Good riddance, 2009!

It began with the inauguration of our country's first black president. The Steelers won the Super Bowl just 12 days later. By June, the City of Pittsburgh was living large after celebrating a remarkable Game 7 victory by the Penguins to clinch the Stanley Cup.

Then things went down hill real fast after that. So, let's hope 2010 is much better than the last year of the decade. I don't see how it can be worse.

BEST OF 2009
5: Pens clinch Stanely Cup in remarkable Game 7
4: Steelers win unprecedented sixth Lombardi Trophy
3: Flying Dutchman stamps out the underwear bomber
2: Sully safely lands a crippled jetliner in the Hudson River
1: Obama becomes first black president of these United States

WORST OF 2009
5: Several Pa. legislators are indicted on corruption charges
4: Pirates make history with 17 consecutive losing seasons
3: G-20 Summit turns Pittsburgh into a police state
2: A madman kills three women after opening fire at LA Fitness
1: Three Pittsburgh officers killed while responding to a domestic call

Chart Settings & Chart Definitions

I am being continually asked about chart settings. And although they are all in the posts and comments, I'm setting them out here as a Key Post to have them all in the one place:

Market Profile is the out of the box 30 minute sampling and I watch both 24 hour and RTH, splitting the Profiles into the relevant distributions.

The Range Bar Chart:

ES: 1.25 range, ET: 10 point range

Keltner Channel 30/3

EMAs: 33 and 99

CCIs: 45 and 6 superimposed

Volume Breakdown out of the box

Cumulative Volume Delta: Volume Breakdown cumulative back about 21 days (not critical, any larger number OK) but Averaged by 9 bars

MomDots:((HI.2+LO.2+CL.2)/3 + (HI.4+LO.4+CL.4)/3 + (HI.3+LO.3+CL.3)/3)/3;

CHART DEFINITIONS
Click on the links below

Range Bar Charts for MD or IRT
MP Charts

TradeStation & MultiChart Indicators

NinjaTrader Indicators (real time ONLY) 
MomDots Indicator for NinjaT, TS & MC
Andy's NinjaT Chart templates
timokrates' Sierra Charts templates

Otherwise, Kiki and I wish everyone

Happy New Year

An unacceptable failure

Since network news has obsessed about the underwear bomber in recent days, I think it's time to offer my opinion on the subject. This -- in my opinion -- is the first major blunder of the Obama Administration. As the president said this weekend, it is an unacceptable failure by our intelligence community to let a man who we knew was being trained by terrorists to board an American-bound flight. This problem was supposed to be corrected after 9/11 when our intelligence agencies did not adequately share information that would have helped us stop the terrorist attacks. Clearly, that problem persists today.

But there also is concern that this is being turned into a politically hypocritical football.

FIRST: Any discussion about the need for full-body scans in the United States is bunk. The alleged terrorist boarded a plane in Denmark, so there is nothing the American-based TSA could have done to prevent the attempted bombing. Although I do not think our airport security is fully adequate, I do believe that a full-body scan is an unconstitutional intrusion of our civil liberties.

SECOND: It amazes me that Republicans are outraged that this 23-year-old joker (who burned his junk off while trying to light the bomb) will be tried through the American justice system. After Richard Reid -- a British citizen -- attempted to detonate a shoe bomb to blow up an American plane in December 2001, he was tried in American courts, convicted and given a life sentence in a U.S. maximum security prison. Where were all the haters back then? So, why are all of these conservatives afraid? Do you really think a jury full of 12 Americans are not going to convict this dude? If we lived by that system, then we should send Richard Popolawski down to Gitmo without trial, because we wouldn't want him to escape.

THIRD: It's becoming increasingly clear that if you enter any aircraft in our post-9/11 world, then you should be fully prepared to defend the plane and your life. The 32-year-old Dutch man who extinguished the bomb (and this Nigerian jackass) is a hero. He reacted immediately -- despite admitting to being scared -- and saved the lives of nearly 300 people. Each and every once of us should not trust any security measure. Whether it was this Dutch hero, or the people who stopped Richard Reid and his shoe bomb, or the 40 brave men and women on Flight 93, we must do everything in our power to care for ourselves and others.

And that is ultimately the answer to our safety conundrum. We must not wait for our government to protect us. We, the People, control more than we think.

(By the way: I would not encourage anyone to Google the words "underwear bomb" because it makes for several very disturbing photos)

To Market, To Market

Yesterday, I had a question about whether I trade anything else besides the ES and the ET (DowEuro50). It got me thinking back a little as you do at year's end.

I started trading stocks in about 1963 or 1964. I remember trading my first stock, I made about a 20% profit and was hooked for life. Subsequent trades where not all so successful. I rode the gold boom, traded t-bonds after Richard Sandor invented financial futures in about 1982.  I was lucky enough to have the great man in my trading room in London one afternoon. He changed the financial markets for ever.

I traded options before the famous Black-Scholes model was created. We just made up the prices based on time and what we thought might happen. Not very scientific.

A famous firm, Donaldson, Lufkin and Jenrette (DLJ) had a great FX operation where they had a number of banks on their dealing desks and made pretty tight spreads for those days. The IMM currencies were there too but the volume was low. In those early days I loaded my daily data down via modem and had 5 or 6 Apple computers grinding out charts on dot matrix printers all night. I need so many computers because it needed that many to be able to produce the technical analysis charts during the night for the 10 or so markets I was following.

I read an article about Market Profile in about 1983-84, and got the CBOT manual and stayed up all of the first night studying. I knew that I had something important in my hands but could not find a focus. I then met Pete Steidlmayer and sat through a couple of his seminars in the U.S. and London. I went to Jim Dalton's seminar too. I still really hadn't yet worked out how to consistently use MP for short term intra day trading.

I then became a local on LIFFE after seeing an article in the Financial Times about a local called David Kyte, a really great trader and a great guy too. He still runs his own clearing firm in London with Peter Green, another of the world's good people. I had visited the LIFFE floor in about 1983 after it had opened and you could have rolled a bowling ball from one end of the floor to the other without hitting anyone. I didn't think it would take off after seeing the pits in Chicago. My mistake. Three or four years later I was on the floor and there I really learned how order flow moved the markets. The Berlin Wall collapsed, the Germans unified and I was trading up to 2,500 contracts a day. Then the Germans started the DTB and soon the writing was on the wall.

The pits are shrinking and for the last 10 years people have been leaving them and trying to convert their skills into electronic trading. Trading volumes have, except for recent times, been increasing exponentially and new contracts created to meet the new requirements.

I mainly trade stock indices now because that's where the volume and money is for me. Highly liquid markets seem smoother to trade, are less influenced by any one trader, and, most importantly, allow me to scale trades up to the size I want without having to make any other adjustments. I don't trade FX any longer because of the lack of transparency and volume information.

Johnny One Note

The famous Judy Garland sang: "Johnny could only sing one note And the note he sings was this Ah!"

One of the many "Ah" revelations or epiphanies I had during my trading career was that I should only trade from one bar chart. At one time or another, I used minute, tick and volume charts. I also used multi time frames which to me was using two or three charts, each with a different time frame, to look at the same market. The logic was to find the trend and trade in its direction. Each chart, of course, had its own set of indicators. The result was analysis paralysis. I looked for everything to line up and usually by the time they did, the move was over.

I tried trading from just a Market Profile chart. Too many false starts and I couldn't get the timing precise enough not to keep on having to take lots of small losses.

I came to the realisation that each time frame has its own rhythm and trend. I found a time frame that suited me and only look at that. It makes everything simple and I have no conflicting information from external sources. As you will see at the webinar, Kiki and I use the MP for our context and support and resistance. The Profile tells us where we should do business and what to expect when we put on a trade. Looking at the order flow at these points means that we have two separate ways of knowing when we are wrong: the Profile tells us or the order flow tells us and sometimes both do.

Using this single range bar chart gives us a clarity that enables us to focus on what is happening in the now. When I was looking at multi time frames or trying to correlate with other markets I was totally confused.

For me, its no use telling me that my 3 losing trades will be more than made up when I finally hit a winner and ride it. Firstly, after 3 losers in a row, I won't be there for the 4th and secondly, if I finally get a winner, I will take my profit too early in fear that the profit will turn into a loss. Learning to swim for me took a lot of effort. I didn't believe I would float until after I could prove it to myself. You need this proof from your trading methodology and that is the reason, as I said in yesterday's post, that I taught Kiki using a very structured and measured training plan.

I can't emphasise enough that the simpler I made my charts and my rules, the better I traded. Sometimes I still try and remove more from my charts but have not done so because each indicator tells me something a little different. I just looked at todays' DowEuro50 chart (below):

I acknowledge that it's a low volume day, look how the volume indicators completely misled you. But looking at the Profile which showed price bouncing off the POC, EMAs and CCI trending up, you would have stayed out of trouble. I know I have said ad nauseum that it's the whole picture that's important and that a mechanical approach wouldn't give me the results I want. This chart is a perfect example of that. I just look at what price is doing in CONTEXT. Kiki is getting there too.

Creating a Trader DNA

I have been reviewing the comments on this blog since the beginning so I can reinforce any relevant aspects of Kiki's training. I have found it interesting that the focus of peoples' questions seems to be on the indicators and settings rather than any other aspect.

To me, it is as if a student arrives at medical school and immediately asks: "where do I cut?"

There is so much more to trading than setups. The setups are important, sure, but unless all the other aspects are learned first, the setups are useless and will not make you money. We, and I include myself in the "we",underestimate what is involved in trading because it all looks so easy. We look at a chart with the "magic" indicators and can say, yes, I would have bought here and sold there. Easy! All I need is these indicators and I can quit my job. Those of you who are just beginning, and are hoping for transition into a successful trader, hear of the 90% failure rate but cannot conceive that you, an intelligent and successful person, could fail at something that looks so easy.

Others, who have been struggling, sometimes for years, also smart and previously successful, are painfully frustrated at not being able to understand why "it doesn't work for me".

I'm not a believer in New Year's resolutions, but those of you who are reading this blog to glean something that will assist you in your quest, please take this one thing from the blog: It's not just the information you get, but how you learn it. It's as if you have to implant it into your DNA so its part of you. After teaching a number of people to trade over the years and now with teaching Kiki, I am convinced that Kiki was successful because of how we went about it. I am not trying to blow my own horn here but I really want to emphasize that the "how" is as important as the "what".  It seems that the structured progression we worked on together did its job, together with the huge focus and dedication that Kiki imposed upon herself. The actual trading methodology using range bars were part of the story, but it is the cohesive "whole" that did it. I am convinced of that. I'll talk about all this and more at the webinar

And speaking of New Year Resolutions, please remember The Macmillan Cancer Nurses and Kiva.

Merry Christmas

Merry Christmas to all of our loyal readers. Hopefully it has been a joyous day for all of you and your families.

With the winter weather ripping through Western Pennsylvania, I think this Pittsburgh Post-Gazette story from last year is appropriate. The story is about a winter portrait of a family living in the backwoods of 19th Century Cambria County. One can only imagine what it was like to go shopping for Christmas presents when a Wal-Mart wasn't just a couple miles down the road.

Reporter Patricia Lowry offers another interesting story this year about a different winter scene in Westmoreland County.

Not Floored

Yesterday's comment by Rino brought back a few memories that are still relevant to todays' trading.

My market on LIFFE was the Bund. It was the German Bund in those days and traded in Deutsche Marks. I traded it on the first day it was listed on LIFFE. Neither the German Bund or Deutsche Marks exist today. The LIFFE floor is no more.

I saw the writing on the wall pretty early. LIFFE had an electronic trading system but only used it after hours. I told everyone I could that they should make it a 24 hour operation. No one wanted to hear it as there was a vested interest in keeping the floor. As soon as my clearer got a Deutsche Terminal Bourse machine, I started to try and trade the Bund in Germany. In those early days you had to trade on a DTB computer connected to the DTB and be licensed by them. There was no PATS or any other way of trading from home.

I lost money for quite a while. And, I had an advantage because I had used computers for trade analysis before I went down on the floor. But the dynamics of trading an all electronic market was very different to trading a physical market from upstairs. The difference in volatility was amazing. When the floor was finally closed, many of the people I know could not make the transition to trading electronically. It was a different business. Many of the people down there only made money because they were very quick, or because they were friendly with brokers who brought in the "paper" (customer orders). They just didn't survive.

The runners who were employed to run orders into the pits from the booths and to check trades had been the source of new traders for the industry. They served a kind of apprenticeship and learned from the guys who they ran for. All this is gone. Learning to trade has changed with the times. Snake oil salesmen have saddled up their wagons to the internet to ply their trade again. Its hard to tell what's snake oil and what's real penicillin or viagra.

Traders had to make a major adjustment to be profitable. In today's markets, traders still have to make adjustments on a continual basis to be profitable as the markets change. Maybe not as drastically as transitioning from the floor to electronic trading but adjustments none the less. But, and in my opinion, this is a huge but, your trading approach must remain consistent as the markets evolve. Having a methodology that is not able to evolve means that you have to throw it away and re-invent a new one quite often. And it also suffers from the same flaw as automated computer trading -  you don't know when the methodology is no longer working.

I know if I am trading badly because my trading stats change. It jumps right out at me. As I have said in a previous post, I change stops and targets in line with volatility. Its pretty automatic. But I don't change the way I trade.

My trading context, the Profile, changes automatically with changes in volatility so I don't need to do anything there. My bar charts are the same. Even in the super volatile markets last year my range bars did not change although I did think about it.

I wish you all and yours, Happy Holidays, and may 2010 bring us all everything we wish for others and ourselves.

One Perfect Setup

The setup is everything. The right setup minimises risk. If you have minimum risk you can maximise profits. My whole philosophy on trading is evident in the posts to this blog. I have tried to drum these principles into Kiki much as my father drummed driving rules into me when I first learned to drive. He taught me to reduce my risk while driving, but to maximise my performance.

Monday finished on a firm note. The Market Profile looked like the first chart. There was a second distribution after a breakout.

The Range Bar chart showed the strong finish as you can see from the second chart below.

You can see the two moving averages getting further apart, the CVD is climbing making new highs, and the price had made a new high a few bars before the close. My pre-market work is to first look at the Profile and split it if necessary and determine the support and resistence. In this case it was quite easy. I split the second distribution and it looked like this:

You can see the new VAH of this distribution at about 2930. My idea would have been to look to buy the market at the VAH area if the order flow confirmed. And it did.

The place to have bought this was at the first pullback after the open at the VAH or even earlier as it bounced off the VAH at 2930. The long CCI was trending long, the EMAs too and the CVD still had buyers, the VB had the buyers stepping up. The long would have been at the close of the bar at 2938. Managing this trade could have been done in at least 2 ways.  The first way would be the normal scale out @ plus 10 ticks and then look for reasons to exit the second and third pieces. In this case you would have sold at either 2940 or 2948 depending on which entry you made. You would certainly have been out of all of them @ 2944. The other way of managing would have been to exit the whole position in one piece due to the low volume Christmas markets. There are other combinations as well.

The setup had all the ingredients needed to go long with very little risk. The point of an entry is to give yourself a chance of making a profit. When you enter, you can have hypothetical targets but all you need is a very large opposite order for targets to become meaningless. So I scale out to bank profits as I go. The biggest problem is running out of bullets - I scale out too quickly and leave no positions when the market continues to move in my direction. That is why I use the market to tell me when to exit after the first scale and why I have developed re-entry techniques to be able to get back in, again with little risk, and profit by those trend moves.

Instant Gratification

There was an interesting comment from Bryan yesterday. He was asking, I think, why or how I sat through a couple of hours waiting for the trade to develop.

I think it goes back to 1981. I lost a lot of money during Christmas 1981. In fact after Christmas of 1981 I decided never to trade between December 15 and January 2. I stuck to this until just after I started using range bars. In Christmas 1981 I was chopped up like a very fine hamburger, milked dry and spat out.  I still remember it vividly. I had a lot less experience and my desire for instant gratification was in the forefront of my head.

Fast forward to now. I have taught Kiki to put on a trade, put in a drop dead stop and let the trade do its work. The way we trade, during "normal" markets (if there is such a thing) we get onto the move and it goes. Because the order flow takes you there.

Yesterday was the same except the volume was low. There was some long liquidation going on that held price in a tighter range for longer. There is the concept of a coiled spring I was talking about with Kiki while this trade was going on. We knew there would be a break eventually and a decent one. We saw that the buyers were more anxious than the liquidators who were allowing their offers to be lifted. Sure, we could be wrong and we could have lost a bit on our exit. But that's the business we're in. At no time did I see anything on my charts that invalidated the trade. Christmas markets at other times can get slower. Bryan be aware that you have to trade what is there. I love to ski in powder snow but sometimes I have to adapt to slush or ice if  I want to ski that particular day.

I decided its getting too thin out there so I told Kiki last night that we should not even look at the market this morning. Having said that, there would have been an interesting trade on the Dow Euro 50 had we been around. In fact, it was a perfect setup and shall be the subject of a post talking about how that trade came together.

Trading, Trading

It snowed in London this afternoon, just as I was collecting my car from service. We are not used to snow and there was chaos and sliding. Luckily we have all wheel drive.

On the other hand, not much chaos in the ES today. The first trade was a little later than usual and our entry was a little late too as the market was so quiet. And then they hit the gas pedal when RTH opened. It was all quite smooth with both momentum and CVD confirming the moved.  The range bars eliminated most of the chop. The single prints in the Profile in the first hour of RTH mirrored the vertical move of 16 December. We took the 3 scales on the trade and called it a day.

 

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Holiday Markets

We are well and truly in holiday mode here in Europe. The big institutional traders are protecting their bonuses by not stepping up to the plate with any real volume. The CVD yesterday showed two way range business in RTH timezone.

It will take an event to move the markets until the new year shows itself. Then its every man/woman for him/herself again.

Kiki and I are in careful mode. The number of trades we take has dropped in line with the volatility. Traders in the U.S. timezone are having a harder time of it at the moment. If you don't catch THE trade then you don't have much else to do. Our cherries only have one bite per time zone, if that.

The financial rise of the non christian world may have an impact as they get be a bigger part of the 24 hour market and ignore Christmas but while the main financial news that impacts prices comes from the U.S. we may have an action v. reaction type of trading. Added to this, the recent focus of governments on bonuses of institutional traders, who move the market, may impact things as well if these institutions move their traders to other countries or even timezones.

We will be posting most business days during the holidays. On dead days I am doing some more work on Market Profile with Kiki and we will share that in this blog.

Meanwhile, back at the virtual trading ranch today....

 

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And I hope you had a good career

As you might expect with my news background, I have an affinity for journalists. That's why it will be sad to see ABC News anchorman Charlie Gibson retire after his final newscast tonight. While Gibson did not have the same legendary career as Walter Cronkite or others, he was a solid reporter before stepping behind the news desk after Bob Woodruff was seriously injured by an IED attack in Iraq in 2006.

In less than a year, ABC News had lost Peter Jennings to cancer and their current anchor was clinging to life at a military hospital. Gibson steadied the program, and soon made it his own. It trailed in the ratings to NBC, but not by much.

And of course, there was Gibson's tag line. "And I hope you had a good day," he said at the end of each show. It might have been cheesy, but it was a comforting ending to a day of news that often was troubling.

"Son of Stimulus"

That's what everyone's favorite sun burned congressman from Ohio dubbed an extension to unemployment benefits.

There has been much commotion on this blog about whether people let go after June 21 will receive an extension on their unemployment benefits. Well, the U.S. House passed a $154 billion jobs bill yesterday to extend unemployment benefits for six months, along with numerous other programs, according to the Associated Press. The bill passed by a 217-212 vote, with not a single Republican voting for the measure (I'm looking at you Tim Murphy).

Now, this is great news and all, but it will not hit the floor of the U.S. Senate until January. And the AP story says this most recent stimulus bill will have a harder time making it through the Senate... God Bless America! Plus, our proud senators are very busy right now watering down health care reform and catering to insurance lobbyists. I mean, we can't expect them to do much-need plans quickly, can we?

Major Items in the Jobs Bill
-$41 billion to extend unemployment benefits for six months
-$36 billion for highways and mass transit
-$24 billion to states for Medicaid for poor and disabled
-$23 billion for teacher salaries to save about 250,000 jobs
-$20 billion to keep Highway Trust Fund solvent
-$12.3 billion for health insurance subsidies for long-term jobless
-$2.8 billion for water projects
-$2.3 billion to extend family child tax credit for poor families
-$2 billion for job training and summer jobs
-$2 billion for housing renovations
-$1.2 billion to put 5,500 cops on the street
-$600 million for improvements to airports and seaports

Markets are Always the Same

Yes, markets are always the same, they keep on changing.

Markets usually maintain, what I call, their fingerprint. This fingerprint is related to the way it trades, its' rhythm, its' style. This is I think, because the people or types of people who trade them are the same and have the same objectives day in and day out.

But, and there's always a "but", every now and then the tiger changes its stripes. Sometimes slowly, sometimes quickly, sometimes temporarily and sometimes permanently.

Last year we had the temporary leap in volatility, now we seem to have a move of the action eastwards. If you look at the charts today, again there was a good move that began at about 01:40 am London time and finished at about 07:48.

The point of this post is a lesson to Kiki to not be complacent. As information processors, our job is to process all information including what happens, what doesn't happen and what changes. Our methodology needs to be robust enough to deal with all these changes without us having to rebuild it. This is not to say that our targets and stop losses do not change because they do, in line with volatility or because testing some new ideas of money management shows we can improve profitability. But the trading method stays the same. As discretionary traders, we automatically look at different things and place a different weight on different pieces of information. This is normal and correct. As markets change, this process continues. But the trading method stays the same. Occasionally, very occasionally, I make a discovery that I incorporate into my methodology, but usually, I am trying to delete rather than add in a search for even more simplicity.

Trading the ES again.

 

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Let's Talk About Trades

Today's first trade was a late entry - deliberately. The ES was going sideways and we waited for a breakout confirmation even though we saw the BUY orders coming in. An aggressive entry would have been at the previous green bar. I was concerned of a trap after seeing the market had retraced from the low of 1103.00 before yesterday's RTH close. The late entry cost $187.50 per 3 contracts. Not sure if it was worth it.

I delayed my first scale out as it was obvious that the breakout from the coil would go more than 2 points. We first sold at the top of the Keltner and previous VAH when resistance showed up and we were seeing a doji forming 20 minutes into that candle. Due to the lower volume outside of RTH, trading is a little different early in the day. The second trade really did not go far, just enough to give us a few points.

The spreadsheet showing the trades has changed format due to us using MSA. We need a format that can be imported. I'm still playing with this and it may change again. As soon as we have enough trades in MSA, I may show a screen shot of that instead.

 

UC Exhaustion

I received a wonderful Christmas card in the mail this week. Twas from the lovely people at the state Department of Labor & Industry informing me that my unemployment compensation will terminate at the end of the month. Now, maybe I'm stupid, but I was under the impression that I had at least 52 weeks of welfare before it was exhausted.

Not so.

The letter explaining the process in June passed through several different hands, and we all thought it continued for a year. So, maybe I'm not so stupid after all. Or maybe we were confused that the federal government extended emergency benefits for up to 33 weeks. Too bad that extension ends on Dec. 19, meaning I'm a couple weeks too late to be eligible. According to the state's Web site...

Claimants that have a new regular UC claim for benefits effective on or after June 21, 2009 that are eligible for 26 weeks or claimants with a 16 week claim effective on or after August 30, 2009, may not qualify for EUC benefits under the current phase out provisions.

I spoke to a congressional aide for U.S. Rep. Tim Murphy, and he told me that there are three bills in committee to extend the benefits. The previous extension was passed under the stimulus bill, which Murphy opposed. The aide was very helpful, but he would not say whether Murphy would support another extension. Considering he is a Republican, I would say the chances are slim.

I find it hilarious that the good people at the O-R would have done me a favor by laying me off just a few days earlier. If they had, then there wouldn't be a problem. Nevertheless, it appears those of us who lost our jobs on June 24 will be without a steady paycheck in two weeks. Or am I missing something in this convoluted and tangled bureaucratic web?

Lonely times

The New York Times recently conducted a poll of unemployed Americans and found a lot of obvious answers. I should add here that they didn't call me.

"The results of the poll ... help to lay bare the depth of the trauma experienced by millions across the country who are out of work as the jobless rate hovers at 10 percent and, in particular, as the ranks of the long-term unemployed soar.

"Roughly half of the respondents described the recession as a hardship that had caused fundamental changes in their lives. Generally, those who have been out of work longer reported experiencing more acute financial and emotional effects."

Uhhhhh, yeah? That's news?

Well, maybe a story such as this is important because it explains the daily emotional toll experienced by, we, the jobless. That is what I hoped this blog would achieve, although we've definitely taken a few interesting detours along the way. Many of us -- including myself -- are beginning to feel hopeless about the job situation, and we're wondering what the endgame is. All the encouragement in the world won't help until we're punching the clock again. In fact, this quote by a 51-year-old unemployed woman from Wisconsin says it all.

"Everything gets touched. All your relationships are touched by it. You’re never your normal happy-go-lucky person. Your countenance, your self-esteem goes. You think, ‘I’m not employable.’"

The story and poll numbers are a stark look at the emotional toll of being unemployed. Maybe it's just too obvious for me because I feel the same secluded sadness as that woman. But it also heartening to know you're not alone.

Pop goes DeWeasel

I'm taking this time to announce my intentions to run for the soon-to-be vacated 50th state representative seat of Bill DeWeese. The most powerful lawmaker in Western Pennsylvania was indicted today on charges he hired state employees to perform campaign work, among other shenanigans.

This shouldn't come as a surprise because DeWeese -- among numerous other lawmakers -- has been under investigation by state AG Tom Corbett for some time. Details about Bonusgate have oozed out for the past three years, so it was only a matter of time before something happened. After the 2005 legislator pay grab, the electorate tried to boot as many lawmakers from the General Assembly as possible. We got about 20 percent through elections and retirements. But it's clear that the people who wield the most power to uproot the politicians are the politicians themselves.

It seems logical to think DeWeese, D-Waynesburg, will fight the charges, and try to remain in his seat. However, he will be forced to resign from his leadership Whip position within the Democratic House caucus. And I don't think the good people of Greene County will appreciate their lawmaker representing them under a dark cloud and neutered leadership status.

So, I would like to welcome you to the Bread Line, Bill, but I don't think the state Department of Labor & Industry offers unemployment compensation to alleged criminals.

And I guess that also means I'll have to find a nice piece of land in Greene County. After all, November 2010 is just a few months away.

(The editorial cartoon above was drawn in August 2008 by Rob Rogers of the Post-Gazette. He has to be licking his chops to draw tomorrow's cartoon.)

More Money Management

Those who are regular reader of this blog know how I stress the importance of a very detailed trading plan. I built my plan through observation and back testing, both by computer and by hand scouring my charts. Lots of hard work that makes the later work of trading easier. Part of this effort was listing entries and exits, profit and loss on a spreadsheet that I then used for further analysis.

I showed Kiki how to do this. Her reaction was to ask why there wasn't an easier way of doing this as we weren't re-inventing the wheel - what we wanted to do must have been done by lots of others. Of course she was right. A few years ago I trialed a program called Market System Analyzer. I have recently had another look at it (http://www.adaptrade.com) and have decided to try it again. It has the ability to get right inside your trading plan, take your trades over a statistically significant period and allow you to do a lot of "what ifs". You can see if your money management can be improved. Are you risking the optimum amount of your capital per trade?  Is using $5,000 per contract best? Are you scaling out the best way you can? Should you trade during NY lunchtime? And lots more.

I have a continual self improvement policy, and I am constantly looking for ways I can improve my performance. The numbers tell it all for me. My base methodology doesn't change but I believe that I can make more money by examining my money management. As I get this tool working in the next few weeks I'll report back my findings.

Now for today's trades. I love it when a plan comes together. 2 trades made over $900 on a 3 contract basis and we took no heat in either trade.

 

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Sweet and Sour Markets

I think I have transitioned to MarketDelta now although I am still working on enhancements. The change I made to the MD CVD setting to bring it into line with my MultiCharts indicator was to keep accumulating volume information rather than e-setting it to zero at the beginning of each day. I keep the volume information cumulative for the last 9 days or more. With so many traders in so many timezones there is no longer a start and a finish to a day so  I want to follow the volume on a 24 hour basis. If you look at the last DowEuro chart on the blog which was Friday, you will see the cumulative volume at the close on Thursday was buying volume, and seeing Friday's open continue that buying volume, was important for us.

Then I look at the Market Profile, I start by splitting the Profile into RTH and Globex, but then re-split and merge the Profiles into the real distributions as I see them. This reveals the real VAHs, VALs and POCs.

We have started work on preparation for the webinar. It will be a combination of slides and working with the charts. I'll post an agenda when we are closer to the time.

After this mornings early missed trade, maybe my wife and I will have to move to Hong Kong to trade for awhile :-P. But all kidding aside, there seems to have been a move of activity to the European and Asian time zones lately. Whether this is permanent or not, time will tell but it certainly gives us traders here in Europe the ability to be there when markets move.

 

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Is this Range Extension?

 I have spoken about using Market Profile for support and resistance as well as for the context of my trades. You can see this in a number of posts as well as in my answers to some of the comments posted.

What Pete invented was a different way of organizing market information and we all seem to use it differently. It took me a while to work out how to use it for the very short term trading that I like.

There are different things that the Profile tells me. I look at those different things at different times in the trading day.

When the market opens in, for example, the Dow Euro 50, I look at the opening range in relation to the previous overlapped Profile. I am looking for not only support and resistance but for high volume areas, typically Value Areas, as I know that price should progress through these areas fairly easily. I try and lean against something in the Profile so I can then look at my range bar chart to see if the order flow and momentum indicates I should do something in the area I am looking at.

Again,  there are no “rules”. Pete Steidlmayer described traders as “information processors” and that is exactly what we are. We look at all the available information, give more weight to the “appropriate” parts, and make a decision to do or not do something. We are continually processing information while we are looking at our screens. This why it is critical to focus on what we are doing and not allow any distractions. The other side of the coin is that we must take breaks to refresh ourselves.

 Again, quoting Pete, no one can operate at 100% efficiency 100% of the time so we must set up our information engine in a way that allows us to operate at, say,  70% efficiency and be ready to go to turbo mode when 100% is needed.

What all this boils down to for me, is the requirement to setup my charts with only the necessary inputs so I can get only the required information without overload and duplication.

I know some great Market Profile traders who use no other information. I am not one of those, as I need to get a higher percentage of winning trades. What Kiki and I do gives that high win rate while at the same time providing the benefits that Market Profile provides – context, scale out targets and the information needed to build strategies as the day unfolds.

I woke up today to see the ES already motoring so immediately switched to the Dow Euro 50 (ET) before the open, ready to buy if the order flow continued from yesterday. I have made a small tweak to the CVD to make it the same as the CVD I programmed in MultiCharts. It works better for me. Looks like U.S. traders are having a very quiet day unless they caught the ES trade before they went to bed - about 2.30am in London.

 

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Pete and Purdy

I first met Pete Steidlmayer when he come to London in the mid 1980s. He came to teach Market Profile in London for the first time. These were the days before CQG when the only Market Profile available ran on those early non colour Macs. I can't remember how exactly it happened, but it ended up that my Mac was the seminar display of MP. I was kind of in awe of Pete but when I met him I saw a great down to earth guy wearing chinos and old penny loafers (with the penny in them).

While we were chatting, Pete told me that while he was in London he wanted to buy a particular shotgun that was being sold at auction. Now Pete is a very, very successful trader and I had visions of him just bidding until he won the gun.

The next afternoon he was back at the seminar venue and I asked him how he liked his new Purdy shotgun. Pete said, "I didn't get it". I asked him why not and he said that there were too many initiating buyers and the price got so much above value, he would have rather been a seller than a buyer.

And that taught me a practical application of Market Profile.

And now for today's trades.

 

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Size DOES Matter

Kiki and I read Dr Brett Steenbarger's blog every Sunday as it deals with a lot of the "head" issues of trading. One of the most misunderstood things that impacts traders' heads, is trading too large a size for their emotional capabilities at that point in time.

One of the first things that I did when I started teaching Kiki, was to make sure that she had saved enough money to trade. In her case it was the equivalent of $10,000 US, to trade 3 contracts. Probably twice as much money as she really needed. For other markets like the YM it may be a little lower . How much you need in your account depends on your ability to "not care" if you lose it and for it to be large enough to carry you through the inevitable draw downs (losses) when you start. But it's important not to feel squeezed because you are under capitalised.

Its very important to start live trading with the least number of contracts that your methodology allows. It's 3 contracts in our case. When you start SIM trading, you should also only use that same minimum number size.

I usually say that you can go from 3 contracts to 6 contracts after you have made $5,000. Kiki is ahead of that target but is still trading 3 contracts,as that is what she is comfortable with. Some of us thrive on pushing ourselves, others need to go with the flow. Kiki surprised me when she told me that she still only wants to trade 3 contracts.  She tells me this even though she has learned her setups, validated her methodology, experienced risking real money and has lost the initial stress she felt when she switched to real money after months of SIM.  She thinks of the money she has made trading as her money not the market's money and doesn't want to give back any that she has made. I believe that you cannot become consistently profitable unless you reach this stage of relaxed trading, Kiki has, but there still must be some "head game", going on that I don't know about or she won't tell me about. It will be interesting to see when she decides to go from 3 to 6 contracts.

There has been great interest in the webinar. I love the great countdown clock Kiki put on at the top right hand corner of the blog. We will record the webinar for those that miss it.

Today's trade in the ES was relaxed as usual. We caught one very good trade and the others were average. There is probably more money to be made today but I'm tired, even after taking my usual nap.

 

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Fate of the Blue Ball....

The Blue ball has minimal development value for where I want to go with Urocket.
I was going to donate it to the Xprize to hang in their lobby. I talked to my accountant today and learned that I can't have an increase in basis for a self created asset, that's CPA for I won't get any kind of deduction if I donate it. Its basically intact, it would be 100% ready to fly with less than 8 hours of work so next time I'm out at FAR I will bring it home and fix it. Then I will fly it.

Without doing any paperwork I can fly it to 1199 ft AGL and back. To go higher than that I'll need an FAA waiver. So in the next few days I'll do a detailed model of what it can do and write a waiver request. I'll probably fly it in 60 to 90 days to max altitude (more than 10K less than 30Kft) and back to the pad. If anyone wants to fly an experiment on it when I fly it let me know.

• less than 5Kg,
• self powered ,
• 100% open public results
  

I'll probably let people on the blog vote for their favorite if I get more than one request.

Ten Point Buck

The second trade of the day was a Ten Point Buck. Although I've heard and used the expression for a few years, I had to ask my American wife where it came from in case it was nasty and didn't belong here. It's a hunting expression and describes a big male deer with 10 points on his antlers. So the second trade made 10 handles (points) per contract.

We scaled out of the first 1/3 as usual and then got a smell of a possible trend day. If you look at yesterdays' profile and the day before, the clues were there. I didn't have the room to put both the 24 hour and the RTH MP charts up but have a look at both if you can. Yesterday was a very tight day until the later part of the day. I split the day into 2 profiles and the breakdown with value accepted lower was a good clue. Then today the smoothed CVD turned to sell and didn't look like turning so we held on to the 2/3 until it turned.

 

Webinar Scheduled - Jan.16,2010

The free webinar with the Electroniclocal and MarketDelta has been scheduled for January 16,2010, starting at 8am/0800 Chicago time.(timezone converter on invitation). The link to register is here or copy this url into your browser:https://www2.gotomeeting.com/register/940225115

Looking forward to the webinar where we will be giving an overview of how I am teaching Kiki to trade, so get your questions ready.

Kiki is putting a countdown clock on the blog, but we'll also keep you posted by Twitter. This should really be fun. Looking forward to seeing everyone there.

Tom and Kiki

Which way is up?

I received an email asking about how I read order flow. I have talked a lot to Kiki about this and have mentioned it here in the blog, as its central to being a successful trader. I also said that being able to access the volume with the latest technology was the missing link to achieving a high percentage of winning trades which is important to me.

I’ll post some of the questions and observations from the email as they are very relevant. Kiki said she learned something here too.

The order flow that you were using on the floor are orders that haven't been executed yet, you were able to know the existence of these upcoming orders through reading other floor traders' activities (hand signs and such). Thus your main edge on the floor is to be able to see orders that will happen later, then front run them, right?  Not to just front run them but to see that there will be a change in momentum or that the strength of the momentum will change – often important in judging the possible length of vertical price movement.

However, when it comes to trading with pc, how do we get to know the existence of the upcoming orders or whether they are buy or sell order?  I use the two volume studies. They are very clear to me.

I'm not sure that market delta can help to answer the above questions or answer them with high probability, since market delta is a study based on trades (orders that have been executed). Yes, and you can read the strength and direction of the volume. One single trade does not mean much, but looking at a string of trades which have just happened , tells me a lot. MD is able to breakdown the volume into buying and selling and then show you the strength and direction of it. Add the momentum information from the CCIs or other indicator that you like and the chart talks.

For me, the resting  bids and asks on the DOM are useless as there are too many games played. The only thing I am interested in on the DOM is the bid and ask where we are trading, and sometimes those are not real too.

The two MD studies I use are Volume Breakdown and Cumulative Volume Delta (smoothed). There are lots of videos on the MD site showing how to set them up. The biggy is working out how to use them. This blog will point you in the right direction on how I use this information to teach Kiki to trade. I had some emails about the MD settings for the two volume indicators. Both use the Volume Breakdown indicator in MD and their settings are on the left. We plan to switch completely to MD and also use its chart trading facility when we have tested it fully and it is out of beta.

Another comment I have had is about FX trading. I traded currencies back in the early 1980s for about 6 months when it was not so fashionable. I have two things to say about the biggest market in the world:

There are two types of FX "brokers". The first type is an FX dealer who charges no commission and who takes the opposite side of your trade and has a vested interest in its outcome. Many of these dealers move their quotes around and people get stopped out or the spread between the bid and ask widens. The second type is a real broker who executes trades with banks or dealers and charges a commission.

Secondly, the FX markets do not publish any meaningful volume information.
So when I want to trade FX, I trade futures.


Quiet day today, only two trades for us.

 

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From Monday

I just finished setting up my charts in MarketDelta.  It was really quite easy.  I even did a little programming using their RTL with no problems, and I'm not a programmer by any means.

So from Monday, the charts will be Marketdelta. They are easier to print out as they have a white background.

Also,Kiki has twitterised me and she will tweet when the blog has been updated or there is some time sensitive information I want to pass along . You can follow me as electroniclocal. 

This is how I used to tweet in the 60's: tweet.

Trade to Win or Trade Not to Lose- that is the question

To paraphrase Mr Shakespeare, when you create your style, one of your choices is to Trade to Win or Trade Not to Lose. The two things sound very similar but are two opposite philosophies.

Yesterday, I had a comment about the lack of losing trades. I said I'm running at about 27% for losers.

That's the idea!

If you have a lot of losers, you need very big average winners. I can't trade like that. Most of the successful traders I know have low percentage of losers. That's one of the reasons why they are successful.

One of my earliest posts spoke about the importance to me of a high percentage of winning trades.I cannot emphasis this enough. For me, the head games I play with myself have a big part in my trading. I KNOW I cannot trade a method where I have a lot of losers and have to make them up with a big winner. I come from a floor environment where holding a trade for 15 minutes is a very long time. Trading from "upstairs", I have always had to fight the urge to take profits quickly. This is one of the reasons why I nearly always scale out of the first 1/3 of my position at 2 points (ES) or 10 ticks (Dow Euro). I know that often this is too early, but it helps me make the most out of the other 2/3. I feel like I've already won. Instant gratification. A trick of the mind, of course, but it works for me as an experienced trader and for Kiki as the beginner trader. 

I learned Market Profile from Pete Steidlmayer and then Jim Dalton in the early 1980s. Luckily, shortly after that I found range bars . This took a lot of the chop out of the market, as I now had a context and as good a read on vertical development as was possible. My last improvement was being able to see order flow electronically. This took my winning percentage to where it is today. I trade not to lose by having setups that filter out the losers. Within that, I trade aggressively with as early an entry as my plan permits.

As I said in a couple of the comments, I have a number of other setups that trade the peaks and troughs. Because it's top and bottom picking, they are a lower percentage trade, usually, but with higher average wins. I plan to work on these with Market Delta so I can bring the win rate up to the other setups.

As I said, for the time being Kiki only trades the setups you see on the blog. These are pretty stress free and should be with almost NO HEAT unless they become losers, which is about 27% of our trades. This is why I said that I think anyone can be taught to trade if they have no fear of losing by using extensive SIM trading and then position under sizing versus account size.

Today's trading was very smooth. The hardest part for Kiki today was holding her last 1/3 in the last trade. I must admit I had to butt in and make sure she held on.

 

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NUMB3RS

It's interesting to look at the statistics of your trading at the end of the month. You can learn a lot from it - beginner or seasoned trader.  I taught Kiki to do her stats and track things like average win to average loss ratio (average win divided by average loss), percentage of trades that are profitable and things like that. She uses it to track her progress. I use it to track my progress. We also use the numbers to decide when to increase our size.

One of the features of range bars is (as I have said before), you know your risk per trade instantly if you use a number of bars as your stop loss. Having consistent risk per trade is as important for me as looking at the average win and actual average loss.

Over an average month of, say, 21 trading days, I find that I get 2 or 3 days of below average profits, 1 or 2 extremely profitable days and the rest fall into an average profit range.

Watching these sort of statistics is important to ensure you are keeping your discipline. If your number profile changes significantly, better or worse, you need to look and find out why.

Today's trading day was a quiet-ish day for us.

 

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