is much appreciated.

To Trader Mike, thanks for that link (and for turning me on to Taleb); I'll check it out. It makes me feel better to know I'm not the only one struggling with hesitation.

To Guy, thanks for adding ZB to your pivots. There are very few resources out there for bond traders. I'll make sure to use them and let you know if it works. I'll post it in my links as well. Are you already on my Blogroll? (You look familiar.) If you are, just want to say I enjoy your posts.

And to "i don't like my job guy", thanks for your honesty and suggestions. You're right on the money. That is what I am working towards. I hope you keep coming back and track my progess. My goal is to achieve exactly what you were describing, to divorce the hope and fear from myself and just trade like a machine.

Have a good weekend, everyone!

Let's Get Real!

2004-06-04T07:32:00.000-07:00

Switching to real-funds trading is harder than I thought.

I let 3 trades go by for a different number of reasons, one of them caused by nothing else but fear. It was right there in front of me, and I remember thinking "Boy, it's hard to pull that trigger." And all 3 trades were beautiful trend trades. Ouch.

I eventually put on a trade, towards the end of the trend, and I simply took 1 tic out of it, and good for me, because the market turned quickly after.

BUY @ 104 9/32
SELL @ 104 10/32

It's going to take some more work to get to where I want to be. It's time to go back to the basics, pull up my sleeves and get to work.

..........
Interesting. I was just listening to Nassim Taleb, and he just said "Reality is far more vicious than Russian roulette". Probability is the degree of confidence we have in a possible outcome. We play the odds, follow the rules. But, the rules of the game can change in reality. Well said.

Recap of Trading Day

2004-06-03T12:08:00.000-07:00

That's it. No trades today.

Bond futures just moved sideways until the close. The last trade to be had was around 8:00am PDT (11:00pm EDT), which was a potential 5-7 tic trade. I wasn't focused when it happened (too busy updating my blog, on the importance of discipline and focus, ironically). That's why it's important to be disciplined and focused!

ANOTHER LESSON LEARNED: focus on the market during the trading day. Everything else can be done outside market hours.

Oh well, there will be more trades tomorrow.

Doing Nothing is Doing Something

2004-06-03T10:58:00.000-07:00

In the markets, doing nothing is also as valuable as doing something. When the market is choppy like this, doing nothing and standing aside is a valid action. Preserve your account and your sanity.

(Note: I color my chart background grey to make it even easier to see.)

Discipline and Focus

2004-06-03T08:32:00.000-07:00

The most important characteristics of a consistently profitable trader are DISCIPLINE and FOCUS.

Without them, the trader is unprepared to take money out of the markets.

Traders are like athletes: the practicing is done outside of the arena, and all you need before you step into the arena is unbending discipline and unwavering focus.

Opportunities come at the most unexpected times. You can be watching the market the whole day and nothing happens, and just when you turn around to start doing something else because you're bored, the market turns on a dime and, whoa, there's the opportunity you've been waiting for all day.

That's how it is in the markets... and in life.

DiNapoli confirms Breakout Trigger LSMA25/TSF System

2004-06-03T00:08:00.000-07:00

In one of my trades today, I saw a real-time example of how clearly the DiNapoli indicators confirm the signal generated by my main system: Breakout Trigger LSMA25/TSF. Preferred Stochastics were clearly above MACD when the signal was given by the Breakout Trigger system; it was also good even on a retracement, and the subsequent continuation move. This is a good confirmator for my Main trading window.

My First Real-funds Trading Day

2004-06-02T18:43:00.000-07:00

I got 2 tics out of the market today. 2 trades @ 1 tic per trade. I know it's a little conservative, but I just want to get used to the feel of trading with real money. Just getting my feet wet. Once I get used to it, I will be trading the full extent of my system, taking entries and exits as my system dictates.

My goal: To Trade Well.

That's it. Just to follow the entries and exit rules of my system as faithfully and automatically as possible.

June 01, 2004

2004-06-02T18:30:00.000-07:00

I have been paper trading the ZB futures (Electronic 30-year T-Bond Futures contract) for the last 1.5 years, and this week I finally switched to real-funds trading.

This is also my first attempt at blogging.

This journal is the easiest way to log my trades, review them visually, help improve my trading, eliminate mistakes, and overall track my progress as a trader. My intent is to learn more about myself as a trader and as a person.

As I trade, I keep in mind the three P's of trading: Persistence, Process, Psychology.

Welcome everyone!